Australia and New Zealand Banking Group Limited v Westpac Banking Corporation

Summary of evidence

1. Moustapha has been a licensed plumber and hydraulic and fire engineer since 2010.
2. In April 2016, Moustapha attended a meeting arranged by Omar where they discussed potential plumbing contracts that Omar and his business partner, Mr Navid Miraki, were looking to secure and for which they needed a licensed plumber. At the time of this meeting, Moustapha was working with Umow Lai engineering doing hydraulic consulting and design work.
3. Omar asked Moustapha whether he knew any plumbers who could work "under the Iconic Group umbrella" for a project known as the "Aya-Eliza Apartments" at 93-105 Auburn Road, Auburn (the Auburn project). In May 2016, Moustapha introduced Omar to Mr Farouk Mohamad (also known by the first name Fred) of F&F Plumbing. Mr Mohamad met with Omar, Mr Miraki and Moustapha and agreed in principle to take on the Auburn project, subject to agreeing on a price. Omar agreed to send Mr Mohamad the plans for the Auburn project so that he could prepare a quote for F&F Plumbing Services to submit for the proposed subcontract.
4. Mr Mohamad engaged Moustapha to assist him with the estimates for the quote to be provided by F&F Plumbing Services and to manage the F&F Plumbing Services team on the Auburn project site if F&F Plumbing Services was awarded the subcontract. At the same time, Moustapha was working with Omar and Mr Miraki to prepare estimates for their quote to be submitted to the builder for the Auburn project.
5. In the midst of this activity, the Company was incorporated on 21 June 2016 with Khalid as its sole shareholder and Moustapha as its sole director.
6. In his affidavit, Khalid gave evidence that he did not know that he was a shareholder of the Company until he was served with the originating process in these proceedings. However, when it was put to him in cross-examination that he knew from at least July 2016 that he was the sole shareholder, Khalid answered: "I don't recall in regards to dates".
7. Moustapha denies signing any documents for the registration of the Company or consenting to his appointment as a director.
8. As I have already mentioned, Moustapha is a licensed plumber. The Liquidator adduced evidence during the hearing to the effect that the Company needed to have a licensed plumber as one of its directors in order to carry out plumbing work. That is to say, the Company needed Moustapha as its director in order to enter into the contract that it was then seeking to win for the Auburn project and to lawfully do the work under that contract.
9. As referred to below, Moustapha knew by August 2016 that he was named as a director of the Company and he knew by about October 2017 that he was named as the sole director of the Company in ASIC's register. He did not take any steps to notify ASIC that he had not consented to his appointment as a director. Nor did he take any steps to resign as a director.
10. On or about 5 July 2016, the Company opened a bank account with National Australia Bank (the NAB account). Omar, Khalid and Moustapha were the authorised signatories for the NAB account.
11. Moustapha gave evidence that he went to the NAB branch at Castle Hill together with Omar and Khalid to open the NAB account because Omar said to him and Khalid that he needed both of them to be signatories on the bank account "in case I am overseas and I may need either of you to attend to banking issues in my absence if needed". Moustapha adhered to this evidence in cross-examination.
12. Moustapha gave evidence that cards to operate the NAB account were issued to each of the three authorised signatories at the Castle Hill branch when the account was opened. However, Omar required Moustapha and Khalid to hand their cards back to him.
13. In his affidavit, Khalid gave evidence that it was Moustapha who requested that Khalid and Omar be signatories for the NAB account, saying that "I will be on site most of the time to manage the floor and may need you to do some banking for me if I get caught up on site". Khalid gave inconsistent evidence about this in cross-examination. On the one hand, he maintained that this conversation set out in his affidavit occurred. On the other hand, Khalid said that he could not recall what was said between himself and Moustapha on the occasion that the NAB account was opened. Khalid also could not recall whether he had received a card with which to operate the NAB account. If he did receive a card, he could not recall giving it to Moustapha.
14. On 8 July 2016, Merhis Projects Pty Ltd (Merhis) accepted the Company's lump sum quote for the Auburn project.
15. On 12 August 2016, the Company and Merhis signed a contract for the Company to undertake the hydraulics work for the Auburn project for a lump sum of $2.69 million and "wet fire" work for an additional lump sum of $1.61 million, being a total amount of $4.3 million (the Contract). The practical completion date for the work was 4 November 2017. The Contract named Moustapha as the Company's representative. Moustapha signed the Contract for the Company. His signature appears above the words "Signature of Director/Secretary". Omar signed above the words "Signature of Witness". In cross-examination, Moustapha said that he appreciated at the time that he was signing as a director but he did not know that he was "the director of the whole company".
16. The Company's "Site Communications Policy" nominated Moustapha and Omar as its authorised representatives to communicate with Merhis representatives in relation to the Auburn project.
17. On 14 August 2016, the Company signed a subcontract with Mr Mohamad (trading as F&F Plumbing) for the same work that was the subject of the Company's Contract with Merhis (the Subcontract). F&F Plumbing was operated by Mr Mohamad and his wife Mrs Baidaa Mohamad in partnership. The lump sum payable by the Company to F&F Plumbing under the Subcontract was $3.074 million. The Subcontract named Moustapha as the Company's "General Manager" and Omar as the "Site Supervisor" for the Company. The Subcontract was signed by Moustapha as "Authorised Representative" and Omar signed as a witness.
18. The Liquidator gave evidence that the Auburn project was the sole business activity undertaken by the Company. The Company stood to make a profit of approximately $1.25 million, from the Auburn project based on the difference between the Contract price and the Subcontract price.
19. At some stage during these events, Moustapha signed a lease of premises at 5 Gladstone Road, Castle Hill between NLM Holdings Pty Ltd (as lessor) and the Company (as lessee) for a term of 12 months commencing on 16 September 2016 (the Castle Hill premises and the Castle Hill lease). Moustapha's signature is accompanied by the handwritten words "sole director/secretary" of the Company. He gave evidence that he signed the lease at Omar's instruction. The leased premises were the Company's registered office until 24 April 2017, when the registered office was changed to the office of MBC Accountants in Greensborough, Victoria.
20. On 22 August 2016, Moustapha resigned from his employment with Umow Lai engineering and began doing work for the Company. According to Moustapha, he was working for the Company as an employee on the basis of a verbally agreed salary of $150,000. There is no written employment contract and the salary was never paid to Moustapha.
21. The Company commenced the work on the Auburn project in about August or September 2016. From the outset, Omar was in communication with the Merhis representatives about issues relating to the project, using his iconic-constructions.com.au email address. Moustapha gave evidence that he managed a team of about 30 workers on site, with assistance from Khalid and F&F Plumbing personnel. Many of those workers were employees or subcontractors of F&F Plumbing. Indeed, both Khalid and Moustapha were subcontracted to F&F Plumbing and were paid by F&F Plumbing for their work on the site until F&F Plumbing ceased working on the Auburn project in October 2017 as referred to below. At the same time as subcontracting to F&F Plumbing, Moustapha estimated the works completed for the purpose of the Company's monthly progress claims to be submitted to the builder. Those progress claims were prepared and submitted on behalf of the Company by Omar. Moustapha described himself as the foreman for the plumbing works with responsibility for technical delivery of the works. He gave evidence that Khalid took on the role of foreman on occasions when he (Moustapha) was not present on the site.
22. In his affidavit, Khalid gave evidence that he did not have any involvement in the day to day operations of Iconic or any "first-hand knowledge" of the commercial dealings of Iconic. However, as referred to below, Mr and Mrs Mohamad and Mr Ung gave evidence to the effect that Khalid was directly involved in disputes that arose as a result of the Company's failure to pay them for their services on the Auburn project site.
23. During the period from 20 September 2016 to 15 December 2017, Merhis made payments to the Company under the Contract totalling $3.243 million. Those payments were made into the NAB account.
24. During the period from 28 November 2016 to 24 September 2017, F&F Plumbing issued invoices to the Company for work performed under the Subcontract totalling $1,500,169. Mr Mohamad gave evidence that Omar told him he was "taking care of the money" for the Auburn project. His dealings with the Company concerning invoices and payment were with Omar, not with Moustapha, and payments made by the Company to F&F Plumbing were always arranged by Omar. All payments were made by electronic funds transfer. No payments were made to F&F Plumbing in cash.
25. Mr Joe Dominello and Mr Jim Somerville are plumbing and fire contractors who worked on the Auburn project site as subcontractors to the Company for a short period from about mid-2017. They gave evidence that they dealt only with Omar and Khalid concerning their payments. Moustapha was directing the works on site, but he did not arrange their payments. They both left the site after a short time because the Company was not paying them on time.
26. The Company paid only $458,699 of the total amount of $1,500,169 invoiced by F&F Plumbing for its work on the Auburn site.
27. On or about 10 October 2017, F&F Plumbing withdrew all of its personnel from the Auburn project site and ceased performing any work on the project because the Company was not paying its invoices and F&F Plumbing could no longer afford to pay workers, buy materials and pay the other costs that it was incurring in order to carry out the work under the Subcontract. F&F Plumbing owed money to some of its subcontractors at that time, including Mr Siev-Leng Ung (an insulation contractor). Mr and Mrs Mohamad had taken out loans secured against their home to fund the cost of the work while they waited for payment from the Company. They ultimately had to sell their home to repay those loans.
28. Mr and Mrs Mohamad gave evidence that Omar and Khalid came to their home at some stage and asked them to come back to the Auburn project site and tried to intimidate them into saying that they had been paid in full.
29. At about the same time that F&F Plumbing walked off the Auburn project site, Mr Mohamad told Moustapha that he had obtained an ASIC search for the Company which stated that Moustapha was the sole director. Moustapha gave evidence that he spoke to Omar about this at the time, but did not take steps to have himself removed as a director in ASIC's records because "we were terminated within a month or two from the job anyway". Moustapha said that he "wasn't the director in effect" and "wasn't the director in - in effective capacity" and described himself as the director only "on paper". As I understand his evidence, Moustapha did not consider that he had any effective control over the Company notwithstanding that he was recorded as its sole director.
30. Moustapha knew from November 2017 that the Company had not paid money that was owing to F&F Plumbing and that Mr and Mrs Mohamad were consequently under severe financial stress. Moustapha had formed the view that the Company could not complete the Auburn project work without F&F Plumbing, and he told Omar so. Moustapha gave evidence that he was mediating between F&F Plumbing and Omar in an effort to arrange for F&F Plumbing to be paid. Omar was assuring him that they would be paid and, at that time, he believed those assurances. Moustapha's evidence about his efforts to arrange for F&F Plumbing to be paid and return to site is corroborated by evidence given by Mr Ung.
31. F&F Plumbing were not paid and did not return to the Auburn project site. Omar sought to engage directly some of the subcontractors to F&F Plumbing in order to keep the work progressing. Omar paid some of the amounts owing by F&F Plumbing to some of those subcontractors and promised to pay those subcontractors directly if they continued working on the site. These subcontractors included Mr Ung, who attended a meeting with Omar and Khalid in September 2017 in which they told him that F&F Plumbing were "finished" and asked him to continue working on the site for the Company. In order to incentivise him to do so, the Company paid him some of the money that he was then owed by F&F Plumbing. Mr Ung gave evidence that those payments were arranged by Omar. Mr Ung gave evidence in cross-examination that Khalid said to him at the time: "[f]rom now on, you don't need to talk with Moustapha. Anything for payment, you talk with me and [Omar]". Mr Ung did keep working on the site, but the Company did not pay him for all of his further work. By the end of 2017, the Company owed Mr Ung approximately $140,000.
32. Khalid admits making cash withdrawals totalling $984,000 from the Company's NAB account during the period from 30 November 2017 to 19 January 2018. Khalid's first withdrawal made on 30 November 2017 was in the amount of $145,000. Khalid then made two withdrawals on 7 December 2017, each in the amount of $70,000. Khalid made further withdrawals on 15, 27 and 29 December 2017, each in the amount of $70,000. During the period from 3 January to 12 January 2018, Khalid made further withdrawals of $70,000 every few days. Khalid then withdrew $20,000 on 16 January 2018, followed by daily withdrawals of $70,000 on 17 and 18 January 2018. On 19 January 2018, Khalid made a final withdrawal of $49,000, which reduced the balance of the NAB account to $212.78. All of these withdrawals were made in cash.
33. Khalid pleaded in his defence that he made each of those withdrawals at Moustapha's request for the purpose of paying suppliers and contractors. Khalid pleaded that he acted at Moustapha's direction and under his instruction and that he had no "first hand knowledge" of the Company's commercial dealings and was not involved in the Company's day to day operations. In his affidavit, Khalid deposed that, on each occasion that he made a withdrawal, Moustapha said to him words to the effect: "Please head down to the bank and pull out [sum of money]. I need to pay suppliers and contractors." According to Khalid, he then attended the NAB and withdrew the cash which he placed in a sealed envelope which he handed to Moustapha at the Auburn project site. In cross-examination, Khalid denied keeping the cash for himself. He maintained that he gave the cash to Moustapha and denied giving it to Omar.
34. In his defence, Moustapha disputed that Khalid made the cash withdrawals at his direction or on his instructions. Moustapha pleaded that Omar received the cash withdrawn from the Company's NAB account and that Omar and/or Khalid "enriched themselves" with the cash withdrawn from the account. In his affidavit, Moustapha deposed that he had not received any money from the Company save for a sum of $15,000 that Omar transferred to him from the NAB account on 5 January 2018. Moustapha denied receiving any of the cash withdrawn by Khalid. Moustapha speculated that Khalid may have given the cash to Omar, but said that only Khalid and Omar know what in fact happened to the cash.
35. In his defence, Moustapha admits that he withdrew $50,000 in cash from the NAB account on 20 December 2017. Moustapha gave evidence that, at Omar's request, he drove Omar to the NAB branch in Eastwood where Moustapha withdrew the $50,000 and handed the cash to Omar. Moustapha expected that Omar would pay the cash (or at least some of it) to him in order to repay personal loans that Moustapha says he had made to Omar. However, Omar told Moustapha that he would need to wait for repayment and the whole of the cash withdrawn was left with Omar. Moustapha does not claim to have had any expectation or understanding that the cash would be used to discharge debts of the Company. There is no evidence to suggest that Moustapha was indebted to Omar at the time of the $50,000 payment.
36. In cross-examination, Moustapha adhered to his evidence that he gave the $50,000 to Omar.
37. Omar was not called or subpoenaed by any party to give evidence at the hearing.
38. F&F Plumbing was the Company's main subcontractor for the Auburn project. Prior to 30 November 2017, the Company had paid F&F Plumbing and other subcontractors by electronic funds transfers. There is no evidence of any reason for the Company to have changed its payment method to cash in the period after 30 November 2017.
39. The Company did not pay any of the monies owing to F&F Plumbing during the period after 30 November in which the cash withdrawals were made. The Company was accruing debts to Mr Ung during that period as referred to at [37] above. It appears that the Company may have also been failing to pay rent on the Castle Hill premises for some time. Solicitors acting for the lessor of the Castle Hill premises served a statement of claim at the Company's registered office on 14 March 2018 claiming unpaid rent in respect of the period since 30 November 2016 and damages. I note that the statement of claim came to the attention of Mr Mark Bartolo of MBC Accountants, who forwarded it on to Omar (not Moustapha).
40. Ultimately, Merhis terminated its Contract with the Company in about January 2018, citing delay to the Auburn project due to the Company's failure to provide the resources required to do the work on site. According to Moustapha, the Company owed a total amount in excess of $2 million to F&F Plumbing, other subcontractors, suppliers and consultants (including Moustapha) when the Contract was terminated.
41. On 14 March 2018, Moustapha signed an ASIC Form 6010 applying for voluntary deregistration of the Company. In cross-examination, Moustapha said that he did this "under instructions" and said that he did not know at the time that all of the money had been withdrawn from the Company's account. Moustapha said that, although he was a signatory to the NAB account, he did not have his card (which he had surrendered to Omar when the account was opened) and he did not have online access to the account.
42. On 11 April 2018, Independent Pipe Fabrication Pty Ltd issued a statutory demand to the Company for amount of $79,914.10 described as due for the supply and delivery of sprinkler pipe and associated fittings to the Company at its request.
43. Independent Pipe Fabrication Pty Ltd subsequently filed an originating process in the Federal Court of Australia seeking an order the Company be wound up in insolvency, relying on the Company's failure to comply with the statutory demand. The originating process is dated 21 June 2018, and I infer that it was filed on that date.
44. On 15 August 2018, the Federal Court of Australia made orders winding up the Company in insolvency and appointing Mr Michael Smith as its liquidator. I refer to Mr Smith as the Liquidator.
45. According to the Liquidator's report to creditors dated 5 August 2019, there are unsecured creditors of the Company claiming a total amount of $1.272 million in the winding up, including a claim of $1 million by F&F Plumbing.
46. The Liquidator wrote to Moustapha on 15 August 2018 and again on 9 October 2018 requiring him to submit a Report as to Affairs (RATA) and produce the books and records of the Company to the Liquidator. Moustapha did not respond. On 6 December 2019, the Liquidator issued orders for production to MBC Accountants. The documents produced did not include any financial statements, accounts or tax returns for the Company or any document recording or accounting for the cash withdrawals. No such documents have been produced or tendered during the course of these proceedings. A separate order for production issued to NAB resulted in the production of the NAB account statements and various transaction records.
47. In his affidavit, Moustapha candidly admitted that the Liquidator had continuously contacted him and served papers on him in the years after the Company was wound up. Rather than responding to the Liquidator, Moustapha spoke to Omar each time and told him to "clean up this mess that you have created". Omar told him "not to worry it will blow over" and told him to just ignore the matter and not talk to anyone else about it. Omar promised that "he would deal with it". That does not excuse Moustapha's failure to respond to the Liquidator's orders and correspondence. However, from about September 2021, Moustapha began approaching the Liquidator's office and the plaintiffs' solicitors seeking to engage with them about the winding up of the Company and about these proceedings and offering to provide the plaintiffs' solicitors with information or evidence relevant to the proceedings. In submissions, Moustapha said that he had formed the view by this time that Omar had been lying to him. Moustapha gave evidence that he realised in March 2022 that Omar would not "deal with" these proceedings at all, except to extricate himself from the matter by paying a sum of money to settle the plaintiffs' claim against him. Khalid's pleaded defence was that he had withdrawn the cash at Moustapha's request and paid all of the cash to Moustapha. Prior to March 2022, Moustapha had not entered an appearance or taken any other steps in the proceedings. Khalid strenuously objected to the proceedings being adjourned in March 2022 to give Moustapha an opportunity to file his defence and evidence. The proceedings were adjourned and Moustapha has conducted his own defence without legal representation since March 2022.

Findings of fact about disputed matters

1. For the purpose of determining the claims that the plaintiffs ultimately pressed against Khalid and Moustapha at the final hearing, it is not necessary to make any finding about whether Moustapha was validly appointed as a director of the Company or whether he was a director within the meaning of s 9 of the Corporations Act even if he was not validly appointed. Nor is it necessary to make any finding about whether or when Khalid knew that he was the sole shareholder of the Company.
2. The key factual matter in dispute is whether or not Khalid withdrew the amounts totalling $984,000 in cash from the NAB account at Moustapha's request, and whether Khalid gave that cash to Moustapha, on the basis that Moustapha told him the money would be used to pay the Company's subcontractors and suppliers.
3. I reject Khalid's evidence to that effect [1] for the following reasons.
4. I accept the evidence of Mr Mohamad, Mr Sommerville, Mr Dominello and Mr Ung that it was Omar, or Omar and Khalid, who arranged the Company's payments for their work on the Auburn project site, to the extent that they were paid for that work. [2] It was not put to any of those witnesses in cross-examination that they were mistaken in giving that evidence or that they were not telling the truth.
5. I also accept Mr Mohamad's evidence that all of the payments made by the Company to F&F Plumbing were made by electronic funds transfer and not in cash. [3] Again, it was not put to Mr Mohamad that this aspect of his evidence was mistaken or untrue. Indeed, the statements for the NAB account show that there were no cash withdrawals from the account other than the withdrawals that are the subject of these proceedings. The only cash withdrawals that were made during the period in which F&F Plumbing was working on the Auburn project are the withdrawals that Omar repaid under the terms of his settlement with the plaintiffs. [4]
6. Moustapha's unchallenged evidence, which is corroborated in some respects by Mr Ung, is that he was pleading with Omar from November 2017 for the Company to pay F&F Plumbing the amounts owing to it. [5]
7. There is no evidence of any reason why the Company, having previously paid its subcontractors by electronic bank transfer, would suddenly begin paying them in cash at end of November 2017. The inconvenience and security risks of withdrawing and transporting significant sums of cash to pay subcontractors on the Auburn project site, as opposed to making electronic payments, is obvious. Even if the Company had chosen to change its method of payment, it is to be expected that it would have required receipts for any cash payments made to subcontractors and would have recorded those payments in its accounts with a view to claiming tax deductions. No such record has been produced to the Liquidator or tendered in these proceedings.
8. In all of those circumstances, Khalid's evidence that he withdrew the cash at Moustapha's request and gave it to him for the purpose of paying subcontractors and suppliers is so implausible that it is absurd.
9. I accept Moustapha's evidence denying that he received any of the amounts totalling $984,000 that Khalid withdrew from the NAB account [6] because Khalid's evidence is implausible for all of the objective reasons above and also because Moustapha was a witness who gave truthful evidence throughout these proceedings, in my opinion. Moustapha's conduct at the time of the relevant events when he knew that he had been named as a director, when he participated in the $50,000 withdrawal on 20 December 2017, and when he failed to engage with the Liquidator and comply with notices and orders served on him, left much to be desired. However, Moustapha himself recognised this by about September 2021 and sought to atone by engaging with the Liquidator and the plaintiffs' solicitors at that stage. Moustapha's account of the $50,000 withdrawal in his affidavit does not offer any retrospective exculpatory explanation for his conduct. It is obvious from his account that he was hoping to benefit personally from that withdrawal, and was under no illusions that the money might be used to pay the Company's creditors. In cross-examination, Moustapha answered questions in a direct and forthright manner and did not shrink from answers that plainly did not reflect well on his conduct and that he likely appreciated may be adverse to his interests in these proceedings.
10. By contrast, Khalid was reluctant to engage meaningfully with any of the questions put to him in cross-examination. Khalid frequently claimed to have no recollection of the very events that had been the subject of his own cross-examination of the witnesses called by Moustapha. Khalid initially sought to deflect questions about whether he gave the cash to Omar and was keen to deflect attention away from his brother: [7] "Q. You never gave a single cent of that money to Moustapha, did you? A. Once again, your opinion. Q. What have you done with the money? A. Nothing. Q. Did you give it to Omar? A. As you can clearly see, I've done nothing. You've seen - you've asked me for reports on my - on my assets. I've sent everything. Q. Did you give the money to Omar? A. No I didn't. This isn't about Omar. This is about myself and Moustapha."
11. The pattern of the cash withdrawals from 30 November 2017 onwards - large rounded sums, usually in the amount of $70,000, made with increasing frequency in circumstances where the Company's failure to pay its main subcontractor had caused that subcontractor to cease work on the site and the Company was struggling to provide the resources required to continue the work - are strongly suggestive of the Company's cash being removed from the reach of any future liquidator as it headed towards failure. That suggestion is underscored by the attempt to deregister the Company voluntarily in April 2018 so as to avoid a liquidation altogether. I accept Moustapha's evidence he signed that form "under instruction".
12. I find that Khalid's evidence that he withdrew cash totalling $984,000 at Moustapha's request and gave it to him for the purpose of paying subcontractors and suppliers is a lie that Khalid invented in the hope of casting liability for the withdrawals onto his cousin and away from himself. Having rejected the only explanation proffered by Khalid for the withdrawals, I find that he made those withdrawals without authority from the Company to do so. In circumstances where Khalid denies having given the cash to Omar, I infer that he withdrew those monies for his own benefit and kept them for himself or applied them for his own benefit.
13. For the reasons explained at [62] above, I accept that Moustapha was telling the truth about the circumstances in which he withdrew $50,000 from the NAB account on 20 December 2017 [8] and I find that Moustapha gave all of that money to Omar immediately after it was withdrawn.

The plaintiffs' claims

1. The principal claim against Khalid is a claim by the Company for restitution in the sum of $984,000 on the basis that he withdrew that money without authority and without providing any consideration for it. Counsel for the plaintiffs submitted that, in the event that the Court upheld that restitutionary claim against Khalid, the plaintiffs would not press their alternative claims pleaded against Khalid under s 588FF of the Corporations Act and for alleged breaches of s 182 of that Act and alleged breaches of fiduciary duty.
2. It is appropriate to record that aspects of the plaintiffs' pleaded claims against Khalid under s 588FF and s 182 of the Corporations Act relied on an alleged agreement between Khalid and Moustapha to take the Company's money for their own benefit, leaving the Company with unpaid debts. During the final hearing, the plaintiffs abandoned their allegation that Khalid and Moustapha entered into any such agreement.
3. In closing submissions, the plaintiffs pressed the following claims against Moustapha in relation to Khalid's cash withdrawals totalling $984,000: 1. a claim for damages under s 1317H of the Corporations Act in the amount of $984,000 for an alleged breach or breaches by Moustapha of s 182 of the Corporations Act; or 2. alternatively, equitable compensation in the sum of $984,000 for an alleged breach by Moustapha of fiduciary duties owed to the Company as a director of the Company.
4. However, the material facts relied upon in the plaintiffs' closing submissions in support of those claims departed materially from those pleaded in their Amended Statement of Claim. This gave rise to questions about procedural fairness, which I raised with counsel for the plaintiffs and with Moustapha in the course of their respective closing submissions. At the conclusion of the hearing, counsel for the plaintiffs foreshadowed that the plaintiffs may withdraw those claims against Moustapha and I granted leave for the plaintiffs to notify any such withdrawal to my Associate and to both defendants by email. The plaintiffs did notify withdrawal of those claims by email later that afternoon.
5. That left only the following claims against Moustapha: 1. a claim for restitution in the sum of $50,000 on the basis that he provided no consideration for his withdrawal of that amount from the Company's NAB account on 20 December 2017; or 2. alternatively a claim for an order under s 588FF of the Corporations Act requiring Moustapha to pay the sum of $50,000 to the Company on the basis that the withdrawal was an insolvent transaction and an uncommercial transaction of the Company that was entered into during the period of two years prior to the relation-back day and is therefore voidable pursuant to s 588FE(3) of the Corporations Act.
6. For completeness and to avoid any doubt, I note that the plaintiffs abandoned their pleaded claims against Khalid and Moustapha under s 588FF of the Corporations Act that relied on the cash withdrawals being creditor-defeating dispositions within the meaning of s 588FDB of the Corporations Act.

The restitutionary claim against Khalid

1. The fact that the Company had given Khalid authority, as against NAB, to operate the NAB account did not mean that the Company authorised Khalid to withdraw the Company's money from the NAB account for his own benefit: Twigg v Twigg (2022) 402 ALR 119; [2022] NSWCA 68 at [42] (Brereton JA, Bell CJ and Payne JA agreeing at [2]).
2. On the basis of my findings at [65] above, I accept the plaintiffs' contentions that Khalid has been unjustly enriched by the receipt of $984,000 of the Company's funds that he had no authority to take, for which he does not claim to have provided any consideration and which he kept or applied for his own benefit: Great Investments Ltd v Warner (2016) 243 FCR 516; (2016) 335 ALR 542; (2016) 114 ACSR 33; [2016] FCAFC 85 at [53]-[69] (Jagot, Edelman and Moshinsky JJ). As the plaintiff's submitted, the circumstances of the present case are analogous with stolen money cases. It is well established that stolen money may be recovered in a restitutionary claim from the thief (or, indeed, from any person to whom it has subsequently been paid without consideration): Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [31] and [36]-[51] (Leeming JA, Bathurst CJ and Sackville AJA agreeing) and the authorities there cited, and also at [89]-[93] (Sackville AJA); K Mason, J W Carter and G J Tolhurst, Mason & Carter's Restitution Law in Australia (4th ed, 2021) at [1632]. The Company is entitled to restitution from Khalid in the sum of $984,000 plus interest.

The restitutionary claim against Moustapha in relation to his $50,000 withdrawal

1. On the basis of my findings at [66] above, the Company is not entitled to restitution against Moustapha in respect of the $50,000 cash withdrawal made on 20 December 2017. Contrary to the plaintiffs' submissions, Moustapha did plead that he was a mere conduit for those moneys, albeit without using the word "conduit" or other language that a solicitor might have used in pleading his defence. [9] In circumstances where Moustapha withdrew the money for the benefit of Omar and handed it to Omar immediately, it is Omar and not Moustapha who would be liable to make restitution to the Company: see Australia and New Zealand Banking Group Limited v Westpac Banking Corporation (1988) 164 CLR 662; (1998) 62 ALJR 292; (1988) 78 ALR 157; [1998] HCA 17 at 164 CLR 674 (Mason CJ, Wilson, Deane, Toohey and Gaudron JJ); Miraki v Griffith (2021) 106 NSWLR 280; [2021] NSWCA 263 at [39]-[41] (Bell P, as the Chief Justice of New South Wales then was) and [128]-[140] (McCallum JA, as the Chief Justice of the Australian Capital Territory then was).
2. It remains to consider the alternative claim against Moustapha under s 588FF of the Corporations Act.

The claim against Moustapha under s 588FF in relation to his $50,000 withdrawal

1. Section 588FF(1) of the Corporations Act relevantly provides: "(1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;"
2. Moustapha's $50,000 withdrawal from the NAB account on 20 December 2017 was a transaction of the Company. As I have already noted at [71] above, the Liquidator contends that it was voidable because s 588FE(3) of the Corporations Act applies to the transaction.
3. Section 588FE(3) provides: "(3) The transaction is voidable if: (a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day."
4. Turning first to s 588FE(3)(b), the "relation-back day" is defined in s 91 of the Corporations Act. It is item 14 of s 91 that is relevant in the present case. Division 1A of Part 5.6 of the Corporations Act provides in s 513A that the winding up is taken to have begun on the day on which the winding up order was made. Item 14 of s 91 provides that the relation-back day is therefore the day on which the application for the winding up order was made, being 21 June 2018. Moustapha's withdrawal was made less than two years before the relation-back day. Section 588FE(3)(b) is satisfied.
5. Section 588FE(3)(a) has two elements. The Liquidator must establish that Moustapha's $50,000 withdrawal was an insolvent transaction and also an uncommercial transaction.
6. I infer from the evidence referred to at [52] above that the Company failed at all times during its relatively short existence to keep the written financial records required by s 286 of the Corporations Act correctly recording and explaining its transactions and financial position and performance. Pursuant to s 588E(4) of the Corporations Act, the Company is therefore presumed to have been insolvent pursuant at the time of the withdrawal on 20 December 2017.
7. Section 588FB of the Corporations Act relevantly provides: "(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to the other parties to the transaction of entering into it; and (d) any other relevant matter."
8. Section 588FC relevantly provides that a transaction of a company is an insolvent transaction of the company if it is an uncommercial transaction of the company and the transaction is entered into, or an act is done to give effect to the transaction, at a time when the company is insolvent.
9. The payment of $50,000 of the Company's funds from the NAB account to Omar on 20 December 2017 occurred at a time when the Company had substantial debts owing to F&F Plumbing and other subcontractors and the Company's sole source of revenue was in jeopardy due to its inability to complete the Auburn project works without the services of F&F Plumbing. There is no evidence to suggest that the Company was indebted to Omar. Nor is there any evidence to suggest that Omar intended to use, or did use, the moneys withdrawn to discharge debts of the Company. No reasonable person in the Company's circumstances would have entered into that transaction which adversely affected the Company's ability to pay its substantial creditors and provided no benefit whatsoever to the Company. The $50,000 payment was an uncommercial transaction of the Company. It was also an insolvent transaction for the reasons explained at [82] above.
10. The elements of s 588FE(3) are therefore satisfied.
11. However, s 588FG(1) of the Corporations Act relevantly provides that a court is not to make an order under s 588FF that materially prejudices a right or interest of a person other than a party to the transaction if it is proved that the person received no benefit because of the transaction.
12. For reasons already explained, [10] Moustapha was not a party to the $50,000 payment from the Company's account to Omar. Moustapha received no benefit because of that transaction. Omar prevailed upon Moustapha to use his authority to operate the NAB account to cause the Company to pay $50,000 directly to Omar for his own benefit. In those circumstances, s 588FG(1) precludes the Court from making an order against Moustapha under s 588FF(1)(a). It is not to the point that Moustapha's defence does not expressly refer to s 588FG. That is not surprising given that he conducted his own defence without legal representation. Moustapha did plead that only Omar should be liable to pay the $50,000 because the money withdrawn by Moustapha from the NAB account was paid directly to Omar and Moustapha was not enriched by the transaction. From that defence, and from Moustapha's affidavit evidence summarised at [41] above, the plaintiffs were on notice of the substance of a s 588FG defence to their claim against Moustapha under s 588FF.

Conclusion

1. For all of the reasons above, there will be an order dismissing all of the plaintiffs' claims against Moustapha. In the circumstances, it is appropriate to discharge the freezing order made against Moustapha on 30 September 2022 (without opposition and without admissions) with immediate effect.
2. There will be an order requiring Khalid to pay restitution to the Company in the sum of $984,000 and an order pursuant to s 100 of the Civil Procedure Act 2005 (NSW) requiring Khalid to pay the Company interest on that sum up to the date of judgment, calculated at the rates set out in paragraphs 4 and 5 of Practice Note SC Gen 16. The date from which that interest commences to run may be calculated from the date of the last withdrawal up to the date of judgment in respect of the whole sum of $984,000, or may be calculated separately in respect of each withdrawal made by Khalid comprising the total amount of $984,000 from the date of each such withdrawal up to the date of judgment. The plaintiffs may elect their preferred calculation method and there will be a direction for the plaintiffs to bring in a calculation of the amount of interest.
3. That disposes of all of the plaintiffs' claims against Khalid because their alternative claims were not pressed in the event that their restitutionary claim succeeded.
4. I am not presently aware of any reason why the freezing order made against Khalid on 30 September 2022 should not remain in place, but it should be varied to permit Khalid to pay to the plaintiffs the judgment sum of $984,000 plus interests plus any amount towards the plaintiffs' costs of these proceedings that Khalid is ordered to pay.
5. Costs would ordinarily follow the event, so that there would be an order requiring Khalid to pay the plaintiff's costs of the proceedings in such amount as may be agreed or assessed. However, I will hear from Khalid and from the plaintiffs in the event that they wish to seek a different order in relation to costs.
6. There will be no costs order in favour of Moustapha because he conducted his own defence and therefore did not incur legal costs.
7. I will grant liberty to Moustapha to apply in the event that he wishes to make any claim for damages under the usual undertaking as to damages given by the plaintiffs on 30 September 2022 in support of their application for the freezing orders. The general principle is that Moustapha is entitled to be compensated for any losses that he sustained by reason of the freezing order according to what is just and equitable, fair and reasonable: Lan v Kaymet Corp Pty Ltd [2017] NSWCA 52 at [32]-[43] (Sackville AJA, McColl and Leeming JJA agreeing).
8. The orders of the Court are as follows: 1. Dismiss the plaintiffs' claims against the first defendant. 2. Discharge order 1 made on 30 September 2022 (being a freezing order against the first defendant) with immediate effect. 3. Grant liberty to the first defendant to apply in respect of any application for compensation under first plaintiff's usual undertaking as to damages given to the Court on 30 September 2022, such liberty to be exercised by interlocutory process filed by 31 March 2023 together with all affidavits on which the first defendant intends to rely in support of the application. 4. Judgment in favour of the second plaintiff against the third defendant in the sum of $984,000. 5. Direct the plaintiffs to provide to the third defendant and to my Associate by Monday, 13 February 2023, a draft minute of order giving effect to the payment of interest and the variation of the freezing order referred to in paragraphs [90]-[92] of the reasons for judgment published on 31 January 2023, including setting out the calculation of the amount of interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 6. Direct that the materials provided by the plaintiffs to the third defendant pursuant to order 5 above must include a copy of s 100 of the Civil Procedure Act 2005 (NSW), a copy of Practice Note SC Gen 16, a breakdown of the second plaintiff's calculation of the amount of interest and a link to any internet-based electronic tool used by the second plaintiff to undertake that calculation. 7. Direct the plaintiffs to provide to the third defendant and to my Associate by Monday, 13 February 2023, a minute of the order for which the plaintiffs contend in relation to their costs of the proceedings and written submissions of no more than 3 pages in support of that order. 8. List the proceedings at 9.15am on 21 February 2023 for hearing of any argument in relation to the calculation of interest and submissions in relation to costs.

Endnotes

1. See [39] above.
2. See [30]-[31] and [37] above.
3. See [30] above.
4. See [2] above.
5. See [36] above.
6. See [40] above.
7. T80.10-80.22.
8. See [41] above
9. Paragraphs 58, 67 and 71 of the defence filed by Moustapha.
10. See [41] and [66] above.

Amendments 21 February 2023 - Party Details amended DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 February 2023