Ozzy Loans Pty Ltd v Christo

[2006] NSWSC 466

CITATION:	Ozzy Loans Pty Ltd v Christo [2006] NSWSC 466
HEARING DATE(S):	15 and 16 May 2006
JUDGMENT DATE :	16 May 2006
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	Interlocutory Mareva relief granted against third party who received money paid in breach of trust but without evidence of knowledge of breach.
CATCHWORDS:	EQUITY [185] - Trusts and trustees - Powers, duties, rights and liabilities of trustees - Liability for breach of trust - What constitutes a breach of trust and who may be liable - Recipient of misapplied trust property - Liability under first limb of Barnes v Addy - Whether proof of knowledge of recipient of breach of trust necessary.
CASES CITED:	Barnes v Addy (1874) LR 9 Ch App 244 BTR Engineering v Patterson (1989) 18 NSWLR 319 Evans v European Bank Ltd (2004) 61 NSWLR 75 Kolback Pty Ltd v Epoch Mining NL (1989) 8 NSWLR 533 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309
PARTIES:	Ozzy Loans Pty Limited t/as Express Equity (P) Joe Christo (1D) New Face Rendering Pty Limited (2D)
FILE NUMBER(S):	SC 2416/06
COUNSEL:	S T White SC & M J O’Meara (P) No appearance (1D) J E Rowe (2D)
SOLICITORS:	Harris Freidman Hyde Page (P) No appearance (1D) Anthony Scarcella Lawyers (2D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

TUESDAY, 16 MAY 2006

2416/06 OZZY LOANS PTY LIMITED t/as EXPRESS EQUITY v JOE CHRISTO & ANOR

JUDGMENT

1 HIS HONOUR: In this matter, there is a strong prima facie case that the first defendant, Joe Christo, obtained some $700,000 from the plaintiff by fraud. In short, the fraud was the misstatement of existing amounts owing on three properties which were given as security for the borrowing by Mr Christo from the plaintiff of $700,000. Those amounts were represented by documents, which appear to have been forged, to be very much smaller than they in fact were.

2 When the $700,000 was received from the plaintiff, $560,000 of it was paid at the first defendant’s direction to the second defendant and deposited into its bank account. From that bank account it was progressively paid out over the next few days.

3 This is an application for an extension of Mareva relief obtained ex parte against both the first defendant and the second defendant. The first defendant has been served in accordance with directions of the Court. He does not appear and the case for relief against him is clear.

4 The second defendant appears by Mr J E Rowe of counsel. However, the second defendant has led no evidence on this application and the evidentiary material concerning its receipt and payment away of the moneys is exiguous. There is not really any evidence as to the conduct of a business by the second defendant. There is at most some evidence that the first defendant and the second defendant were in some way involved together in projects for the building of development properties. The first defendant does not appear on the evidence to be or have been an employee of the second defendant. There is one woman, who is the sole shareholder and sole director of the second defendant. What her relationship, if any, to the first defendant is does not appear. There is evidence that a day before the first defendant applied to the plaintiff for the loan, a caveat was lodged by the second defendant over the three properties given as security to the plaintiff and that that caveat was withdrawn at or about the time of the completion of the borrowing transaction. The claim in the caveat is of an “equitable interest in land/property”. There is no evidence of the nature of the transaction which generated the alleged interest, nor any quantification at all of the amount or value of the alleged interest. There is no evidence connecting the payment to the withdrawal of the caveat other than proximity in time: post hoc ergo propter hoc.

5 Mr Simon White, of Senior Counsel for the plaintiff, puts his claim for injunctive relief against the second defendant through the first limb, the “recipient limb”, of Barnes v Addy (1874) LR 9 Ch App 244, as discussed in the recent decision of the Court of Appeal in Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309, and particularly in light of what was said by Tobias JA (with whom Mason P and Giles JA agreed) at [206] ff.

6 Mr White submits that that case provides a reasonably close analogy with this case. The funds were paid by the first defendant to the second defendant in breach of trust since, having procured those moneys by fraud from the plaintiff, the first defendant held them in trust for the plaintiff and their disposition to the second defendant was a breach of trust. He says that where the disposition to the third party was itself in breach of trust, no knowledge of fraud on the part of the recipient is necessary. Thus in Say-Dee, the wife and daughters of the person acting in breach of fiduciary duty were held accountable, although they had no knowledge of the breach of fiduciary duty.

7 In this case, unlike Say-Dee, the second defendant no longer holds the benefit received, having paid it away. But Mr White says that it would be liable, if the facts at the end of the trial stood as at present, to pay the relevant sum to the plaintiff by way of restitution or equitable compensation. He distinguishes the slightly earlier decision of the Court of Appeal in Evans v European Bank Ltd (2004) 61 NSWLR 75 on the basis that, in that case, the payment by the trustee into the defendant Bank was not an inappropriate transaction, particularly in light of the facts that immediate repayment to the beneficiaries of the trust was not possible in the circumstances of that case and the trustee had a duty to invest the funds. That payment was not, therefore, in breach of trust. There is no evidence, of course, that the second defendant in this case conducted a business of receiving deposits, as there was in relation to the defendant in Evans: see per Spigelman CJ at [161].

8 Mr White submits that, to escape liability, a person in the situation of the second defendant (as in the case of the wife and daughters in Say-Dee) must establish the defence of either bona fide purchaser for value without notice or change of position, the onus in respect of both of which rests upon the recipient.

9 Mr Rowe succinctly submits on behalf of the defendant that the situation should be regarded as governed by Evans; although not specifically adverted to by Tobias JA, a relevant fact which existed in that case and not in the present was that there the fraudster could be regarded as the agent of the wife and daughters. He submits that a case is made out that the money was received by the second defendant on a commercial basis by reference to the evidence concerning the caveat lodged and withdrawn by the second defendant as set out above. There is not, however, enough substance in that evidence to raise a serious case of bona fide purchaser for value without notice.

10 In any event, of course, this is an interlocutory application, on which I need not and should not make any determination as to the facts of the matter: see Kolback Pty Ltd v Epoch Mining NL (1989) 8 NSWLR 533 at 536 per McLelland J. It is my view that the plaintiff has in the manner set out above established a serious question to be tried in relation to its claim to have judgment against the second defendant as well as the first defendant.

11 The second element required to found Mareva relief is, of course, the establishment of a danger of the disposal of assets: see BTR Engineering v Patterson (1989) 18 NSWLR 319 at 321 - 322 per Gleeson CJ. Here the evidence gives no knowledge of the affairs or substance of the second defendant. Upon receiving $560,000, the second defendant within a few days paid it away to destinations which it does not deign to reveal. In my view, a sufficient degree of apprehension to found relief may be inferred upon the evidence before me.

12 The relief to be granted is, of course, relief of a Mareva nature. There can be no order as to the sum received in specie, since it has been paid away. The result is that I propose to grant against the second defendant as well as the first defendant relief in appropriate form until further order freezing the second defendant’s assets generally.

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