The Cleaning Doctor NSW Pty Ltd v Fonseca

[2023] NSWCA 110

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

The Cleaning Doctor NSW Pty Ltd v Fonseca [2023] NSWCA 110

Hearing dates:

22 and 23 November 2022

Date of orders:

26 May 2023

Decision date:

26 May 2023

Before:

Brereton JA at [1]
Mitchelmore JA at [23]
Simpson AJA at [187]

Decision:

1. The appeal is dismissed.

2. The cross-appeal is dismissed.

3. The appellants are to pay the respondents’ costs of the appeal.

Catchwords:

EQUITY – trusts and trustees – express trusts – resulting trusts – constructive trusts – where property purchased by the second appellant was later transferred to the second respondent – whether, pursuant to an agreement between the second appellant and the second respondent, the property was held on trust for the second appellant – whether the transfer of the property to the second respondent occurred without consideration for the second appellant’s equity or for false consideration – whether the transfer of the property to the second respondent was a sham giving rise to a resulting trust in favour of the second appellant – whether the later transfer of the property to a third party to release mortgages over properties belonging to the respondents impressed those properties with constructive trusts in the second appellant’s favour

BANKING AND FINANCE – banks – bank accounts – where bank account was opened in the name of the first appellant, with the second appellant as sole signatory – where second appellant provided first and second respondents with signed blank cheques, a debit card and online access for the bank account – where first and second respondents and other persons made withdrawals from the bank account – whether the second appellant was the legal and beneficial owner of the money in the bank account – whether the first and second respondents bore the onus of proving their authority to make withdrawals from the bank account

RESTITUTION – nature of restitutionary liability – common counts – money had and received – whether primary judge failed to decide appellants’ claim as to money had and received – whether primary judge erred in finding that the appellants did not discharge the onus of proving that the withdrawals from the bank account were made without authority

TORTS – interference with goods – conversion – where first and second respondents withdrew sums of money from a bank account in the first appellant’s name by the cashing of cheques – whether primary judge erred in finding that the appellants did not discharge their onus of proving that the first and second respondents made the withdrawals without authority and therefore converted the cheques to their use and/or the use of other respondents

Legislation Cited:

Cheques Act 1986 (Cth), ss 18, 36, 71

Conveyancing Act 1919 (NSW), s 44

Cases Cited:

Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14

Bosanac v Commissioner of Taxation (2022) 96 ALJR 976; [2022] HCA 34

Chapple v Electrical Trades Union [1961] 3 All ER 612

Coshott Family Pty Ltd v Lyons [2022] NSWCA 216

Currie v Dempsey (1967) 69 SR (NSW) 116

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48

Equiticorp Finance Ltd v Bank of NZ (1993) 32 NSWLR 50

Films and Casting Temple v Malla [2013] NSWCA 377

Finlay v Silcon Industries Pty Ltd [2003] SASC 236

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

Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 1412

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Lee v Lee (2019) 266 CLR 129; [2019] HCA 28

Pettitt v Pettitt [1970] AC 777

Pinson v Lloyds and National Provincial Foreign Bank Ltd [1941] 2 KB 72

Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd (2017) 52 VR 664; [2017] VSC 101

Suvaal v Cessnock City Council (2003) 77 ALJR 1449; [2003] HCA 41

Tobin v Ezekiel (2012) 83 NSWLR 757; [2012] NSWCA 285

Watson v Foxman (1995) 49 NSWLR 315

Wirth v Wirth (1956) 98 CLR 228; [1956] HCA 71

Category:

Principal judgment

Parties:

The Cleaning Doctor NSW Pty Ltd (ACN 139 483 926) (First Appellant)
Ali Itawi (Second Appellant)
Jeffrey Alexis Fonseca (First Respondent)
Orlando Fonseca (Second Respondent)
Vilma Fonseca (Third Respondent)
Joselyn Fonseca (Fourth Respondent)
7/49-51 Stanley Street Pty Ltd (ACN 144 069 787) (Fifth Respondent)
147 Holt Road Pty Ltd (ACN 602 121 040) (Sixth Respondent)

Representation:

Counsel:
M Ashhurst SC, Q Rares (Appellants)
F Carnovale (Respondents)

Solicitors:
McEvoy Legal (Appellants)
Antunes Lawyers (Respondents)

File Number(s):

2022/00092292

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of NSW

Jurisdiction:

Equity

Citation:

[2022] NSWSC 253; [2022] NSWSC 389

Date of Decision:

11 March 2022; 5 April 2022

Before:

Williams J

File Number(s):

2015/158796

HEADNOTE

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

The second appellant, Ali Itawi, had been engaged in a business relationship with the second respondent, Orlando Fonseca, since 1997. In the years that followed, Ali, in his capacity as a manager at various property services companies, routinely engaged businesses owned by Orlando for the provision of cleaning and maintenance work.

In 2001, Ali purchased a property in Bardwell Valley, NSW (“the Bardwell Property”). In 2003, Ali transferred the Bardwell Property to Orlando. In 2015, Orlando transferred the Bardwell Property to a third party, in exchange for the release of mortgages over properties belonging to Orlando and his family (including his son, Jeffrey, his wife, Vilma, and his daughter, Joselyn, the first, third and fourth respondents respectively).

The first appellant, The Cleaning Doctor NSW Pty Ltd (“Cleaning Doctor”), was incorporated in 2009, with Ali as the sole director and shareholder. A bank account was established in the name of Cleaning Doctor (“the CD Account”) in 2009, with Ali as the sole signatory. Ali provided Orlando with a signed debit card and a book of signed blank cheques. Ali subsequently provided Orlando with two further books of signed blank cheques.

The appellants commenced proceedings in the Equity Division seeking relief in respect of two claims. The first claim, which concerned the CD Account, alleged that Orlando and Jeffrey, among others, withdrew the sum of $2,695,078.51 from the CD Account without authorisation. The appellants sought an account of that money, which they claimed was stolen or obtained by fraud, deceit, or misleading and deceptive conduct. It was also the basis for a restitutionary claim for money had and received. In so far as the withdrawals were made by the cashing of cheques, the appellants also brought a claim in tort for conversion of the cheques by the first and second respondent.

The second claim, which concerned the Bardwell Property, alleged that Ali had transferred the Property to Orlando pursuant to an agreement that Orlando would hold the Property on trust for Ali, and that Orlando’s transfer of the Property to a third party in 2015 was in breach of that trust. Alternatively, the appellants claimed that the Bardwell Property was subject to a resulting trust in Ali’s favour, on the basis that its transfer to Orlando was a sham, and it was sold for “false consideration”. The appellants sought relief on various bases, including that the traceable proceeds of the 2015 sale of the Bardwell Property were held on constructive trust for Ali.

The primary judge rejected the evidence of both Orlando and Ali on disputed matters, including as to the circumstances surrounding the transfer of the Bardwell Property and the creation and use of the CD Account, save for where it was supported by documentary evidence or corroborated by credible witnesses. Her Honour described both men as highly unsatisfactory witnesses who lied if it served their interests and gave inconsistent evidence. Her Honour ultimately dismissed both claims on the basis that the appellants had failed to discharge the burden of proof.

In this Court, the appellants challenged the primary judge’s conclusion in respect of both claims. As to the Bardwell Property claim, they contended that her Honour erred in failing to find that the Bardwell Property was held on trust for Ali. They also contended that her Honour erred in otherwise failing to find that Orlando’s transfer of the Property to a third party, to release mortgages over properties belonging to the respondents, impressed those properties with trusts in Ali’s favour.

As to the Cleaning Doctor claim, the appellants contended that the primary judge incorrectly applied the burden of proof and therefore failed to find that Jeffrey and Orlando were not authorised to withdraw money from the CD Account. The appellants also contended that the primary judge mischaracterised the respondents’ case as involving a claim that Jeffrey and Orlando had general authority to withdraw money when that was not pleaded, and her Honour erred in determining the claim on that basis. The appellants further alleged that the primary judge failed to decide their money had and received claim and their claim of conversion of cheques. In so far as the primary judge found that the money in the CD Account did not legally or beneficially belong to Cleaning Doctor, the appellants argued that neither party raised this as an issue and her Honour should not have made that finding.

The respondents filed a cross-appeal and a notice of contention. By their cross-appeal, they argued that the primary judge erred in refusing leave to amend their defence to rely on the Cheques Act 1986 (Cth) in answer to the Cleaning Doctor claim. The notice of contention advanced two arguments in relation to the Bardwell Property claim which the primary judge found it unnecessary to decide, the first relying on s 44 of the Conveyancing Act 1919 (NSW) and the second relying on a deed of release and loan documentation in the context of the transfer of the Bardwell Property to a third party.

The Court (Mitchelmore JA, Brereton JA and Simpson AJA agreeing) held:

As to the Bardwell Property claim:

1. The primary judge did not err in concluding that Ali did not discharge the burden of proof necessary to establish that Orlando held the Bardwell Property on trust for Ali, in the sense that she did not have a sense of actual persuasion of that fact after taking into account all of the relevant evidence: [133]. Ali failed to prove that his explanation for the transfer of the Bardwell Property to Orlando was any more probable than other potential explanations which did not involve the Property being held on trust for him: [6]-[8].

   John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 considered.

2. The primary judge did not accept the evidence of Ali on any disputed matter, including the circumstances surrounding the purchase and subsequent transfer of the Bardwell Property, except where that evidence was corroborated by documentary evidence or a reliable witness. In circumstances where that finding was not challenged on appeal, Ali could not rely in the appeal on evidence which her Honour rejected at least in part on that basis : [2], [114]-[120], [132].

3. The primary judge also did not err in failing to find that Orlando’s transfer of the Bardwell Property to a third party to secure releases of mortgages over properties belonging to the Fonseca family impressed those properties with trusts in Ali’s favour: [133].

As to the Cleaning Doctor claim:

1. The primary judge did not err in concluding that the onus was on the appellants to establish that Jeffrey and Orlando made unauthorised withdrawals from the CD Account, and that they failed to discharge the necessary burden of proof in that regard: [14], [17]-[20], [155]-[159].

   Coshott Family Pty Ltd v Lyons [2022] NSWCA 216 applied; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48; Currie v Dempsey (1967) 69 SR (NSW) 116 considered.

2. The appellants’ case as to the limited scope of authority conferred on Orlando and Jeffrey rested primarily on the uncorroborated evidence of Ali, which was inherently improbable, contrary to objective evidence, and impacted by the adverse credibility findings. The respondents made no concession, express or implied, as to lack of general authority: [17], [151]-[153].

3. The conclusion that the appellants had failed to discharge their onus of proving that the withdrawals from the CD Account were made without authority was determinative of the money had and received claim and the claim in conversion. Her Honour’s conclusion in that regard did not involve a reversal of the burden of proof, or a mischaracterisation of the respondent’s case: [15], [160].

As to the cross-appeal and the notice of contention:

1. Given the conclusions reached in respect of the Bardwell Property claim and the Cleaning Doctor claim, it was not necessary to determine the cross-appeal or the notice of contention: [134], [161].

Judgment

1. BRERETON JA: I have had the great benefit of reading in draft the judgment to be delivered by Mitchelmore JA, with which I agree. In the following supplementary remarks, which adopt the same defined terms as her Honour’s judgment, I summarise my essential reasons for reaching that conclusion.

Ali’s claims to the Bardwell Property

2. Ali’s claim for an express trust in respect of the Bardwell Property depends on a conversation, the only evidence of which was given by Ali. In circumstances where Ali’s evidence was disbelieved, for reasons which included the primary judge’s assessment of credit informed at least in part by her position of advantage in seeing and hearing him, it cannot succeed.

3. The claim for an implied or resulting trust depends on the proposition that no consideration was paid for Ali’s equity in the Bardwell Property, and/or that the stated consideration of $808,000 was a “false consideration”.

4. The suggestion of a “false consideration” invokes the statement of Dixon CJ in Wirth v Wirth: ^[1]

“But it must be remembered that if the consideration expressed was one agreed upon though it was in fact unpaid or unsatisfied, the consequence is not a resulting trust but a lien in favour of the grantor. If on the other hand it is a false consideration, the reason for inserting it will bear directly upon the true character of the transaction and from that it will appear whether or not it was intended to transfer the beneficial interest as well as the legal estate. The present is not a case in which one can be sure that the consideration expressed was a mere sham. It is at least clear that before a presumption of a resulting trust can arise upon a transfer expressing a consideration, it must be shown that the consideration was false and the transfer was intended as a voluntary assurance. I am not prepared to say that the meagre evidence on the subject satisfactorily establishes so much.”

1. (1956) 98 CLR 228 at 236-7; [1956] HCA 71.

5. As the primary judge observed in a passage which is endorsed below by Mitchelmore JA, ^[2] the reference in this passage to a “false consideration” is “a reference to consideration that is expressed in a contract or transfer notwithstanding that the parties intend that no consideration will move from the transferee”. As the primary judge concluded, this was not such a case, because the consideration of $808,000 was not false consideration in that sense. ^[3] Manifestly, consideration was given for the transfer: Orlando procured the discharge of Ali’s mortgage indebtedness, and himself obtained a mortgage loan to do so.

   2. J [525]; below at [146].

   3. J [526].

6. In my view there are multiple potential explanations of the established facts concerning this transaction consistent with the view that Ali would not retain a beneficial interest, though he would be permitted to continue to occupy the property. One is that the $808,000 was inserted in the contract on the basis of a valuation for stamp duty purposes, although the parties intended that only some lesser sum, including the amount required to discharge Ali’s mortgage, would actually be paid. If so, the consideration was “false”, but not in the sense that the concept is used by Dixon CJ: there was still a real consideration, being the discharge of Ali’s mortgage. As the primary judge said, there is no notion of consideration for the vendor’s equity, as distinct from the property – at least unless the transfer is subject to mortgage. This contract was not, and even if the “true” consideration was only the discharge of the mortgage, it was consideration nonetheless. The purchaser was not buying Ali’s equity, but the entire property unencumbered, which he then re-mortgaged. That it might have been at an undervalue does not give rise to a resulting trust to the extent of the undervalue. Sales may occur at an undervalue (or overvalue) for any number of reasons. A sale at an undervalue is nonetheless a sale, not a gift. It is a transaction supported by consideration. The law eschews examining the adequacy of the consideration; it is of course trite that the inadequacy of a propounded consideration by comparison with the value of the promise which it is said to support is no ground of objection to its sufficiency and validity. ^[4] A sale at an undervalue is not divisible into a sale of part of the subject matter for full value and a gift of the balance.

   4. See, for example, Alexander v Rayson [1936] 1 KB 169 at 182; [1935] All ER Rep 185 at 191, CA (Greer, Romer and Scott LJJ); Barba v Gas & Fuel Corp of Victoria (1976) 136 CLR 120 at 131-132; [1976] HCA 60 at [14] (Gibbs J, Stephen and Jacobs JJ agreeing); Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526 at 545 (Hirst J) QB.

7. Another potential explanation is that the $808,000 was the true consideration, and adjustments were allowed between the parties which resulted in an outstanding balance of $58,078.51 remaining payable by Orlando to Ali.

8. It is unnecessary to decide which of these or any other potential explanation is to be preferred, beyond concluding that Ali’s case (that it was intended that he retain the beneficial interest) is not more probable than the others combined. Indeed, it is inherently implausible that Orlando would discharge Ali’s mortgage upon taking the transfer, and assume personal liability to a new mortgagee to do so, and then himself pay the mortgage instalments, if he was to have no beneficial interest in the property. And many of the matters relied upon as suggestive or indicative of an intention that Ali have or retain a beneficial interest, even if accepted, are equivocal. In particular, even if Ali undertook renovations to the Bardwell Property while Orlando was the registered proprietor, that is not inconsistent with what a person permitted to occupy the property indefinitely might do. And if in response to the loss of the Bardwell Property in March 2015, Orlando promised to provide an alternative house for Ali and Laura, that is not inconsistent with a promise of premises they could occupy, as distinct from beneficial ownership, consistent with the promise that he could occupy the Bardwell Property. On the other hand, that Orlando borrowed money on the security of the Bardwell Property while he was the registered proprietor is consistent only with Orlando being beneficially entitled to it. So too is Ali’s evidence that after the transfer he no longer paid the mortgage instalments but Orlando did so:

“… Orlando paid after he bought the house, the mortgage. I didn’t have to pay after. Before … Before I paid it, after that I didn’t have to pay. He has to pay.’’

9. Ali’s claim in respect of the Bardwell Property, on either basis, therefore rightly failed.

Cleaning Doctor’s claims

10. Cleaning Doctor propounded three claims in respect of the money subtracted from its account via the cheques completed and presented by Orlando and Jeffrey. The first was for Jeffrey and Orlando to account for the money they received from the CD Account, ^[5] reliant on Black v S Freedman & Co. ^[6] The second was a restitutionary claim, to recover the money as money had and received by the defendants to the use of Cleaning Doctor. ^[7] The third was for damages for conversion of the cheques used to make withdrawals from the CD Account, and the notes and coins paid to the recipient on the occasion of each withdrawal. ^[8]

    5. Plaintiffs’ closing submissions, 25 November 2020 [140]-[141], [162]-[164]; ASOC [17]-[41] and claim 9.

    6. (1910) 12 CLR 105 at 110; [1910] HCA 58 (O’Connor J).

    7. Plaintiffs’ closing submissions, 25 November 2020 [142]-[149]; ASOC [42].

    8. Plaintiffs’ closing submissions, 25 November 2020 [150]-[155]; ASOC [43]-[50] and claim 1.

10. Prefatory to each of those three claims, Cleaning Doctor pleaded: ^[9]

“20   Jeffrey was not authorised by Ali to withdraw that money from the    Cleaning Doctor’s Bank Account.

21   Orlando was not authorised by Ali to withdraw that money from the    Cleaning Doctor’s Bank Account.

…

25   Mr Duran was not authorised by Ali to withdraw that money from the    Cleaning Doctor’s Bank Account.

26   Mr Duran was instructed by Jeffrey and or Orlando to withdraw that    money from the Cleaning Doctor’s Bank Account.”

9. ASOC [20]-[21], [25]-[26].

12. To this, the defendants:

1. simply admitted the allegation in [26]; ^[10]

2. simply denied the allegations in [20] and [21]; ^[11]

3. to the allegation in [25], pleaded that: ^[12]

“To the extent that Mr Duran made withdrawals he was was [sic] acting on the instructions of, and as agent for, Orlando and/or Jeffrey both of whom were authorised by Ali and therefore Mr Duran was impliedly authorised by Ali. The defendants otherwise deny the paragraph.”

10. Amended Defence [1].

11. Amended Defence [3].

12. Amended Defence [4].

13. As the primary judge observed: ^[13]

“By delivering the signed blank documents to Orlando, Ali plainly authorised Orlando to complete the documents so as to create “cheques” within the meaning of the Cheques Act that would operate as an order to pay when presented to the bank. That is the only available inference and Cleaning Doctor did not submit to the contrary. It is the scope of the authority that is in dispute.”

13. J [537].

14. Thus the essential dispute was not whether there was any authority, but the scope of the authority. In circumstances where her Honour was not persuaded to accept either Ali’s version or that proffered by Orlando, the critical question on appeal was who bore the onus on the question of authority. Cleaning Doctor appeared to accept, that, at least in relation to the first basis of its claim, it initially bore the legal onus of negating authority, ^[14] but argued that it was relieved of that onus in respect of any general authority by a supposed admission that there was no general authority, but only a limited authority, which was not accepted by the primary judge. However, it appeared to contend that, in respect of the claims in restitution and conversion, the defendant bore the onus, submitting that “a plaintiff must prove that the defendant took money from the plaintiff’s account … The burden then shifts to the defendant to prove they were authorised to take the money, or that it is not inequitable that they retain it.” ^[15] Reference was made to authorities which held that it was for the defendant to a restitutionary claim to prove repayment, ^[16] or that retention was not inequitable. ^[17]

    14. See for example Appeal Tcpt, 22 November 2022, p 18(40)-(41). This is consistent with Coshott Family Pty Ltd v Lyons [2022] NSWCA 216 (“Coshott”). In written submissions, the appellants invoked R v Oliver [1944] 1 KB 68 (in which a Divisional Court held that on a charge of supply sugar without a licence, it was for the defendant to prove lawful authority). In R v Edwards [1975] QB 27 at 40; [1974] 2 All ER 1085 at 1095 (Lord Widgery CJ, Lawton LJ and Ashworth J), it was said that this exception to the rule that the prosecution must prove every element of an offence was confined to offences arising under enactments which prohibit the doing of an act, save in specified circumstances or by persons of specified classes or with specified qualifications or with the licence or permission of specified authorities, and that whenever the prosecution seeks to rely on this exception, the court must construe the enactment under which the charge is laid. Only if the true construction is that the enactment prohibits the doing of acts, subject to provisos, exemptions and the like, then the prosecution can rely upon the exception. See also R v Hunt [1987] AC 352; [1987] 1 All ER 1; Director of Public Prosecutions v United Telecasters Sydney Ltd (1990) 168 CLR 594; [1990] HCA 5; cf Dreikurs v Waring (1956) SR (NSW) 320; (1956) 73 WN (NSW) 242, which can no longer be regarded as providing the correct explanation. Typically a provision that creates an offence for certain conduct “without reasonable cause” or “lawful excuse” will shift only the evidential and not the legal burden to the defendant: In the Marriage of Sutcliffe (1988) 12 Fam LR 794 at 797-798 (Nicholson CJ, Strauss and Nygh JJ). This principle cannot assist Cleaning Doctor: first, it depends on construction of the provision creating the offence evincing an intention to reverse the onus, and there is no relevant provision here; and secondly, in any event, this was not a case in which it was unlawful for the defendants to deal with the blank cheques unless they brought their dealings within an exception: they were at liberty to deal with them except to the extent that there was some limitation.

    15. Appellant’s written submissions at [16].

    16. Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 51.

    17. Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd (2017) 52 VR 664; [2017] VSC 101 at [276] (Hargrave J (as his Honour then was)); AFSL v Hills Industries (2014) 253 CLR 560; [2014] HCA 14 at [66] (Hayne, Crennan, Kiefel, Bell and Keane JJ).

15. In my opinion the appellants misstate the position. No doubt in the case of money received by way of a loan, the defendant bears the onus of proving that it has been repaid. But the plaintiff does not cast that onus on the defendant only by proving payment; the plaintiff must also prove that the payment was by way of loan (and not a gift, or a price). No doubt in restitutionary claims, defendants bear the onus of showing that it is not inequitable that they retain the benefit – whether on account of change of position or otherwise. But again, the plaintiff does not cast that onus on the defendant merely by proving payment; the plaintiff must also prove the qualifying or vitiating factor which raises the prima facie claim for restitution: whether it be mistake, failure of consideration, lack of authority, or otherwise. ^[18] Merely by providing that it has made a payment, or that money has been taken from its account, does not without some additional vitiating factor found a claim for restitution. ^[19]

    18. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379; [1992] HCA 48 at [47] (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ); Coshott at [20] (Kirk JA; Meagher JA and Griffiths AJA agreeing).

    19. See Coshott at [53]-[56] (Kirk JA; Meagher and Griffiths AJA agreeing).

16. Likewise, in a claim for conversion, it does not suffice to show that the plaintiff has delivered property to the defendant; it must be proved that the circumstances were such that the plaintiff retained an immediate right to possession. Delivery of a blank cheque to a recipient does not of itself import retention of an immediate right to possession of it; to the contrary. In other words, the plaintiff has to prove the terms, express or implied, upon which the delivery was made.

17. In this case, the asserted vitiating factor for the purposes of the restitutionary claim was the alleged lack of authority. The asserted term of delivery of the cheque book constraining the use that could be made of it was that the cheques would be used for the limited purpose of paying the mortgage. Thus her Honour was right to say: ^[20]

“In those circumstances, each of Cleaning Doctor’s causes of action referred to at [392]-[399] above requires Cleaning Doctor to establish on the balance of probabilities that the scope of that authority did not extend to the completion of each cheque with the amount specified on the cheque made payable to cash, and the withdrawal of those amounts by presentation of the completed cheques. Paragraphs 20 to 22 of the plaintiffs’ pleading correctly reflect that the alleged lack of authority is an element of Cleaning Doctor’s claims.”

20. J [538].

18. It is plain from the pleadings extracted above that the allegation that the withdrawals were made without authority was simply denied. That of itself amounts to a positive assertion that they were authorised. ^[21] It does not appear that any particulars of the “pregnant negative” implicit in that denial were sought, as they could have been, if it was desired to clarify and confine the scope of the defence. ^[22] Absent such a limitation, the onus remained on Cleaning Doctor to negate authority, and that was not confined to negating the limited authority of which the defendants gave express evidence. That cannot have been a surprise to the appellants, given the provision to Orlando of books of signed blank cheques and the debit card.

    21. The assertion in [4] of the defence that Orlando and Jeffrey were authorised by Ali assumes the preceding denials of lack of authority; it was not a free-standing positive pleading of authority, which was not required.

    22. See Pinson v Lloyds and National Provincial Foreign Bank Ltd [1941] 2 KB 72 at 83-84 (Stable LJ, Goddard LJ agreeing, Scott LJ dissenting), CA; Chapple v Electrical Trades Union [1961] 1 WLR 1290 at 1293; 3 All ER 612 at 615 (Pennycuick J); Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 1412 at [9] (Brereton J).

19. Insofar as there are suggestions in some cases that where a party must prove a lack of authority, and the other party is better placed to contradict it, the other may bear an evidential burden to support the existence of authority, ^[23] that does not assist the appellants here, where it was plain and not in issue that there was some authority, as was implicit in the provision of the signed blank cheques and debit card, such as amply to discharge any evidential burden. In those circumstances, Cleaning Doctor had to prove that the cheques were used outside the scope of that authority, and it did not do so merely by negating the limitation for which the defendants contended; it had to show what was the relevant limitation. As counsel for the respondents rightly submitted to the primary judge: ^[24]

“HER HONOUR: Have I got Orlando’s evidence about that limitation? Isn’t that the plaintiff’s point? That the defendants themselves have put into evidence a limitation on their authority?

CARNOVALE: But that’s not [Ali’s] limitation. If your Honour disbelieves Orlando’s evidence, it doesn’t transform the situation into one where the withdrawal was made contrary to [Ali’s] authority. [Ali] has to establish what the authority was, what the limitation was, before your Honour can find that whatever Orlando did was contrary to authority. …”

23. See, for example, Finlay v Silicon Industries Pty Ltd [2003] SASC 236 at [96] (Doyle CJ, Nyland and Lander JJ agreeing).

24. Tcpt, 3 December 2020, p 909(5)-(15).

20. For the reasons given by the primary judge, ^[25] such authority was not negated. In this respect, her Honour did not affirmatively find a case which was not advanced of express general authority; her Honour’s statement “whilst there is no evidence of a conversation between Ali and Orlando in which Ali (on behalf of Cleaning Doctor) expressly conferred general or unlimited authority on Orlando to make withdrawals from the CD Account, the objective evidence of Ali’s conduct during the period after the incorporation of Cleaning Doctor and the opening of the CD Account points strongly to the conclusion that Cleaning Doctor did confer such authority on Orlando” ^[26] is to be understood, in the context of the surrounding paragraphs, as a statement to the effect that in the context there described, it was no easy task to negate the possibility that there was general authority.

    25. At J [544]-[553].

    26. At J [550].

21. Cleaning Doctor’s claim therefore also rightly failed.

22. I agree with the orders proposed by Mitchelmore JA.

23. MITCHELMORE JA: The appellants brought proceedings in the Equity Division seeking relief in respect of two claims, both of which were dismissed. The first claim concerned the first appellant, The Cleaning Doctor NSW Pty Ltd (“Cleaning Doctor”), of which the second appellant, Ali Itawi, was the sole director and shareholder. The appellants alleged that between October 2009 and October 2012, $2,695,078.51 was stolen from Cleaning Doctor’s bank account (“the CD Account”) by the second respondent, Orlando Fonseca, the first respondent, Jeffrey Fonseca, and others on the instructions of Orlando and/or Jeffrey.

24. The second claim related to Mr Itawi and a property that he purchased in 2001 which was located in Bardwell Valley, NSW (“the Bardwell Property”). Mr Itawi alleged that in January 2003, he transferred the Bardwell Property to Orlando Fonseca, pursuant to an agreement by which Orlando would hold the Property on trust for him. He further alleged that, in breach of that trust, Orlando transferred the Bardwell Property in 2015 to a third party to discharge debts which were secured against a number of properties belonging to members of his family. Mr Itawi advanced an alternative claim to a resulting trust on the basis that the sale of the Bardwell Property was a sham, sold for what he contended was “false consideration”. The relief sought included that the traceable proceeds of the benefits received by members of Orlando’s family were held on constructive trust.

25. The principal protagonists in the events the subject of the two claims were Ali and Orlando. They gave highly divergent accounts of the circumstances surrounding the transfer of the Bardwell Property and the creation of, and the purpose of the payments into and withdrawals from, the CD Account. The documentary record concerning both events could at best be described as incomplete. The primary judge rejected the evidence of Ali and Orlando on disputed matters, save for where it was supported by documents or corroborated by credible witnesses, describing them as highly unsatisfactory witnesses who lied if it served their interests and whose evidence was riddled with inconsistencies.

26. The appellants contend that the primary judge’s rejection of Ali and Orlando as credible and reliable witnesses, being the “central plank” of her Honour’s reasons, necessitated a conclusion in their favour on both claims. Instead, her Honour dismissed the claims, concluding that the appellants had not discharged the burden of proof as to either.

27. In appealing Mr Itawi’s claim, the appellants contend that the primary judge erred in failing to find that the Bardwell Property was held on trust for Mr Itawi (Ground 1). They also contend that her Honour erred in otherwise failing to find that Orlando’s transfer of the Property to a third party, to release mortgages over properties belonging to the respondents, impressed those properties with trusts in Mr Itawi’s favour (Ground 2).

28. In their appeal on the Cleaning Doctor claim, the appellants contend that the primary judge reversed or otherwise inappropriately applied the burden of proof (Ground 3), and that by reason of that error, her Honour failed to find that Jeffrey and Orlando Fonseca were not authorised by Ali Itawi to withdraw money from the CD Account (Ground 4). The appellants also contend in that context that the primary judge mischaracterised the respondents’ case as involving a claim that Jeffrey and Orlando had general authority to withdraw money from the CD Account when that was not pleaded; and her Honour erred in determining the claim on that basis (Ground 8). The appellants further allege that the primary judge failed to decide their money had and received claim and their claim of conversion of cheques (Grounds 6 and 7). In so far as the primary judge found that the money on deposit in the CD Account did not legally or beneficially belong to Cleaning Doctor, the appellants contend that neither party raised this as an issue and her Honour should not have so found (Ground 5).

29. The respondents have filed a cross-appeal and a notice of contention. By their cross-appeal, the respondents contend that the primary judge erred in refusing them leave to amend their defence to rely on provisions of the Cheques Act 1986 (Cth) in answer to Cleaning Doctor’s claim. The notice of contention advances two arguments in respect of Mr Itawi’s claim which the primary judge found it unnecessary to decide, the first relying on s 44 of the Conveyancing Act 1919 (NSW) and the second relying on a deed of release and loan documentation in the context of the transfer of the Bardwell Property to a third party, Goodman Court Pty Ltd (“Goodman Court”).

30. For the reasons below, I consider that the appeal should be dismissed. In light of that conclusion, it is unnecessary to consider the cross-appeal or the notice of contention.

31. As the individual respondents share the same surname, in what follows I will refer to them by their first names, without intending any disrespect. For the avoidance of confusion, I have adopted the same approach in respect of the second appellant and other individuals involved in the proceedings.

The proceedings before the primary judge

32. The primary judge observed that “the affidavit and documentary evidence adduced by both parties was extensive”: J [18]. Her Honour’s reasons, which run to 563 paragraphs, incorporate a detailed summary of the evidence of the parties, adopting a chronological sequence, before addressing the credibility of the witnesses, making factual findings, and considering and determining the appellants’ claims.

33. The witness evidence included multiple affidavits of the principal protagonists, Ali (eleven affidavits), Orlando (nine affidavits), Jeffrey (eleven affidavits) and Orlando’s wife, Vilma (seven affidavits). Her Honour described the evidence of these witnesses, which included “conversations that occurred as long ago as 1997 and 2001”, as evolving over the course of their affidavits: J [20]. Her Honour referred in this context to authorities such as Watson v Foxman (1995) 49 NSWLR 315: see J [415]-[419].

34. In addition to internal inconsistencies in the respective affidavits of the key protagonists, her Honour noted that there were inconsistencies between their affidavit evidence and their oral evidence, as well as inconsistencies within their oral evidence: J [20]. In summarising the evidence, her Honour noted such inconsistencies without seeking to reconcile them. Ultimately, however, the nature and extent of the inconsistencies were fatal to her Honour’s acceptance of the evidence of any of the key witnesses.

35. The primary judge described Ali and Orlando as “most unsatisfactory witnesses”: J [419]. Ali’s evidence was “riddled with irreconcilable inconsistencies”, while Orlando’s evidence was “plagued by inconsistencies”: J [420], [424]. Each of them “lied about significant matters relevant to these proceedings where he considered that it was in his interests to do so”: J [427]. Her Honour did not accept the evidence of Ali or Orlando about any disputed matter, except where that evidence was “inherently probable, corroborated by a contemporaneous document or the evidence of a reliable witness, or where the evidence was contrary to his own interests”: J [430].

36. The primary judge also did not regard Orlando’s son, Jeffrey, as a reliable witness who could corroborate Orlando’s evidence, describing his recollection of events as poor and finding that he was also willing to lie where he perceived that it was in his or his family’s interests to do so: J [431]-[434]. Her Honour reached the same conclusion regarding the evidence of Ali’s wife, Laura: J [436].

37. Rather than duplicate the primary judge’s comprehensive and detailed summary of the evidence, I will first provide some background to the claims as to which there was no dispute at first instance or there is now no challenge to the primary judge’s findings. I will then identify the claims which remain in issue in the appeal and address her Honour’s findings relevant to those claims and her Honour’s resolution of them.

Matters of context and common ground

Business relationship between Ali and Orlando

38. Orlando and Ali were introduced in 1997. Orlando operated cleaning and maintenance subcontracting businesses under various business names and through various corporate entities, which her Honour referred to collectively as the “Fonseca businesses”: J [11]-[13]. At the time of their introduction, Ali was an Area Manager for Prestige Property Services (“Prestige”) and had the authority to decide which subcontractors to engage on behalf of Prestige to work within his area: J [22]-[23]. One of Orlando’s businesses was engaged as a subcontractor by Prestige to provide cleaning services: J [22].

39. Orlando’s cleaning business was one of the main subcontractors to whom Ali allocated work while he was at Prestige: J [26]. Ali continued to allocate work to the Fonseca businesses when another cleaning contracting company, Tempo, took over the business of Prestige in 2002; and when Ali moved into a similar role at Total Building Management (“TBM”), in 2005: J [87], [133]-[136].

40. During Ali’s time at Prestige, Tempo and TBM, Orlando periodically caused cash deposits to be made into Ali’s accounts: J [91], [138]. When Ali was at Prestige, he and Orlando came to an arrangement for the payment of cleaning workers whereby Orlando would pay the labour cost in cash or into Ali’s account, and Ali would then pay, and/or withdraw and pay, cash to the site manager for payment to the workers: J [32]. Her Honour noted that neither Orlando nor Ali explained why workers undertaking cleaning work subcontracted to Fonseca businesses on behalf of Prestige were paid by Ali, rather than being engaged and paid directly by the relevant business: J [36]. Nonetheless, the arrangement for the transfer of money for the payment of workers continued when Ali was at Tempo and TBM: J [87] (Tempo) and J [135]-[136] (TBM).

41. Additionally, Orlando claimed that between 1997 and 2000, in accordance with a condition that Ali stipulated for referring more work to Fonseca businesses, he paid Ali money from time to time that was equivalent to 15-20 per cent of the profits that the Fonseca businesses made on Prestige jobs that Ali allocated: J [30]. Orlando further claimed that this arrangement continued when Ali was at Tempo and TBM: J [131], [134]. Ali denied that he had imposed this condition, and gave varying evidence as to whether he received a percentage of profits from Orlando: J [35]. Her Honour noted that Ali gave inconsistent evidence as to whether there was such an arrangement at Tempo and TBM: J [137].

42. It was not in dispute that Orlando periodically caused cash deposits to be made into Ali’s accounts, including after 2002, when he moved to Tempo, and from 2004 or 2005, when he moved to TBM: J [136]. Her Honour referred to cash deposits made into Ali’s accounts in 2005 ($339,088), 2006 ($46,030), 2007 ($319,515), 2008 ($207,040), and in the first few months of 2009 ($14,000). Other deposits were made into his account by way of electronic funds transfer: J [138].

43. The primary judge noted that the respondents adduced evidence of receipts for some deposits made during the period from 2002 until 2010, “although they did not put these receipts forward as a complete record of all such cash payments”: J [91]; [132]. Ali’s evidence was that these payments were for the cleaning workers he arranged to work the jobs that he allocated to Orlando’s businesses: J [91].

44. In about March 2009, Ali ceased employment with TBM and incorporated a company, Swell Trades Pty Ltd (“Swell Trades”). Between March 2009 and April 2010, Swell Trades was an independent contractor to TBM performing jobs at the University of New South Wales (“UNSW”): J [140]. There was evidence of funds being deposited into the account of Swell Trades by one or more Fonseca businesses: J [266].

Incorporation of Cleaning Doctor and the CD Account

45. In September 2009, Cleaning Doctor was incorporated: J [189]. In about October 2009, Ali opened the CD Account at the Menai branch of Westpac Banking Corporation (“Westpac”). Ali was the only signatory on the CD Account. The Bardwell Property was recorded as the registered address for the CD Account, but the mailing address was a post office box in Mortdale which was operated by Mr Luis Duran, a friend of the Fonseca family who had no relationship with Ali: J [199].

46. A 50-page cheque book and a debit MasterCard were issued for the CD Account: J [199]. It was common ground that Orlando asked Ali to sign the debit card and all of the cheques in this book, and to leave the cheque book and debit card with him; and that Ali did so: J [210].

47. Between the opening of the CD Account and October 2012, a total of $2,695,078 was deposited into the CD Account by Fonseca businesses. Between October 2009 and October 2010, $899,900 was deposited by Crew Hire Pty Ltd (“Crew Hire”); between October 2010 and October 2012, $1,145,567 was deposited by Clean & Clear Group Pty Ltd (“Clean & Clear”); and Link Cleaning Group Pty Ltd (“Link”) deposited $607,367 in that same period: J [273]. An additional amount of $42,245 was deposited from other sources that were not identified in the evidence: J [274]. Her Honour noted that the “typical pattern of transactions on the CD Account was that a deposit would be followed by a withdrawal of the same or a similar amount on the same day or within a few days of the deposit”: J [257],[277]. Almost all of the withdrawals were made by cheque: J [257], [278].

48. Cleaning Doctor was deregistered in October 2012: J [268]. After that time, payments into and withdrawals from the CD Account ceased: J [265]. The CD Account was closed in January 2013. Each of Ali, Orlando and Jeffrey denied closing the account: J [267].

49. Ali continued to provide maintenance services at UNSW through Swell Trades: J [266]. From about November 2013 to April 2015, he was employed by one of the Fonseca businesses, CCG Projects Pty Ltd (“CCG”): J [11], [297]. [303]. By the time Ali resigned from CCG, relations between him and the Fonseca family had irretrievably broken down.

The Bardwell Property

50. The events regarding the Bardwell Property took place at an earlier stage in Ali and Orlando’s relationship. In November 2001, Ali became the registered proprietor of the Bardwell Property, for a purchase price of $580,000: J [37]-[38]. Her Honour found that in order to fund the purchase price and associated costs, including stamp duty, Ali obtained a mortgage loan of $464,000 (J [40], [448]), a loan of $50,000 from Orlando and Vilma (J [450]), and paid the balance from his own savings: J [453]. Ali resided in the Bardwell Property from completion of the purchase.

51. On 11 December 2002, Ali signed a contract for the sale of the Bardwell Property to Orlando. On 21 January 2003, the contract was completed, and on 11 February 2003, Orlando became the registered proprietor of the Bardwell Property: J [92]. Orlando obtained a loan of $500,000, secured by a mortgage over the Bardwell Property, and paid out the amount owing under Ali’s mortgage (which was discharged on 11 February 2003). He did not pay any money directly to Ali for the Bardwell Property: J [110]-[111].

52. After Ali transferred the Bardwell Property to Orlando, he continued to live in the Property without paying any rent: J [121].

53. In 2004, Orlando refinanced the Property, taking out a new loan of $670,000 and using the proceeds to discharge the existing mortgage: J [126]. In January or February 2015, Goodman Court became the registered proprietor of the Bardwell Property: J [325]. Goodman Court was associated with the family of Mr Sam Cassaniti, who was the accountant for the Fonseca family and their related entities between about July 2008 and about late 2012 or mid-2013: J [313]. Mr Cassaniti was also a consultant for Reliance Financial Services Pty Ltd (“Reliance”), which facilitated short-term loans: J [313].

54. On 2 July 2010, Fonseca family members and various entities (collectively “the Clients”) entered into a Deed of Retainer and Loan with Reliance and Armstrong Scalisi Holdings Pty Ltd (“ASH”) as trustee for the ASH Discretionary Trust trading as CAP Accounting, pursuant to which they granted a charge over any real property owned by them to secure substantial sums of money then owing to Reliance and CAP Accounting. In June 2014, the Clients entered into a Deed of Release with ASH as trustee for the ASH Discretionary Trust and Reliance, by which they agreed to transfer the Bardwell Property to Reliance, and Reliance and ASH would receive the difference between the value of the Property and the amount secured by the mortgage over the Property at the time: J [321]. By the time of entry into the Deed of Release, Orlando and Vilma were discharged bankrupts, and Jeffrey was still in bankruptcy (Joselyn was also declared bankrupt, but the bankruptcy was annulled): J [316]-[319].

55. In early March 2015, Goodman Court wrote to “The Occupier” of the Property, being Ali and his wife, Laura. Goodman Court signalled its intention to commence proceedings for possession unless an agreement could be reached for the occupants to vacate within a reasonable period of time: J [326].

56. On 28 May 2015, Ali commenced the proceedings in the Equity Division: J [358]. The Court was informed that as at the hearing of the appeal, Ali continued to live in the Bardwell Property.

The allegations before the primary judge

57. In light of the arguments that the appellants advance on the appeal, it is necessary to identify with some precision the appellants’ claims in so far as they remain relevant to the appeal.

The Bardwell Property claim

58. The appellants alleged that in or about November 2002, Orlando made an oral offer to Ali, which he accepted and which the primary judge referred to as the “alleged November 2002 agreement”: J [95]. As pleaded, Orlando’s offer was that if Ali transferred title of the Bardwell Property to Orlando, Ali could continue living in the Property without charge and Orlando would eventually transfer title back to him. In the meantime, Orlando would organise to borrow money secured against the Bardwell Property, pay out Ali’s mortgage, and hold the property on trust for Ali until title was transferred back to him. Ali accepted this offer either orally or by conduct (the conduct comprising the transfer of the Bardwell Property to Orlando).

59. The appellants pleaded that the alleged November 2002 agreement created an express trust in relation to the Bardwell Property. They further alleged that in September 2009, Orlando acknowledged that he held the Bardwell Property on trust for Ali. In the alternative to an express trust, the appellants contended that the Bardwell Property was subject to a resulting trust. They claimed that Ali’s transfer of the Bardwell Property occurred without consideration or without good consideration, meaning that Orlando received the property as a volunteer. The appellants alleged that this gave rise to a presumption that Orlando held the Bardwell Property on a resulting or implied trust for Ali. The appellants further claimed that Ali had the intention of retaining the beneficial ownership in the Bardwell Property.

60. The appellants pleaded that in breach of trust, Orlando transferred the Bardwell Property to Goodman Court, to discharge debts secured against certain properties owned by the Fonseca family. The appellants claimed a constructive trust over the benefits that Orlando and other members of the Fonseca family obtained as a result of the removal of the mortgages from properties that they owned directly or indirectly.

61. The primary judge noted that the appellants’ resulting trust claim evolved over the course of the hearing: J [362]. In light of the evidence that, on settlement, Orlando had paid out the amount owing under the loan that Ali had taken out when purchasing the Bardwell Property in 2001, the appellants accepted that they could not maintain that the Property was transferred “without consideration”: J [365]. What they then contended was that there was no consideration for the transfer of “Ali’s equity”: J [365].

62. The primary judge noted that, in oral closing submissions in reply, “the plaintiffs referred to what was described as a ‘false consideration principle’, relying on Wirth v Wirth (1956) 98 CLR 228”. The consideration was “false” because Ali received no part of the purchase price identified in the contract of sale, other than the amount that Orlando paid directly to the mortgagee to discharge Ali’s mortgage: J [366]. Her Honour permitted the appellants to advance this claim over the respondents’ objection: J [367]. Her Honour also permitted the respondents to rely on s 44 of the Conveyancing Act in answer to this claim, over the appellants’ objection: J [368].

63. The respondents denied the alleged November 2002 agreement and the existence of an express trust. They also denied that a resulting trust had come into existence. The respondents contended that Ali acquired the Bardwell Property in 2001 pursuant to an agreement that Orlando and Ali made in September 2001, which her Honour referred to as the “alleged September 2001 agreement”: J [58]. Ali’s transfer of the Bardwell Property to Orlando in February 2003 allegedly accorded with the purported terms of that agreement. The respondents also relied on the purchase price stated in the contract as evidence of consideration, and contended that the evidence pointed to the parties having made various adjustments to that price before settlement: J [381].

The Cleaning Doctor claim

64. As noted above, it was common ground on the pleadings that Ali opened the CD Account with Westpac in or about September 2009, and that he was the sole signatory to that account. The appellants alleged, and the respondents admitted, that during the period between September 2009 and November 2012:

1. Jeffrey and Orlando withdrew money from the CD Account;

2. Mr Duran withdrew money from the CD Account, on the instructions of Jeffrey or Orlando; and

3. other persons (perhaps including Jeffrey, Orlando and/or Mr Duran) withdrew money from the CD Account;

65. The appellants alleged, and the respondents admitted, that no entity of which any member of Orlando’s family was a director, secretary, shareholder or trustee, was authorised to withdraw money from the CD Account.

66. The appellants also alleged that Jeffrey, Orlando and Mr Duran, and such other persons as withdrew money from the CD Account, were not authorised by Ali to withdraw money. The respondents denied those allegations. Specifically in relation to the allegation that Mr Duran was not authorised to withdraw money from the CD Account, the respondents pleaded as follows:

“In respect of paragraph 25 … the defendants SAY AS FOLLOWS. To the extent that Mr Duran made withdrawals he was was [sic] acting on the instructions of, and as agent for, Orlando and/or Jeffrey both of whom were authorised by Ali and therefore Mr Duran was impliedly authorised by Ali. The defendants otherwise deny the paragraph.”

[Emphasis added.]

67. The primary judge footnoted this paragraph of the Further Amended Defence when characterising the respondents’ case as involving a positive contention “that Jeffrey and Orlando were authorised by Ali, to make withdrawals from the CD Account”: J [403]. Her Honour also understood the respondents to deny that the withdrawals were made for an unauthorised purpose, citing a paragraph of the Further Amended Defence which addressed an element of the appellants’ unconscionability claim: J [403]. Her Honour’s characterisation of this pleading is in issue on the appeal.

68. The appellants alleged that the money withdrawn from the CD Account was stolen by one or more of Jeffrey, Orlando, Mr Duran and other persons (on the instructions of Orlando or Jeffrey) and, on being stolen, became trust money. They claimed that the respondents were liable to Cleaning Doctor by way of a trust, by damages and by way of an account in common form. As the primary judge noted at J [393]:

“This claim relies on Black v S Freedman & Co (1910) 12 CLR 105, in which O’Connor J stated (at 110): ‘Where money has been stolen it is trust money in the hands of the thief, and he cannot divest if [scil. it] of that character. If he pays it over to another person, then it may be followed into that person’s hands.’ The remedy sought by the Cleaning Doctor is an order requiring Jeffrey and Orlando to provide an account in common form accounting for the money they received from the CD Account and their disbursement or distribution of that money.”

69. The appellants further alleged that where the stolen money “was received for the use or benefit of the [respondents], that money is payable by the recipient thereof to the Cleaning Doctor as money had and received by the [respondent/s] to the use of the Cleaning Doctor”. Her Honour described this claim as “a restitutionary claim on the basis that the [respondents] have been unjustly enriched by receiving the allegedly stolen moneys”: J [394].

70. Finally for the purposes of the appeal, the appellants alleged that in so far as the stolen money was obtained by the cashing of cheques, Jeffrey and Orlando converted those cheques to their use and/or the use of other respondents. The primary judge summarised this aspect of Cleaning Doctor’s claim as follows at J [396]:

“In relation to the cheques, Cleaning Doctor contends that the signed blank cheques were fraudulently obtained by Orlando because they were given to him for the purpose of paying the Bardwell Property mortgage, Orlando admits that he did not use the cheques for that purpose and it is clear from the evidence that he never intended to use the cheques for that purpose. Cleaning Doctor submits that the drawer of a cheque obtained by fraud remains the true owner of the cheque, that Cleaning Doctor was therefore entitled to immediate possession of each cheque at all times, and that Jeffrey and Orlando converted the cheques by completing them and presenting them to the bank to make the withdrawals from the CD Account.”

71. The respondents denied all of these allegations. In their closing written submissions, the respondents relied upon s 18(1) of the Cheques Act as giving rise to a presumption that Orlando had authority to complete the blank cheques in any way he saw fit unless Cleaning Doctor proved otherwise. When Cleaning Doctor objected to this submission on the basis that it was not pleaded, the respondents sought leave to amend their Further Amended Defence: J [408]-[409]. Her Honour’s refusal of leave to amend is the subject of the respondents’ cross-appeal.

The decision of the primary judge on the Bardwell Property claim

72. In their closing submissions in support of the Bardwell Property claim, the appellants relied on a series of matters that they characterised as “objective facts”, describing some as “critical” and others as “non-critical”: J [439]. Her Honour summarised those facts at J [440]:

“(1)   Ali acquired the Bardwell Property in his own name (a ‘critical fact’);

(2)   by the time Ali transferred the Bardwell Property to Orlando, it had a ‘notional value’ of $808,000 (a ‘critical fact’);

(3)   Ali and Orlando had a close personal relationship (a ‘non-critical fact’);

(4)   Orlando paid nothing to Ali for Ali’s equity in the Bardwell Property when the property was transferred to Orlando in January 2003 (a ‘critical fact’);

(5)   Ali and Orlando made an agreement in 2002 that Orlando would get the Bardwell Property as security and Ali would get his mortgage paid under the agreement (a ‘critical fact’);

(6)   Ali did renovations to the Bardwell Property while Orlando was the registered proprietor (a ‘non-critical fact’);

(7)   Orlando borrowed money against the Bardwell Property while he was the registered proprietor (a ‘non-critical fact’);

(8)   Orlando transferred the Bardwell Property to Goodman Court Pty Limited in exchange for the release of mortgages against properties owned by Fonseca family members or related entities (a ‘critical fact’);

(9)   in response to the loss of the Bardwell Property in March 2015, Orlando promised to provide an alternative house to Ali and Laura (a ‘non-critical fact’); and

(10)   Joselyn and Jeffrey had actual knowledge that the Bardwell Property was Ali’s house (described as a ‘critical fact on knowing receipt claim only’).”

73. The respondents, on the other hand, submitted that the Court should make the following findings on the evidence, which her Honour set out at J [441]:

“(1)   Orlando and Ali had a conversation in September 2001 in which they agreed that:

(a)   Ali would purchase the Bardwell Property in his name with a mortgage loan and funds provided by Orlando;

(b)   Orlando would make the mortgage payments;

(c)   Ali would transfer the property to Orlando about one year after the initial purchase at which [point] Orlando would pay out Ali’s mortgage; and

(d)   Ali could live at the property rent-free provided that he directed cleaning work to Orlando.

(2)   Ali purchased the Bardwell Property for $580,000 in September 2001 and became the registered proprietor of that property on 1 November 2001;

(3)   the purchase was financed in part by a third party loan of $464,000 secured by mortgage against the Bardwell Property on completion of Ali’s purchase;

(4)   the balance of the funds required for the purchase were provided by Orlando;

(5)   Orlando made the mortgage repayments for the Bardwell Property from completion of Ali’s purchase in about November 2001;

(6)   on 11 December 2002, Ali and Orlando entered into a written contract for the sale of the Bardwell Property to Orlando for $808,000 and that contract was completed on 21 January 2003 following which Orlando became the registered proprietor of the property on 10 February 2003;

(7)   approximately $470,000 was owing under Ali’s mortgage on completion and Orlando discharged that mortgage on completion;

(8)   reductions were made to the $808,000 purchase price as a result of which the amount owed by Orlando to Ali on completion was $58,078.51, but Ali gave written instructions to the solicitors acting for both parties that he and Orlando would deal with that shortfall between themselves;

(9)   Orlando therefore ‘did not pay any money to Mr Itawi himself in respect of the sale’;

(10)   by the time of execution of the transfer of the Bardwell Property from Ali to Orlando, there was no shortfall owing because, on the face of the transfer, Ali acknowledged receipt of the full contract price of $808,000; and

(11)   after January 2003, Ali continued to live in the Bardwell Property rent-free and continued directing work to the Fonseca businesses.”

74. The appellants submitted that either Ali’s version or Orlando’s version of the Bardwell Property transactions must be accepted, as there was no other rational explanation for the unclaimed shortfall in the price that Orlando paid for the Property in 2003. The respondents contended that the Court was not so bound.

Ali’s purchase of the Bardwell Property in 2001

75. As noted above, the appellants’ claim relied on the fact of Ali’s purchase of the Bardwell Property. Orlando, on the other hand, relied on the circumstances that he claimed surrounded that purchase so as to explain Ali’s subsequent transfer of the Bardwell Property to him.

76. Orlando’s evidence regarding the alleged September 2001 agreement was that it arose in a conversation between him and Ali to the following effect:

“[Orlando]: I want to buy a house but my broker says I cannot get a loan at the moment. He told me that I need to wait about six months. I do not want to wait. Here is my plan. I want you to buy the house in your own name and take out a mortgage in your name. I will lend you some money to help you buy the house and pay the deposit. You will need to get a mortgage but I will pay the mortgage repayments. You can live in the house for nothing for one year. As soon as I can borrow the money from the bank, you have to transfer the house back to me. I will pay out your mortgage.

Ali: That sounds fine.

[Orlando]: I will ask my solicitor to prepare all of the documents.

Ali: Okay.”

77. Orlando gave evidence that, in accordance with the alleged September 2001 agreement, he negotiated the purchase price for the Bardwell Property. He also arranged for his solicitors, Hancock Alldis, to act for Ali on the purchase. Ali accepted that Orlando paid the solicitors’ bill, and gave evidence that he did not have anything to do with Hancock Alldis. However, he denied the existence of the alleged September 2001 agreement. Ali’s evidence was that Orlando encouraged him to buy the Bardwell Property and offered to arrange the solicitors. Ali also ultimately accepted that Orlando had also contributed some funds towards the purchase price: J [450].

78. The primary judge rejected the alleged September 2001 agreement (J [459]). In doing so, her Honour relied on a number of matters including the following:

1. Despite Orlando allegedly telling Ali that he would ask his solicitor to prepare all of the documents, the alleged September 2001 agreement was not documented. Orlando’s explanations for the absence of documentation were “inconsistent and entirely unconvincing”: J [58], [461].

2. The documents that Hancock Alldis prepared for the 2003 transfer of the Bardwell Property to Orlando were inconsistent with the terms of the alleged September 2001 agreement: J [461].

3. On her Honour’s findings, Ali contributed $105,000 of his own funds to the purchase, which was reflected in the instructions recorded by the solicitors acting on the purchase at the time: J [453]-[455]. It was “inherently implausible” that he would pay that amount and acquire the Bardwell Property in his own name, and at the same time agree to transfer the Property to Orlando when required, for no consideration other than Orlando paying out the mortgage: J[460].

4. If one assumed the correctness of Orlando’s evidence that he and his wife contributed $150,000 to the purchase price, that evidence was irreconcilable with the reason Orlando gave for proposing that Ali buy the property (namely, that Orlando was unable to borrow sufficient funds to purchase the property himself): J [462].

5. Despite its significance, the respondents did not refer to the alleged agreement in the first affidavit they filed in the proceedings, affirmed by Jeffrey but on information from Orlando: J [465].

79. Her Honour concluded that Orlando’s evidence about the alleged September 2001 agreement was “a lie invented after Jeffrey’s first affidavit was served in these proceedings to manufacture an explanation for the subsequent transfer of the Bardwell Property to Orlando in January 2003”: J [467].

80. The primary judge also rejected Orlando’s contention that he made the mortgage repayments on the Bardwell Property from the time of completion of Ali’s purchase in September 2001 until February 2003, consistently with the alleged September 2001 agreement. The evidence did not provide a sufficient basis for her Honour “to make any finding on the balance of probabilities about who made the mortgage repayments” in this period: J [463], [466]. It followed that the primary judge also did not accept Ali’s evidence that he had made those mortgage repayments.

The transfer of the Bardwell Property

81. Central to Ali’s claim of an express trust with respect to the Bardwell Property was the “alleged November 2002 agreement”. His evidence was that from as early as 1998, Orlando had been suggesting that they go into partnership. Shortly after Ali bought the Bardwell Property, Orlando increased the frequency with which he made this suggestion, also suggesting that if Ali transferred the Bardwell Property to him they could borrow against it and expand the business.

82. Ali gave evidence of the conversation giving rise to the alleged November 2002 agreement in his affidavit of 27 May 2015. The primary judge summarised Ali’s evidence of Orlando’s proposal, to which Ali said he agreed, as involving the following elements (at J [94]):

“(1)   [Orlando] would take out a bank loan in order to fund the cost of hiring more workers, as the workers have to be paid before the subcontractor is paid;

(2)   Ali would transfer the Bardwell Property to Orlando so that Orlando could secure that loan against the property so as to achieve a lower interest rate;

(3)   Orlando would not pay Ali for the Bardwell Property, but would take out a loan in his own name to refinance Ali’s mortgage over the property (in addition to a further loan to be taken out later to fund the payroll of his expanded workforce);

(4)   Ali would be entitled to 20 per cent of the profits of the business (or 50 per cent if Ali came to work directly with Orlando);

(5)   Orlando would pay Ali’s share of those profits directly into the part of the mortgage over the Bardwell Property that Ali was responsible for;

(6)   Orlando would also pay to Ali ‘the shortfall on the transfer of the property’ but would need five years to do this in order to free up money to expand in the meantime; and

(7)   eventually, the Bardwell Property would be transferred back to Ali with any mortgage paid off.”

83. Orlando denied that he asked Ali to become his partner, and he denied that he made the above proposal to Ali: J [100]-[101]. He maintained that the genesis of his dealings with Ali regarding the transfer of the Bardwell Property in 2003 was the alleged September 2001 agreement (see [75] above): J [101]. As noted above, her Honour found that Orlando lied about the existence of this agreement; but the lie he told was unnecessary because Ali had “failed to prove that Orlando held the Bardwell Property on trust for him after the legal title was transferred to Orlando in January 2003”: J [468].

84. The primary judge described the following matters as “plain from the documentary evidence” (at J [471]):

“(1)   Ali and Orlando signed a contract on or about 11 December 2002 for the sale of the Bardwell Property to Orlando for the price of $808,000;

(2)   Hancock Alldis acted as the solicitors for both Ali and Orlando in relation to the contract and attended to settlement on 21 January 2003;

(3)   at the time of settlement, the amount owing under the mortgage that secured the loan taken out by Ali in September 2001 was approximately $464,310; and

(4)   the transfer of the Bardwell Property to Orlando was registered on 11 February 2003, together with a discharge of the 2001 mortgage and a new mortgage between Orlando (as mortgagor) and Perpetual Trustees (as mortgagee) securing a loan of $500,000.”

85. Initially, Ali accepted that he signed the transfer but said that it was a document that Orlando arranged, and that the figure of $808,000 was not something he and Orlando worked out as between them. In a later affidavit, he said that the price was based on a market valuation obtained for stamp duty purposes. Then, in cross-examination, Ali said that he had not seen the price on the contract that he signed, and he denied that Hancock Alldis acted for him on this transaction, saying that he was not involved in getting Hancock Alldis to do anything and he did not pay their fees.

86. Her Honour rejected Ali’s denial of Hancock Alldis acting for him as vendor. Her Honour noted that Hancock Alldis was named on the contract as the solicitor for both the vendor and purchaser, and found it inherently unlikely that this would have happened if the solicitors were not satisfied that they had instructions from both parties. Further, in conducting the 2001 transaction, Hancock Alldis had taken care to record Ali’s instructions: J [472]. Her Honour described Ali’s evidence to the contrary as “uncorroborated, inconsistent with contemporaneous documents and inherently improbable”.

87. In light of her Honour’s findings regarding Ali and Orlando as witnesses, correspondence from Hancock Alldis took on particular significance. In a letter to Orlando the day after settlement, Hancock Alldis informed Orlando that at settlement “a total of $528,354.26 was calculated…as being due to the Vendors”. The letter referred to having enclosed the settlement sheet, which would have shown how that amount was calculated, but neither party tendered the settlement sheet in the proceedings: J [106]. The letter also enclosed a statement of account, which was in evidence. It identified $528,354.26 as the “Balance of purchase monies” due to the vendor. The statement of account also identified amounts payable on account of the solicitors’ fees, stamp duty, and transfer and bank cheque fees.

88. The statement of account also recorded a “Shortfall” of $58,078.51 between the sums payable on settlement and the available funds. Underneath this amount was written the following: “As per Mr Itawi’s written instructions we note that you will and Mr Itawi will deal with the shortfall of $58,078.51 between yourselves”. Ali denied giving any written instructions to this effect; I have referred to her Honour’s rejection of Ali’s evidence about Hancock Alldis at [86] above. Specifically in relation to the statement of account, her Honour observed that there was no evidence that Ali had disputed its accuracy at the time of settlement, his evidence being that he had received the document from Orlando at the time of the transaction: J [119], [475].

89. Her Honour considered that the existence of a shortfall was consistent with aspects of Ali’s evidence about various conversations he said he had with Orlando in the ensuing months and years in which he sought the rest of the purchase price: J [120]. Her Honour recorded one example of which Ali gave evidence, of a conversation in September 2009. The conversation is of more significance for the Cleaning Doctor claim, and was described by her Honour as “the September 2009 conversation”: J [148]. Relevantly for present purposes, however, Ali said that in the course of this conversation he told Orlando that he (Orlando) still owed him (Ali) “the rest of the purchase price on my house”. Orlando replied: “Yes. The business can’t afford to pay this at the moment. I agree it’s owed, though”: J [147].

90. Later in her Honour’s reasons, the primary judge described the existence of a shortfall, and Ali chasing Orlando for payment of it in the years following settlement, as “fundamentally inconsistent with all bases of Ali’s claim in these proceedings that Orlando held the Bardwell Property on trust for him”: J [505]. Her Honour characterised the appellants’ attempt to explain away these subsequent demands as “construing [the demands] in a manner that is entirely inconsistent with the plain language used in Ali’s evidence”, and “submitting that the Court should treat Ali’s evidence about the demands (one of the few matters about which he gave consistent evidence) as unreliable”: J [490]. Her Honour rejected the submission that the shortfall “was never paid (or asked for)” (emphasis in original): J [490].

91. On the basis of the letter from Hancock Alldis and the statement of account, “together with Ali’s evidence that he received that statement of account at the time [namely 22 January 2003]”, the primary judge found that Hancock Alldis:

1. calculated an amount of $528,354.26 as the balance of purchase monies payable by Orlando to Ali, and attended to completion of the contract on that basis: J [474];

2. settled the contract notwithstanding that there was a shortfall of $58,078.51 between the funds that Orlando was required to pay to complete the transaction and the funds he provided at settlement (noting that the amount was very close to the difference between the balance of purchase monies payable and what was payable on Ali’s mortgage): J [476]; and

3. received written instructions from Ali that the shortfall would be dealt with between himself and Orlando: J [477].

92. Her Honour concluded that the evidence did not support the further “critical fact” on which the appellants relied, namely, that the purchase price was a “notional value” or “fictional”. Her Honour identified the evidence on which the appellants relied in this respect as follows (at J [486]):

“(1)   Ali’s evidence in cross-examination that he and Orlando had ‘[n]ever agreed on any price on the house’ and that he had signed the contract for sale without reading it, without being aware of the $808,000 purchase price stated on the contract and without knowing the market value of the property as at December 2002;

(2)   Orlando’s evidence in cross-examination that he didn’t pay Ali anything for the transfer of the Bardwell Property because the transfer was made in accordance with the alleged September 2001 agreement; and

(3)   the plaintiffs’ failure to produce any valuation in respect of the Bardwell Property prior to the 2001 and 2003 transactions in response to a call made by the defendants during the hearing.”

93. Her Honour concluded that there was no basis for finding that the contract price of $808,000 “was not the starting point for the calculation undertaken by the solicitors acting for both parties”: J [478]. Ali’s evidence on this subject was inconsistent: J [487]. Orlando’s evidence was not of assistance because her Honour found it to be untrue, resting as it did on the alleged September 2001 agreement, the existence of which her Honour rejected: J [488]. As to the appellants’ failure to produce a valuation, her Honour did not consider that a meaningful inference could be drawn. Separately, her Honour considered that it was odd that the Court was being asked to draw that inference when it was inconsistent with Ali’s evidence: J [489].

94. Coming then to the further “critical fact” that Orlando “paid nothing for Ali’s equity”, her Honour found that the evidence did not support that finding. Her Honour stated at J [490] (footnotes omitted):

“The ‘Balance of purchase monies’ in the amount of $528,354.26 was clearly recorded on the statement of account received by both Orlando and Ali. There is no evidence that either of them disputed the accuracy of that amount at the time of the settlement or, indeed, at any time thereafter prior to the final hearing of these proceedings. Ali raised no issue about the accuracy of the $528,354.26 amount when addressing the figures in the statement of account in his affidavit affirmed on 9 May 2019. The statement of account records that Orlando was obliged to pay the “shortfall” of $58,078.51 at a time and in a manner to be agreed between Ali and Orlando without the involvement of their solicitors. The calculation of the shortfall amount was derived from the balance of purchase monies of $528,354.26. The fact that Orlando subsequently failed to pay the shortfall to Ali in accordance with the contract for sale and the solicitors’ calculation of the amount payable to Ali on settlement does not establish that the Bardwell Property was transferred to him for no consideration other than the amount required to discharge the 2001 mortgage. The contractual obligation to pay the purchase price stipulated in the contract, including the shortfall amount calculated by the parties’ solicitors, stands as consideration: Radoman Pty Ltd v Vexapu Pty Ltd [2008] NSWSC 8 at [40]-[43]. Although Ali did not take legal action to enforce Orlando’s obligation to pay the shortfall, he did make demands after settlement for Orlando to pay to him ‘the rest of the purchase price on my house’. Those demands are entirely inconsistent with Ali’s contentions about the 2003 transaction in these proceedings.”

95. The appellants’ submissions in support of the notion that either Ali’s version or Orlando’s version of the Bardwell Property transactions had to be accepted were extracted as follows in J [491]:

“Firstly and most importantly, Ali does not claim that there was an actual ‘shortfall’. What he claims is that if the January 2003 transfer was a legitimate transfer for $808,000 then there would be an apparent unexplained shortfall of either $233,000 or $293,000. The fact that this apparent shortfall was never paid and the admissions Orlando made about this apparent shortfall demonstrates that the purported transfer in January 2003 for $808,000 was not a bona fide transaction.

157. In granting leave to the appellants to rely on this evidence, the primary judge observed that it “carries some additional probative value because it is arguably an admission that the sole basis of his claimed authority to withdraw money from Cleaning Doctor’s bank account was to pay wages to subcontractors”. Her Honour considered that to be “directly relevant to the question about whether withdrawals from the [CD Account] that [Jeffrey] has admitted making in order to pay business expenses of the [respondents’] entities and to pay his own personal expenses were authorised”. Her Honour also recognised that the issue of the scope of the respondents’ authority had “assumed new importance” by reason of the respondents’ reliance, in closing, on presumed authority said to be conferred by the Cheques Act. Her Honour considered that the occasion for the appellants to tender this evidence could not reasonably have been foreseen before the respondents raised this argument.

158. The appellants submitted that her Honour’s reasons in this regard were consistent with the position for which they contended, that the respondents did not make a claim of implied actual authority or any claim of general authority on the basis of the handing over of the cheques themselves, or by Ali allowing Orlando and Jeffrey to deal with the bank account, until they advanced the Cheques Act argument. The appellants submitted that a claim of implied actual authority would have needed to be pleaded, referring to the applicable principles in Equiticorp Finance Ltd v Bank of NZ (1993) 32 NSWLR 50 at 132-133 (Clarke and Cripps JJA).

159. The appellants spent some time in oral submissions addressing the respondents’ written opening and closing submissions, which, the appellants argued, demonstrated that they did not run a case of general or implied actual authority. They also relied on concessions that Counsel for the respondents was said to have made in the course of submissions on the application to amend the pleadings to rely on the Cheques Act, submitting that they accurately described what occurred in the hearing.

160. In the face of the respondents’ submissions, the appellants contended that the primary judge had committed the error that Gleeson CJ and Heydon J identified in Suvaal v Cessnock City Council (2003) 77 ALJR 1449; [2003] HCA 41 (“Suvaal”) at [36]:

“A trier of fact, confronted with divergent cases being advanced by the parties, may decline to accept either case and may proceed to make findings not exactly representing what either party said. But that does not justify the creation of an entirely new case with which the losing party had no testimonial or other evidentiary opportunity to deal.”

165. In Suvaal, the primary judge made a finding about a loss of concentration on the plaintiff’s part while cycling, when he allowed the steering of the bicycle to put him into potholes and the rough edge of the road: [20], [22]-[23]. This was not a case that the plaintiff had made, and the defendant Council had denied it was an issue: at [32]. Their Honours found that the primary judge had “rationalised the circumstances so as to generate a possible explanation for the accident which was not directly supported by any matter that emerged in the course of the trial”: at [37].

166. The appellants also relied on this Court’s decision in Films and Casting Temple v Malla [2013] NSWCA 377 at [47]-[49]. McDougall J there stated that while a court may proceed on the basis that ordinarily, through the conduct of a trial, the parties will have become aware of the real issues and agreed (expressly or by inference) to those issues being fought out and defended, “before the court proceeds thus, it should ensure that the party affected by the proposed judgment has been given an adequate opportunity … to deal with the case that has in fact been made good”: at [49] (Ward JA and Gleeson JA agreeing).

167. As to Cleaning Doctor’s conversion of cheques claim, the appellants contended that as the cheques were in the custody of the respondents, they were the bailees and had an obligation to prove that the conversion of the cheques was authorised.

168. In oral submissions, the respondents submitted that Cleaning Doctor had the onus of showing that the withdrawals were unauthorised and they had failed to discharge that onus, as the primary judge found; and there was nothing in the way that the proceedings were conducted that reversed the onus such that the respondents had to prove the withdrawals were authorised. The respondents also submitted that, even if the way the proceedings were conducted did place the burden on the respondents to show that the withdrawals were authorised, that onus was discharged, the primary judge having found general authority. Finally, the respondents submitted that if the primary judge did not make that finding, this Court should do so on the basis of the same evidence that her Honour set out in support of the proposition that the evidence pointed strongly to the conclusion that the withdrawals were authorised.

169. As to Ground 5 of the Amended Notice of Appeal, the appellants did not address the ground in their written submissions; and in oral submissions they did not address the reasoning of the primary judge in concluding, correctly, that the bank was the legal owner of the money in the CD Account: J [532]. The appellants submitted that neither party had advanced this argument; the implications of that submission for the broader Cleaning Doctor appeal, even if correct, were opaque. In any event, the respondents did not admit the allegation of Cleaning Doctor’s ownership of the funds in the CD Account, meaning that the primary judge did need to consider whether the appellants had made that good, specifically in the context of the claim for conversion of the notes and coins in the Account: J [541].

Consideration

170. As the appellants submitted, there were a number of facts that were admitted on the pleadings on the Cleaning Doctor claim:

1. At all times, Ali was the sole shareholder, director and secretary of Cleaning Doctor.

2. In or about September 2009, Cleaning Doctor opened the CD Account with Ali as the sole signatory.

3. Between September 2009 and November 2012, Jeffrey and Orlando withdrew money from the CD Account.

171. It was also not in dispute that Ali signed “an entire cheque book of blank cheques within one week of the CD Account being opened, a second book in about December 2011 and a third book in about October 2012”, and a debit card which he left with Orlando: J [536]. As her Honour observed, by delivering the signed blank documents to Orlando, “Ali plainly authorised Orlando to complete the documents so as to create ‘cheques’ within the meaning of the Cheques Act that would operate as an order to pay when presented to the bank”: J [537].

172. As the primary judge recognised, resolution of the claim in restitution rested upon whether the respondents acted outside the scope of their authority to deal with money in the CD Account: J [539]. The issue on the conversion claim, of whether Cleaning Doctor had an immediate right to possession of each cheque at the time it came into existence, also turned on the scope of the respondents’ authority, to complete the cheques and present them to the bank, and whether they acted outside the scope of that authority in completing each cheque: at J [540]. As her Honour recognised implicitly in so framing the issue, and as Brereton JA observes expressly in his Honour’s reasons at [16] above, Cleaning Doctor needed to do more than prove delivery of the cheques to Orlando in order to establish an immediate right to possession.

173. The appellants’ allegations that none of the persons who withdrew money from the CD Account were authorised to do so, Orlando and Jeffrey in particular, were denied. In response to the allegations that Orlando and Jeffrey were not authorised to withdraw funds from the CD Account without authority, the respondents generally denied those allegations. Those allegations were central to Cleaning Doctor’s trust claim and their claim for money had and received, both of which rested on establishing that the funds withdrawn from the CD Account were, to use the defined term in the Amended Statement of Claim, “stolen”. As her Honour noted at J [538]:

“In those circumstances, each of Cleaning Doctor’s causes of action referred to at [392]-[399] above requires Cleaning Doctor to establish on the balance of probabilities that the scope of that authority did not extend to the completion of each cheque with the amount specified on the cheque made payable to cash, and the withdrawal of those amounts by presentation of the completed cheques. Paragraphs 20 to 22 of the [appellants’] pleading correctly reflect that the alleged lack of authority is an element of Cleaning Doctor’s claims.”

174. The appellants pleaded in this respect that Ali pre-signed “a number of blank cheques” which he provided to Orlando and/or Jeffrey (which was admitted), but that he “only authorised those cheques to be used to pay down the mortgage of the Bardwell Property”: ASOC [135]. The respondents admitted the allegation that the pre-signed cheques were not used for this purpose (ASOC [136], AD [1]). However, they denied that the cheques were pre-signed for the specific purpose that Ali alleged: AD [3].

175. As her Honour noted, the central evidence of the limited scope of authority on which the appellants relied was the uncorroborated evidence of Ali, which her Honour rejected: J [545]. Apart from the general credibility issues that beset his evidence, his account of the purpose for which he had authorised money to be withdrawn from the CD Account was, as her Honour described it, “inherently improbable”: J [547]. It was undermined by the very first withdrawal from the CD Account of $36,320, in cash, that Ali made from the CD Account, on the day the account was opened. The withdrawal was in denominations the size of which was inconsistent with his evidence that the purpose of the withdrawal was to pay the mortgage and bills for the Bardwell Property: J [548]. Her Honour had earlier addressed Ali’s evidence in this regard in some detail, including the cross-examination, at J [204]-[214]. Her Honour then observed, at J [550], that apart from resting on evidence which was uncorroborated and/or implausible, the limited scope of authority on which the appellants relied was contrary to objective evidence which was put before her Honour. I have addressed above the evidence upon which her Honour relied in that regard (see [122]).

176. The appellants accepted that the findings at [545]-[549] were reasons on the basis of which the primary judge could have rejected the trust claim but not the money had and received claim, on the basis of what was described as an “implied concession” that there was no general authority. However, the respondents made no such concession:

1. I have noted the content of their pleading above. It plainly traversed the allegation that the withdrawals were made without authority. In so far as the appellants complained that it did not explicitly assert general authority, that is beside the point; the allegation of “no authority” was plainly in issue. To the extent that this was a “pregnant negative”, particulars could have been sought: see Pinson v Lloyds and National Provincial Foreign Bank Ltd [1941] 2 KB 72 at 83-84; Chapple v Electrical Trades Union [1961] 3 All ER 612 at 615; Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 1412 at [9]. That they were not provides no basis for confining the scope of the denial.

2. In so far as Orlando and Jeffrey gave evidence as to why they made the withdrawals, that did not amount to an implied admission that they did not have any other authority, and the primary judge’s rejection of their evidence did not demand that conclusion.

3. The respondents’ submissions also cannot be so characterised. Although the appellants characterised the respondents’ closing written submissions as relying solely upon the Cheques Act by way of a defence of general authority, in closing oral submissions Counsel for the respondents made clear that the appellants needed to prove lack of authority in accordance with their pleading. This was also made plain in the following exchange with her Honour:

“HER HONOUR: Have I got Orlando’s own evidence about that limitation? Isn’t that the plaintiff’s point? That the defendants themselves have put into evidence a limitation on their authority?

CARNOVALE: But that’s not [Ali’s] limitation. If your Honour disbelieves Orlando’s evidence, it doesn’t transform the situation into one where the withdrawal was made contrary to [Ali’s] authority. [Ali] has to establish what the authority was, what the limitation was, before your Honour can find that whatever Orlando did was contrary to authority. …”

177. The appellants also relied on concessions that the respondents’ Counsel was said to have made in the course of his submissions on the Cheques Act amendment application. The context is important, the specific issue being whether the appellants were prejudiced by not having had an opportunity to cross-examine Orlando about general authority. Counsel for the respondent’s response was that there was nothing that Orlando could say by way of evidence about general authority, but that reliance on the Cheques Act raised questions of onus, not evidence (TS 936.10-20). That submission was consistent with Orlando’s evidence, with Counsel accepting that Orlando and Ali did not claim to have had conversations in which Ali conferred general authority (TS 933.46-50; 934.9-24; 934.35-40). Her Honour referred to this in J [550], noting that there was “no evidence of a conversation between Ali and Orlando in which Ali (on behalf of Cleaning Doctor) expressly conferred general or unlimited authority on Orlando to make withdrawals from the CD Account” (emphasis added). That is not inconsistent with a general authority implicit in the delivery of the signed cheque books and debit card and the other matters referred to by her Honour at J [550]

178. The appellants took particular issue with J [550] as involving a conclusion that was not consistent with the case of either party. That allegation of error misunderstands the purpose of the paragraph. It is apparent from the chapeau to J [550] that her Honour was identifying material that was contrary to the case of limited authority that the appellants had advanced. So much is apparent from terms of J [544], where her Honour commenced the relevant analysis, and from the terms of her Honour’s conclusion at J [552], which I have set out above at [123].

179. Her Honour’s conclusion that the appellants had not discharged their onus was consistent with authority. In the recent decision of this Court in Coshott Family Pty Ltd v Lyons [2022] NSWCA 216 ("Coshott”), the respondent, a solicitor, had made withdrawals from a controlled money account that he opened on behalf of Mr Robert Coshott, a director of the appellant: [7]. The appellant alleged that approximately $200,000 was deposited into the account, and that in breach of his duty under the Legal Profession Uniform Law (NSW), the respondent had failed to deal with those monies as instructed: [5]. The respondent accepted that the funds had been received into a controlled money account and that transfers had been made out of the account, but said that these occurred pursuant to “written and/or oral authority” from Mr Coshott: [6]. Although the respondent provided particulars of authorising emails, they were not tendered: [6]. The extent of the evidence in the trial was a letter from the respondent to the Commonwealth Bank requesting that an account be opened; an account confirmation document and welcome email to the respondent; an email from the respondent to Mr Coshott confirming the opening of the account; a list of transactions from the bank; and an email exchange between Mr Coshott and the respondent in relation to closing the account: [7]-[11].

180. Kirk JA, with whom Meagher JA and Griffiths AJA agreed, referred at [18] to the “oft-cited statement as to where the legal burden of proof will lie” of Walsh JA in Currie v Dempsey (1967) 69 SR (NSW) 116 at 125, where his Honour stated:

“In my opinion, [the legal burden of proof] lies on a plaintiff, if the fact alleged (whether affirmative or negative in form) is an essential element in his cause of action, e.g., if its existence is a condition precedent to his right to maintain the action. The onus is on the defendant, if the allegation is not a denial of an essential ingredient in the cause of action, but is one which, if established, will constitute a good defence, that is, an ‘avoidance’ of the claim which, prima facie, the plaintiff has.”

181. In circumstances where there was no dispute that money belonging to the appellant was paid into the controlled money account that the respondent controlled, and that the appellant made a request for repayment and what was left in the account was promptly repaid, the issue was what more, if anything, the appellant needed to prove in order to make good its money had and received claim: [19]. Kirk JA noted that this issue had been addressed in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48, in which the plurality stated that recovery depended on the existence of a qualifying or vitiating factor, such as mistake, duress or illegality (at 379): at [20]. The appellant in Coshott, however, had submitted that it only needed to prove that monies were received by the respondent from the appellant for the latter’s benefit, that the latter demanded repayment of those monies, and that there had been a failure to repay in full: [24].

182. Kirk JA observed that the material before the Court indicated that the payment in question was made into a controlled money account, “implicitly for the purpose of being paid out to third parties (including barristers) or for professional fees in relation to matters in which the respondent was acting, and there is evidence indicating that the payments out of the account were made in fulfilment of that purpose”: [52]. Although there was no evidence indicating whether or not the appellant had authorised those payments, there was evidence indicating that upon requesting that the account be closed and the money transferred, that occurred as requested: [53]. In that context, his Honour considered that it was “not sufficient for the appellant simply to prove that the payment was made into the account, held for its benefit, and then not returned in full when requested”: [53]. In concluding that the appellant had failed to establish a basis for asserting that the full amount initially paid to the respondent should still be treated as being held for his benefit (at [57]), his Honour later stated at [58]-[59]:

“This legal conclusion is reinforced by the way that the case was actually put to the court below. In the appellant’s statement of claim at [4] it was alleged that the respondent had ‘in breach of his duty under the [LPUL] failed to deal with the said monies as instructed by the plaintiff company’. Reflecting that pleading, in the court below counsel for the appellant said:

‘The plaintiff’s case, your honour, is very simple. It is that whilst he placed the money into the controlled account, he at no stage ever authorised for that money to be disbursed, and that the defendant did so without his authorisation.’

The pleading and this statement recognised, correctly, that the central issue in the case was whether or not the payments out of the account were made by the respondent with or without authority. It is not surprising, then, that the appellant’s case should fail in the absence of it providing any evidence going to the central issue.”

183. Senior Counsel for the appellants submitted that Coshott was distinguishable from the present case because in Coshott, there was no express or implied concession about the lack of any express authority to use the account in the manner in which it was used. He relied in this respect on the implied concession in Orlando’s evidence, and the express concessions that Counsel for the respondents was said to have made in the course of argument on the amendment application regarding the Cheques Act. For the reasons I have outlined above, I do not accept either basis. In any event, her Honour’s conclusion as to the appellants’ failure to discharge their onus remains. The primary judge’s reasons on the interlocutory question of admitting parts of [70] of Orlando’s affidavit of 8 September 2017 does not call her Honour’s reasons into question in this regard, noting that it was interlocutory and was made before her Honour had heard from the respondents’ Counsel on the Cleaning Doctor claim.

183. Both the money had and received claim and the claim in conversion rested on whether the respondents had acted outside of the scope of their authority: J [539]-J [540]. Her Honour’s conclusion, at J [553], that Cleaning Doctor failed to discharge its onus of proving that the withdrawals were made without authority of Cleaning Doctor was determinative of those claims. Her Honour’s conclusion in that regard did not involve a reversal of the burden of proof, or a mischaracterisation of the respondents’ case.

184. Grounds 4 to 8 of the Amended Notice of Appeal should be dismissed. As was the case with the notice of contention on the Bardwell Property appeal, given my conclusions with respect to the Cleaning Doctor appeal it is not necessary to determine the cross-appeal, in relation to her Honour’s decision to refuse the respondents leave to amend to rely on the Cheques Act.

Conclusion

186. I propose the following orders:

1. The appeal is dismissed.

2. The cross-appeal is dismissed.

3. The appellants are to pay the respondents’ costs of the appeal.

187. SIMPSON AJA: I agree with Mitchelmore JA.

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Endnotes

Decision last updated: 26 May 2023