Birketu Pty Ltd v Westpac Banking Corporation

Introduction

1. On 13 April 2018, the Court heard argument in respect of three Notices of Motion. The determination of each of these Motions is the subject of this judgment.
2. These three Motions relate to a Summons filed in this Court on 29 September 2017 by the plaintiff, Birketu Pty Ltd ("Birketu"). This Summons sought, inter alia, urgent interlocutory relief in the form of a freezing order against each of eight defendants, as well as orders for preliminary discovery by way of final relief ("the Proceedings"). The orders sought in this Summons were made by Fagan J ex parte on 29 September 2017 ("the Freezing Orders").
3. The defendants named by Birketu in that Summons were Westpac Banking Corporation ("Westpac") as the first defendant; Betfair Pty Ltd ("Betfair") as the fourth defendant; and Brody Jack Clarke ("Mr Clarke") as the fifth defendant. Four Tabcorp entities were named as the remaining defendants: Tabcorp Holdings Ltd as the third defendant; TAB Ltd ("TAB") as the sixth defendant, Tabcorp Wagering (Vic) Pty Ltd as the seventh defendant; and Tabcorp ACT Pty Ltd as the eighth defendant. Together, these may be referred to as "the Tabcorp entities".
4. Sportsbet Pty Ltd ("Sportsbet") was originally named as second defendant. Whilst the Proceedings have since been discontinued against Sportsbet, Sportsbet has agreed to be bound by orders of the Court.
5. It should be noted that, in undertaking the task of delivering this interlocutory judgment, I am not engaged in the task of making any final findings of fact against Mr Clarke as to any of the conduct alleged by Birketu. Any findings made are only those necessary for this judgment.
6. It is necessary and convenient to set out the circumstances which gave rise to the three Motions which are to be determined.

Procedural History

1. On 23 March 2018, a Statement of Claim was filed by Birketu and a second plaintiff, WIN Corporation Pty Ltd ("WIN") against Mr Clarke. The following is a brief distillation of that Statement of Claim.
2. Birketu and WIN which are associated companies claim that they have been subjected to an extensive fraud perpetrated by a solicitor, Mr Clarke. The alleged fraud is said to have occurred in the period of 2016 to September 2017 whilst Mr Clarke was in the employ of the former solicitors for Birketu and WIN, Atanaskovic Hartnell ("AH").
3. It is alleged that Mr Clarke fraudulently directed Birketu and WIN to make a number of payments so that AH could purportedly pay third party disbursements ("the Disbursement Fraud"). These payments were directed to be made, and were in fact made, to the personal accounts of Mr Clarke, which were held at the Westpac Leura branch ("the Leura bank account") and the Westpac Surfers Paradise branch ("the Surfers Paradise bank account").
4. It is further pleaded that Mr Clarke negotiated and formalised a loan facility with Deutsche Bank Aktiengesellschaft ("Deutsche Bank") on Birketu's behalf without authority by either fraud or forgery ("the Deutsche Bank Fraud"). However, in the course of submissions, it became apparent that the claim by the plaintiff may in fact be that the facility legitimately existed with Deutsche Bank and that Mr Clarke, without authority, caused Deutsche Bank to transfer approximately $7M to the Leura bank account. For the purposes of this judgment, it is adequate to regard Birketu's claim as being that described in oral submissions.
5. Mr Clarke subsequently reported his conduct to the Serious Crime Directorate (Fraud Squad) within the State Crime Command of the NSW Police. He has been charged with a number of criminal offences. The disposition of these criminal proceedings is presently pending. The details of the charges were not in evidence before the Court. However, his counsel did not argue in these proceedings that there had not been a fraud. He accepted that the evidence before the Court established such fraud sufficiently for the purposes of the Notices of Motion.
6. Upon discovery of the alleged fraud in September 2017, AH took immediate steps to ensure that accounts held by Mr Clarke with Westpac and Sportsbet were frozen.
7. As noted above, on 29 September 2017, Fagan J made the orders which froze Mr Clarke's Westpac and Sportsbet accounts, as well as any accounts held with the Tabcorp entities and Betfair.
8. The evidence establishes that the following sums are presently frozen pursuant to those orders: 1. In the Leura bank account - $867,313.73; and 2. In the Sportsbet account - $674,762.78.
9. By way of final relief in the Statement of Claim, Birketu and WIN seek judgment in relation to the frozen monies, indemnity from Mr Clarke against any liability to Deutsche Bank for the Alleged Deutsche Bank Fraud and specified judgment sums, with interest. Birketu and WIN further, or in the alternative, seek damages, equitable compensation and/or equitable damages; as well as costs and interest.
10. Pursuant to a Notice of Motion filed 13 April 2018, Birketu and WIN also seeks leave of the Court to join the two partners of Atanaskovic Hartnell (trading as as Atanaskovic Hartnell) as defendants to the Proceedings, and the transfer of the proceedings to the Commercial List of the Equity Division.
11. This Motion was heard on 20 April 2018 by Hammerschlag J. His Honour made orders that the Proceedings be transferred to the Commercial List.

Birketu's Notice of Motion dated 14 November 2017

1. On 14 November 2017, a Motion was filed by Birketu seeking orders that monies held by Westpac and Sportsbet (and any of the other betting agencies named as defendants) be paid into Court, and that the parties otherwise be discharged from the Freezing Orders ("the First Birketu Motion)".

Birketu's Notice of Motion dated 8 March 2018

1. On 8 March 2018, Birketu filed a Notice of Motion seeking the discharge of Order 12 of the Freezing Orders ("the Second Birketu Motion"). This Motion occupied the bulk of the hearing on 13 April 2018.
2. Order 12 was expressed as an exception to the Freezing Orders, and provided that Mr Clarke was permitted to withdraw money to be applied by him for specific purposes from the money held in the Leura bank account. Those permitted purposes were $100 a day for Mr Clarke's ordinary living expenses, and monies to pay his reasonable legal costs and expenses.

Mr Clarke's Notice of Motion dated 7 February 2018

1. On 7 February 2018, a Motion was filed on behalf of Mr Clarke seeking orders that Westpac pay a sum of $100 per day from the Leura bank account and the Surfers Paradise account (which are both presently frozen) to an account nominated by him. This sum was said to be for "reasonable living expenses". Mr Clarke also sought a further order requiring Westpac to pay, from the Leura bank account, all past invoices for his legal expenses. These payments were those contemplated in Order 12 of the Freezing Orders.
2. This Motion also sought further orders, including an order for costs and an order that the Court grant Mr Clarke a certificate pursuant to s 128 of the Evidence Act 1995 to protect him against self-incrimination in respect of any verified defence and affidavit filed in the Proceedings. No argument was addressed to these orders and it is inappropriate to determine them.
3. This Motion will be referred to as "the Clarke Motion".
4. The parties agreed that all three Motions could be, and were, heard together.

Submissions made by Mr Clarke

1. It is convenient to firstly deal with the submissions made by counsel for Mr Clarke.
2. Firstly, it was submitted that the conditions contained in Order 12 were "material" to the exercise of the Court's discretion to make the Freezing Orders, and that this should be considered in light of the settled position that freezing orders are a "drastic remedy which should not be granted lightly": Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380, citing Frigo Mario v Culhaci Daniel [1998] NSWCA 88.
3. Secondly, it was submitted that the First and Second Birketu Motions are inconsistent, and that it was unclear which orders were being pressed.
4. Thirdly, the submissions contended that Birketu has received a "substantial benefit" from Mr Clarke being legally represented in these "complex" proceedings. It was advanced that this legal representation has avoided undue delay and advanced the just, quick and cheap disposition of the Proceedings.
5. Fourthly, a number of authorities were cited to provide support for the proposition that, when freezing orders are made, there is generally an entitlement to reasonable legal expenses and ordinary living expenses from the frozen monies: PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158; His Eminence Metropolitan Petar v The Macedonian Orthodox Community St Petka Inc [2006] NSWCA 277; Frigo; Deputy Commissioner of Taxation v Bollands [2012] FCA 1050; Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612.
6. Fifthly, a number of factual circumstances were advanced in favour of Mr Clarke's Motion. These may be distilled as follows: 1. Mr Clarke has limited financial means, given that over the last six months he has been variously involuntarily hospitalised as a psychiatric patient; unemployed and in receipt of Centrelink payments; and on strict bail conditions requiring him to reside with his parents at Port Macquarie and report daily to the Police; 2. He is, based on preliminary enquiries made to his superannuation funds, likely unable to meet the requirements for early withdrawal of these funds; 3. A portion of the funds in the Leura bank account can be demonstrated to be Mr Clarke's own funds, "in respect of which he has a proprietary interest and an immediate right to possession". It was submitted that the nature and extent of any proprietary interest held by Mr Clarke should be determined in a final hearing; 4. Mr Clarke has not engaged in any "vitiating conduct" relevant to the exercise of the Court's discretion; 5. It was further submitted that Birketu and WIN have caused significant delay in the progress of the Proceedings and acted contrary to the terms of s 56 of the Civil Procedure Act 2005.
7. Ultimately, it was submitted that a freezing order in the terms sought in Birketu's Second Motion deleting Order 12 would go beyond preserving the status quo - it would prevent proper defence of the Proceedings. It is submitted that this outcome is contrary to authority: Harrison Partners Constructions Pty Ltd v Jevena Pty Ltd [2006] NSWSC 317 at [10]; Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49.

Submissions made by Birketu

1. As to the First Birketu Motion, Birketu submits that as Westpac and the betting agencies have each complied with the freezing orders and agreed to pay monies into Court, they should be discharged from the burden of being defendants, and being subject to Freezing Orders. Clearly, if Order 12 of the Freezing Orders remains in place, it would be inappropriate to order that the monies be paid into the Court. The Court does not provide banking services to parties but holds monies when directed.
2. Birketu notes that Mr Clarke does not consent to the relief sought in the First and Second Birketu Motions on the basis of his asserted entitlement to payment of reasonable legal fees and living expenses of $100 per day. Birketu contends that, as the money does not lawfully belong to Mr Clarke, he should not be entitled to benefit from the fraud he has perpetrated against Birketu.
3. Birketu submitted that: 1. Mr Clarke has not articulated nor demonstrated that the money in the Leura bank account is not that of Birketu; 2. He has not demonstrated a legal entitlement to those funds. It will not be sufficient for him to merely state that he cannot afford to pay living expenses or legal costs: Commonwealth of Australia v Jansenberger (Supreme Court of Victoria, 3 October 1985, unrep); 3. Birketu's claim is proprietary in nature. In a proprietary claim, Birketu submits that there is generally "no reason why a defendant should be permitted to use money belonging to another in order to pay his legal costs or other expenses": Polly Peck International Plc v Nadir (No 2) [1992] 2 Lloyd's Rep 238; 4. Mr Clarke is not assisted by his assertion that the money in the Leura bank account and the Sportsbet account are mixed funds - namely funds containing his own money mixed with trust money being the proceeds of his fraud. Payments out of a mixed fund are to be treated as coming from the trustee's own funds in priority to the trust funds: Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 at [114] per Allsop P (Campbell JA and Handley AJA agreeing). Birketu submits that on any view, Mr Clarke's own funds from his salary (which was last paid on 31 August 2017) would have been exhausted before the accounts were frozen in September 2017.
4. Birketu further submitted that an "administrative oversight" in the template used for the Freezing Orders resulted in the making of Order 12. It is submitted that although a standard order exists (in Practice Note SC Gen 14, paragraph 12) that reasonable legal and living expenses be paid out from the frozen account, the Practice Note expressly states that such an order is not mandatory and will be made where appropriate. Birketu contends that where the relevant funds have been stolen and therefore are trust monies, such an order is not appropriate.
5. Birketu also submitted that, in any event, Order 12 of the Freezing Orders did not create any rights for Mr Clarke which did not otherwise exist, and that the Freezing Orders were made urgently and "until further order" once more information became available.
6. It is noted that up until 18 December 2017, and pursuant to Order 12, Mr Clarke was able to access monies from the Leura bank account for living expenses ($100 per day) and his legal fees. On 18 December 2017, the lawyers for Westpac, Norton Rose Fulbright, informed Mr Clarke that further access to the Leura bank account would be refused until further orders were made.
7. Mr Clarke's lawyers say that they have returned the monies which they were paid by Westpac pursuant to Order 12 to the Leura bank account. Birketu submits that Mr Clarke's legal representatives would otherwise have been immediately liable to repay Birketu as knowing recipients of funds arising from a breach of trust, pursuant to the "first limb" of Barnes v Addy (1874) LR 9 Ch App 244.

Relevant Facts

1. It is sufficient for the purpose of determining the issues raised in these Motions to examine the evidence about the movement in the Leura bank account which was entirely under the control of Mr Clarke. An adequate period for that examination is the period from 27 January 2017 to 28 September 2017, which was shortly before the account was frozen ("the 2017 period").
2. For convenience, in undertaking this analysis, I will use rounded figures, and figures which, whilst approximate, are accurate to $1000.
3. As a matter of context, during the 2017 period, Mr Clarke was employed by AH and was being paid an after-tax salary of $10,000 per month.
4. At the start of the period, the balance in the Leura bank account was $2000. The evidence established that Mr Clark deposited the total sum of $81,000 from his salary and other miscellaneous income to which he was lawfully entitled during the 2017 period. Thus, assuming he made no withdrawals from the account during the period, the maximum funds he would be entitled to from any current balance is $83,000.
5. During the 2017 period the total of all deposits into the Leura bank account was $10.9M. Since the balance of the account when frozen was $868,000, it follows that about $10M was withdrawn from the account during the period.
6. The records show that at least $7.214M was withdrawn from the Leura bank account and deposited with Sportsbet. No betting account from Sportsbet was put in evidence which may have revealed the extent of Mr Clarke's winnings or losses. However, having regard to the known remaining balance presently held by Sportsbet of $675,000, it is reasonable to conclude that over the 2017 period, Mr Clarke lost vast sums of money betting with Sportsbet.
7. TAB records which were in evidence comprised a total of 220 pages of betting in the period from 7 December 2015 through to and including 16 August 2017, which was when the account ceased to operate. In that 21 month period, those records show that Mr Clarke deposited a total of $732,000 with TAB. After considering the total expended on bets of $14.62M and his winnings of $13.6M, it can be seen that his net losses slightly exceeded $1M.
8. During the 2017 period, Mr Clarke transferred $100,000 from the Leura bank account to TAB and, after a period of betting which concluded in August 2017, he returned $45,000 from his TAB account to the Leura bank account. There was no betting on the TAB account after that.
9. So, in the 2017 period, I conclude that he spent $55,000 from the Leura bank account on the TAB account. TAB apparently holds no funds at all from Mr Clarke's betting activities.
10. At an early time in the 2017 period, by 10 March 2017, about $125,000 had been withdrawn from the Leura bank account solely for betting purposes. Leaving aside any other withdrawals in that first six-week part of the 2017 period, for purely personal expenditure - and there were a number of these - it can be concluded that Mr Clarke had spent the entirety of the $83,000 figure to which he was lawfully entitled by that time - thereafter all expenditure from that bank account can be notionally attributed to funds to which he was not lawfully entitled.
11. The balance of the frozen funds, both in the Leura bank account ($870,000) and in the Sportsbet account ($675,000), which total $1.545M, are the remnants of the funds transferred both into and out of the Leura bank account, which were not monies to which Mr Clarke is lawfully entitled.
12. Given that the total funds deposited during the 2017 period was $10.9M of which $83,000 belonged to Mr Clarke and was deposited from his own sources, it is clear that the funds in the Leura bank account were mixed funds between those that had come from Mr Clarke and those which had come from other sources.
13. Sufficiently for present purposes, the evidence establishes that the balance of the funds over $83,000 deposited into Mr Clarke's account came from Birketu directly, or else from a facility which was established with Deutsche Bank for Birketu to draw funds from. It is unnecessary in order to decide these Motions to determine whether the funds coming from the Deutsche Bank facility established in the name of Birketu are those of Deutsche Bank, as Mr Clarke's counsel contended or else those of Birketu absolutely Certainly they are funds over which Birketu has a better claim than does Mr Clarke. On any view, Mr Clarke did not have authority to draw down on Birktu's facility with Deutsche Bank. Mr Clarke's counsel did not submit that his client had the right to draw on the funds at all, let alone to expend them to satisfy Mr Clarke's gambling activities.

Discernment

1. One of the findings made with respect to the Leura bank account is that the funds in there were mixed funds. The vast majority of those funds were not Mr Clarke's.
2. Thus there was a mixing of funds which Mr Clarke held on trust for Birketu, because he had misappropriated them. In Black and Black v Freedman & Co [1910] HCA 58; (1910) 12 CLR 105, O'Connor J said: "But I think the law applicable is that… Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that other person's hands."
3. It is then a matter of applying the ordinary equitable principles to the Leura bank account to determine whether the fact that Mr Clarke was entitled to some funds, in circumstances where it is a mixed account, means that he has a claim to the funds the subject of the Freezing Orders.
4. In Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230, Allsop P (with whom Campbell JA and Handley AJA) agreed, said, in relation to mixed fund accounts this at [114]: "On examining withdrawals, it is to be assumed that withdrawals that are dissipated are taken first from the trustee's own funds…. The obligation of a fiduciary even a defaulting one (here a thief as constructive trustee dealing with stolen funds) is to preserve, not dissipate, the property of others wrongly obtained."
5. In so saying, Allsop P cited with approval the decision: In Re Otway; Hertslet v Otway [1903] 2 Ch 356, and in particular a part of the judgement of Joyce J at 361 where his Honour said: "In other words, when the private money of the trustee and that which he held in a fiduciary capacity have been mixed in the same banking account, from which various payments have from time to time been made, then, in order to determine to whom any remaining balance or any investment that may have been paid for out of the account ought to be deemed to belong, the trustee must be debited with all the sums that have been withdrawn and applied to his own use so as to be no longer recoverable …. The order of priority in which the various withdrawals and investments may have been respectably made is wholly immaterial."
6. Following upon those principles, and regardless of the order in which the deposits and withdrawals were made, it is abundantly clear that Mr Clarke's $83,000 was well and truly dissipated on his gambling losses, and all remaining funds in either the Leura bank account or the Sportsbet account belong to Birketu.
7. It is appropriate to note that, save for advancing an argument in respect of the $83,000, Mr Clarke did not argue that he had a proprietary claim, or any claim of right to any of the money, the subject of the Freezing Orders. He somewhat faintly suggested that he may be entitled to the sum of $83,000 from those amounts but, ultimately, as I have demonstrated above, he cannot be so entitled. Any such claim must fail.
8. Notwithstanding the clear and uncontradicted factual position with respect to the Leura bank account, Mr Clarke continued to advance an argument that Order 12 should remain in place and that he should be entitled to withdraw monies for his legal fees and living expenses.
9. In light of Birketu's proprietary claim to the money in the accounts subject to the Freezing Order, there is an "obvious risk of injustice" to Birketu if the Clarke Motion is successful. If Birketu ultimately succeeds in obtaining final relief, its funds will have been used to finance Mr Clarke's unsuccessful defence, compounding the loss suffered as a consequence of the alleged fraud.
10. Accordingly, a "careful and anxious judgment" is required, whereby the Court must assess whether any injustice to Birketu will be outweighed by any potential injustice to Mr Clarke if he is precluded from accessing funds, and is therefore perhaps denied the opportunity to advance an arguable defence: Sundt Wrigley Co Ltd v Wrigley (Court of Appeal (UK), 23rd June 1993, unrep), Bingham MR, cited in Halifax v Chandler [2001] EWCA Civ 1750 at [17].
11. No evidence was advanced as to any entitlement of Mr Clarke to the balance of the trust property, nor any reason provided as to why a solicitor earning approximately $120,000 a year would be lawfully entitled to hold millions of dollars of a client's money in his personal bank account.
12. I am well satisfied that Mr Clarke should not be allowed to access money to which he has no legal or moral right to enable him to spend it on his own living expenses and on private representation of his choice: Commonwealth of Australia v Jansenberger at [8].
13. A number of other factors also weigh against the granting of the Clarke Motion.
14. First, whilst Mr Clarke provided a list of his assets in the form of a list of assets in Annexure B to his affidavit of 12 October 2017 ("Annexure B"), there was no further evidence placed before the Court that his living expenses and legal fees cannot be adequately met from other sources, such as by his attaining some form of employment. Mr Clarke has, at this stage, also made no formal application for early access to funds held in his five superannuation accounts, which are substantial. According to the estimates given by Mr Clarke in Annexure B, the sum of funds held across these accounts totals $75,000.
15. Secondly, no evidence was placed before the Court as to the reasonableness of Mr Clarke's legal expenses. It would not be possible to draw any conclusion as to the reasonableness of the expenditure in the absence of any relevant evidence whatsoever.
16. Thirdly, there was no evidence that Mr Clarke has otherwise attempted to obtain legal assistance through Legal Aid or in any other way.
17. It was also submitted by counsel for Mr Clarke that Birketu has caused significant delay in the progress of the Proceedings and acted contrary to the terms of s 56 of the Civil Procedure Act 2005 and that this fact supports the retention of Order 12. This assertion is simply without merit. A period of six months has been occupied by Birketu in seeking to establish all of the facts surrounding the very extensive fraud in which Mr Clarke engaged. In so doing, Birketu was not assisted by Mr Clarke, or his lawyer on his behalf. No prejudice has been caused to Mr Clarke by the passage of time. The funds have been preserved. The delay has not been excessive, and in my opinion has no relevance to the relief sought in the Motions presently before the Court.

Summary

1. Birketu has persuaded the Court that the Freezing Orders made by Fagan J should be amended by deleting Order 12. Mr Clarke has not persuaded me that he should have any order which permits him to withdraw any amounts from the frozen funds.
2. An order that the frozen funds be paid into Court and there held pending further order of the Court would seem to be the best order to make because it will enable Birketu to discontinue against a significant number of parties, thereby simplifying the current pleadings and reducing the cost of the Proceedings .
3. In my view the appropriate order for costs is one which reflects the outcome of the Motions. In other words, costs should follow the event.

Orders

1. To give effect to these conclusions, the following orders ought to be made: 1. Order that the Freezing Orders made by the Court on 29 September 2017 be amended with effect from 29 September 2017 by the deletion of Order 12; 2. Order that within 7 days, Westpac Banking Corporation and Sportsbet Pty Ltd, pay all funds standing to the credit of Brody Jack Clarke and which are presently subject to the Freezing Orders dated 29 September 2017 into Court to abide further order of the Court; 3. Order that upon full compliance with Order 2 above, the Freezing Orders dated 29 September 2017 be discharged; 4. Grant leave pursuant to r12.1 of the Uniform Civil Procedure Rules 2005, to Birketu Pty Ltd and WIN Corporation Ltd, if so advised, to discontinue the proceedings against all defendants except the fifth defendant; 5. Order that the Notices of Motion filed by Birketu Pty Ltd and dated respectively 14 November 2017 and 8 March 2018 be otherwise dismissed; 6. Order that the hearing of Order 5 of Mr Clarke's Notice of Motion dated 7 February 2018 stand over for directions on 27 April 2018 in the Commercial List, together with the proceedings generally. 7. Order that Mr Clarke's Notice of Motion dated 7 February 2018 be otherwise dismissed; 8. Order Mr Clarke to pay Birketu Pty Ltd's costs of its Notice of Motion dated 14 November 2017, its Notice of Motion dated 8 March 2018 and his own Notice of Motion dated 7 February 2018;

Amendments 24 April 2018 - Typographical amendments [26], [45], [51], [53], [56], [61] 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: 24 April 2018