Westpac Banking Corporation v Ollis

[2007] NSWSC 956

CITATION:	Westpac Banking Corporation v Victor Warren Ollis & Ors [2007] NSWSC 956 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	20/08/07, 21/08/07, 22/08/07, 23/08/07, 24/08/07
JUDGMENT DATE :	31 August 2007
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Plaintiff’s case made out – Short minutes to be brought in.
CATCHWORDS:	Banking and financial institutions - Banker and customer relationship - Mistake - Recovery of moneys paid under mistake by bank to customer - Bank error in not cancelling or suspending customer’s auto-transfer replenishment facility - Customer with knowledge of mistake - Mistake fundamental or basic to transaction - Customer dishonestly taking advantage of bank’s mistake by writing cheques totalling approximately $11 million over seven-month period - Jones v Dunkel - Principles - Moneys fraudulently procured by customer held on trust for the bank - Principles concerning fraud claims - Where moneys paid by mistake impressed with trust - Barnes v Addy - Third party recipient liability - Remedies
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) Evidence Act 1995 (NSW)
CASES CITED:	Addstead Pty Ltd (in liq) v Liddan Pty Ltd (1997) 70 SASR 21 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469 ASX Operations Pty Limited v Pont Data Australia Pty Limited (No 1) (1990) 27 FCR 460 Baden Delvaux & Lecuit v Societe Generale Pour Favoriser le Developpement du Commerce et de L’Industrie en France SA [1992] 4 All ER 161 Banque Belge pour L’Etranger v Hambrouck (1921) 1 KB 321 Barnes v Addy (1874) LR9ChApp 244 Barrett & Sinclair v McCormack [1999] VUCA 11 Beatty v Guggenheim Exploration Co (1919) 122 NE 378 Black v S Freedman & Co (1910) 12 CLR 105 Briginshaw v Briginshaw (1938) 60 CLR 336 Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 All ER 367 Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corporation [1999] NSWSC 671 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1979] 3 All ER 1025 Clarke v Shee (1774) 1 Cowp 197 Creak v James Moore & Sons Proprietary Ltd (1912) 15 CLR 426 Cox v Smail [1912] VLR 274 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt1) (NSW) 557 Dover Pty Ltd & the Companies Act 1961, Re (1981) 6 ACLR 307 Eldan Services Ltd v Chandag Motors Ltd [1990] 3 All ER 459 Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804 Espin v Pemberton (1859) 44 ER 1380 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 French Caledonia Travel Service Pty Ltd (in liq), Re (2003) 59 NSWLR 361 Goode, Re; Ex parte Mount (1974) 24 FLR 61 Halletts Estate, In re (1880) 13 Ch D 696 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Ilich v R [1987] 162 CLR 110 Jones v Dunkel (1959) 101 CLR 298 Jones v Southall & Bourke Pty Ltd [2004] FCA 539 Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191 K & S Corp Ltd v Sportingbet Australia Pty Ltd (2003) 86 SASR 312; [2003] SASC 96 Magafas v Carantinos [2007] NSWSC 917 Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14 Miller v Race (1758) 1 Burr 452 Montagu’s Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd & Ors; Re [1987] Ch 264 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 Nocton v Lord Ashburton [1914] AC 932 Norwich Union Fire Insurance Society Ltd v William H Price Ltd [1934] AC 455 Oatway; In re [1903] 2 Ch 356 Official Receiver for and on behalf of the Official Trustee in Bankruptcy v Klau & Ors [1987] FCA 242 Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALJR 402 Pedler v Richardson (unreported, Supreme Court of NSW, Young J, 16 October 1997, BY CONSENT 9705263) Porter v Latec Finance (Qld) Pty Ltd [1964] HCA 49; (1964) 111 CLR 177 Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Sinclair v Brougham [1914] AC 398 Strang v Owens (1925) 42 WN (NSW) 183 Wambo Coal Pty Ltd v Stuart Karim Ariff [2007] NSWSC 589 Watson v Foxman (1995) 49 NSWLR 315 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 Wookey v Pole (1820) 4 B & Ald 1
PARTIES:	Westpac Banking Corporation (Plaintiff) Victor Warren Ollis (First Defendant) Gail Anne Shields (Second Defendant) Koala Development Pty Limited (Third Defendant)
FILE NUMBER(S):	SC 50045/06
COUNSEL:	Mr J Stevenson SC, Mr D McLure (Plaintiff) Litigant in person (First Defendant) Litigant in person (Second Defendant and appeared for Third Defendant) [on the 23rd and 24th August 2007 hearing dates Mr CJ Dibb of counsel appeared for the Second and Third Defendant]
SOLICITORS:	Henry Davis York (Plaintiff)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 31 August 2007

50045/06 Westpac Banking Corporation v Victor Warren Ollis & Ors

JUDGMENT

The proceedings

1 These proceedings concern an auto-transfer replenishment facility [ATR facility] established in relation to the movement of funds between two accounts opened with the plaintiff, Westpac [‘the Bank’], by the first defendant Mr Ollis: the first being a personal account no. 135 opened on 13 October 2000 (‘the Personal Account’) and the second being a business account no. 123 opened on 18 March 2003 (‘the Business Account’).

2 The ATR facility was established and intended to operate in the following fashion:

i. the Personal Account had a credit balance;

ii. if transactions were performed on the Business Account so as to cause it to have a debit balance at the end of any given day, the ATR facility would debit the Personal Account with an amount equal to the debit balance of the Business Account. The same amount would be credited to the Business Account. This would cause the balance of the Personal Account to be reduced and the balance of the Business Account to be brought back to zero.

3 As will appear from the reasons below an error was made by the Bank in failing at a particular point in time to cancel or suspend the ATR facility. Mr Ollis took advantage of the mistake by drawing cheques on the Business Account to the value of $10,955,360 over an approximate seven-month period spanning from 17 June 2005 to 11 January 2006.

Short chronology

4 The efficient approach is simply to commence these reasons with a short chronology of what is shown to have occurred and then to outline the issues which are raised for determination.

i. On 13 October 2000 Mr Ollis opened account no. 135 with the Bank;

ii. on 18 March 2003 Mr Ollis opened account 123 with the Bank;

iii. on 19 August 2003, Mr Ollis established the ATR facility. He did this immediately after a cheque had been dishonoured, causing the Business Account to be overdrawn (Ex P1 Tab 2 pp 19-20);

iv. the ATR facility was supposed to (and did until 17 February 2004, when Mr Ollis recognised the “computer glitch” – referred to in the reasons below) operate properly in the fashion already described;

v. on 17 February 2004, the Business Account had an opening balance of $2,435.90. In the course of the day, Mr Ollis carried out total withdrawals of $39,207.50 (including drawing a cheque for $37,500) and made total deposits of $150. At the end of the day, but for the ATR facility, the account would have had a debit balance of $36,621.60. However, the ATR facility operated by:


(a) debiting the Personal Account with $36,621.60;

(b) crediting the Business Account with $36,621.60.


vi. The statements for the Business Account and Personal Account showing those transactions appear at Ex P1 Tab 2 pp 106 and 107 and are summarised on MFI P8. [It is to be noted that the transactions did not occur in the order that they appear on the bank statements.]

vii. The debit of $36,621.60 caused the Personal Account to become overdrawn, producing a debit balance of $36,536.29.

viii. On 2 March 2004 the Personal Account was referred to the Bank’s Collections Area.

ix. On 11 March 2004 the Bank’s Collections Area sent a letter to Mr Ollis advising him that no further withdrawals from the Personal Account were permitted and any redirection facilities would be cancelled;

x. on 16 March 2004 Mr Ollis contacted the Collections Area and acknowledged that he had received the letter from the Bank. Mr Ollis also promised to make weekly payments of $1,000 with a view to clearing the overdrawn balance of the Personal Account by April 2004;

xi. on 20 March 2004 the Bank’s Collections Area placed the Personal Account on a "post credits only" status: Mazzone [8], PX A3 1132. This froze the account so that only payments or deposits to the account were permitted. Payments out of the account were forbidden;

xii. on 25 March 2004 the Bank’s Collections Area sent a further letter to Ollis, again advising him that no further withdrawals from the Personal Account were permitted and any redirection facilities would be cancelled;

xiii. on 14 April 2004 the Collections Area contacted Mr Ollis regarding the continued overdrawn status of the Personal Account. Mr Ollis promised to clear the account in 10 to 14 days;

xiv. on 16 May 2004 the Bank’s Collections Area sent a further letter to Ollis threatening legal action if his debt was not cleared within 7 days;

xv. on 21 May 2004 the Collections Area left a message for Mr Ollis to contact the Bank;

xvi. on 25 May 2004 the Bank’s Collections Area sent a further letter to Ollis again threatening legal action if his debt was not cleared within 7 days;

xvii. on 12 June 2004 the Collections Area contacted Mr Ollis;

xviii. on 16 June 2004 Mr Ollis told an officer of the Collections Area he would settle his debt within 11 days;

xix. on 13 July 2004 Mr Ollis told an officer of the Collections Area he would settle his debt within 7 days. On the same day, the Collections Area sent him a letter advising that the matter was being referred to a debt collection agency;

xx. on 23 July 2004 the Collections Area sent a further letter to Mr Ollis, again advising that the matter was being referred to a debt collection agency;

xxi. on 11 August 2004 an officer of the Collections Area spoke to Mr Ollis, who again promised to pay the overdrawn amount on the Personal Account in the coming days;

xxii. on 20 August 2004 the Collections Area referred the matter to a debt collection agency called Collections House;

xxiii. on 16 December 2004 Collections House wrote to Mr Ollis, demanding repayment of the debt;

xxiv. between 28 January 2005 and 9 December 2005 Mr Ollis made 14 payments totalling $15,500, leaving the Personal Account overdrawn by $24,936.15.

xxv. By mistake, the ATR facility was not cancelled or suspended when the Personal Account was frozen on 20 March 2004. Between 17 February 2004 and 17 June 2005 Ollis continued to make deposits to and withdrawals from the Business Account.

xxvi. Occasionally during that period, the balance of the account would fall below zero, causing the ATR facility to operate: eg. on 13 April 2004 the ATR facility credited the Business Account with $935.54.

xxvii. The effect of the Personal Account being frozen was that the Bank’s computer system would only allow credit transactions to be posted to the account. As a consequence, when the ATR facility attempted to debit the Personal Account at any time after it was frozen on 20 March 2004, the Bank’s system prevented this and the debit was made to a suspense account.

xxviii. Once the debit was made to the suspense account, an officer of the Bank’s Corrections Area manually reversed it by crediting the suspense account and debiting the Business Account with the corresponding amount: eg. the ATR credit on 13 April 2004 of $935.54 was reversed on 15 April 2004.

xxix. When performing this function, the officers of the Corrections Area had no “visibility” of the balance and circumstances of the Business Account.

xxx. On 17 June 2005 Mr Ollis made his last deposits to the Business Account in the amount of $420: PX A7 2838. From 17 June 2005 to 11 January 2006 Mr Ollis drew cheques on the Business Account to the value of $10,955,360. The effect of this was:


(a) at the end of each day, the ATR facility credited the Business Account with an amount (the Transfer/Replenishment Payment) to reduce its balance to zero;

(b) the ATR facility could not debit the Personal Account because it was frozen, so instead, automatically debited a suspense account;

(c) a few days later, the Transfer/Replenishment Payment would be reversed by crediting the suspense account and debiting the Business Account;

(d) the debit to the Business Account caused by the reversal, together with any new debits from cheques written by Mr Ollis, would then cause the ATR facility to operate again, repeating the steps outlined above.


xxxi. It is clear, on the evidence, that the Bank made these payments by mistake and there being no evidence that any individual within the Bank knew, until 12 January 2006, of the drawings being made by Mr Ollis on the Business Account. [Mr Witheridge, a senior manager in Account Servicing within the Transactions and Unsecured Lending Operations area of Westpac, gave evidence which is accepted as reliable that the anomaly caused by the series of steps related to the continuing operation of the ATR facility was only discovered in January 2006. Mr Colwell’s re-examination satisfied me that he had had no knowledge of the information the Corrections department had at their disposal in relation to the Business Account.]

xxxii. As can be seen from the statements for the Business Account, over time the amount of the daily Transfer/Replenishment Payment grew, as did the amount of the corresponding reversal. Eventually, on 12 January 2006 officers of the Bank detected the error and froze the Business Account.

xxxiii. Between 17 June 2005 and 13 January 2006 Mr Ollis transferred $4,838,752.07 of Westpac money to Ms Shields, the second defendant to these proceedings.

The claims against Mr Ollis

5 The claims against Mr Ollis are put in the following three ways:

i. that he is indebted to the Bank pursuant to the terms of the contract governing his account;

ii. that he fraudulently obtained money from the Business Account, knowing that he was not entitled to it;

iii. that he received money mistakenly paid to him by the Bank.

6 The Bank seeks to trace the money received by Mr Ollis into the various ways in which it was used by Mr Ollis, Ms Shields and the third defendant, Koala Development Pty Ltd (‘Koala’). The analysis of how the Bank’s money was used is set out in Mr William’s report annexed to his affidavit of 13 July 2007.

7 Subject to some questions concerning interest, Mr Ollis, concedes his indebtedness to the Bank but denies the allegations of fraud. In his commercial list response he denies that he knew the Bank was honouring the cheques by mistake.

8 There are some issues which arise concerning movement of the funds which he received, it being common ground that he did not acquire any real estate or other assets using the proceeds of the cheques, the Bank contending however that he retired considerable amounts of indebtedness secured over real estate with the Bank’s funds and that the Bank is entitled to trace into that real estate in those circumstances.

The claims against Ms Shields

9 Mr Ollis has been in a de facto relationship with Ms Shields since 1993. She is in turn a director of the third defendant, Koala Development Pty Ltd.

10 The claim made against Ms Shields is that:

i. she received money from Mr Ollis for no consideration, knowing that he had obtained it fraudulently, alternatively, that it had been paid to him by mistake;

ii. she received property from Mr Ollis for no consideration, knowing that it had been paid for in whole or in part by money obtained by Mr Ollis fraudulently, alternatively, that had been paid to him by mistake.

11 The Bank, in relation to its claim against Ms Shields for money paid under a mistake of fact, contends that she received the money and gave no consideration for it and accepts that to resist the Bank’s claim, she would have to be shown to have been a bona fide purchaser for value without notice.

The claim made against Koala

12 The claim against Koala is that it received money from Mr Ollis knowing [through its director Ms Shields] that Mr Ollis was not entitled to it, alternatively, that it had been paid to him by mistake.

13 By their amended commercial list response, both Ms Shields and Koala inter alia deny any form of wrongdoing and contend generally as follows:

i. they deny receiving any cheques from Mr Ollis for no consideration;

ii. Ms Shields contends that moneys were in fact borrowed from Mr Ollis who granted her a mortgage over real estate to secure the borrowings;

iii. Ms Shields contends that she was not aware of the source of the funds loaned to her;

iv. they contend that they believed that the money borrowed from Mr Ollis was legitimately held by him.

Mr Ollis and Ms Shields fail to give evidence

14 During the hearing Mr Ollis and Ms Shields elected not to read their affidavits and not to enter the witness box.

Examining certain of the principles

The principles concerning the fraud claim

Onus

15 Without being exhaustive the principles concerning onus in respect of a fraud claim may for present purposes be expressed as follows:

i. there is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be "the hallmark of fraud";

ii. the gravity of the allegation has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (Unreported, Supreme Court of NSW, Young J, 16 October 1997) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315 at 319;

iii. more recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 the High Court [per the joint judgment of Mason CJ, Brennan, Deane and Gaudron JJ] has put the matter in the following terms (at 449-450):

"The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct."

iv. The High Court has pointed out in Pascoe v Federal Commissioner of Taxation (Cth) (1956) 30 ALJR 402 at 403 [citing Cussen J in Cox v Smail [1912] VLR 274 at 283] that the evidence given by a man of his intention and state of mind, must:

"be tested most closely and received with the greatest caution."

v. Courts have emphasized that the best evidence of a man's purpose is to look at what was actually done: ASX Operations Pty Limited v Pont Data Australia Pty Limited(No 1) (1990) 27 FCR 460 at 482-483.

Jones v Dunkel

16 It is important to recall the principles laid down in Jones v Dunkel (1959) 101 CLR 298. The authorities which inform the matter include:

JD Heydon, Cross on Evidence , 6th ed, Butterworths, Sydney, 2000 at [1215]:

"[The] unexplained failure by a party to give evidence, to call witnesses, or to tender documents…may, not must, in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. … The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered…"

"[T]he rule [in Jones v Dunkel ] only applies where a party is "required to explain or contradict" something. What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts "requiring an answer". [Footnotes omitted.]

[The latter passage was quoted with approval in the joint judgment of Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 at 609.]

Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, with Mason P and Beazley JA agreeing:

"This instance of a Jones v Dunkel inference, … also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party."

Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557 at 582 per Street J:

“The inference which a court can properly draw in the absence of a witness, where such absence is not satisfactorily accounted for, is that nothing which this witness could say would assist the case of the party who would normally have been expected to have called that witness. The significance of this inference differs according to the closeness of the relationship of the absent witness with the party against whom the inference is sought to be propounded. Where the absent witness is a party himself then considerable importance may well attach to the inference.”

17 The approach taken presently in relation to the defendants’ failure to give evidence is as follows:

i. as the burden of proof with respect to each of the facts in issue between the parties lay on the Bank, it is required to establish evidence of each of the facts in issue notwithstanding that some relevant and important evidence was peculiarly within the knowledge of the defendants;

ii. the failure of the defendants to give evidence does not of itself amount to proof of any fact in issue;

iii. however, provided that there is before the Court evidence tending to establish each of the facts in issue (albeit that it may be "meagre in the extreme" - see Jones v Dunkel per Kitto J at 305), in assessing the probability of the existence of a fact in issue (ie in weighing the evidence on that issue) use may be made of the failure of the defendants to give evidence in their possession relevant to that fact in issue;

iv. hence, it is open to the Court to draw the inference that the evidence which the defendants could have given to the Court would not have been favourable to their case and thus to more confidently, draw inferences available to be drawn from the evidence that is before the Court.

Examining certain trust property principles

18 The following may be seen in relation to certain trust property principles:

i. a thief holds stolen funds or property under a presumed or resulting trust for the benefit of the rightful owner;

ii. such a trust arises immediately upon acquisition of the property and is equivalent to an express trust for the purposes of the duty to get in the trust estate: Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at [111]–[116]; Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [155]-[156]; Cashflow FinancePty Ltd (in liq) v Westpac Banking Corporation [1999] NSWSC 671 at [465];

iii. the property is trust property in the hands of the thief because the thief is bound in conscience to hold the property on behalf of its true owner;

iv. the trust may also be characterised as a constructive trust: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 per Lord Browne-Wilkinson at 716.

[In Robb Evans at [112] , Spigelman CJ [with whom Handley and Santow JJA agreed] said that the trust so created is better described as a presumed or resulting trust, rather than as a constructive trust.]


v. Whichever term is most appropriate, the significant characteristic is that the trust arises immediately upon acquisition of the property, rather than upon an order of the Court;

vi. it is not necessary for a recipient of trust property to know the identity of the true beneficiary of the trust property, nor the circumstances in which the property was acquired by the trustee;

vii. a deliberate failure to inquire for fear of knowing that which the payee would rather not know may be equated with knowledge;

viii. for the purposes of the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252, a defendant will be treated as having knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary if the defendant has (a) actual knowledge, or (b) wilfully shuts his or her eyes to the obvious, or (c) wilfully and recklessly fails to make such inquiries as an honest and reasonable person would make, or (d) has knowledge of circumstances which would indicate the facts to an honest and reasonable person: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [174]-[178].

19 The more specific analysis by reference to these present proceedings, continues later in these reasons.

Principles concerning the mistake claim

20 Here again without being exhaustive the principles concerning the mistake claim in overview may for present purposes be expressed as follows:

i. a party who pays money to another as a result of a mistake is prima facie entitled to its restitution: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379;

ii. where a payee receives money paid under a mistake for no consideration, the recipient’s conscience is bound upon being aware of the mistake and a proprietary remedy is appropriate: Wambo Coal Pty Ltd v Stuart Karim Ariff [2007] NSWSC 589 at [42]-[44] per White J;

iii. where the question is whether money becomes trust property because of the knowledge of the payee that it was paid by mistake and without consideration, as distinct from the question whether a recipient of property already impressed with a trust is bound by the trust, the appropriate question is whether the payee has such knowledge of the mistake as to affect his conscience because he is aware that he is not entitled to deal with the money as if he were the beneficial owner: Re Montagu’s Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd [1987] Ch 264 at 278-279 and 285 (a case of liability of a recipient of trust property).

21 Here again the more specific analysis by reference to the present findings is continued below.

Returning to the proper characterisation of the conduct of Mr Ollis

22 There are three areas in respect of which close submissions were addressed:

i. the first concerns the inference drawn from the evidence before the Court that Mr Ollis [when he first learned in February 2004 that the Bank had honoured a cheque drawn in circumstances where his account was overdrawn], formed the opinion that there was a glitch in the Bank’s computer system, having experienced computer glitches with other organisations in the past. The inference from the evidence is that he then formed the opinion that because of the glitch, he could write out more cheques and decided that he "wouldn't look a gift horse in the mouth". In due course he began to write cheques in reliance on the mistake and in the knowledge that he had given no security to the Bank in this regard. [As will be seen from what follows the finding is that as and from June 2005 (when no further funds were paid into the account), Mr Ollis presented cheques having no intention to repay the subject moneys to the Bank in any circumstances];

ii. the second concerns the evidence before the Court that during a meeting with a number of senior bank representatives held on 17 January 2006, Mr Ollis stated that if Westpac would not enter into a repayment agreement with him on the terms which he put forward, he being on a breathing machine and having gout, and only about two years to live, the bank would not "see anything";

iii. the third concerns the documentary evidence which demonstrates that Ms Shields was intimately involved in Mr Ollis' financial affairs, which involvement included preparation of records for Mr Ollis' tax returns, communications with Mr Ollis' accountant and the Australian Taxation Office, dealing with the demands of Mr Ollis' many creditors, the preparation of bank statement reconciliations, and similar. Hence the general evidence before the Court permits a finding that it is inconceivable that Mr Ollis did not share with Ms Shields the source of his new-found fortune. The resultant finding is that the overwhelming probabilities are that Mr Ollis told Ms Shields exactly from where and how where he was obtaining the funds.

23 There is little doubt but that the retention of moneys after a recipient has learned of a mistake made by the payer may in particular circumstances, be a matter of signal significance.

24 Differing views have been expressed in relation to this matter. Chase ManhattanBank NA v Israel-British Bank (London) Ltd [1979] 3 All ER 1025 concerned an attempt by Goulding J to fit a case of mistaken overpayment by one banker to another as a result of clerical error into the category concerning pre-existing fiduciary obligations. As observed by RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 4th ed, Butterworths, 2002, at [14,010], Goulding J held that the conscience of the insolvent recipient became subjected to a fiduciary duty to respect a proprietary interest in the money which was "retained" by the mistaken payer. In Westdeutsche, Lord Browne-Wilkinson [who did not accept the reasoning of Goulding J in Chase Manhattan] expressed the view that Chase Manhattan may nonetheless have been rightly decided. His Lordship [albeit obiter] observed at 714-715 that although the mere receipt of the moneys in ignorance of a mistake gave rise to no trust, the retention of the moneys after the recipient had learned of the mistake may well have given rise to a constructive trust: in turn citing Snell’s Equity (29th ed, 1991) p193, Pettit Equity and the Law of Trusts (7th ed, 1993) p168 and Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14 at 52-53. The appropriate question was said to be whether the payee had such knowledge of the material mistake as to affect his conscience.

25 The authors of Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed) have commented that this reasoning is unconvincing. In Cashflow Finance (at [478]) I observed that the decision in Chase Manhattan had in effect been overruled by the House of Lords in Westdeutsche and that Lord Browne-Wilkinson had authoritatively rejected the proposition that, without more, receipt of money paid under mistake, renders the recipient a trustee and leaves the payee holding an equitable proprietary right in the money [emphasis added]. This is also the view of the leading Australian texts Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed) and JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (7th ed, 2006) at [2703]. However the present is a case in which the phrase ‘without more’ becomes of particular significance.

26 In truth it is trite that a bank is usually free to treat a cheque presentation as an implied request for an overdraft so that, if accepted by the bank upon honouring the cheque, the amount will be recoverable from the customer. This proposition generally holds true even where the cheque has been honoured by the bank albeit that it suffered under a relevant mistake in that regard. In the usual commercial circumstance which would there obtain, the proceeds of the cheque is the property of the customer. As will be seen from the reasons which follow, the present case falls well outside any semblance of a ‘usual commercial circumstance’, presenting as it does the undeniable face of the commission of a clear fraud.

Dealing with the issue

27 It is of signal importance to note that the essential banker-customer relationship set up as between the Bank and Mr Ollis involved the setting up initially of the Personal Account and subsequently of the Business Account to be operated [by later arrangement] with the ATR facility. There were no overdraft facilities sought. There was no security sought by the Bank nor offered by the customer. Mr Ollis well knew that the Bank was only prepared to contract with him on the basis that the two accounts would be regulated by the ATR facility. These parameters fairly describe what may be termed as ‘the essence’ of the contractual arrangement entered into by the parties.

28 The significance of whether the mistake is fundamental was pointed up by Brennan J [as his Honour then was] in Ilich v R (1987) 162 CLR 110 at 138-139:

“When a person in possession of money in the form of currency hands it to another intending him to be the owner of it and the other receives it with the same intention, prima facie the other acquires ownership of the money. That is because currency, when it passes from hand to hand, transfers not merely possession of the notes or coins, but property in them: per Viscount Haldane LC in Sinclair v Brougham [1914] AC 398, at p 418. But there are some exceptions to this general proposition. They inhere in the rule that a person who receives money in the form of currency in good faith and for valuable consideration acquires a good title to the money even though the person who gave him possession of the notes or coins had no title to them: Wookey v Pole (1820) 4 B & Ald 1, at p 7 [106 ER 839, at p 841]. The first exception is that a person who receives money in the form of currency without consideration acquires no better title than the person from whom the money was received so that even if the notes or coins are given to him with the intention that he should own them, the notes and coins can be recovered from him in specie by the true owner so long as they are identifiable. Before money received without consideration has passed in currency an action may be brought for the money itself: per Scrutton LJ in Banque Belge v Hambrouck [1921] 1 KB 321, at p 329; and see Miller v Race (1758) 1 Burr 452, at pp 457-458 [97 ER 398, at p 401]. The second exception is that the owner of notes and coins may recover them from a person who has obtained possession of them in bad faith so long as the actual notes or coins can be identified: Clarke v Shee (1774) 1 Cowp 197, at p 200 [98 ER 1041, at p 1043]…

The prima facie conclusion that ownership of money in the form of currency passes when the person in possession hands it to another intending him to be the owner may be displaced in some cases where the intention is formed by mistake. In such cases the payer is entitled to recover it in specie before it is disbursed: Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177, at p 183. But it is not every mistake which precludes the formation of the intention essential to the transfer of ownership of notes or coins. The mistake must be fundamental to the transaction . In Norwich Union Fire Insurance Society v Wm. H. Price Ltd [1934] AC 455, Lord Wright said (at p 463):

"It is true that in general the test of intention in the formation of contracts and the transfer of property is objective; that is, intention is to be ascertained from what the parties said or did. But proof of mistake affirmatively excludes intention. It is, however, essential that the mistake relied on should be of such a nature that it can be properly described as a mistake in respect of the underlying assumption of the contract or transaction or as being fundamental or basic ."

To determine whether a mistake is fundamental, one must properly identify the transaction and the relationship of the mistake to it: Porter v Latec Finance (Qld) Pty Ltd , at p 187.”
[Emphasis added.]

29 The undeniable fact is that Mr Ollis at all material times from the occasion when he first learned of what he correctly surmised was a computer glitch, knew that the Bank never intended him to draw credit from the Business Account. That represents the Court’s finding. Mr Ollis knew that he did not have permission from the Bank to draw credit from the Business Account. The finding is that once he was informed by the Bank's Collections Area in March 2004 that the Personal Account was overdrawn and that no further withdrawals would be permitted, he knew that the replenishment transfers being made to the Business Account were not coming from funds from the Personal Account. The significance of the defendant being on notice of the mistake was pointed up by Millett J in Eldan Services Ltd v Chandag Motors Ltd [1990] 3 All ER 459 at 462 [albeit curiously apparently denied by Goulding J in Chase Manhattan [1981] Ch 105 at 114].

30 The finding is that the continual reversals of the replenishment transfers to the Business Account in the period March 2004 to December 2005 were not the product of any conscious willingness on the part of the Bank to allow Mr Ollis to have access to the money. Rather, the finding is that the officers of the Corrections Area simply did not know that the ATR facility was allowing the transactions on the Business Account to be debited to the Bank's suspense account.

31 Further in the particular circumstances thrown up by this case any analysis suggesting that the moneys which he obtained were his property is plainly flawed. As already observed his conduct, in the circumstances of the knowledge which he is inferred to have had, proves that his conduct was no more and no less than fraudulent. Clearly that conduct was of the requisite character to bind his conscience. Knowing of the Bank's mistake, he was simply defrauding the Bank. What he was doing was drawing money from the Business Account dishonestly, knowing that he was not entitled to do so. In Black v S Freedman & Co (1910) 12 CLR 105 the High Court held that money stolen by a thief was trust money in the hands of the thief. In Creak v James Moore & Sons Proprietary Ltd (1912) 15 CLR 426 the High Court held that the same equitable response applied to stolen goods as well as to stolen money: cf J Tarrant, ‘Theft Principle in Private Law’ (2006) 80(8) ALJ 531 at 531-535. The very same analysis may be presently applied. In all of the circumstances Mr Ollis is in the eyes of the law to be regarded as having ‘stolen’ the Bank’s money.

32 The matter inheres in his becoming aware of the Bank's mistake and proceeding by drawing an avalanche of cheques, to take the fullest advantage of that mistake over an extended time where he not only:

i. willfully shut his eyes to the obvious;

ii. willfully and recklessly failed to make such enquiries as an honest and reasonable man would make;

iii. had knowledge of circumstances which would indicate the facts to an honest and reasonable man,

but on the evidence, correctly inferred the nature of the Bank’s error. In light of this evidence and of Mr Ollis’ activities thereafter, he is taken to have had actual knowledge of the cause of the Bank's error. True it may be the case that, without more , receipt of money paid under mistake does not render the recipient a trustee and does not leave the payee holding an equitable proprietary right in the money. But here there was ‘more’. There was an active, knowing and calculated determination to deliberately and shamelessly take advantage of the Bank's mistake. This was far removed from a one-off banking error. This was fraud in these circumstances. In the eyes of the law it was the conduct of a thief.

33 Drawing these matters together, the following are clear indicators of Mr Ollis’ fraudulent conduct:

i. Mr Ollis knew that the only reason the Bank was honouring the cheques being drawn on the Business Account was a “computer glitch”. Mr Ollis realised this when the Bank honoured the cheque for $37,500 on 17 February 2004. From that point onwards, Mr Ollis decided that he would not "look a gift horse in the mouth": see the evidence of Mr McMahon at T 174.44 – 176.16;

ii. the computer glitch was obvious to Mr Ollis by looking at the statements he received for the Business Account and the Personal Account. The statements for the Business Account showed that after March 2004, each replenishment transaction was reversed a few days later. It cannot have escaped Mr Ollis' attention that notwithstanding the huge sum of money he withdrew from the Business Account in the period June to December 2005, interest was not being charged;

iii. between March 2004 and December 2005, Mr Ollis was engaged in continuous communications with the Bank's Collections Area and its debt collectors in relation to his indebtedness arising from the overdrawn Personal Account. Mr Ollis cannot have honestly believed that, on the one hand, the Bank was pursuing him for a debt of around $36,000, while on the other hand was happy to advance to him $11 million in unsecured, interest-free credit;

iv. at all times, Mr Ollis knew that he did not have permission from the Bank to draw credit from the Business Account. Mr Ollis had never applied for an overdraft on the Business Account or any other account he held with the Bank;

v. Mr Ollis knew that in accordance with his direction the ATR facility was set up to replenish the Business Account with funds from the Personal Account;

vi. once Mr Ollis was informed by the Bank's Collections Area in March 2004 that the Personal Account was overdrawn and that no further withdrawals would be permitted, he knew that the replenishment transfers being made to the Business Account were not coming from funds from the Personal Account;

vii. at all times, Mr Ollis knew that the Bank would not knowingly advance credit to him of any amount, let alone the almost $11 million he drew from the Business Account. This is because Mr Ollis knew that:


a) in March 2004, the Bank's Collections Area had frozen the Personal Account. In correspondence dated 11 and 25 March 2004, the Bank made it clear that no further withdrawals from the Personal Account were permitted and any redirection facilities would be cancelled;

b) he had never provided any security to the Bank for any advance;
c) he had no capacity to repay a debt of the magnitude he incurred;
viii. the circumstances in which he paid over $4.8 million of the money taken from the Business Account to his de facto partner, Ms Shields.

34 The holdings are as follows:

i. Mr Ollis was not, in truth, a “borrower” of the money from the Bank in any normal sense of that word. He knew he could not repay such a large amount. He knew he had given the Bank no security for any borrowing. He did not intend to repay the money. That is why he parted with it as soon as he drew it from the Business Account.. As he said to Mr Murphy: “I’ve only got two years to live and you won’t see anything” (T105.7).

ii. Mr Ollis' conduct was not merely amoral - it was dishonest. This is not a case of someone receiving an unsolicited mistaken payment from the Bank. Rather, over an extended period of time (particularly between June and December 2005) Mr Ollis engaged in a persistent course of dishonest conduct. In that period, he repeatedly drew cheques on the Business Account, knowing that he had not been authorised to do so, knowing that but for the "computer glitch" the cheques would not be honoured and knowing that he did not have the capacity to repay the money.

35 In Beatty v Guggenheim Exploration Co (1919) 122 NE 378 at 380, Cardozo CJ said:

“When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.”

[Cited with approval in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 108 and JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (7th ed) at [1301].]

36 Viscount Haldane LC observed in Nocton v Lord Ashburton [1914] AC 932 at 954:

"… [W]hen fraud is referred to in the wider sense in which the books are full of the expression, ‘used in Chancery’ in describing cases which were within its exclusive jurisdiction…[w]hat it really means… is not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience"

37 The books and authorities are replete with numerous references to it not being possible to provide an exhaustive category of what constitutes either common law or equitable fraud: cf Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed) at [12-010]:

"Fraud in equity was infinite not only in the range of dealings it tainted, but also in the definitions given of its constituents."

38 To generally similar effect the decision in Barrett & Sinclair v McCormack [1999] VUCA 11 included the observation that the type of conduct attracting constructive trusts had been vicariously referred to as evidencing a want of probity, conduct amounting (or equivalent) to equitable fraud, or conduct which was unconscionable. Edmund Davies LJ in Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 All ER 367 (at 381) observed the “boundaries of a constructive trust have been left perhaps deliberately vague, so as not to restrict the court by technicalities in deciding what the justice of a particular case may demand”.

39 The conduct of Mr Ollis was unconscionable where in the circumstances he must be taken to have had actual knowledge of the mistake.

40 It is strictly unnecessary to decide whether the trust which arose is to be characterised as a constructive trust or as a presumed or resulting trust. However, the decision of Spigelman CJ [with whom Handley and Santow JJA agreed] in Robb Evans would seem to suggest the latter to be correct.

Ms Shields’ and Koala’s recipient liability

41 The disposition of trust property in breach of trust may give rise to two remedies in relation to third party recipients:

i. a proprietary remedy in respect of the trust property and its traceable proceeds;

ii. personal liability for equitable compensation.

42 The proprietary remedy is distinct from the personal liability: Re Montagu's Settlement Trusts [1987] Ch 264; K & S Corp Ltd v Sportingbet Australia Pty Ltd [2003] SASC 96 at [8].

Proprietary remedies in relation to the trust property received by Ms Shields and Koala

43 A purchaser in good faith for value of the legal estate without notice has a complete equitable defence against any claim by a beneficiary for specific restitution of the property or any claim to compensation to restore the value of the trust property. The burden of showing receipt of the legal estate as a purchaser in good faith for value without notice rests on the recipient: Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804; cf Dover Pty Ltd & the Companies Act 1961, Re (1981) 6 ACLR 307; Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132; Meagher Gummow & Lehane’s Equity Doctrines & Remedies (4th ed) at [8-300].

44 Volunteers without notice receive trust property subject to the trust: Strang v Owens (1925) 42 WN (NSW) 183; Addstead Pty Ltd (in liq) v Liddan Pty Ltd (1997) 70 SASR 21.

45 A purchaser for value, but with notice of the trust, also receives the trust property subject to the trust. Notice may be actual, imputed or constructive: Espin v Pemberton (1859) 44 ER 1380 at 1383. A person is deemed to have knowledge of all matters: (a) of which he would have received notice if he had made the investigation usually made in similar transactions; and (b) of which he would have received notice if he had made the inquiries that a reasonable person would have made in the circumstances: Meagher Gummow & Lehane’s Equity Doctrines & Remedies (4th ed) at [8-270].

46 The finding is that Ms Shields received trust property (money and property) from Mr Ollis for no consideration and in any event, with actual notice of the facts giving rise to the trust – namely that Mr Ollis had:

i. obtained the money dishonestly and from a source to which he had no legitimate or proper entitlement, and then

ii. used it to discharge indebtedness over property.

Ms Shields’ personal liability

47 The recipient of trust property with notice that it is received in breach of trust may be liable to the beneficiary for equitable compensation: the first limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252, most recently approved by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [111]-[113].

48 In Farah Constructions Pty Ltd v Say-Dee Pty Ltd the High Court determined at [176]–[178] that for the purposes of the second limb of Barnes v Addy, knowledge in accordance with categories (i), (ii), (iii) and (iv) of the five categories in Baden v Societe Generale Pour Favoriser le Developpement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 would be sufficient. In Kalls Enterprises Pty Ltd (In Liquidation) v Baloglow [2007] NSWCA 191 at [176] and following, Giles JA appeared to accept (without deciding) that the same categories would apply to the determination of the first limb of Barnes v Addy. See also Magafas v Carantinos [2007] NSWSC 917 at [12]. This is to say, a recipient of trust property will be treated as having knowledge of the breach of trust where he or she has (a) actual knowledge, or (b) wilfully shuts his or her eyes to the obvious, or (c) wilfully and recklessly fails to make such inquiries as an honest and reasonable person would make, or (d) has knowledge of circumstances which would indicate the facts to an honest and reasonable person.

Ms Shields’ knowledge

49 Ms Shields had the onus of proving that she was the bona fide purchaser of the legal estate for value without notice of the Bank’s equitable interest. The evidence overwhelmingly demonstrates that she must have had actual notice of the Bank’s interests. However even constructive notice of the Bank’s interests would have sufficed to permit the relief sought against her and Koala.

50 The documentary evidence demonstrates that Ms Shields was intimately involved in Mr Ollis' financial affairs. As earlier pointed out, the evidence establishes that her involvement included preparation of records for Mr Ollis' tax returns, communications with Mr Ollis' accountant and the Australian Taxation Office, dealing with the demands of Mr Ollis' many creditors, the preparation of bank statement reconciliations and similar. The Bank furnished a useful summary of the evidence of the involvement of Ms Shields in the financial and business affairs of Mr Ollis [MFI P15]. It is unnecessary to set out the whole of that summary which does serve the purpose of identifying the description of the relevant document, the evidence of the involvement of Ms Shields, the relevant date as well as Court Book page references in terms of the evidence.

51 Ms Shields' close involvement with Mr Ollis' financial affairs allowed her to know that up until about June 2005 [being the time from which Mr Ollis started to make substantial withdrawals from the Business Account] he was in desperate financial straits. The evidence clearly shows that in the relevant period, he was constantly subjected to statements of liquidated claim and bankruptcy notices. Mr Ollis' bank statements, [to which Ms Shields had access for the purpose of preparing reconciliations], revealed that Mr Ollis did not have substantial holdings of cash. The finding is that she must have known that the funds were not coming from any facility knowingly granted to Mr Ollis by either of the banks with whom they banked. Here again a convenient schedule [MFI P18] was furnished to the Court detailing the precise evidence as to the financial circumstances of Mr Ollis and/or Country House and Land Sales identifying the document in evidence, identifying the indicia that Ms Shields was aware of the document and giving the Court Book page references to the evidence.

52 As the Bank has submitted, the most striking evidence is Ms Shields’ involvement, throughout 2005 and, in particular, during the latter half of 2005 when she was receiving vast sums from Mr Ollis, in the drawing and signing of cheques to pay off Mr Ollis’ Personal Account debt [See Ex PX A Vol 6 pp 2210-2225 esp 2213, 2221, 2222 – the last reference being to a cheque signed by Ms Shields in favour of Collection House for $2,000 on 14 October 2005: the same day she received a cheque for $200,000 from Mr Ollis].

53 Yet, in the period June to December 2005, Mr Ollis was suddenly able to transfer to Ms Shields over $4.8 million in cash. As earlier observed, Mr Ollis and Ms Shields have been in a de facto relationship since 1993. Their statements of affairs for their bankruptcy in 1998 show that aside from some trivial amounts, they held their assets jointly. The documents show that Ms Shields was closely involved in Mr Ollis' business. Against that background, it is inconceivable that Mr Ollis did not share with Ms Shields what the source of his being able to provide these vast sums of money was. Mr Ollis' open and unashamed attitude about the matter is revealed by the way he spoke about it to the officers of the Bank at the meeting on 17 January 2006.

54 Ultimately I am satisfied that the overwhelming probabilities support the finding now made, namely that Mr Ollis told Ms Shields exactly from where and how he was getting the money. The defence of bona fide purchaser without notice was not made out.

55 The finding is that that Ms Shields received trust property from Mr Ollis for no consideration and with notice of the breach of trust. The acceptance of this proposition makes good her liability for equitable compensation to the extent that full restitution of the trust property is not made to the Bank.

56 The evidence is replete with extensive detail of the so-called 'arms length' transactions which, on examination, are seen to be no more and no less than the continuance of a course of fraudulent conduct by Mr Ollis in circumstances where Ms Shields [and hence Koala], knew that the moneys received from him had been fraudulently obtained by him.

Remedies

57 Where a trustee acquires property using exclusively trust money, the beneficiary has a proprietary interest in the property acquired. However, where a trustee acquires property using trust money mixed with his own, the beneficial owner does not have a proprietary interest in the property because it was not acquired only with trust money. Instead, the beneficiary is entitled to a charge over the property purchased to secure the amount of the fiduciary’s liability: Re Hallett's Estate (1880) 13 Ch D 696 at 708–709. The charge gives rise to an entitlement to have the property restored to the beneficiary by restitution, and arises as soon as the wrongful conversion or mixing occurs: Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 at 386 [83]. The difference in the remedy has significance should the trustee be made bankrupt. Trust property does not vest in a trustee in bankruptcy: s 116 of the Bankruptcy Act 1966 (Cth). However, property the subject of a charge in the sense described above passes to the trustee in bankruptcy who would take it subject to the beneficiary’s equity: Re Goode; Ex parte Mount (1974) 24 FLR 61 at 79–80 per White J; Official Receiver v Klau and Ors [1987] FCA 242 (Unreported, Federal Court, Fisher J, 16 April 1987); Anscor Pty Ltd v Clout (as trustee) (2004) 135 FCR 469 at [42] per Lindgren J; Jones v Southall & Bourke Pty Ltd [2004] FCA 539 at [62]-[63] per Crennan J.

58 Where a fund mixed with trust money is used to acquire other property, the beneficiary is entitled to charge both the fund and any property acquired from that fund: Re Oatway [1903] 2 Ch 356 at 361; Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 at 386 [83] - [84]. The charge may be asserted over both the fund and the property to its full value, in the sense that the beneficiary may exhaust either first before recouping the full balance out of the other: see JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (7th ed) at pp 675-677. The rationale for this is that until the trustee has fulfilled his fiduciary duty to restore the trust property, he will not be heard to claim his own interest in the acquired property.

The other remedies sought against Mr Ollis

59 Clearly the Bank has also made good its claim that Mr Ollis is also indebted to it pursuant to the terms of the contract governing his account.

Mr William’s expert evidence

60 Mr John Williams is a chartered accountant and partner of the accounting firm, PPB. Mr Williams provided detailed expert evidence in his report dated 12 July 2007 [annexed to his affidavit sworn on 13 July 2007] as to the quantification of the total amount of Westpac money received by Mr Ollis, as well as the amounts of Westpac money transferred by Mr Ollis to Ms Shields and Koala. Mr Williams also provided an analysis of where these moneys have been applied, including various real property assets and third party payments. His detailed report is carefully reasoned and accepted as informing the nature of the relief to which the Bank is entitled. None of the cross-examination faulted the opinions expressed in the report or the logic of the methodology by reference to which the report was prepared.

The orders to be made

61 There are some complexities which require to be taken into account in the circumstances where the New South Wales Crime Commission apparently obtained various orders against Mr Ollis and Ms Shields. In those circumstances the plaintiff presently confines its claims to relief to a number of declarations, together with the Court standing the proceedings over to a further date for the making of such further orders as may later be seen as appropriate.

62 The appropriate course is to announce in general terms the declarations and orders presently to be made and to require that the Bank bring in short minutes of order accordingly. The interest calculations will require to be updated to the date of the making of the actual orders. Hence the terms of the following orders are to be taken as reflective only of the position as it would have been had the interest calculations been as at 24 August 2007.

63 Subject to those reservations and qualifications the plaintiff has made good an entitlement to the following relief:

The Court declares that:

1. The first defendant holds on trust for the plaintiff:


a) his interest, if any, in a deposit of $345,000 paid by him to Accuweigh Pty Ltd on 8 December 2005 for a portable concrete plant;

b) the balance of Westpac Banking Corporation Limited account number 641 in the name of Victor Warren Ollis trading as Bonaparts Accommodation; and

c) the balance of Bendigo Bank Limited account number 452 in the name of Victor Warren Ollis trading as Country House and Land Sales;

d) his entitlement under a contract of loan and guarantee between him, Parkes Terminal Land Corporation Pty Ltd and Mark James Smith entered into on or about 15 November 2006;

e) his entitlement under a mortgage granted to him on or about 15 November 2006 by Parkes Terminal Land Corporation Pty Ltd over the land having title reference 166/750164;

2. The following property is subject to a charge in favour of the plaintiff in the amount of $12,622,675.75 [interest calculated to 24 August 2007]:


a) the property situated at 9 – 11 Forbes Street, Grenfell, having title reference 1/936836;

b) the property situated at lot 300 – 302 Medlyn Street, Parkes, having title reference Auto Consol 6027-167;

c) the property situated at 3 Railway Avenue, Wellington, having title reference 3/579.

3. The second defendant holds on trust for the plaintiff:


a) the balance of Bendigo Bank Limited account number 954 in the name of Gail Anne Shields as trustee for the Shields Family Trust;

b) the balance of Bendigo Bank Limited account number 188 in the name of Gail Anne Shields trading as Cash Flow Positive Investments;

c) the balance of Westpac Banking Corporation Limited account number 057 in the name of Gail Anne Shields as trustee for the Shields Family Trust;

d) the balance of Westpac Banking Corporation Limited account number 285 in the name of Gail Anne Shields as trustee for the Shields Family Trust;

e) the property situated at Lot 4 Coronation Street, Parkes, having title reference 4/811666.

4. The following property is subject to a charge in favour of the plaintiff in the amount of $12,622,675.75 [interest calculated to 24 August 2007]


a) the property situated at 3 Pious Close, Parkes having title reference 10/1085775;

b) the property situated at 11 Cathedral Close, Parkes having title reference 11/1085775;

c) the property situated at 4 Pious Close, Parkes having title reference 12/1085775;

d) the property situated at 13 Cathedral Close, Parkes having title reference 13/1085775;

e) the property situated at 2 Cathedral Close, Parkes having title reference 2/1085775;

f) the property situated at 3 Saint Close, Parkes having title reference 3/1085775;

g) the property situated at 5 Cathedral Close, Parkes having title reference 5/1085775;

h) the property situated at 1 Cathedral Close, Parkes having title reference 1/1085775;

i) the property situated at 14 Cathedral Close, Parkes having title reference 14/1085775;

j) the property situated at 4 Saint Close, Parkes having title reference 4/1085775;

k) the property situated at 6 Cathedral Close, Parkes having title reference 6/1085775;

l) the property situated at 7 Cathedral Close, Parkes having title reference 7/1085775;

m) the property situated at 9 Cathedral Close, Parkes having title reference 9/1085775;

n) the property situated at lot 1 Koala Street, Parkes having title reference 1/1078492;

o) the property situated at lot 7 Koala Street, Parkes having title reference 7/1078492;

p) the property situated at lot 13 Best Street, Parkes having title reference 13/1078492.

5. The following property is subject to a charge in favour of the plaintiff in the amount of $5,575,170.36 [interest calculated to 24 August 2007]:


a) the property situated at 1 Condoblin Road, Parkes having title reference 560/750179;

b) the property situated at 2 Condoblin Road, Parkes having title reference 2/811666;

c) the property situated at 77 Woodward Street, Parkes, having title reference 3/547904;

d) the plant and equipment referred to in Pickles Auctions invoice no. 1000444 dated 8 September 2005;

e) the plant and equipment referred to in Total Asset Services invoice dated 1 October 2005;

f) the plant and equipment referred to in Gray Eisdell Timms Pty Ltd invoice no. 7398-43-1 dated 8 November 2005;

g) the plant and equipment referred to in CR Kennedy & Company Pty Ltd invoice reference PF 1203 dated 9 December 2005;

h) the plant and equipment referred to in Gray Eisdell Timms Pty Ltd invoice no. 20349-331-1 dated 10 January 2006;

i) a Ford concrete mixer purchased from Pickles Auctions on or about 13 October 2005;

j) a John Deere 570A Grader purchased from Micks Plant Hire on or about 26 October 2005;

k) a Manitou MT425CP Forklift purchased from Australian Property Constructions Pty Ltd on or about 31 October 2005;

l) a Coles Crane purchased from Lima South Quarry Pty Ltd on or about 11 January 2006.

6. The third defendant holds the property referred to in Slattery Auctions Australia Pty Ltd invoice no 015120 dated 20 October 2007 subject to a charge in favour of the plaintiff in the amount of $5,575,170.36 [interest calculated to 24 August 2007].

The Court orders that:


7. Judgment be entered against the first defendant in favour of the plaintiff in the amount of $14,692,968.03 [interest calculated to 21 August 2007].

8. The proceedings be stood over to a date to be fixed for further orders.

The admissibility of MFI P1 and MFI P2

64 During the hearing the Court reserved its decision on the admissibility of the affidavits by Mr Gary David Pilgrim, both made on 21 August 2007. In my view these affidavits are plainly inadmissible as not relevant to any issue in the proceedings. They also suffer from a myriad of formal objections. Even if either affidavit had been able to establish that at some unknown date Mr Pilgrim contracted to purchase any particular property, had there been a signed contract [there being no such contract sought to be put into evidence] and even if in that circumstance, it had been established that he had an equitable interest in the property, no evidence is sought to be adduced from him as to when any such equitable interest was acquired. Such an equitable interest might or might not have been acquired prior to or after the Bank's equitable interest. Further the value of the real estate is not a relevant manner for present purposes. Further even if the value of the real estate was of relevance neither affidavit proves value. Undated unsigned contracts and transfer forms are put forward. No opinion is sought to be expressed by the deponent as to value even if he had relevant expertise which remains unproven. Nor is he shown to have complied with the Expert Witness Code of Conduct.

Short minutes of order

65 The Bank is to bring in short minutes of order to include up to date interest figures and on which occasion costs may also be argued.

04/09/2007 - Judgment date inserted into judgment cover page - Paragraph(s) 0