R v Corless
[2014] NZHC 1955
•20 August 2014
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CRI-2009-090-2181
[2014] NZHC 1955
BETWEEN THE QUEEN
Applicant
AND
SCOTT JAMES CORLESS
Respondent
Hearing: 30 May 2014 Appearances:
M Walker for the Applicant B Sellars for the Respondent
S Jefferson QC and S Patel for Laura Corless G Satherly for Nikole, Ryan and Tane Corless
Judgment:
20 August 2014
REASONS JUDGMENT OF ELLIS J
This judgment was delivered by me on Wednesday 20 August 2014 at 9.00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:………………………….
Counsel/Solicitors:
M Walker, Meredith Connell, Auckland B Sellars, Barrister, Auckland
S Jefferson QC, Barrister, Auckland G Satherly, Barrister, Auckland
R v CORLESS [2014] NZHC 1955 [20 August 2014]
[1] Mr Scott Corless was for sentence on 30 May 2014 having been convicted of a range of methamphetamine related charges, including manufacturing. As part of the sentencing process the Commissioner of Police had applied for an instrument forfeiture order relating to a property located at 61 Otitori Bay Rd, Titirangi, where Mr Corless’ manufacturing activity took place. The property is owned by Mr Corless’ family trust but he had accepted that he has “effective control” over it.
[2] Applications for relief from forfeiture had previously been made by Mr Corless’ ex-wife, Laura, and two of his children, Luke and Casey. The applications for relief were based on their asserted interests in the property which (they said) the Court was required to recognise under s 142L of the Sentencing Act 2002 (the SA). In my decision dated 21 October 2013 I found that Laura had an interest in the property which I valued at 50 per cent of the market value.1 But I held that Casey and Luke did not have a recognisable interest.
[3] Before Mr Corless could be sentenced, however, a further application for relief from forfeiture under s 142L was then made on behalf of Mr Corless’ niece and nephews (Nikole, Ryan and Tane Corless).2 Their claim to an interest in the Otitori Bay Rd property was made:
… on the ground that the applicants directly or indirectly contributed to the purchase of the property at 61 Otitori Bay Rd because $128,000 that they inherited from their Grandmother Joyce Corless in 1999 was used by Scott Corless and assisted him to purchase the property.
[4]The extent or value of the claimed interest was said to be:
… $210,500 together with interest pursuant to that sum from 1 June 2005 until the date of payment; or such other sum as determined by the court; less the sum of $31,075 already received by Ryan Corless.
[5] The $210,500 sum is said to comprise the applicants’ original $128,000 inheritance together with half of a $165,000 overall increase in “trust account funds”.3
1 R v Corless [2013] NZHC 2735.
2 They had not filed an application for relief earlier because, although they were aware of the parallel and yet to be determined civil forfeiture proceedings, the Crown had not served the application for profit forfeiture on them.
3 The basis for this $165,000 figure is the evidence of Mr Osborne, set out at [16] below.
[6] I heard the application for relief on the morning of 30 May. The result of that application (and, more particularly, the consequential extent of Mr Corless’ own interest in the Otitori Bay Rd property) had a bearing on the sentence I was to impose on Mr Corless that afternoon. Accordingly at the end of the hearing I advised that although there were matters raised which required further consideration the general conclusion I had reached was that:
(a)Mr Corless had clearly acted in breach of trust in relation to the applicants’ inheritance funds;
(b)subject only to the qualification that Ryan had accepted that he had already received part of his share of the inheritance money ($31,075) from Mr Corless, I rejected Mr Corless’ evidence about subsequent de facto distributions that he said he had made to the applicants;
(c)the application for relief was nonetheless denied because I had formed the view that it was not possible to trace the misappropriated funds to the Otitori Bay Road property in the way in which the applicants contended.
[7] I also specifically noted that the Crown’s civil forfeiture application in relation to substantial other property belonging to Mr Corless remained pending, and that Mr Walker had acknowledged that the Crown would do everything it could to ensure that the applicants’ undoubted personal claim against Mr Corless would be recognised in that process.
[8] I indicated then that I would give more detailed reasons for my conclusions in due course. This judgment (which I regret the delay in finalising) records those reasons.
Relief from forfeiture
[9] Section 142L(1) of the SA provides that a sentencing Court must grant relief from (instrument) forfeiture if:
(a) a person applies to the court under section 142J for relief from an instrument forfeiture order in respect of an interest in property on the ground set out in section 77(1)(a) of the Criminal Proceeds (Recovery) Act 20094; and
(b) the court is satisfied, following a hearing under section 142K, that the applicant has established on the balance of probabilities that the applicant—
(i) has an interest in the property to which the instrument forfeiture order relates; and
(ii) was not involved in the qualifying instrument forfeiture offence to which the order relates.
[10]A relevant “interest” is defined in s 5 of the Act as:
(a)a legal or equitable interest in the property; or
(b)a right, power or privilege in connection with the property.
[11] It is not disputed that the applicants were not involved in the qualifying instrument forfeiture offending. The only question therefore was whether the applicants could be said to have a relevant “interest” in the Otitori Bay Rd property.
[12] If the sentencing Court finds that such an interest exists, s 142L(2) provides that the Court must make an order declaring the nature, extent, and value of the applicant's interest in the property and then make directions to the Crown as to how that order is to be recognised.
The evidence
[13]In general terms, the evidence relied on by the applicants was:
(a)Mr Corless’ affidavit filed in relation to the (as yet undetermined) civil forfeiture proceeding;
(b)evidence given by and on behalf of Mr Corless in the disputed fact hearing that took place in June 2013.5
4 Section 77(1)(a) of the Criminal Proceeds (Recovery) Act 2009 (the CPRA) merely provides that a person may apply for relief from an instrument forfeiture order “if the person claims an interest in property described in a notice issued under section 142B of the Sentencing Act 2002”.
5 My judgment dated 21 October 2013 also records my findings in relation to that hearing.
[14] It was in an affidavit sworn by Mr Corless in relation to the civil forfeiture matter that he first said that he had used the applicants’ inheritance money to fund the purchase of Otitori Bay Rd. He made a similar statement during his cross-examination by Mr Tantrum during the disputed fact hearing. The relevant exchange was as follows:
QBecause when you bought your house at Otitori Bay Road, you used the funds from your previous residential property?
A Correct.
QAnd some money, your half of the inheritance from your mother’s estate?
AI used 170,000 – 170 something thousand dollars of inheritance from my mother’s estate, as outlined in the – saw outlined with the lawyers and what have you. I think I put in about $15,000 or $20,000.
Q On top of what you got from your mother’s estate? A On top, yeah.
QSo you used your half though from your mother’s estate? When your mother died, your brother had previously died?
A Yeah.
Q And so the half share of her estate, half went to you on trust? A Yeah.
Q And half went to – you kept on trust for his children? A Yeah.
QAnd you exhausted your half of your mother’s estate for the purchase of Otitori Bay Road?
A Well I exhausted – okay, I’ll tell you how it works.
Q Just – I’ll allow you to explain that in a moment, but am I wrong –
A I exhausted my half, and I used some of my nephews’ and nieces’.
Q So all I’m really concerned about for the purposes of your own legitimate funds is that by the end of 2005 you had exhausted – you had used the sale monies from your –
A Previous property.
Q – previous property? A Yeah.
Q And you had taken all of your entitlement of your mother’s estate? A Yeah.
Q Plus a bit more, you say?
A Plus more, plus there was still a mortgage outstanding with Ed Johnson to the Tapa Tohunga Trust which you mentioned yesterday.
Q That’s the Headhunters?
A That’s for $35,000. Well the mortgage I had was to the Tapa Tohanga Trust. My brother and Dave Smith were clients of Ed Johnstone. He wasn’t even my lawyer, and he was my mother’s lawyer, so all the investments were done on his say-so or his advice. And they were all registered second mortgages that were done, and they were all at amounts of 14% and 16%, high interest – high interest things. I think
– I think the forensic accountants worked it out. I haven’t worked it out, but I think I more or less doubled that money over the five or six year period that I had it out in investments and what have you. And I believe, yeah, there’s still one mortgage outstanding. There was one investment that went toes up that we never got anything out of, I lost the money on, but the money come close to being doubled, I believe, or thereabouts.
QJust hang on a moment for me. All your available funds, plus you used some of your brother’s estate entitlement in order to purchase Otitori Bay Road, is that what you’re saying?
A Well I’m saying that I really can’t recall at the time.
[emphasis added]
[15] At the instrument forfeiture hearing in May 2014, however, Mr Corless denied that he had used the inheritance funds in this way, and said he did not know why he had previously said otherwise. I merely record that I found Mr Corless to be a wholly unreliable witness, whose evidence was clearly tailored to his desired objective on any given day.6 Accordingly I accept what he said on any issue only to the extent that it is supported by other evidence.
[16] The other disputed fact witness upon whom the applicants relied was Mr David Osborne, an expert accountant engaged on behalf of Mr Corless. But Mr Osborne was not questioned at the hearing on the part of his evidence that touched on the applicants’
6 His objective at the disputed fact hearing was to “talk up” the amounts and sources of the funds that he claimed to have obtained legitimately, in which he included the applicants’ trust money. His objective at the forfeiture hearing was to claim for himself as big a share as possible of the Otitori Bay Rd property.
inheritance funds. Nor was he called or cross-examined for the purposes of the instrument forfeiture hearing. But in his written brief of evidence he said:
4.2I have reviewed the trust account statements provided by Mr Corless’ solicitor, Ed Johnstone, and (with the exception of the deposit for 61 Otitori Bay Road, Titirangi, on which I cannot comment) they are consistent with [Mr Corless’ evidence] … .
4.3The trust account records that I reviewed covered July 1999 to November 2005, and related to:
(a)Mr S J Corless (Client 000778).
(b)The SJC Trust (Client 011114).
(c)The Scott Corless Family Trust (Client 011117).
(d)The Joyce Corless Family Trust (Client 005022).
(e)The Soul Mate Trust (Client 012378).
4.4The trust account records show that the total sum of $256,000 (being the proceeds of an inheritance) was distributed to the SJ Corless General Affairs trust account and the Joyce Corless Family Trust trust account (in equal amounts of $128,000 each). The SJ Corless trust account was later advanced a further $42,000 from the Joyce Corless Family Trust trust account in May 2000.
4.5The trust funds (including those in the Joyce Corless Family Trust trust account) were invested in various different mortgage investments, and withdrawn from the trust account over time. Additional funds were also added from time to time. For example, the purchase of the Factory Unit at Amokura Street in Henderson is recorded as paid for from the drawdown of a loan advance from ANZ National Bank.
4.6Based on my review of the trust accounts (upon which I focussed upon transactions greater than $1,000), the following is a summary of the transactions:
Inwards Funds
(a)$256,000 was received as a distribution from Mr Corless’ mother’s estate;
(b)$157,500 was received from National Bank as a mortgage advance; and
(c)$381,157.74 was received for the sale of a property at 1 Harvest Drive, Henderson.
Outwards Funds
(a)$109,788.73 was withdrawn from the Joyce Corless Family Trust;
(b)$74,476.39 was withdrawn from the Scott Corless trust accounts;
(c)$67,443.85 was withdrawn to purchase a factory unit at Amokura Street at Henderson;
(d)$186,094.27 and $377,894.71 was used for the purchase of a property at Otitori Bay Road; and
(e)$108,500 was withdrawn to pay a marital settlement.
4.7A mortgage investment of $35,000 (being a loan to Tapa Tohunga Trust) remains unpaid.
4.8Based on my assessment of money coming in versus money going out of all the relevant trust accounts, the trust account funds increased by around $165,000 over the period 1999 to 2005.
[17] It should also be noted that although Mr Osborne had apparently reviewed all the trust accounts associated with Mr Corless, he did not produce the accounts themselves in evidence.7 Nor did the relevant Police witness (whose evidence was, in any event, largely focused on Mr Corless’ financial affairs from 2007 onwards). Thus the only accounts formally before the Court at the forfeiture hearing were the records that had been attached to Mr Corless’ own disputed fact affidavit. Notable by their absence were any relevant (pre 2005) records pertaining to the Scott Corless Family Trust (the SCFT).8
[18]In any event, my analysis of the relevant evidence follows.
The purchase of Otitori Bay Rd
[19] The Otitori Bay Rd property was purchased by the Soul Mate Trust (the SMT), a family trust settled by Mr Corless in 2003. The sale and purchase agreement was signed on behalf of the Trust on 31 October 2005. The purchase price was $625,000. As noted in Mr Osborne’s disputed fact evidence, it is not clear how the $62,500 deposit was funded.
7 It can only be assumed, for example, that his analysis was predicated on all five of the relevant “trust accounts” having a zero balance at the beginning of the period to which this part of his evidence related.
8 I also record that neither the SCFT nor the JCFT trust deeds were in evidence.
[20] Settlement occurred on 10 November 2005. It is not disputed that the $563,000 paid on settlement was made up as follows:
(a)$378,000 obtained from the sale of Mr Corless’ previous family home at 1 Harvest Drive, Henderson. These funds were transferred to the SMT from the SCFT, which had been the registered proprietor of the Harvest Drive property;9
(b)a further $186,000 sum, which was derived from:
(i)$152,000 that was recorded as having been taken off call deposit with the National Bank, placed in Mr Corless’ General Affairs trust account and then transferred to the SMT;
(ii)$36,500 deposited into Mr Corless’ General Affairs trust account from the account he held jointly with his wife Laura and then transferred to the SMT.
The applicants’ inheritance
[21] It is not in dispute that Mr Corless and the applicants were the beneficiaries of the estate of Mrs Joyce Corless, who died in 1999.10 Nikole, Ryan and Tane were at that time still minors. Nor is it in dispute that Mr Corless was the executor and trustee of his mother’s estate.
[22] The evidence is also clear that towards the end of 1999, and in accordance with the will, Joyce Corless’ lawyer, Mr Edward Johnstone, divided the estate in half and deposited two $128,000 sums into separate trust accounts. One was named the Joyce Corless Family Trust (JCFT) General Affairs account (into which was placed the applicants’ inheritance funds) and the other was the SJ Corless General Affairs account, which contained Mr Corless’ inheritance funds.
9 The Harvest Drive property was purchased before Joyce Corless’ death. It was never suggested by the applicants that their inheritance had been used in relation to this property.
10 Her will provided for her estate to be divided between her two sons, but Mr Corless’ brother Mark (the applicants’ father) died before Mrs Corless, in 1997.
[23] Either personally or through a related corporate vehicle, Mr Johnstone was also a trustee of Mr Corless’ various family trusts. In 2013, however, Mr Johnstone was struck off the roll of barristers and solicitors. He was not called as a witness.
[24] The records before the Court nonetheless reveal that the funds in the JCFT account were initially invested by Mr Johnstone on the instructions of Mr Corless in short term, high interest, second tier mortgages to a number of individuals. That such investments were made by (and appear to have been profitable) was confirmed in the evidence of Mr Corless himself.
[25] The JCFT account records also show, however, that between mid 1999 and mid 2001, when interest was received on these investments, or principal on the mortgages repaid, those amounts were transferred (on Mr Corless’ instructions) to other accounts associated with Mr Corless. More particularly, the JCFT account records show that:
(a)on 26 May 2000, $42,000 was transferred from the JCFT account into the SJ Corless “General Affairs” account (the SCGA);11
(b)between July 1999 and May 2001, cheque payments totalling approximately $42,050 were made from the JCFT account into the Scott Corless Family Trust (SCFT) account;
(c)on 13 September 2001 a further $63,738.73 was paid by cheque from the JCFT account to an un-identified recipient.12
[26] In any event, by mid 2001 the JCFT account was empty and it appears to have remained so except for a brief moment in 2004, when it seems that $35,000 was transferred back into that account from the SCGA account. This amount was then loaned (at Mr Corless’ direction) by the JCFT to the Head Hunters Motorcycle Club through the Tapa Tohunga Trust. It does not appear to be disputed that this advance has never been repaid.
11 This is the sum referred to at 4.4 of Mr Osborne’s evidence.
12 These three sums total more than the initial $128,000 due to interest received on the mortgage investments.
[27]The SCGA account records additionally show that:
(a)as with the JCFT:
(i)Mr Corless’ inheritance funds were invested in high yield short term mortgages;
(ii)when interest payments were received or when principal amounts were repaid, the funds were directed to be transferred to the SCFT;
(b)the SCFT transferred two lump sums back to the SCGA, namely:
(i)$74,323.80 in December 2001; and
(ii) $120,000 in May 2003;
(c)in general terms, those funds were then reinvested;
(d)a number of other relatively large debits and credits to the account are recorded as resulting from money being taken off, or put on, National Bank Call Deposits;
(e)the SCGA account went into and out of overdraft throughout the relevant period.
[28] Mr Corless’ evidence was that he understood nothing about trusts or his duties as trustee and executor of his mother’s estate. He said he left all such matters to Mr Johnstone. Nonetheless, there are documents signed by Mr Corless which directed Mr Johnstone to pay the interest on certain of the JCFT mortgages to the SCFT. Moreover, the entries in the JCFT General Affairs ledger also suggest that the transfers of the larger, principal, amounts of those mortgages were also made on the authority of Mr Corless. Accordingly the reality of the situation appears to be that, regardless of whether Mr Corless was aware of his trustee obligations, he largely treated the applicants’ funds as his own.
[29] In my view there can be no doubt that the evidence traversed above puts Mr Corless in breach of his trustee obligations to the applicants. It seems clear that he authorised transfers out of the JCFT, intermingled the trust funds with his own and is now generally unable or unwilling to account for them to the beneficiaries. It cannot therefore be disputed that Ryan, Nikole and Tane would have non-proprietary remedies against Mr Corless personally available to them. But it is also accepted that the existence of such (personal) remedies by and of themselves does not give them a qualifying “interest” in Otitori Bay Rd.13
[30] It seems to me that, in order for the applicants to have the requisite interest they need to be able to establish not just that some of their inheritance was (on the balance of probabilities) used to purchase the property, but also how much. In the absence of a degree of precision as to quantum the Court is unable to perform the task required of it by s 142L(2).
[31] The question therefore becomes whether the evidence discloses sufficiently precise transactional links between the funds that were initially held in the JCFT General Affairs account and some or all of the $186,000 used in the purchase of the Otitori Bay Rd property. It is to that issue I now turn.
Discussion
[32] Mr Satherley’s submissions were based on the premise that Mr Corless appropriated all of the applicants’ inheritance to his own purposes and that the resulting intermingled funds were impressed with a charge for that total amount. More particularly, he submitted that:
There is no evidence of any feasible source of the $186,094.27 funds used for the purpose of the purchase of Otitori Bay Rd other than the mixed inheritance fund as stated by Scott Corless.
The Scott Corless trust account records are consistent with that claim. Transactions in that account between 2000 and 2005 show funds frequently coming in or going out from repaid mortgage investments and National Bank call deposits. This is consistent with reinvestment of the inherited funds.
13 See for example Solicitor-General v Sanders (1994) 2 HRNZ 24 (HC) at 34. And in Gilligan v Solicitor-General HC Auckland CIV-2001-404-4132, 17 September 2003 Nicholson J held that a remedial constructive trust did not constitute an “interest” in the context of a foreign forfeiture order.
[33] Mr Satherley also submitted that the applicants were entitled to a half share of Mr Osborne’s assessment of the $165,000 increase in value of those intermingled funds over the period 2000 – 2005.
[34] Upon a careful reading of the available, relevant, accounts themselves, however, there seem to me to be several difficulties with the Court adopting that approach.
[35] The first is that notwithstanding the evidence of other intermingling, there is nothing in the accounts that clearly indicates that the cheque for $63,738.73 (referred to in [25][c] above) was paid to Mr Corless or to any entity associated with him. There is certainly no record of such a payment being received in the SCGA accounts, which were before the Court in apparently complete form. Although it is possible that the cheque was deposited into the SCFT account (the relevant records of which were not before the Court), that seems to me to be unlikely, for the reasons I give in the next paragraph.
[36] All the other payments made from the JCFT account to the SCFT account are specifically recorded as such. Moreover, the particularity of the amount of this cheque (the 738 dollars and 73 cents) is at odds with all the other transfers that are recorded as being made to the SCFT, which were always in rounded amounts. The question- marks raised cannot, in my view, be resolved by reference to the vague and differently focused earlier evidence of Mr Osborne and Mr Corless.
[37] Accordingly I am not satisfied on the evidence before me that there are the necessary transactional links between the $63,738.73 that was paid out of the JCFT account in September 2001 and any of Mr Corless’ accounts. At the outset, therefore, I consider that any equitable charge over, or other interest that the applicants might have in, the funds that were used to purchase Otitori Bay Rd (and therefore in the property itself) cannot be based on this payment, or include an equivalent of this amount.
[38]Next, there are the matters of:
(a)the $42,000 “advance” made from the JCFT account into to the SCGA account in May 2000;14 and
(b)the additional $42,050 that the accounts suggest was paid from the JCFT into the SCFT during the course of 2000 and 2001.
[39] I acknowledge that the applicants were on stronger ground when it came to these amounts, although Mr Satherley did not attempt to trace these specific sums through the accounts in a way that some Courts have held is required.15 Nor do I think such an exercise (essentially a process of direct substitution) would be possible, given the sheer number of deposits, withdrawals and transfers into, out of and between the accounts.
[40] The materials provided by Mr Satherley show, however, that there is also authority for a submission that the (indisputable) transactional gaps between the trust monies paid into Mr Corless’ accounts and the $186,000 eventually paid out can be filled by inference. The leading decision in this respect would appear to be that of Millett J (as he then was) in El Ajou v Dollar Holdings plc. 16
[41] In El Ajou, three Canadians had persuaded the plaintiff's agent to invest the plaintiff's monies in illegal share selling schemes. The plaintiff sought to recover its monies from an entity known as DLH, which had meanwhile acquired the Canadians’ business.17 Some of the proceeds of the scheme had been invested in a property project. The issue arose whether the plaintiff could trace their misappropriated funds into a bank account, known as the Keristal No 2 account, from which the investment
14 I put the word “advance” in inverted commas because while I accept that the fact of a transfer in this amount is well supported by the evidence, I consider it most unlikely that Mr Corless felt under any obligation to repay it.
15 For example in Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25, Buckley LJ said (at 46) “it is a fundamental feature of the doctrine of tracing that the property to be traced can be identified at every stage of its journey through life.” This dictum was endorsed by Legatt LJ in Bishopsgate Investment Management Ltd (In Liquidation) v Homan [1995] Ch 211.
16 El Ajou v Dollar Land Holdings plc (No 1)[1993] 3 All ER 717 at 735-6. Millett J’s dicta were endorsed by Hoffmann LJ on appeal (although Millett J’s decision was reversed) and the dicta have been applied subsequently - see most recently Relfo Ltd (in liq) v Varsani [2014] EWCA Civ 360.
17 The action failed ultimately because DLH did not have the knowledge necessary to make them constructive trustees.
had been made. More particularly, the question was whether two credits totalling
$2,684,432 in that account could be said to represent the plaintiff's money.
[42]Millett J said:18
… in my judgment there is sufficient, though only just, to enable the inference [that the money represented the plaintiff’s money] to be drawn. One of the two sums received in the Keristal No 2 account was $1,541,432 received on 12 May 1986 from Bank of America. That corresponds closely with the sum of $1,600,000 transferred to Bank of America, Panama on 1 April 1986. In relation to the later transaction, Bank of America may, of course, merely have been acting as a correspondent bank in New York and not as the paying bank; and the closeness of the figures could be a coincidence. It is not much, but it is something; and there is nothing in the opposite scale. The source of the other money received in the Keristal No 2 account is not known, but from the way in which the Canadians appear to have dealt with their affairs, if one sum came from Panama, then the other probably did so, too….
… the fact remains that there is no evidence that the Canadians had any substantial funds available to them which did not represent proceeds of the fraud. This is acknowledged by counsel for DLH. For the source of the money he points to the $1.45m received by Zawi and the payments totalling
$4,927,000 made by Herron and Wilmington which cannot be accounted for.
…The money in the accounts of Herron and Wilmington represented proceeds of the fraud. It can be traced in equity from those accounts to the Keristal No 2 account as well as through Zawi or any other intermediate recipient as through the first and second tier Panamanian companies. The victims of a fraud can follow their money in equity through bank accounts where it has been mixed with other moneys because equity treats the money in such accounts as charged with the repayment of their money. If the money in an account subject to such a charge is afterwards paid out of the account and into a number of different accounts, the victims can claim a similar charge over each of the recipient accounts. They are not bound to choose between them. Whatever may be the position as between the victims inter se, as against the wrongdoer his victims are not required to appropriate debits to credits in order to identify the particular account into which their money has been paid. Equity's power to charge a mixed fund with the repayment of trust moneys (a power not shared by the common law) enables the claimants to follow the money, not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour….
[43] Here, Mr Satherly necessarily submitted that similar reasoning applies. But there are the following difficulties.
[44] First, the evidence is clear that Mr Corless did have available to him at least some of his own inheritance money (and the profits he had made from it). Although I
18 El Ajou v Dollar Land Holdings plc (No 1), above n 16.
acknowledge that the presumption that a wrongdoer will be presumed to have exhausted or dissipated his own funds first also has some application, this does not appear to be quite such a clear-cut case as El Ajou.19
[45] Secondly, in El Ajou the “correspondence” between the amounts involved, and the timing of the payments in and out clearly influenced the Judge in drawing the relevant inference. Neither type of correspondence exists in the present case.
[46] Thirdly, there is the potential operation of the lowest intermediate balance rule. Even accepting, for example, that the SCGA account was impressed with a charge in the amount of $42,000 when that sum was deposited into it, the relevant records clearly show that the account went into overdraft two months later. And although it is clear that further funds were subsequently deposited into the SCGA from (inter alia) the SCFT, placing the account back into credit, the cases suggest that, at the point the account went into overdraft, the funds impressed with the trust in favour of the applicants ceased to exist. Subsequent payments in will only be impressed with the equitable charge if it can be established that they were made with the express intention of restoring the trust fund. As Sargant J in James Roscoe (Bolton) Ltd v Winder said:20
…it is impossible to attribute to him [ie the account holder] that by the mere payment into the account of further moneys, which to a large extent he subsequently used for purposes of his own, he intended to clothe those moneys with a trust in favour of the plaintiffs.
[47] And in Mr Corless’ case it is difficult, on the evidence, to attribute to his subsequent deposits into the SCGA account an intention by him to make good the misappropriation of the applicants’ trust funds. Indeed, my assessment of him and his cavalier approach to his trustee duties suggests the opposite conclusion.
[48] There is also the further factual complication of the $35,000 loan to the Head Hunters. As I have said, the available evidence suggests that that sum was transferred by Mr Corless in 2004 from the SCFT to the JCFT in order that the JCFT could make this advance. It seems logical to assume, given that Mr Corless appears to have
19 Above n 16.
20 James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 at 69. Although a first instance decision, James Roscoe continues to be regarded as correctly stating the position: see for example the discussion in Bishopsgate Investment Management v Homan, above n 15, at 221.
intended the JCFT to make this loan, that this $35,000 was derived from the $42,050 belonging to the JCFT in the SCFT account. And irrespective of whether this loan could be considered to be a prudent investment for Mr Corless as a trustee to make, it seems that the reality is that this money has been lost.21
[49] Accordingly, while I would be prepared to infer that, on the balance of probabilities, some of the $186,000 used by Mr Corless to purchase the Otitori Bay Rd property represents the value of some of the applicants’ inheritance, I am unable to put it higher or more precisely than that. In my view that is insufficient for s 142L purposes.
[50] In light of this conclusion that it is not possible to trace the applicants’ inheritance money with sufficient specificity to the $186,000 used to purchase the Otitori Bay Rd property, it is not necessary to consider the even more difficult issue of quantifying and tracing any profits derived from their funds.
[51] In somewhat reluctantly declining to hold that the applicants have an interest in the Otitori Bay Rd that can or should be recognised in the profit forfeiture context, I am fortified by the fact that in the particular circumstances of this case, a more straightforward and satisfactory course would seem to remain open to the applicants. As recorded by me on 30 May and at the beginning of this judgment, they can yet seek recognition of Mr Corless’ gross breach of fiduciary duty, and their undoubted loss, in the civil forfeiture context.
[52] Because of the pending civil forfeiture matter I propose to end this judgment simply by reiterating that, after hearing the evidence of Mr Corless, and the evidence of Ryan and Nicole, I consider that the only de facto distributions made by Mr Corless of the applicants’ inheritance is the $31,075 that Ryan accepts that he has received and therefore should be deducted from his one third share.
[53] Although both Ryan and Nicole accepted that they had each received other payments or financial assistance from Mr Corless they denied that it was ever
21 During his evidence at the forfeiture hearing Mr Corless offered to “take responsibility” for half of this loss but, in my view, that complicates rather than advances matters.
understood by them that these payments were de facto distributions of their inheritance. In the absence of any formal accounting processes that might support Mr Corless’ position it seems to me to be right that he should bear the consequences of his cavalier attitude to his trustee duties.
[54] Lastly, I record that although Mr Jefferson sought costs in relation to the present application on behalf of his client, Laura Lee, I decline to make such an order. In light of my conclusion that some of the applicants’ inheritance was used to purchase the Otitori Bay Rd property, it seems to me that Ms Lee has, albeit innocently, benefitted at their expense. And as I have also said above, I consider the application for relief was quite properly brought. Costs shall lie where they fall.
[55] And for the avoidance of future doubt I should also record the direction I made that the costs incurred by Luke Corless in making the earlier application for relief are to be met out of the funds realised by the Official Assignee upon the sale of the property.
Rebecca Ellis J
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