C. PROCEEDING NSD 1722/2019 - MR ABDALLA'S CLAIM AGAINST JARVIS
87 Against the factual background described above, I turn now to consider Mr Abdalla's claim against Jarvis. Mr Abdalla's oral and written closing submissions did not address the case as pleaded. Instead, the case against Jarvis was framed in the following terms:
(1) Mr Abdalla held title to unit 16;
(2) he did so because Ms Shonoda did not pay the full amount of the purchase price for unit 16 and a vendor is entitled to retain title of a property until the purchase price for the property has been paid, relying upon Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100; (2015) 89 NSWLR 237 at 261 [100] (Emmett JA; Macfarlan and Gleeson JJA agreeing);
(3) Transfer AN40118X constituted a fraud against Mr Abdalla, as Mr Abdalla's signature on that document was forged;
(4) Ms Shonoda was put on notice of that fraud by the 19 February 2018 letter (although, it was contended a notice was not required as Ms Shonoda already knew of the fraud, as she was a participant in it. For the reasons previously set out, I do not accept this alternative proposition);
(5) subsequent to receiving such notice, Ms Shonoda organised for unit 16 to be transferred to Anthony Hanna;
(6) when property is transferred without the consent of the owner and the transferee is a volunteer or has notice that there is a lack of consent to the transfer then the property in the hands of the transferee is vested in a trust in favour of the owner, relying upon Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 and Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81; (2016) 91 NSWLR 732 at 741 ([39] to [47]) (Leeming JA, with whom Bathurst CJ and Sackville AJA agreed);
(7) Jarvis had knowledge of the fraud and Mr Abdalla's lack of consent to the transfer of his interest because Ms Shonoda had such knowledge, and Ms Shonoda's knowledge is to be imputed to Jarvis, despite the fact that Ms Shonoda was not a director or officer of Jarvis, relying upon the views expressed by Brennan, Deane, Gaudron and McHugh JJ in Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 at 582 to 583, in circumstances where Ms Shonoda admitted that she made the decision that Jarvis would accept the transfer and then transfer unit 16 to Anthony Hanna; and Ms He acted as directed by Ms Shonda and was a mere functionary to execute Jarvis's decisions as made by Ms Shonoda; and
(8) accordingly, Jarvis is liable to Mr Abdalla in respect of the interest that Mr Abdalla had held in unit 16 and which Jarvis held on trust for Mr Abdalla but transferred to Anthony Hanna. Mr Abdalla contends that Jarvis is liable to him for either one-half of the price recorded on Transfer AN40118X ($325,000) or one-half the value ascribed by Mr Berry ($315,000).
88 There is an issue as to whether the Court should determine Mr Abdalla's case as re-framed in circumstances where the re-framed case has not been pleaded.
89 In Garner v Central Innovation Pty Limited [2022] FCAFC 64, the Full Court of this Court (Charlesworth, Stewart and Halley JJ) explained at [68] to [71]:
68 The principles in relation to the function and rules of pleading and the purpose of particulars are well settled.
69 In Banque Commerciale SA, en liquidation v Akhil Holdings Limited (1990) 169 CLR 279, the High Court emphasised that the rules of pleadings are directed at ensuring that a party should be given a fair opportunity to meet the case advanced against it. Their Honours explained (at 286 - 287):
The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq.), per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, e.g., Browne v Dunn; Mount Oxide Mines.
Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.
(footnotes omitted)
70 A hearing that departs from the pleadings is not necessarily an unfair hearing. It is necessary to consider what issues were fairly fought between the parties: Sullivan v Trilogy Funds Management Ltd (2017) 255 FCR 503 (at [265(1)]) citing Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 (at 517); Vale v Sutherland (2009) 237 CLR 638 (at [41]); Banque Commerciale SA (at 296 - 297); Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 (at [51]).
71 The principal focus on procedural fairness, rather than rigidity in the application of formal pleading rules, was illustrated in the decision of the Full Court in NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98 (Flick, Murphy and Griffiths JJ). Their Honours explained (at [26]):
First, the fact that findings may be made - and even liability established - upon the basis of evidence which goes beyond a pleaded case is not of itself reason to set aside a decision. To so recognise is not to deny the importance of pleadings; it is simply to recognise that a party must be given, by one means or another, adequate notice of the case it has to meet. …
(bold and italic emphasis in original; underline emphasis added)
90 To the cases cited by the Full Court might be added the decision of the High Court of Australia in Laws Holdings Pty Ltd v Short (1972) 46 ALJR 563. In that case, the dispositive estoppel‑based argument was not pleaded and was not raised until closing submissions. The High Court held that in the circumstances of that case and in particular the sufficiency of opportunity afforded to the other party, the successful party was nevertheless entitled to rely upon that argument.
91 The question is one of procedural fairness, which must be determined by reference to the facts of the particular case. Relevantly, in this proceeding:
(1) the re-framed case was not pleaded;
(2) the re-framed case was mentioned in Mr Abdalla's written submissions filed in advance of the hearing and not mentioned by Mr Abdalla's counsel in oral opening;
(3) both Ms Shonoda and Ms He gave evidence to the effect that Jarvis acted at the direction of Ms Shonoda with respect to the transfers to and by Jarvis of unit 16;
(4) Ms Shonoda was questioned in cross-examination concerning her knowledge of the contended fraudulent conduct concerning the impugned signature;
(5) the re-framed case was addressed in the written submissions filed on behalf of Mr Abdalla on the day before oral closing submissions were heard, and in those oral closing submissions;
(6) the legal representative of Jarvis did not object to the Court considering the re-framed case on the basis that it travelled beyond the case as pleaded for Mr Abdalla (or on any other basis); and
(7) the re-framed case was not the subject of any application to amend Mr Abdalla's pleadings; and
(8) after the Court subsequently invited further submissions on whether the re-framed case ought be entertained, Jarvis indicated that it did not wish to be heard.
92 I am satisfied that there is no procedural unfairness in dealing with the unpleaded claim against Jarvis, particularly when: that claim was set out in the written opening; evidence relevant to it was received without objection; and no objection to the case travelling beyond the pleading was made during the hearing, or in response to the Court's invitation for further submissions.
93 I turn now to the re-framed case against Jarvis. The facts which are germane to this case are set out above, and in particular:
(1) in April 2017 an agreement was reached between Mr Abdalla and Mr Hanna Snr pursuant to which they would dissolve the partnership between them on the basis that:
(a) Mr Hanna Snr would have title to units 16 and 21;
(b) Mr Abdalla would have title to units 17 and 22;
(c) Mr Abdalla would receive payment of $247,356.74;
(2) also in April 2017, Mr Hanna Snr, Mr Abdalla and Ms Shonoda entered into the Deed;
(3) on or about 16 January 2018, Jarvis became the registered proprietor of unit 16, by reason of the lodgement of Transfer AN40118X. That transfer was a transfer from Mr Hanna Snr and Mr Abdalla as transferors to Jarvis as transferee, but the signature of Mr Abdalla on that transfer form was a forgery;
(4) Transfer AN40118X on its face provides for a consideration of $650,000. However, the evidence establishes that by agreement with Ms Shonoda, Jarvis paid no consideration and Ms Shonoda paid the stamp duty and registration expenses;
(5) Ms Shonoda was not aware of the forgery of Mr Hanna Snr's signature before the registration of Transfer AN40118X;
(6) on or about 19 February 2018, Ms Shonoda was put on notice of the forgery of Mr Hanna Snr's signature; and
(7) on 3 April 2019 Jarvis transferred unit 16 to Anthony Hanna.
94 There is no challenge to the legal title that was held by Jarvis and then transferred to Anthony Hanna. The claim brought is an action against Jarvis on the basis that it was a volunteer who became the trustee - upon being put on notice on or about 19 February 2018 of the forgery - of the interest previously held by Mr Hanna Snr in unit 16.
95 The interest that Mr Hanna Snr held in unit 16 was taken from him without his knowledge by dint of the forgery. It is well-established that in such circumstances the wrongdoer holds Mr Hanna Snr's interest on trust for Mr Hanna Snr: Black; Fistar at 740 to 741 ([36] to [39]).
96 It is also well-established that a person who receives trust property, otherwise than as a bona fide purchaser for value without notice, but innocently, and thereafter acquires notice of the trust and deals with the trust property in a manner inconsistent with the trust will be obliged to account in equity for the trust property (or such as remains at the time when notice of the trust is received): see Fistar at 738 to 739 ([30] to [31]), 742 to 743 ([45] to [47]), and the authorities there cited.
97 The starting point is whether Mr Abdalla held title to unit 16 at the time of Transfer AN40118X in January 2018. Mr Abdalla submitted that he did in circumstances where he was yet to receive the consideration for the transfer. In contrast, Jarvis submitted that Mr Abdalla was merely a bare trustee of the title in unit 16.
98 For the following reasons, I am satisfied that as at January 2018, Mr Abdalla held full legal title to his interest in unit 16.
99 First, as at that time, he was a registered proprietor of unit 16.
100 Secondly, although he had agreed to transfer his interest in unit 16 to Ms Shonoda, the transfer of that interest (and his interest in unit 21) was dependent upon payment of $247,356.74. As at January 2018, this amount had not been paid in full.
101 Thirdly, and contrary to the submissions made on behalf of Jarvis, entry into a contract for the sale of unit 16 (and unit 21) did not of itself render Mr Abdalla a bare trustee of his interest in that unit. Although a trust relationship might arise at a particular point in the sale process, the contractual nature of the relationship between a vendor and a purchaser needs to be firmly borne in mind. In Golden Mile, Emmett JA explained at 261 to 263 ([98] to [105]):
General principles
98 The relationship between the vendor and purchaser at the moment of entry into a valid contract for sale of land has in the past been described in the terms of a trust. Thus, it has been said that, at that moment, "the vendor becomes in equity a trustee for the purchaser of the estate sold … [i]n other words, the position of the vendor is something between what has been called a naked or bare trustee, or a mere trustee (that is, a person without beneficial interest), and a mortgagee who is not, in equity (any more than a vendor), the owner of the estate".
99 Clearly enough, where one person holds land on trust for another, that other person would be regarded as having an equitable interest in that land. While a vendor of real property under a valid contract of sale may become a trustee of the property for the purchaser, there is a question as to the time when such a trust relationship arises and as to the precise character of that relationship. Until it is known whether the contract will be performed, the vendor is not in the position of a constructive trustee, although the vendor may be described as a trustee sub modo. That is to say, the vendor under an unconditional contract may be regarded as a trustee, conditionally upon nothing happening to prevent performance of the contract. The vendor may be regarded unconditionally as a trustee for the purchaser when the contract is performed by the purchaser by payment of the purchase price. When title is made out and the purchaser has paid the purchase price under a contract in respect of which the remedy of specific performance is available, the vendor becomes a constructive trustee of the property sold.
100 However, the use of the language of trust to describe the respective positions of the vendor and purchaser has fallen out of favour. Where there are rights outstanding on both sides of a contract for the sale of land, the description of the vendor as a trustee tends to conceal the essentially contractual relationship that governs the rights and duties of the respective parties. While, in some sense, the equitable estate in the land passes to the purchaser, the vendor has a right to payment of the purchase price and has a charge or lien on that estate as security for payment of the purchase price, together with the right to retain possession of the land until the price is paid. The purchaser must either pay the purchase price or lose the equitable interest acquired on making the contract.
101 Before completion, the principles developed in equity for relief against forfeiture would protect the equitable interest that the purchaser has in the land against loss consequent upon termination of the contract. In the same way as failure to redeem a mortgage upon the promised date for repayment did not destroy the equity of redemption, without the proper exercise of a power of sale or a foreclosure order, failure to complete a contract for purchase on the date fixed for completion did not bar the intervention of equity to order specific performance of the contract.
102 That is to say, at the time when the purchase price is paid under an unconditional contract for sale, a change in the relationship between vendor and purchaser takes place, although the change may take place earlier in some circumstances. The change is that an interest in the subject matter of the contract vests in the purchaser and that interest will be protected by a court of equity. Certainly, when nothing remains to be done in order to define the respective rights of the parties with respect to the equitable interest, a court of equity will protect the rights of the provider of the purchase price, on the basis that the seller is in the position of a trustee under a bare trust, although the intrusion of the notion of a trust may be superfluous. In other words, whether or not the relationship of the vendor to the purchaser is that of trustee to cestui que trust, a court of equity will treat the purchaser as having an interest that it will protect. That interest may fairly be characterised as an equitable interest.
Time at which the purchaser may be entitled to equitable remedies
103 Once a contract for sale of land has been entered into, beneficial ownership is, in a sense, split between the seller and buyer on the provisional assumption that specific performance is available and that the contract will in due course be completed, if necessary by a court ordering specific performance. As the contract proceeds to completion, the equitable interests can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full. In order to consider whether specific performance, or any other equitable remedy, would be ordered at a time prior to completion of such a contract, it is necessary to understand the respective rights of the vendor and the purchaser.
104 The purchaser's interest comprises four separate rights or "equities". First, the purchaser has an interest in the land that is enforceable against third parties and that can take priority over holders of competing interests. Second, the purchaser has an equitable right that the vendor exercise due care to preserve and maintain the land pending completion. Third, the purchaser has an equitable right to the rents and profits received by the vendor between the agreed date for completion and the actual date of completion (but the vendor has that right during the period between the date of contract and the agreed date for completion). Fourth, the purchaser has an equitable lien for repayment of the purchase price in the event of non-conveyance by the vendor. Of those four rights, the first and last are in rem rights over the land the subject of the contract. The vendor also has four such rights: to receive rents before completion, to retain damages recoverable against others for wrongs to the vendor's land before completion, to receive the purchase money on completion, and, in default, to enforce a lien for the purchase money.
105 Importantly, whether or not these "equities" arise, and the extent to which they may be enforced, depends on the time at which the enquiry is made, that is, for example, immediately after formation of the contract, or at a later point when the purchaser is ready, willing and able to tender the purchase price, or at a point after payment of the purchase price. Before completion, the purchaser has an equitable interest in the land that reflects the extent to which equitable remedies are available to protect the purchaser's contractual rights. The fact that the point may not yet have arrived that the purchaser can obtain a decree of specific performance does not mean that the purchaser is not entitled to other equitable remedies: the purchaser could, for example, obtain negative injunctions to enforce any of the four "equities" referred to above.
(footnotes omitted; emphasis added)
102 See also BB Australia Pty Ltd v Danset Pty Ltd [2018] NSWCA 101 at [51], where Barrett AJA (Meagher JA and Simpson AJA agreeing) stated at [51]:
Authoritative observations in Chang v Registrar of Titles (1976) 137 CLR 177; [1976] HCA 1 [12] , Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164; [1987] HCA 20, Stern v McArthur (1988) 165 CLR 489; [1988] HCA 51 and, more recently, Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 make it impossible to say in Australia today that the vendor under an uncompleted contract for the sale of land is a "trustee" for the purchaser. What can, however, be said is that the purchaser under such a contract has an equitable interest in the land commensurate with the availability of equitable relief to protect the purchaser's position in relation to the land
(footnotes omitted)
103 Thus, although a vendor may be considered a bare trustee once the purchase price has been paid, that point was not reached. The purchase price remained unpaid as at January 2018 (and remains unpaid). It is also highly doubtful that a court would have granted a remedy of specific performance in such circumstances.
104 The next question to be determined is whether Jarvis received unit 16 in January 2018 as a bona fide purchaser for value without notice of the fraud. I am satisfied that Jarvis did not have notice of the fraud at the time that it received unit 16. There is no evidence, and Mr Hanna Snr did not suggest, that Ms He had notice of the forgery. Rather, Mr Hanna Snr submitted that Ms Shonoda had knowledge of the forgery and that such knowledge should be attributed to Jarvis. For the reasons earlier discussed, I am not satisfied that Ms Shonoda had knowledge of the forgery prior to 19 February 2018.
105 However, I am not satisfied that Jarvis was a purchaser for value. Rather, Jarvis received unit 16 as a volunteer in circumstances where the evidence of both Ms Shonoda and Ms He was that Jarvis provided no consideration for the transfer of unit 16 to it.
106 The next question to be determined is whether Jarvis was on notice of the forgery before it transferred unit 16 to Anthony Hanna in April 2019. Again, there is no evidence, and Mr Hanna did not suggest, that Ms He had such notice.
107 Mr Hanna Snr submitted that, by the time of the transfer to Anthony Hanna, Ms Shonoda had knowledge of the forgery and that such knowledge should be attributed to Jarvis. I am satisfied, as discussed earlier, that Ms Shonoda was on notice of the forgery from about 19 February 2018.
108 In SSABR Pty Ltd v AMA Group Limited [2024] NSWCA 175, Stern JA (Ward P and Price AJA agreeing), explained at [149] to [152]:
149. The leading authority as to the attribution of a state of mind to a company is the statement of Bright J in Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 279, cited with approval by the majority in Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68 at 582-583 (Brennan, Deane, Gaudron and McHugh JJ) ("Krakowski"):
"Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company."
150. As was found in Krakowski (at 582), in some circumstances the knowledge of the company must depend upon the knowledge of a particular person or persons who were most closely involved with the relevant transaction, in that case the "persons who were responsible for the initial negotiations and who set the scene in which the relevant representation had been made."
151. Lord Hoffman in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506-511 explained that the test for attribution of a state of mind to a company will always depend upon context, and the purpose for which that attribution is sought. As his Lordship explained, it was never intended that the "directing mind and will" test would be the universal rule for the purposes of attribution. As Leeming JA observed in Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294 at [234], the position as set out by Lord Hoffman has attracted a considerable weight of Australian appellate authority. As Beach J observed in Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147; [2018] FCA 751 at [1660], the appropriate test for attribution of a state of mind to a company depends upon the interpretation of the relevant rule of responsibility having regard to its context and purpose.
152. In the context of rectification in equity, the relevant enquiry is as to the actual subjective state of mind of a corporation in entering into a particular contract, namely the relevant decision-maker. As held by Patten LJ in Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2012] 2 All ER (Comm) 748 at [35], [39], [41]-[43], cited with approval by Mann J in Murray Holdings Ltd v Oscatello Investments Ltd [2018] EWHC 162 (Ch) at [195]-[198] ("Murray Holdings"), and which the primary judge relied upon (at J[85]), that person will be the person who had the authority to bind the company to the contract, albeit that there may be circumstances where, in practice, the formal decision-maker has so deferred to the judgment of someone else that that person is in reality the person whose judgment was critical to the company entering the agreement. …
109 In the present case the relevant enquiry concerns the state of knowledge held by Jarvis as to the forgery when Jarvis transferred unit 16 to Anthony Hanna. In circumstances where Ms He, the director of Jarvis deferred to Ms Shonoda in connection with that transfer and indeed made the transfer at the direction of Ms Shonoda, Ms Shonoda's state of mind is to be attributed to Jarvis. It is not necessary that Ms Shonoda be the ultimate decision-maker on behalf of Jarvis with respect to the transfer of unit 16 to Anthony Hanna. It is sufficient that she was "so closely and relevantly connected with" that transfer that her knowledge for that transaction can be treated as the knowledge of Jarvis: see Krakowski at 582; Hoh v Ying Mui Pty Ltd [2019] VSCA 203 at [335] (Beach and Hargrave JJA and Sifris JJA). Ms Shonoda was, to adopt the language used by Bathurst CJ (with whom Hoeben CJ at Common Law and Leeming JA agreed) in Gregg v R [2020] NSWCCA 245; (2020) 355 FLR 348 at 436 [490], the person who was responsible for Jarvis transferring unit 16 to Anthony Hanna.
110 As noted previously, Ms Shonoda was aware of the forgery prior to the time that Jarvis transferred unit 16 to Anthony Hanna. It follows that Jarvis was aware of that forgery and as such held Mr Hanna's interest in unit 16 on trust for him and is liable to him for dealing with that trust property by transferring it to Anthony Hanna. In circumstances where no accounting has been sought, the appropriate remedy is the payment by Jarvis of the value of that interest as at about the date of the transfer, namely $315,000.