UTi (Aust) Pty Ltd v Sheehan

[2017] NSWSC 344

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

UTi (Aust) Pty Ltd v Sheehan & Anor [2017] NSWSC 344

Hearing dates:

14, 15 November and 6 December 2016

Date of orders:

03 April 2017

Decision date:

03 April 2017

Jurisdiction:

Equity

Before:

Slattery J

Decision:

First defendant found to have fraudulently procured the plaintiff to give him cheques which he paid to his company, the second defendant. Declarations made that the funds so paid are held on constructive trust for the plaintiff. Alternative claims made out. Declarations made that the first defendant is liable to the plaintiff in the sum of $2,911,411.76.

Catchwords:

CONSTRUCTIVE TRUST – logistics joint venture – first defendant/joint-venturer presents fraudulent invoices to the plaintiff, its fellow joint venturer – payments on the invoices directed to and received by the second defendant, a company the first defendant controls – first defendant declared bankrupt - second defendant in liquidation - plaintiff seeks declaration that the funds paid by the first defendant’s actions to the second defendant are now held on constructive trust for the plaintiff – claims in the alternative for fraudulent misrepresentation, breach of the Australian Consumer Law and breach of contract.

Legislation Cited:

Corporations Act 2001 (Cth)
Civil Procedure Act 2005, s 100

Cases Cited:

Black v S Freedman & Co (1910) 12 CLR 105
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Briginshaw v Briginshaw (1938) 60 CLR 336
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Derry v Peek (1889) 14 App Cas 337
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296
Heperu Pty Limited v Belle (2009) 76 NSWLR 230
Houghton v Arms (2006) 225 CLR 553
Hungerfords v Walker (1989) 171 CLR 125
Magill v Magill (2006) 226 CLR 551
MBP (SA) Pty Limited v Gogic (1991) 171 CLR 657
Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400
Robb Evans v European Bank Ltd (2004) 61 NSWLR
75
Sze Tu v Lowe [2014] NSWCA 462
Wallersteiner v Moir (No 2) [1975] QB 373
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640

Category:

Principal judgment

Parties:

Plaintiff: UTi (Aust) Pty Ltd
First Defendant: Brian Sheehan
Second Defendant: Scarlet Amber Pty Ltd ACN 006 920 172

Representation:

Counsel

 

Plaintiff: C. Withers

 

Solicitor

 

Plaintiffs: Maurice Lynch, Mills Oakley

  Defendants: Self-represented

File Number(s):

2016/67061

Publication restriction:

No

Judgment

1. UTi (Aust) Pty Ltd (“UTi”) manages supply chain logistics. From 1995 UTi made a series of profit sharing agreements with Mr Brian Sheehan, a customs broker and freight-forwarding consultant. On 21 March 2016, Uti terminated all its existing agreements with Mr Sheehan, who was declared bankrupt on 17 June 2016.

2. The plaintiff, UTi alleges that Mr Sheehan, the first defendant, defrauded it between October 2015 and February 2016. UTi claims that Mr Sheehan developed a fraudulent scheme whereby: (1) he presented false invoices to UTi in the names of various logistics carriers, totalling some $2,911,411.76; (2) he obtained in his possession cheques corresponding to these invoices from UTi; (3) he deposited the cheques into the bank account of Scarlet Amber Pty Ltd (“Scarlet Amber”), the second defendant; and (4) he obtained the indirect benefit of these payments, as he was at all times a director, secretary and 50% shareholder of Scarlet Amber.

3. UTi seeks relief against both Mr Sheehan and Scarlet Amber. But Scarlet Amber went into liquidation on 10 June 2016. The proceedings against Scarlet Amber were stayed by operation of law upon its liquidation under Corporations Act 2001 (Cth) s 471B. Only UTi’s action against Mr Sheehan continues, and it does so upon the terms described later in these reasons.

4. UTi seeks four forms of relief: (1) a declaration that Mr Sheehan holds the cheque proceeds of $2,911,411.76 on constructive trust for UTi, or in the alternative, equitable compensation to the extent that Mr Sheehan no longer holds those funds; (2) damages for breach of contract in the sum of $2,911,411.76; (3) damages for misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law in the sum of $2,911,411.76; and, (4) damages for $2,911,411.76 for the tort of deceit.

5. UTi has an additional claim in contract unrelated to Mr Sheehan’s alleged fraud. It also seeks $134,724.52 for amounts Mr Sheehan allegedly owes to it for services it provided to the joint venture and which remain unpaid in breach of the express or implied terms of their mutual arrangements.

Procedural history

6. The Court heard these proceedings on 14 and 15 November 2016. Mr Withers of counsel appeared for UTi. As Mr Sheehan did not appear, Uti was required to prove that he had been served with proper notice of the hearing. The detailed procedural history shows that he was.

7. UTi commenced these proceedings by Summons on 2 March 2016. Black J made freezing orders that day against Mr Sheehan and Scarlet Amber. Those freezing orders have been varied several times since then.

8. UTi filed a statement of claim on 11 April 2016. Mr Sheehan and Scarlet Amber filed their defences on 19 May 2016. But soon after, on 15 June 2016, the defendants’ solicitor on the record ceased to act.

9. On 13 July, the Registrar in Equity set the proceedings down for hearing on 14 and 15 November 2016. At pre-trial directions held on 21 September 2016, the defendants again did not appear. But the solicitor for Mr Sheehan’s Trustee in Bankruptcy, Mr Mattiussi, was granted leave to appear, and informed the Court that Mr Sheehan had by then been declared bankrupt.

10. On 9 November 2016, the Federal Court of Australia granted leave to UTi under s 58(3) of the Bankruptcy Act 1966 (Cth) to continue and take fresh steps in these proceedings against Mr Sheehan. But that leave was subject to a condition that until Mr Sheehan were to be discharged from bankruptcy, UTi must take no step to enforce any judgment or order of this Court without the further leave of the Federal Court, other than to enforce the benefit of any trust or equitable interest in property held by Mr Sheehan that this Court declares.

11. Steps were taken to deal with the non-appearance Mr Sheehan at the commencement of the hearing on 14 November 2016. Email correspondence dated 11 November 2016 was tendered that had taken place between Uti’s solicitor, Mr Lynch, and Mr Sheehan’s wife, Carol Sheehan, initiated from her email address (“the Bigpond email address”). Mrs Sheehan stated in this correspondence that Mr Sheehan was unable to attend Court on 14 November because he was “very unwell” and she attached a medical certificate in support of her contention. I accept that Mr Lynch had used the Bigpond email address to communicate with Mr Sheehan once he was no longer legally represented.

12. Upon Mr Sheehan’s non-appearance on 14 November 2016, the proceedings were ordered to be stood over until 10am on the next day, 15 November 2016, to afford him a final opportunity to attend and contest the proceedings or apply for an adjournment of the hearing. The Court directed UTi on 14 November to send a copy of the orders of that day to Mr Sheehan by email to the Bigpond email address.

13. Mr Sheehan did not appear on 15 November 2016. But Mrs Sheehan had emailed a communication on 14 November 2016 from her Bigpond email address:

“I am sorry to inform you that Brian Sheehan my husband is very unwell and not able to make court in Sydney. As Brian is a bankrupt he cannot afford a Lawyer and a plane ticket, and if he appeared in Court he would be destroyed by the other side.”

14. The Court is satisfied that Mr Sheehan has been made aware of the proceedings and the hearing days on 14 and 15 November. No application for an adjournment was made on Mr Sheehan’s behalf by anyone appearing at Court. The Court cannot adjourn proceedings based on medical certificates only advanced by email to the Court. The proper course for a party seeking an adjournment is to arrange for someone to appear and argue for the adjournment based on admissible evidence. Unless this standard of proof were maintained, the conduct of court proceedings could be manipulated by a succession of untested medical certificates. UTi had no opportunity to test the medical evidence Mrs Sheehan sought to put before the Court. So the Court proceeded to hear the matter on 15 November.

Supply Chains, UTi and Brian Sheehan – 1995 to 2016

15. Except where it is clear that only submissions or allegations are being recorded, what follows in this and subsequent sections of these reasons is a narrative of the Court’s findings based upon the evidence UTi read and tendered at the hearing on 15 November 2016. This narrative of findings forms the basis for the Court’s conclusions and grant of relief.

16. Between 1995 and 2016, UTI and Mr Sheehan regulated their relations through a series of written agreements. On 5 September 1995, UTi (then named Freight Management International Pty Ltd, trading as “Union Transport”) appointed Mr Sheehan as its customs agent and tariff consultant. Mr Sheehan accepted that appointment in writing on 13 September 1995, when he and Union Transport (then trading as Bricar Customs and Shipping Agencies (“Bricar”)) entered an agreement, described in the pleadings as the “Bricar Agreement”.

17. On 15 January 1996, the parties terminated the Bricar Agreement and entered into a new profit sharing agreement (“the January 1996 Agreement”) pursuant to which Union Transport was entitled to 20% of the revenue generated by Mr Sheehan, calculated twice monthly.

18. Mr Warren Elsworth, UTi’s Vice President-Global Freight Forwarding Projects and Finance Australasia proves, in his affidavit evidence, the Bricar and January 1996 Agreements, and proves Mr Sheehan’s initial letter of appointment. His evidence establishes the later agreements made between the parties right up to the events the subject of these proceedings.

19. UTi claims that the January 1996 Agreement was subsequently varied by the conduct of the parties. I accept Mr Elsworth’s evidence that the parties entered into three further agreements to regulate their mutual affairs, respectively on 29 September 2008, 10 January 2011 and 1 June 2012. He describes these agreements in terms adopted in these reasons, as the “Profit Share Agreement”, the “Profit Share Agreement Extension” and the “Further Profit Share Agreement Extension”.

20. The Profit Share Agreement is constituted by a letter dated 29 September 2008 from UTi to Mr Sheehan and records then recent discussions:

“Further to our recent discussions on Thursday 25th September 2008, at the UTi Melbourne office, we would like to confirm the agreement reached between yourself and UTi (Aust) Pty Ltd in respect of UTi’s fees, the allocation of costs, and, the profit sharing/commission regime.

As outlined in our discussion, the formula by which monthly profit share/commission will be paid to you will be based upon the following formula:

Gross Profit for all jobs (collective total for all customers by sales code BHS)

Less the cost of interest (based on unpaid debtors – See Appendix A)

Less the cost of agreed UTi overheads and disbursement recovery items (see Appendix A)

This will result in a subtotal. This subtotal will be subject to a 55/45 profit split for each party, (ie 55.0% to Brian Sheehan and 45.0% to UTi (Aust) Pty Ltd).

These calculations will be undertaken monthly by UTi (Aust) Pty Ltd finance personnel in Sydney.

This arrangement will take effect from 1st October 2008 and remain in force for twelve (12) months from that date. On the anniversary date of this arrangement both parties will meet to discuss amendments, if any, to this arrangement.

…

Appendix A

Brian Sheehan – Ancillary Charges for UTi

Customers Clearance         $ 45.00

Airfreight Import Locals      $ 69.50

Sea Import Locals          $ 60.00

Exports            $ 60.00

Rent                $ 500.00

Method of calculation of interest on a monthly basis

The calculation will be as follows:

1. Take all debtors balances as at month end.

2. Apply corporate interest rate calculated as the average of bank bills, o/draft and BMG global bank borrowings.

3. Apply the interest rate to the debtors balance based on the respective numbers of days in the month.

4. Any customers not paying within terms will attract another month interest.”

21. A further letter to Mr Sheehan from UTi dated 10 January 2011 contains the relevant terms of the Profit Share Agreement Extension:

Further to our letter of the 29th September 2008, we write to you to confirm our continuation of the current agreement that is currently in place between yourself and UTi (Aust) Pty Ltd in respect of UTi’s fees, the allocation of costs, and, the profit sharing/commission regime. …

…

This arrangement will continue for the next 12 months with a review date of 1st January 2012. On or before the 1st December 2011 both parties will discuss any amendments, if any, to this agreement.

22. A final letter from UTi to Mr Sheehan dated 1 June 2012 recording the Further Profit Share Agreement Extension is in almost identical terms to the Profit Share Agreement Extension, save that 31 May 2013 is nominated as the review date and 1 May 2013 as the date upon which the parties would meet to discuss any amendments.

23. UTi pleads that from 1 November 2011 it agreed on terms with Mr Sheehan (“the 2011 Agreement”):

(a) Sheehan would:

(i) as agent for his clients, enter into a contract with third party carriers in respect of the carriage of his clients’ goods from overseas destinations to Australia (the Sheehan Services), and UTi would provide finance to Sheehan to allow Sheehan to make payment of invoices issued by such third parties to him for the Services (the UTi Finance Service); and

(ii) invoice his client for the Sheehan Services and include a profit component to be shared with UTi

(b) by request of Sheehan:

(i) UTi would provide a service to a nominated client of Sheehan and arrange contracts of carriage, customs clearance, storage and delivery of Sheehan’s clients goods;

(ii) Following provision of the requested service pleaded above at [b(i)], UTi would issue invoices to Sheehan’s client but the invoices would be addressed and sent to Sheehan’s post office box (the UTi Customer Invoices)

(iii) Sheehan would use the information in UTi Customer Invoices as to the services UTi provide and their cost to issue his own invoice to his client for UTi’s services which contained a mark-up that would be shared with UTi; and

(iv) Sheehan would make payment of the UTi Customer Invoices by the due date specified on the UTi Customer Invoices, and in the amount of the UTi Customer Invoices (the UTi Freight Forwarding Service).

(c) Any profit generated by Sheehan as a result of performing the Sheehan Services, and as a result of charging for the UTi Freight Forwarding Service was to be shared with UTi with 55% being retained by Sheehan and 45% being paid to UTi;

(d) Sheehan would pay an amount of $500 per month for office rent; and

(e) Sheehan would pay 10% per annum on any of UTi’s working capital used to perform the Services

24. But oral submissions revealed that the date 1 November 2011 was not significant and that references to the 1 November 2011 Agreement should be read as indistinguishable from the Profit Share Agreement the parties made in September 2008.

25. Mr Elsworth’s evidence was that pleaded terms (a) and (b) above were aspects of the joint venture between the parties arising from the January 1996 Agreement. Term (d) appears in Appendix A to the letter of 29 September 2008 extracted above.

26. In the defence filed in these proceedings before his solicitors ceased to act, Mr Sheehan admitted that, at least by 1 January 2014, terms (a), (b) and (d) formed part of his agreement with UTi. But Mr Sheehan denied that pleaded terms (c) and (e) were part of his agreement with UTi, pleading instead different terms:

(i) Monthly profit share/commission would be paid to Mr Sheehan based upon the gross profit for all jobs, less the costs of interest, less the cost of agreed UTi overheads and disbursements, which would result in a subtotal;

(ii) The subtotal would be split 55% to Mr Sheen [sic] and 45% to UTi;

…

(iv) Interest would be calculated monthly on the basis that a corporate interest rate (calculated as the average of bank bills, o/draft and BMG global bank borrowings) would be applied to all debtor balances as at month end based on the number of days in a month.

27. Nothing ultimately turns on any differences between the pleaded form of terms (c) and (e) and Mr Sheehan’s formulation of these terms. But the terms Mr Sheehan pleads appear to align more precisely with the terms of the 29 September 2008 letter.

28. On 1 January 2014, UTi implemented a new global freight forwarding operating system (“1 View”). Under this operating system, it was not possible for UTi to calculate profit share pursuant to its existing agreement with Mr Sheehan. Mr Elsworth explained in his affidavit why this was so:

7. … This system allowed the tracking of UTi customer shipments around the world and allowed invoices to be generated by UTi entities globally to UTi customers.

8. The implementation of 1 View meant that UTi lost all visibility on the profit Brian Sheehan obtained for the services he performed for his clients which was to be shared with UTi. This is because of the following:

(a) when the system was implemented, it did not have reporting capabilities built into it and only allowed UTi to invoice Brian Sheehan for services it provided to it;

(b) the system did not allow UTi to invoice Brian Sheehan for the services the third party provided to him; and

(c) the system did not allow UTi to invoice Brian Sheehan’s clients for the cost of the services he provided to his clients.

9. Due to the flaws with the 1 View system detailed above at paragraph 8, it meant that UTi could not calculate its profit share pursuant to Further Profit Share Agreement Extension. Accordingly, on behalf of UTi, I commenced negotiations with Brian Sheehan. ….

29. To continue working together, UTi and Mr Sheehan needed to renegotiate their existing arrangements. They commenced contractual negotiations with respect to: (1) a new process for determining profit share; (2) a new interest rate to allow for Mr Sheehan’s use of UTi’s working capital; and (3) a new written agreement governing the overall relationship between Mr Sheehan and UTi.

30. UTi pleads that between 1 January 2014 and 21 March 2016, the parties by their conduct varied their pre-existing agreement to add terms moulded around UTi’s new 1 View global freight forwarding operating system:

(a) Sheehan would provide the Sheehan Services

(b) Sheehan would receive an invoice from the third party carrier in respect of the Sheehan Services;

(c) Sheehan was given an UTi chequebook with the cheques to be signed by both Brian Sheehan and an UTi employee, Chris Edwards and then used to pay third party carrier invoices;

(d) Sheehan would send to an employee in UTi’s Melbourne branch a copy of the invoice he received from the third party carrier, together with a photocopy of the signed cheque made payable to the third party carrier that he would use to make payment of the third party carrier’s invoice;

(e) An employee of UTi’s Melbourne branch would then scan copies of the invoice and the cheque to the UTi document management system for a review by UTi’s finance shared services centre in Manilla who would approve the payment of the third party carrier invoice by the UTi cheque presented by Sheehan to UTI;

(f) Following approval by UTi of the payment of the third party carrier invoice by UTi cheque, the UTi cheque would be presented by Sheehan to the third party carrier to settle their invoices;

(g) Sheehan would access UTi’s 1 View system and prepare a UTi invoice to be issued to himself for the full amount of the third party carrier invoice issued to his client; and

(h) Sheehan would make payment to UTi of the UTi invoice he prepared for himself; and

(i) The distribution of profit obtained by Sheehan would be determined following the conclusion of the Contract Negotiations.

31. Mr Sheehan admitted in his defence that the above terms were agreed between the parties with the exception of term (i), which is not of present relevance.

32. A slight discrepancy exists between the above post-January 2014 terms that UTi pleads and Mr Elsworth’s evidence. In respect of pleaded terms (e), Mr Elsworth states, and I accept, that it was Mr Sheehan, not a UTi employee as is pleaded, who would scan copies of the invoice and cheque into the UTi document management system. Mr Chris Edwards, the Victorian State Forwarding Manager of UTi, supports that as being the procedure:

Once Brian Sheehan had completed filling out the cheque including co-signing it, including the details of who the cheque was to be paid to, he would submit a copy of both the cheque and third party invoice into UTi’s document management system (known as DMS) for electronic transmission to our Shared Services in Manilla for review and processing of the payment on UTi’s accounting system.

33. Given what ultimately occurred and the findings below as to the nature of Mr Sheehan’s fraud, nothing turns on whether it was Mr Sheehan or a UTi employee who entered copies of the invoices and cheques into the system. The important issue is what Mr Sheehan did with UTi cheques when they were physically in his possession and before they were banked into a Commonwealth Bank of Australia (CBA) bank account in the name of Scarlet Amber.

The Claims in Equity

The claim for an institutional constructive trust

34. This judgment makes findings of fraudulent conduct against Mr Sheehan, which may, were it proved to the requisite standard in criminal proceedings, amount to a crime. And this judgment does so in his absence. These reasons have already dealt with the notice given to Mr Sheehan both of this proceeding and this hearing. Whilst the applicable standard of proof is the balance of probabilities, the Court is mindful that in making any findings of fraud against Mr Sheehan it must be reasonably satisfied that such a serious allegation is made out: Briginshaw v Briginshaw (1938) 60 CLR 336.

35. UTi alleges Mr Sheehan constructed a scheme to defraud it between 19 October 2015 and 17 February 2016. With the minor variations detailed below, the evidence supports UTi’s contention that Mr Sheehan practised the following fraudulent scheme upon UTi between these dates. Mr Sheehan prepared 299 false invoices totalling $2,911,411.76 and addressed to UTi. The false invoices were issued in the name of third party carriers, who had not actually supplied any of the services to UTi described in the invoices. In accordance with the functions that UTi had generally entrusted to him once UTi’s new 1View global freight forwarding operating system commenced, he then drew up UTi cheques in payment of these invoices, using a UTi chequebook and inserting the figure corresponding to the invoices in the bottom right-hand corner of the cheques. Mr Sheehan then presented the false invoices together with the draft cheques to Mr Chris Edwards at UTi. On the faith of these documents Mr Edwards, who was the joint signatory on UTi’s Citibank cheque account with Mr Sheehan, approved and signed the cheques. Mr Sheehan subsequently deposited the cheques into a CBA bank account held by Scarlet Amber. But by the time they were so deposited the cheques had been readdressed to the payee (and fictional company) “BCR Freight P/L”, not the original payee identified in the invoices presented to Mr Edwards.

36. UTi’s pleadings allege that Mr Sheehan amended the payee on the cheques from the particular company named in the false invoice to the entity “BCR Freight P/L”. But Mr Withers submitted on behalf of UTi that this aspect of the pleading was not strictly correct, as the cheques in fact contained no payee when signed by Mr Edwards. Mr Edwards’ evidence well supported Mr Withers’ submission, revising UTi’s case:

“(a) On an almost daily basis Brian Sheehan would provide me with approximately 7-12 invoices issued by a third party shipping company said to have provided services his clients.

(b) Brian Sheehan would attach to the invoice with a pin, a UTi cheque which:

(i) was dated with the date that Brian Sheehan came and saw me to obtain from me the first signature on the cheque; and

(ii) had the amount of the third party invoice written (numerals only) in the box at its bottom right.

(c) I would review the amount of the invoice and the amount written on the cheque presented to me, and would check that they were the same. If they were, I would sign the cheque in the first signatory space authorising the cheque to be used to make payment of the third party invoice presented to me. Brian Sheehan as second signatory would then co-sign the cheque to allow it to be used for payment.

…

It was my understanding, as was the procedure in place, that once I had signed the cheque, Brian Sheehan would insert onto the face of it, the name of the of the [sic] third party who had issued the invoice which the cheque was attached to when presented to me, write in words onto the face of the cheque the amount of the payment so that they could be paid using the cheque presented to me, and then sign the cheque himself.”

37. Mr Elsworth’s evidence also supported Mr Withers’ submission that Mr Sheehan himself completed the details on the cheques:

“Brian Sheehan would complete the details on the cheque, including inserting to whom the cheque was payable to, co-sign the cheque, and then use it to make payment of the third party carrier invoice.”

38. Mr Withers submitted at one point that, as between himself and Mr Edwards, Mr Sheehan was the first person to sign the cheques. But the evidence is to the contrary: Mr Edwards’ evidence, which is likely to be the most reliable account on this issue, supports the inference that he signed first.

39. UTi’s 2015-2016 payment procedures were fraught with the risk of fraud. Mr Withers submitted, and I accept, that the correct construction of the evidence is, that the imprudent UTi practice of allowing Mr Edwards to sign cheques that were blank but for a date and an amount in numerals, had evolved over many years since 1996. The evidence of such a long business relationship between Mr Sheehan and UTi and of UTi’s witnesses supports the inference, that the Court draws, that by late 2016 there was a well-developed a relationship of trust between Mr Sheehan and others acting for UTi. Before then that relationship had not been questioned, thereby leading to the parties being content to transact their business under less than fully prudential financial practices, especially when they were temporarily negotiating a new profit-sharing agreement.

40. Copies of all the 299 invoices, and the 299 completed cheques sent from Mr Sheehan to UTi, were in evidence in the form of a substantial annexure to Mr Edward’s affidavit. UTi also tendered copies of the cheques deposited by Mr Sheehan (subpoenaed by UTi from the CBA) together with a table produced by CBA indicating the account into which each cheque was deposited. The table shows that all of the cheques except one were deposited into an account in the name of Scarlet Amber Pty Ltd. The payee of the remaining cheque designates the payee as “Melbourne OPC to advise final destination”.

41. Mr Sheehan identified in his affidavit of 11 April 2016 that the CBA account into which the cheques were paid was an account “held in the name of Scarlet Amber”. Mr Sheehan was obliged to file this affidavit in these proceedings pursuant to an order made by Black J. As a result the Court will grant Mr Sheehan a certificate under Evidence Act 1995 s 128A in respect of the contents of that affidavit: the Court is satisfied that the contents of that affidavit may tend to incriminate Mr Sheehan.

42. UTi tendered two “Company & Business Name” searches by SAI Global of the names “BCR Freight Pty Ltd” and “BCR Freight Pty Limited”, both of which record “No matching names found”. I infer from this material that that no company of that name exists.

43. I am satisfied on all the evidence that Mr Sheehan prepared the 299 false invoices in the names of third party carriers, and that he falsely represented to UTi that the cheques he presented to UTi for its approval for payment with the invoices were for genuine payments to the third party carriers nominated in each of the invoices. There is no other likely explanation for the invoices coming into existence other than to facilitate the diversion of funds from UTi to Scarlet Amber for Mr Sheehan’s benefit.

44. The Court has reviewed sufficient of the invoices and related cheques to be satisfied the pattern of invoice/cheque/payment described above is replicated without variation in the materials concerning all 299 cheques. In addition to that review, for the purposes of illustration of the Court’s inference that Mr Sheehan engaged in widespread fraud on UTi, the Court has selected for more detailed explanation a sample invoice for each of the five different corporate third party carriers named on the invoices. I accept all the evidence of the witnesses from these third party carriers and from the CBA.

45. In each of the five examples, the UTi document management system contains a cheque drawn up for payment of the amount stated in the invoice to the company named in the invoice. The CBA records contain a cheque bearing the same cheque number for payment of an identical sum, however the payee on the cheque deposited into the CBA account is named as “BCR Freight P/L”. There are some slight variations in the overall pattern, such as minor changes to the date of the cheque but nothing of substance turns on these differences. The Court is satisfied that these examples are representative of all the 299 cheques the subject of these proceedings.

46. The first example is an invoice dated 19 January 2016 in the name of “Hanjin Shipping Pty Ltd” in Australia for the sum of $9,820.38. Mr Young Jung, the Financial Controller of Hanjin Shipping Pty Ltd (Hanjin), states in his affidavit, and I accept, that he has reviewed the Hanjin’s invoice records and that there is no record of that invoice, and that the invoice (among others in the company’s name presented by Mr Sheehan) is not a genuine invoice of Hanjin. The genuine Hanjin invoices look quite different. The invoice corresponds with a copy cheque in UTi’s document management system bearing the number “676877” dated 19 January 2016 for payment of $9,820.38 to “Hanjin Shipping” that is signed by Mr Edwards and Mr Sheehan. However, in the material subpoenaed from the CBA, cheque number “676877” has been drawn for the payment of $9,820.38 to the payee “BCR Freight P/L”. The cheque in the material from the CBA is dated 17 January 2016, rather than 19 January 2016 for the UTi copy. While the UTi and CBA cheques are made out for exactly the same amount, there are subtle differences in their visual presentation – for example, in the cheque dated 19 January, the letter “D” in the word “Dollars” appears underneath the letters “U” and “N” in the word “HUNDRED”, whereas “D” is directly underneath “H” in the cheque dated 17 January.

47. The second example is an invoice dated 27 January 2016 in the name of “Marfret Shipping Agencies Pty Limited” for $9,815.51. Mr Craig McElvaney, Director of Seaway Agencies Pty Ltd (Seaway), the Australian Agent for Marfret Compagnie Maritime, states that there is no company registered in the name represented on the invoice, and that the ABN provided by the invoice belongs to an agency which ceased representing Marfret Compagnie Maritime in 2005. His evidence is that the invoice records of Seaway contain no record of this invoice. The invoice corresponds with a cheque in the UTi document management system bearing the number “677512” dated 27 January 2016 drawn up for payment to “Marfet Shipping”. However, in the CBA records, the cheque numbered “677512” of the same date has been drawn up for payment to “BCR Freight P/L”. As with the earlier example, there also are slight variations in the visual presentation of the CBA and UTi copies of the cheques related to this invoice.

48. The third example is an invoice dated 22 December 2015 in the name of “ABBA Logistics Pty Ltd” for the sum of $9,518.46. Ms Emily Shih, an Office Manager and Director of ABBA Logistics Pty Ltd (ABBA), states that ABBA has no record of the invoice. The invoice corresponds with a cheque bearing the number “676968” drawn up for payment to “ABBA Logistics P/L”. Again, the cheque numbered “676968” in the CBA records bears the same date and sum, but names “BCR Freight P/L” as the payee.

49. The fourth example is an invoice dated 11 January 2016 in the name of “BCR Australia Pty Ltd” for the sum of $9,518.47. Mr David Katte, Director and Chief Executive Officer of BCR Australia Pty Ltd (BCR), states in his affidavit that the invoice records of BCR contain no record of this invoice. He identifies other odd features of the invoice that are inconsistent with it being a genuine BCR invoice:

“I note the job numbers referred to in the invoices annexed to this affidavit … are 10 characters in length when the job numbers for jobs performed by BCR Australia Pty Ltd are 9 characters in length.”

50. The invoice corresponds with a cheque numbered “676846” in the UTi document management system dated 11 January 2016 drawn up for payment to “BCR Australia P/L”. But, again replicating the pattern of the other cheques examined, in the CBA records, the cheque numbered “676846” names “BCR Freight P/L” as the payee.

51. The final example is an invoice dated 3 February 2016 in the name of “Global Freight Services Pty Ltd” for $9,518.43. The evidence of Mr Paul Gardiner, who has been a director of Global Freight Services Pty Ltd (Global) since 1992, is that the company has no record of the invoice and that it is not genuine. The corresponding copy cheque in UTi’s document management system is numbered “677554” and names “Global Freight Services” as the payee. However, in the CBA records, the cheque bearing that number is addressed to “BCR Freight P/L”.

52. The above examples, and indeed the rest of the evidence, do not reveal the precise mechanics by which the two versions of the same cheque number were generated, so as to be addressed to different payees. But a number of important facts, established on the evidence and common to all the cheques, indicate fraud here. These are that in each case: the invoice presented by Mr Sheehan to UTi recorded a supply of services or other business transaction that never took place; the payee on the cheque banked into Scarlet Amber’s account did not correspond with the payee on the invoice Mr Sheehan presented to Mr Edwards at UTi; at all times from the time Mr Edwards signed them, Mr Sheehan had control of the cheques in question; and the funds were received into an account in the name of Scarlet Amber from which Mr Sheehan benefited.

53. On the basis of these findings, I am satisfied that UTi has established that all the funds paid out by UTi on the basis of the 299 cheques were so paid as a result of Mr Sheehan’s fraudulent misrepresentations. In Derry v Peek (1889) 14 App Cas 337, Lord Herschell stated (at 374) that fraud will be proved where it is shown that “a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”.

54. This is a case of actual knowledge, not mere lack of belief in the truth or recklessness. When Mr Sheehan presented each of the invoices to Mr Edwards for signing he thereby falsely represented that each invoice was genuine and that the cheques would be paid onto the third party carriers for services they had genuinely provided. The signing ceremony with Mr Edwards could not have meant anything else. The Court infers that Mr Sheehan actually knew the invoices were false and probably prepared them himself: the invoiced services never having been provided by the third party carriers and the invoices never having been sourced from them, it is not credible that Mr Sheehan could have somehow made a mistake or was careless in dealing with these entities or their agents some 299 times in the space of five months. The evidence does not identify any person other than Mr Sheehan was involved in the preparation of or the handling of the cheques before or after their signature by Mr Edwards. Indeed no plausible hypothesis emerges from the material before the Court to suggest that any persons other than Mr Sheehan could have been involved, either in preparing these invoices, or in handling these cheques so as to be responsible for their alteration. Mr Sheehan was in a unique position of peculiar trust with UTi because of his long association with it to enable him to handle these cheques and invoices this way.

55. And Mr Sheehan took the benefit of monies from Scarlet Amber during the period that funds were being paid into it pursuant to these false invoices. Mr Sheehan produced bank statements (pursuant to a notice to produce) revealing payments from Scarlet Amber into an account held in the joint names of himself and Mrs Sheehan during the period from 7 December 2014 to 8 March 2016. Those payments are said to total $85,905.62. The first payment from Scarlet Amber recorded in the statement is dated 11 December 2014, some months before the relevant period.

56. These payments at least confirm that Mr Sheehan controlled Scarlet Amber. But UTi does not make in these proceedings a tracing or other claim for relief for monies paid from Scarlet Amber to Mr and Mrs Sheehan. So it has not been necessary to trace UTi’s funds through Scarlet Amber or to separate them in Scarlet Amber’s hands from Scarlet Amber’s own funds or from funds claimed by others.

57. Upon these findings UTi seeks a declaration that any funds held by Mr Sheehan that were obtained pursuant to the 299 cheques (or any property acquired with those funds) are impressed with an institutional constructive trust that arose at the time that the funds were fraudulently obtained, with the consequence that the funds (or property) will then be trust property in Mr Sheehan’s bankruptcy held for UTi’s benefit.

58. In support of the relief sought, UTi relies on the decision of the High Court in Black v S Freedman & Co (1910) 12 CLR 105. In that case the appellant, Mr Black, paid sums of money stolen from his employers into his personal bank account. He subsequently withdrew monies from his bank account and paid them into an account in his wife’s name. The question before the High Court was whether the employers could recover against Mr Black’s wife. In this context 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 it of that character. If he pays it over to another person, then it may be followed into that other person’s hands. If, of course, that other person shows that it has come to him bona fide for valuable consideration, and without notice, it then may lose its character as trust money and cannot be recovered. But if it is handed over merely as a gift, it does not matter whether there is notice or not.

59. This statement of principle has recently been restated by the Court of Appeal in Sze Tu v Lowe [2014] NSWCA 462 at [141] (Gleeson JA, Meagher and Barrett JJA agreeing). Gleeson JA continued at [147]-[150]:

Whether the trust based on a Black v Freedman claim is more properly characterised as a resulting trust: (Robb Evans at [112]-[117]); or a constructive trust: (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] NLJR 877; AC 669 at 716 (Lord Browne-Wilkinson)), the trust is properly viewed as being of an institutional rather than simply a remedial character. It arises because the conscience of the thief is bound: Heperu at [154]-[155]; Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; 63 ACSR 429 at [40] (White J).

In Robb Evans, Spigelman CJ said (at [113]) that the thief holds any property into which the stolen property has been converted on trust in a manner which should be seen as automatic. That is, a trust arises immediately upon the acquisition of the property, not when recognised by a court. He continued (at [115]):

If appropriately characterised as 'constructive', the trust that arises upon receipt of stolen funds by an active participant in the theft is of an institutional rather than remedial character. [Emphasis added.]

The authors of Jacob's Law of Trusts in Australia (7th ed, LexisNexis Butterworths) observe (at [1310]) that there is a remedial flavour about various constructive trusts, including that in Black v Freedman. Nonetheless they state (at [1311]) that "it does not follow that the constructive trust in such cases is 'remedial' in the sense that it first has existence and effect only upon the Court making its decree". The authors point out that in Black v Freedman, O'Connor J meant (at 110) that the thief became a trustee forthwith.

The institutional character of such a constructive trust may be seen as "connoting a relationship which arises and exists under the law independently of any order of the Court": Muschinski v Dodds [1985] HCA 78; 160 CLR 583 at 614 (Deane J), although his Honour doubted (at 613) that there was any perceived dichotomy between institutional and remedial constructive trusts, preferring to view a constructive trust both as an institution and a remedy.

60. The question in Sze Tu v Lowe was whether the trial judge erred in failing to consider whether proprietary relief was appropriate, on the basis that the facts of the case (the purchase of real properties using misapplied partnership funds) could only give rise to a remedial (as opposed to an institutional) constructive trust (at [156]). The appellants in that case placed reliance on a statement of the Full Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 at [255] as suggesting that the principle of appropriateness has application to a claim based on Black v S Freedman & Co in respect of assets in the hands of a volunteer.

61. The Court of Appeal held in Sze Tu v Lowe that the trial judge did not err in concluding that the claim based on Black v S Freedman & Co “gave rise to an institutional constructive trust over the partnership moneys or their traceable product” (at [162]). Gleeson JA (at [157], [238]) emphasised the remarks of Allsop P (Campbell JA and Handley AJA agreeing) in Heperu Pty Limited v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 at [154]-[155] to the effect that “the trust rests on the existence of property rights and in that sense is not purely remedial”.

62. In coming to this conclusion, Gleeson JA acknowledged at [155] that it has been suggested in the United Kingdom that it is not strictly correct to speak of the fraudster as a “trustee”, even though the fraudster may be “liable to account as if they were” (Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 per Lord Millett). I note in this context that Spigelman CJ in Robb Evans v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [115]-[116] also questioned whether the trust that arises upon receipt of stolen funds by an active participant in the theft is properly characterised as a constructive trust, as opposed to a presumed or resulting trust.

63. In the present case, it is unnecessary for the Court to resolve these analytical debates. In accordance with the principles stated in Black v S Freedman & Co and restated in Sze Tu v Lowe, I am satisfied that Mr Sheehan dishonestly diverted to himself the funds the subject of the 299 cheques and that the circumstances of the present case gave rise from the date the funds were fraudulently obtained to an institutional constructive trust in favour of UTi over the cheque proceeds that thereby came into and remain in Mr Sheehan’s hands.

64. The Court will make declarations accordingly. The declarations will suffice for the present instead of judgments, as UTi has no intention of enforcing judgments in view of Mr Sheehan’s bankruptcy. Mr Sheehan was the actor who received the various cheques into his hands after Mr Edwards signed them. So it is apt to frame the declarations and orders against Mr Sheehan on the basis that the funds in question were received by Mr Sheehan and were then paid at his direction to Scarlet Amber.

Equitable compensation

65. The Court has not analysed the extent to which the sum of $2,911,411.76 that Mr Sheehan obtained from UTi has since been dissipated. That is a larger and different inquiry. The Court has neither been provided with the evidence that would show what happened to these funds nor asked to undertake the exercise. UTi has flagged that it seeks equitable compensation for monies so dissipated. But it is possible to frame declaratory relief to cover the consequences, by way of UTi’s entitlement to equitable compensation, of dissipation of monies by Mr Sheehan.

66. UTi seeks various other forms of relief, which are considered below. This other relief is mostly sought in the alternative to the same sum that is claimed in the principal relief already analysed above. But as will be seen, one money claim among the other relief sought is additional to and does not overlap with the primary relief sought.

Breach of contract

67. UTi seeks damages for the breach of both implied and express terms of the agreements between UTi and Mr Sheehan. First UTi’s claims as to the implied terms may be shortly stated.

68. UTi contends that two terms are implied into its agreements with Mr Sheehan:

1. That third party carrier invoices presented to UTi by Mr Sheehan in the course of his work under the agreements would be genuine; and

2. That Mr Sheehan would, upon the termination of the 2011 and 2014 Agreements, pay to UTi all monies owing to it for services UTi provided to Mr Sheehan.

69. As to implied term (1), UTi claims it suffered a loss of $2,911,411.76, the amount of the false invoices, from Mr Sheehan’s breach of this term.

70. As to implied term (2), in its statement of claim, UTi quantifies the loss suffered by breach of this term as $3,467,816.92, being the sum of $2,911,411.76 in respect of the false invoices plus an additional $556,405.16 that is said to be outstanding in respect of a number of invoices UTi had issued to Mr Sheehan in respect of UTi’s Freight Forwarding Service. At the hearing, Mr Withers informed the Court that the additional outstanding sum in respect of UTi’s invoices to Mr Sheehan on account of this service had been reduced from $556,405.16 to $134,724.52, although UTi’s written submissions had claimed a slightly lower figure of $131,057.33 on this account. The claim on account of UTi’s invoices to Mr Sheehan for $134,724.52. This was for the total of the invoices identified in three overdue account statements of DSV Air & Sea Pty Limited dated 11 November 2016 which Mr Elsworth explains were issued by UTi to Mr Sheehan for $42,356.98, $3,508.43, and $88,859.11 respectively.

71. In the alternative, in relation to the invoiced amounts the subject of term (2), UTi puts its claim for $134,724.52 for its invoices to Mr Sheehan as one for damages for breach of an express contractual term. UTi says that it was an express term of the 2011 Profit Share Agreement Extension (clause (b)(iv) that Mr Sheehan would pay to UTi all monies owing to it for services UTi provided to Mr Sheehan. Term (b)(iv) of the 2011 Profit Share Agreement Extension is set out earlier in these reasons but for convenience relevantly provides:

Sheehan would make payment of the UTi Customer Invoices by the due date specified on the UTi Customer Invoices, and in the amount of the UTi Customer Invoices (the UTi Freight Forwarding Service).

72. In answer to UTi’s express contract plea, Mr Sheehan pleaded in his defence, filed when he was legally represented, that the effect of this express term was that he was only liable to pay UTi for UTi Customer Invoices to him when he himself had been paid. Although Mr Sheehan was not present at the hearing, as this issue was raised on the record in his defence, it was dealt with in submissions. UTi submitted at the hearing that term (b)(iv) of the 2011 Profit Share Agreement Extension was not a “pay when paid” provision but requires payment on the UTi Customer Invoices as submitted.

73. In his defence, Mr Sheehan admitted that the amount of $556,405.16 (now reduced to $134,724.52) had not been paid. He explained the circumstances of the non-payment in his 11 April 2016 affidavit:

Since 10 March 2016, I have had many difficulties paying the charges … Since 2 March 2016, my assets and Scarlet Amber’s assets have been frozen by orders of this Court. As I have not had access to UTi’s system I do not know when the shipments are due to arrive until UTi informs me. Often UTi has informed me of a shipment that is coming in as late as the day of or the day before it is due to arrive. This has not given me enough time to pay all the charges and get the goods delivered on time to the customer.

Also, UTi have been slow in providing me with invoices for their charges, which has affected my ability to pay the invoices and have the goods cleared and delivered. The Commonwealth Bank has refused to allow any payments from its accounts without written authority from UTi for each proposed payment, even when the payment is to be made to UTi. When the invoice is provided to me by UTi a day or so before the shipment is due, as is often the case, I cannot arrange payment of the charges by the time the shipment arrives so its delivery is delayed.

74. It is useful to deal with UTi’s submissions as to the express term first. Express term (b)(iv) in the 2011 Agreement continued to govern relations between these parties at the time of the termination of their relationship. And UTi’s contention that it is not a “pay when paid” term is persuasive. It does not purport to be a “pay when paid” provision and does not readily bear the construction that Mr Sheehan’s defence sought to put upon it to that effect. The UTi invoices were due under term (b)(iv) in accordance with their terms. It is not therefore necessary to consider whether UTi’s term (2) should be implied into the agreements between UTi and Mr Sheehan as the additional $134,724.52 is recoverable under the express term.

75. Term (1) as pleaded should be implied in fact to give business efficacy to the contract between the parties. I accept Mr Withers submission that each of the criteria set forth by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (BP Refinery) for the implication of term (1) is fulfilled in this case. Their Lordships stated (at 283) that:

[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

76. That statement of principle has been repeatedly reaffirmed by the High Court: see most recently Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32 at [21] (footnote 41) (French CJ, Bell and Keane JJ).

77. UTi submitted, and I accept, that the above criteria are satisfied with respect to term (1) for at least the following reasons:

1. The term is reasonable and equitable, as it does not impose any onerous contractual duties on the parties, or impose an obligation that unfairly favours one party over another.

2. The term is necessary to give business efficacy to the contract because without the term, funds could be misapplied by the contracting parties using non-genuine invoices.

3. The term is so obvious that it goes without saying. It is implicit in the parties’ relationship that they would deal with one another honestly and that one party should not be permitted to gain a benefit from another using illegitimate means.

4. The term is capable of clear expression: it imposes a precise negative obligation.

5. The term does not contradict any express term of the contract: the written agreement between the parties does not deal with the subject matter of the posited implied term.

78. I am satisfied that there was an implied term that invoices presented by Mr Sheehan to UTi were genuine for the above reasons. As I noted at the hearing of this matter, it is difficult to imagine a term more obvious than this one.

79. The $2,911,411.76 UTi paid out on the false invoices is a loss flowing from Mr Sheehan’s breach of this implied term. The Court’s findings on the claim in equity are sufficient to found the inference for the purpose of the present claim that UTi paid these funds away because it was presented with non-genuine third party invoices in breach of this implied term.

Deceit

80. UTi seeks damages for the tort of deceit in respect of Mr Sheehan’s false representations that the invoices presented for approval were genuine and that the cheques being requested to be drawn were for payment of services genuinely provided by the third party payees identified on the cheques which would be transmitted to those third parties.

81. In Magill v Magill (2006) 226 CLR 551; [2006] HCA 51, Gummow, Crennan and Kirby JJ summarised the elements of deceit as follows (at [114]):

The modern tort of deceit will be established where a plaintiff can show five elements: first, that the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation. Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation.

82. Mr Withers submitted that each of these elements is established in the present case. On the facts the Court has now found, Mr Withers’ submission is persuasive.

83. In respect of the first element, Mr Withers submitted that Mr Sheehan:

(i) Falsely represented to [UTi] that he had received third party invoices for payment when he presented third party invoices to [UTi] for approval to be paid by [UTi’s] cheques. … These representations were false because the invoices had not been prepared by the third party said to have issued the invoices …

(ii) Falsely represented that UTi cheques to be signed were for payment of services genuinely provided by a third party and that the cheques would be used to make payment to a third party. These representations were false because the third party said to be paid by [UTi’s] cheque had not provided any services to [Mr Sheehan] …

84. For the reasons give above, I accept that the invoices presented by Mr Sheehan were false, that Mr Sheehan falsely represented to UTi that the cheques would be paid to third party carriers for services genuinely provided, and that Mr Sheehan made these false representations knowingly.

85. In respect of the third element, UTi submitted, and I accept, that Mr Sheehan must have intended that UTi would rely upon the false representations because upon presentation of an invoice to UTi Mr Sheehan knew that UTi would approve the use of its cheques to make payment of the invoices presented to it, as was the usual commercial practice between UTi and Mr Sheehan from early 2014.

86. In respect of the fourth and fifth elements, UTi submits that it relied on Mr Sheehan’s false representations by approving the use of the cheques, suffering a loss of $2,911,411.76. Reliance was placed on the statement by Mr Edwards in his affidavit that:

I authorised the use of the cheques in accordance with the procedure detailed above … in the belief that the invoices presented by Brian Sheehan to me were genuine.

87. I accept all Mr Edwards’ evidence and am satisfied that UTi’s reliance on Mr Sheehan’s false representations resulted in the loss of $2,911,411.76, and accordingly UTi is entitled to that sum in damages for deceit.

Misleading or deceptive conduct

88. UTi also seeks damages under s 236 of the Australian Consumer Law in the sum of $2,911,411.76 for losses it claims to have suffered on account of breaches of s 18 by Mr Sheehan. Section 18(1) provides that:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

89. UTi claims that by presenting false invoices and cheques for approval, Mr Sheehan engaged in misleading or deceptive conduct in trade or commerce. It submits that the relevant conduct occurred in the context of “trade or commerce” because the parties “had a contractual business relationship with each other”.

90. The phrase “trade or commerce” as it appeared in the Trade Practices Act 1974 (Cth) was examined at length by Mason CJ, Deane, Dawson and Gaudron JJ in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603-4. Their Honours construed the term as limited to “activities or transactions which of their nature, bear a trading or commercial character”. See also Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [33].

91. Mr Sheehan presented to UTi the invoices. And the cheques were drawn pursuant to a profit sharing agreement between the parties. In those circumstances, I am satisfied that the conduct falls within the phrase “trade and commerce”.

92. The meaning of “misleading or deceptive or is likely to mislead or deceive” was recently examined in Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54, where French CJ, Crennan, Bell and Keane JJ stated at [39] that:

Conduct is misleading or deceptive, or likely to mislead or deceive, if it has a tendency to lead into error. That is to say there must be a sufficient causal link between the conduct and error on the part of persons exposed to it. It is in that sense that it can be said that the prohibitions in s 52 and s 18 were not enacted for the benefit of people who failed to take reasonable care of their own interests.

93. UTi submitted that Mr Sheehan’s conduct induced error within the meaning of their Honours’ remarks, by causing UTi to approve the use of the cheques to make payment of invoices that had not in fact been issued by third party carriers.

94. Whilst it is true that UTi’s conduct in signing substantially blank cheques was in many respects careless, that lack of care was really the product of UTi temporarily letting its guard down during the transition to a new profit sharing agreement, because of a long standing relationship of trust which Mr Sheehan exploited. It would stand ill in Mr Sheehan’s mouth to say that UTi should not be compensated under the Australian Consumer Law on account of its failure to take care of its own interests, when he knowingly took advantage of UTi’s trust in him.

Interest up to Judgment

95. UTi claims interest up to judgment. The equitable jurisdiction to award compound interest in claims for recovery of trust funds, where the interests of justice so demand is well established (Wallersteiner v Moir (No 2) [1975] QB 373; Hungerfords v Walker (1989) 171 CLR 125; [1989] HCA 8). Mr Withers indicated that UTi seeks only simple interest from the commencement of the proceedings on account of the logistical difficulty in calculating interest on these individual transactions from the date each of them occurred.

96. This in substance means that there is no difference between the interest that UTi claims for the recovery of the monies that Mr Sheehan held as an institutional trustee for UTi and the other money claims in tort and contract on which simple interest would normally be calculated at the rates prescribed from time to time under Civil Procedure Act 2005 s 100. Interest up to judgment under Civil Procedure Act s 100 on the amount due on these other claims is payable to compensate a plaintiff for the loss or detriment suffered by the plaintiff being kept out of the money adjudged to be due: MBP (SA) Pty Limited v Gogic (1991) 171 CLR 657.

95. Interest should be awarded here both in the Court’s general equitable jurisdiction and under Civil Procedure Act 2005 s 100. The circumstances of Mr Sheehan’s deliberate misapplication of UTi’s funds for his own benefit attract an award of interest in the Court’s equitable jurisdiction. As UTi has been out of its money since the time of payment on these false invoices, there is no apparent basis to deny the exercise of the Court’s jurisdiction to award Civil Procedure Act 2005 s 100 interest.

96. The Court will order interest at Civil Procedure Act 2005 s 100 rates from the date of commencement of proceedings up until the entry of judgment. The Court will direct UTi to bring in a calculation of that interest in accordance with these reasons, so that the Court can make an order for interest in a particular sum. UTi calculated that interest up to 17 November 2016 in the amount of $107,380.80. Directions are made below for that calculation to be updated to the time of entry of judgment.

Orders

99. The Court will make the orders set out below. As the form of the orders contemplates, some work still needs to be done by the solicitors for UTi to prepare and render the orders in a composite form so they can be entered in final form into the Court record incorporating schedules 1 and 2. Accordingly, the present orders give directions for that to be done. The Court therefore makes the following orders:

1. In respect of the cause of action pleaded at paragraphs 41 to 45 of the Statement of Claim (fraud):

1. The Court declares that the First Defendant is the trustee of an institutional constructive trust over the sum of $2,911,411.76 (the Fund) received by the First Defendant from the Plaintiff through each of the transactions pleaded in paragraph 15 of the Statement of Claim and as set out in Schedules 1 and 2 of the Statement of Claim which have now become Schedules 1 and 2 to these orders.

2. The First Defendant must account to the Plaintiff for the Fund.

3. To extent that any part of the Fund has been dissipated and is no longer in the hands of the First Defendant then the First Defendant is liable pay the Plaintiff equitable compensation in the amount that such Fund has been so dissipated but such liability shall not exceed the amount of $2,911,411.76, less the amount of the Fund that has not been so dissipated.

2. In respect of the cause of action based in contract pleaded at paragraphs 18-23 of the Statement of Claim, the cause of action based on the tort of deceit pleaded at paragraphs 24 to 34 of the Statement of Claim and the misleading and deceptive conduct claim pleaded at paragraphs 35 to 40 of the Statement of Claim declare that the First Defendant is liable to the Plaintiff in damages in the amount of $2,911,411.76.

3. In respect of the further breach of contract claim pleaded at paragraph 51 of the Statement of Claim, declare that the First Defendant is liable to the Plaintiff for damages in the amount of $134,724.52 based on the several unpaid invoices for amounts due and payable to the Plaintiff, which invoices are recorded in the three statements of account in the amounts of $42,356.98, $3,508.43 and $88,859.11 issued on behalf of the Plaintiff by DSV Air & Sea Pty Limited dated 11 November 2016.

4. The maximum total amount the Plaintiff is entitled to recover from the First Defendant pursuant to orders 1 and 2 above is $2,911,411.76.

5. The First Defendant is to pay pre-judgment interest to the Plaintiff, being interest in the amount of $107,380.80 calculated from 11 April 2016 (the date proceedings were commenced) until 17 November 2016 (the day after the hearing) but the final amount of pre-judgment interest will be updated in accordance with a supplementary calculation to be provided when final orders, including interest orders are made.

6. The First Defendant is to pay the Plaintiff’s costs of these proceedings as agreed or assessed.

7. Direct the Plaintiff to bring in short minutes of order to give effect to these reasons by allowing the Court to make final orders including complete calculations of interest and including Schedules 1 and 2.

100. Finally, the Court has decided to refer the papers in this case to the Attorney General as first law officer, as the first defendant’s conduct may found a criminal prosecution.

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Amendments

13 April 2017 - Case citations corrected (typos)- coversheet.

Decision last updated: 13 April 2017