Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd

Pleaded claims against the active defendants

1. The history of these proceedings has a bearing on the forensic issues that must be addressed in determining the validity of Blue Mirror's claims against the active defendants.
2. The active defendants were first joined as defendants to these proceedings by order made by Kunc J on 6 August 2021, at the time when Blue Mirror was given leave to file its amended statement of claim. I will refer to the pleading of the issues between the active parties more fully below.
3. It appears that Blue Mirror approached the pleading of its claim on the basis that it had paid $9,924,834 to Pegasus to be held on an unfulfilled trust, and Ken Tan had immediately misappropriated the funds, and by three payments shortly thereafter, paid a total of $8,500,000 to Tan & Tan. That company shortly afterwards paid $1,000,000 to Anthony Tan and $6,147,000 to ACC (although most of both sums was repaid to Tan & Tan). Because of the egregious nature of the breach of trust, and the relationship between all of the defendants that arose out of Ken and Anthony Tan being brothers, as well as the apparent absence of any commercial justification for the active defendants to receive the payments, Blue Mirror pleaded claims against those defendants that depended substantially on the Court drawing inferences that Blue Mirror would submit were obvious. Blue Mirror amended its pleading to make claims against the active defendants based upon the allegation that Ken and Anthony Tan embarked upon a "Scheme" the conscious purpose of which was to defraud Blue Mirror. It pleaded claims against the active defendants based upon the principles in Barnes v Addy (1874) LR 9 Ch App 244, alleging separately against all of those defendants the first four categories of knowledge identified by Peter Gibson J in Baden Delvaux & Lecuit v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 508 (Baden Delvaux) at 575-576; 582. Thus, Blue Mirror alleged against each of the active defendants cases of knowing receipt and knowing assistance in breach of trust based upon actual knowledge of the breach, wilful and shutting of the eyes to the obvious, wilful and reckless failing to undertake such enquiries as an honest and reasonable person would undertake, and knowledge of the circumstances demonstrating the breach of trust which would indicate the facts to an honest and reasonable person. On similar grounds, Blue Mirror claimed that the active defendants had each received stolen property on the principle in Black v S Freedman & Co (1910) 12 CLR 105, as well as money had and received.
4. As Blue Mirror was not privy to the dealings between Ken and Anthony Tan on behalf of themselves and their companies, it has been difficult for it to know and allege what the real circumstances were as between all of the defendants. As will be seen, it has been necessary for Blue Mirror to ask the Court to infer serious dishonesty based largely on the relationships between the parties involved and the apparent absence of any commercial legitimacy in the transactions.
5. However, as will be explained more fully below, the active defendants filed a defence in which they alleged that Tan & Tan had entered into a genuine commercial agreement with Pegasus, and completed their obligations under the agreements before Blue Mirror made the agreement with Pegasus and paid to it the money that was to be held on trust but which was misappropriated. The active defendants say that all of the money received by Tan & Tan was no more than the partial satisfaction of a genuine obligation to pay the price for the delivery of hand sanitiser that was owed to it by Pegasus. Accordingly, they say, they had no knowledge of the misappropriation, they were not volunteers, they are each entitled to keep the money that they received and they are not constructive trustees thereof for Blue Mirror. Furthermore, the active defendants say that there is no forensic legitimacy in Blue Mirror's submission that the Court should infer their dishonest participation in the breach of trust by reason of the general circumstances and the relationship between the parties.
6. Blue Mirror has not responded to the active defendants' positive defence by filing a reply that pleads a case as to why the allegations of fact made in the defence are unsustainable, or as to why it is entitled to succeed even if they are. It is apparent from the way that Blue Mirror conducted the hearing that its case is simply that the alleged agreement between Tan & Tan and Pegasus, and the agreement with a third party on which that agreement was based, were illusory and fictitious, and were not in any event performed.
7. The forensic difficulty that Blue Mirror must face is that the evidence clearly establishes that part of the alleged agreement with the third party was performed, although the evidence is silent in relation to significant aspects of the alleged agreement, and the evidence is not conclusive as to whether what was done was in satisfaction of an agreement between Tan & Tan and Pegasus that would justify the payments made to the active defendants out of the funds misappropriated by Pegasus.
8. Consequently, the forensic position taken by Blue Mirror that its case was essentially self-evident is not sustainable, and the proper determination of the issues has become significantly more contentious and obscure than Blue Mirror's case would allow. The case has now become one of the inferences that should be drawn from incomplete evidence, having regard to shifting burdens of adducing evidence, and in the light of the facts that only certain of the parties could know; all in the context of the seriousness of making findings of dishonesty against the active defendants.

Claims pleaded in the further amended statement of claim

1. In pars 50A to 50C of the further amended statement of claim, Blue Mirror alleged a scheme involving Pegasus, Ken Tan and Anthony Tan, the latter in his capacity at the time as the director of Tan & Tan, to undertake such steps and actions as may be necessary to permit Pegasus to avoid its obligations to Blue Mirror, to permanently deprive Blue Mirror of its funds, and to retain and use those funds for their own benefit or for the benefit of entities associated with them (called the "Scheme"). These paragraphs were denied in the defence of the active defendants.
2. The particulars to par 50A, in which the Scheme is pleaded, alleged the agreement is to be inferred from various facts alleged in paragraphs pleaded both before and after par 50A. In pars 50B and 50C, Blue Mirror alleged the steps taken by the schemers to implement the Scheme. That included Anthony Tan, in his own capacity and in his capacity as the director of Tan & Tan, being party to what appears to be every single one of the steps that Ken Tan undertook in order to implement his fraudulent breach of trust.
3. In pars 51 to 56G, Blue Mirror alleged all of the payments out of its funds (most of which have been admitted by the active defendants).
4. In pars 56H to 56X, Blue Mirror made allegations of knowledge based upon the conduct of Anthony Tan and his wife, Lucy Nguyen, who is a solicitor of this Court. The allegations in pars 56I to 56W consist of steps taken or not taken by Lucy Nguyen between about 10 July 2020 and 13 August 2020, when she provided legal services to Pegasus. This was after the misappropriation by Pegasus and Ken Tan had occurred on 1 July 2020. The payments made to Tan & Tan were made on 1, 14 and 21 July 2020. Initially, the conduct of Lucy Nguyen alleged involved relatively uncontroversial steps in relation to the implementation of the agreement between Blue Mirror and Pegasus. Blue Mirror complained that Lucy Nguyen often did not respond to its communications, including to provide information to confirm that the agreement was being performed. On 26 July 2020, Blue Mirror sent an email to Lucy Nguyen attaching a letter of demand addressed to Pegasus that demanded repayment of the funds paid by Blue Mirror. Blue Mirror commenced proceedings and obtained freezing orders against Pegasus on 30 July 2020. Lucy Nguyen's firm acted for Pegasus in the proceedings from no later than 6 August 2020 until 13 August 2020.
5. There is no basis at all in these allegations for the Court to find that a solicitor has become knowingly involved in the implementation of a fraudulent breach of trust involving a misappropriation by her client. The allegations rise no higher than innuendo.
6. In pars 56Y to 57, Blue Mirror alleged that Anthony Tan had actual knowledge of the fraudulent breach of trust by Pegasus. The particulars to par 56Y included: Particulars … ii the substantial size of the transfers; iii the transfers from Ken Tan and Pegasus to Tan & Tan, were not in the ordinary course of the business of Pegasus and/or Tan & Tan and not consistent with the ordinary dealings between them before 1 July 2020; iv because Anthony Tan was the brother of Ken Tan and it is to be expected that he would have discussed such matters with his brother, especially in circumstances where Tan & Tan, of which Anthony Tan was sole director at the time, received $2.5 million from Pegasus on 1 July 2020 of which Anthony Tan transferred $1,000,000 to himself on the same day; and v Anthony Tan spoke to his brother in or about late July 2020 about the dispute with Blue Mirror. [Emphasis added].
7. Blue Mirror alleged, in par 56Z, that by 14 July or alternatively 27 July 2020, Anthony Tan had actual knowledge that each of the payments made to Tan & Tan was sourced from the funds received by Pegasus from Blue Mirror, the terms of the agreement between Blue Mirror and Pegasus, the dispute between Blue Mirror and Pegasus, that Blue Mirror was demanding the return of its funds and was going to commence legal proceedings if the funds were not returned, and that the money he and Tan & Tan had received was the property of Blue Mirror. The particulars provided included: Particulars … ii it is to be inferred that Anthony Tan had such knowledge because he was the brother of Ken Tan and it is to be expected that he would have discussed such matters with his brother, especially in circumstances where Tan & Tan, of which Anthony Tan was the sole director at the time, received the substantial sum of $2.5 million from Pegasus on 1 July 2020 of which Anthony Tan transferred $1,000,000 to himself on the same day and his affidavit evidence includes references to conversations with his brother about the dispute with Blue Mirror; and iii it is to be inferred that Anthony Tan had such knowledge because he was the husband of Lucy Nguyen, the principal lawyer at, and director of, Law Australia, of which company Anthony Tan was a director from 27 May 2015 until 1 October 2020 and it is to be expected that she would have discussed such matters with and/or provide copies of the communications from Blue Mirror to her husband in circumstances where the dispute related to his brother Ken Tan, various demands were being made by Blue Mirror for return of the Funds, some of which he personally had received, and/or proof of their retention by Pegasus after Anthony Tan had personally received $1 million of the Funds and Tan & Tan $8.5 million of the Funds (including the $1 million transferred to Anthon[y] Tan). [Emphasis added].
8. Blue Mirror then pleaded its knowing receipt claim based upon the second to fourth categories of knowledge in Baden Delvaux, mainly by repeating and cross-referencing to earlier allegations.
9. Blue Mirror pleaded its knowing assistance claim against Tan & Tan in pars 63 to 70B. This claim has the same structure in relation to the allegations of categories of knowledge as the knowing receipt claim. Paragraph 64 pleaded a claim based upon the allegation that the transfer of the $8.5 million to Tan & Tan as part of the Scheme was pursuant to a dishonest and fraudulent design. I will set out part of the particulars to the allegation, which I consider is most relevant for the purposes of these reasons: Particulars … f the transfers from Ken Tan and Pegasus to Tan & Tan, were not in the ordinary course of the business of Pegasus and/or Tan & Tan and not consistent with the ordinary dealings between them before 1 July 2020. Prior to the receipt of the funds from Ken Tan and Pegasus, Tan & Tan's bank accounts were empty, overdrawn (by $72,403) or had very small balances ($54.84); g neither Ken Tan, Pegasus nor Tan & Tan has provided any proper explanation or evidence to the effect that the transactions were in the ordinary course of Tan & Tan's business, or its ordinary dealings with Pegasus or Ken Tan before 1 July 2020; h Tan & Tan was a volunteer, not having provided any consideration to Pegasus and/or Ken Tan in return for the payment of the $8.5 million; … [Emphasis added].
10. These allegations are of particular significance, as if Tan & Tan had received $8.5 million 'out of the blue' with no commercial justification and not in the course of genuine business dealings with Pegasus, in circumstances where Tan & Tan was a volunteer, proof of the allegations would go a long way to justifying a finding by the Court that Tan & Tan had participated in what Blue Mirror called the Scheme. The allegations are, however, susceptible to disproof if it be established that, at the time it received the $8.5 million from Pegasus, Pegasus was indebted to it for the price of goods supplied under contracts entered into before Blue Mirror transferred its funds to Pegasus.
11. In pars 65 to 68, Blue Mirror alleged a knowing assistance claim against Tan & Tan based upon the second to fourth categories of knowledge in Baden Delvaux, to a large extent by cross-referencing to other allegations in the further amended statement of claim.
12. Blue Mirror's Black v S Freedman & Co claim against Tan & Tan was pleaded in pars 71 to 73A. At this point, I will only record that Blue Mirror alleged in par 71(a) that Tan & Tan did not provide any consideration in return for the payment of $8.5 million, which it received as a volunteer.
13. Blue Mirror pleaded a money had and received claim against Tan & Tan in pars 74 to 76.
14. Blue Mirror then pleaded 'mirror' knowing receipt, knowing assistance, Black v S Freedman & Co, and money had and received claims against Anthony Tan in pars 77 to 93 and against ACC in pars 94 to 111, largely by cross-referencing to other paragraphs of the further amended statement of claim.

Initial observations on Blue Mirror's claim

1. I make the following observations at this stage concerning particular aspects of the allegations made in the further amended statement of claim.
2. As explained above, Blue Mirror asks the Court to infer dishonesty on the part of the active defendants based upon the fact that Ken and Anthony Tan are brothers "and it is to be expected that he would have discussed such matters with his brother" (par 56Z particular (ii)); Anthony Tan is married to Lucy Nguyen who acted for a short time for Pegasus "and it is to be expected that she would have discussed such matters with and/or provide copies of the communications from Blue Mirror to her husband" (par 56Z particular (iii)); and Anthony Tan spoke to his brother in about late July 2020 about the dispute with Blue Mirror (par 56Y particular (v)). While opportunity to conspire in a dishonest scheme may have evidentiary relevance if the other objective evidence supports a finding of the existence of the scheme, opportunity itself will rarely be a proper foundation for a finding of dishonesty. Obviously, the Court cannot start from an assumption that, if brothers speak together, they will conspire, or that a wife who is a solicitor for a brother's company will disclose the company's confidences in discussions with her husband. These allegations as made by Blue Mirror, are highly susceptible to rejection if the objective evidence is consistent with innocent interpretations.
3. Further, as explained above, Blue Mirror has made allegations that invite the Court to infer dishonesty on the part of the active defendants because Lucy Nguyen acted for Pegasus for a brief period and was involved in a limited way in the relationship between Blue Mirror and Pegasus. No claim for relief has been made against Ms Nguyen. I record that there is no basis for the Court to make any adverse finding concerning Ms Nguyen's conduct, and nothing said in these reasons should be taken as reflecting badly upon her. I will not mention her involvement further.

Defence pleaded by the active defendants

1. The defence filed by the active defendants on 10 September 2021 pleaded the following positive defence in respect of the receipt by Tan & Tan of the three payments that totalled $8.5 million. The defence was based upon alleged agreements between Pegasus and Tan & Tan and between Tan & Tan and a third party called Grant Reddy: Sanitiser Resale Agreement 7. In around March 2020, Tan & Tan and Pegasus entered into an agreement under which Tan & Tan agreed to sell and Pegasus agreed to buy 200,000 litres of hand sanitiser at $50.00 per litre (the "Sanitiser Resale Agreement"). Particulars a. The contract was oral and reached in conversation between Ken Tan and Anthony Tan in his capacity as the then director of Tan & Tan. b. Pursuant to the Sanitiser Resale Agreement, the following purchase order and invoices were issued: Date Document Amount 25 March 2020 Pegasus purchase order $10,000,000 25 March 2020 Tan & Tan's invoice with reference number "PEG250320" $2,500,000 20 April 2020 Tan & Tan's invoice with reference number "PEG200420" $7,500,000

8. For the purpose of supplying hand sanitiser under the Sanitiser Resale Agreement, Tan & Tan contracted with Grant Reddy to manufacture 200,000 litres of hand sanitiser (the "Sanitiser Purchase Agreement"). 9. Pursuant to the Sanitiser Purchase Agreement, Grant Reddy commenced to deliver hand sanitisers from on or around 3 April 2020 and by late May 2020 all 200,000 litres had been delivered. 10. Tan & Tan directed that the deliveries referred to in paragraph 9 be made to Pegasus pursuant to its obligations under the Sanitiser Resale Agreement. 11. A total of $8.5 million was received by Tan & Tan as part of the purchase price under the Sanitiser Resale Agreement after the sanitiser had been delivered to Pegasus. $1.5 million remains outstanding from Pegasus to Tan & Tan. 12. As to paragraphs 51, 52, 53 and 54, on or about the dates in the table below, Tan & Tan received deposits in the amounts in the table below to its bank account as payments due under the contract pleaded in paragraph 7 above. Tan & Tan, Anthony Tan and ACC were unaware of the source of the funds used to make that deposit beyond that they came from Pegasus. Date Amount On or about 1 July 2020 $2.5 million On or about 14 July 2020 $3 million On or about 21 July 2020 $3 million

1. In relation to the $1 million that the active defendants admitted was received by Anthony Tan, they pleaded in par 18 of their defence: "[t]he sum of $1 million was received by Anthony Tan as a director's loan from Tan & Tan for commercial purposes, that has since been repaid". In relation to the $6,147,000 paid to ACC, the active defendants pleaded in par 29 of their defence: 29. … A sum of $6 million was received by ACC pursuant to a loan agreement between Tan & Tan as lender and ACC as borrower for commercial purposes, and they have since been repaid. A sum of $147,000 was received by ACC in partial repayment of a loan that was previously extended by ACC to Tan & Tan.
2. Thus, the active defendants pleaded that the receipt of the $8.5 million by Tan & Tan was a partial payment of a debt owed by Pegasus for the supply of hand sanitiser under a contract that had been entered into before the 28 June 2020 contract between Blue Mirror and Pegasus. If that claim is true, Tan & Tan was not a volunteer. Furthermore, the basis for Blue Mirror's claim that the Court should infer the existence of the dishonest Scheme would be significantly undermined.
3. At the hearing, Blue Mirror relied upon the evidence of two witnesses. Brett Paul Trevillian, a director and the company secretary, affirmed affidavits on 29 July 2020 and 2 March 2022. Kirsty Doran, who described herself as a senior adviser to Blue Mirror, affirmed affidavits on 29 July 2020 and 3 March 2022. Two of these affidavits were made after the active defendants' defence was filed on 10 September 2021. As to Mr Trevillian's 2 March 2022 affidavit, Blue Mirror read two paragraphs that dealt with discussions with Ken Tan in relation to the implementation of the sale agreement. Ms Doran's 3 March 2022 affidavit provided evidence under the heading: "Defence filed by Pegasus", in response to allegations by Pegasus, that are now irrelevant to the proceedings, concerning Blue Mirror's conduct in relation to the implementation of its supply agreement with Pegasus.
4. The significance of these observations is that Blue Mirror does not appear to have responded to the positive defence pleaded by the active defendants that I have set out above, by affidavit or documentary evidence that might disprove the existence of the supply contract between Grant Reddy and Tan & Tan, or the supply agreement between Tan & Tan and Pegasus.
5. As I will explain further below, Blue Mirror's evidentiary response to the active defendants' defence has had the effect that the determination of its claim largely depends upon issues connected with the burden of proof and the possibility of shifting burdens of adducing evidence. There are evidentiary enquiries that could have been made by Blue Mirror by means of issuing subpoenas to particular parties that may, on the one hand, have destroyed the active defendants' defence, or on the other hand, have defeated Blue Mirror's case. If any such enquiries were made, their fruits did not become apparent at the hearing. The result is that the proceedings have become tactical, in the sense that the Court has been put in the position of having to decide a claim based upon allegations of various forms of dishonesty in circumstances of incomplete proof.

Contractual relationship between Blue Mirror and Pegasus

1. The present is an unusual case because it is hardly necessary for the Court to refer in these reasons to the evidence of the conduct of Blue Mirror or the extensive cross-examination of Blue Mirror's witnesses. That is because it is unarguable that Blue Mirror paid money to Pegasus to be held on trust for a specific purpose, and Pegasus immediately misappropriated that money and did not apply it for the agreed purpose. So far as Blue Mirror's case is concerned, it will only be necessary to explain briefly the circumstances in which the trust was created and the misappropriation took place, and then to explain what happened to Blue Mirror's funds after they were misappropriated. While the latter explanation is necessary, there was no significant issue raised by the active defendants concerning the basic facts of what transactions took place. The active defendants did seek to place a different commercial complexion on those transactions than is alleged by Blue Mirror, but there was no significant issue about the transactions having occurred.
2. On 28 June 2020, Blue Mirror issued a purchase order to Pegasus for the purchase of 1,000,000 boxes of nitrile examination gloves. The purchase order was addressed to the then director of Pegasus, who was Ken Tan's wife, and was signed by a director of Blue Mirror, Brett Trevillian. It said: PURCHASE ORDER Attention: Pegasus Australia Developments Pty Ltd Purchase Order: #101 Date: 28th June 2020 Dear [Director's name], As per our recent discussions with Ken Tan, Pegasus Australia Developments representative, Blue Mirror Pty Ltd confirms to purchase the following; (a) To Purchase Product Specifications referred to in Appendix A as well as outlined in Article 1 to paragraph 1.6 in the Declaration of Commercial Intent, Service and Supply Agreement (b) Blue Mirror understands and accepts that Pegasus Australia Development will service and supply the products in accordance to the Declaration of Commercial Intent, Service and Supply Agreement Blue Mirror Agrees to the following; 1. Expiration date: The Products shall have an expiration date of no less than three (3) years from date of manufacturing. 2. Manufacturing Date: Must be within 12 months of manufacturing date. 3. Manufacturer: The Products will be original products from the manufacturers set out in the Declaration of Commercial Intent, Service and Supply Agreement 4. Inner/Outer Cartons: Must be English writing. 5. Quantity: 1 Million Boxes which contain 100 individual gloves per box 6. Price per unit: USD $6.80USD (six dollars and eighty cents) 7. Delivery Terms: FOB 8. Delivery Time: Seven (7) business days from the deposit of the 100% of the Funds Pegasus Development Trust. 9. Payment: a. 100% TT against Invoice b. Funds will not be released to the end seller from the Australian nominated Trust account until product is cleared through USA Government authorities. c. Invoice will be paid against the USD. d. All freight costs will be paid by Blue Mirror. 10. Pegasus Australia Development Pty Ltd ensures that all statutory requirement for importation of the Examination Nitrile Powder Free Non Sterile gloves warrant and comply with all the importation laws in every aspect of the United States of America.
3. The purchase order became Annexure B to a document on the letterhead of Pegasus called "Declaration of Commercial Intent, Service & Supply Agreement". This document is stated to be effective from 29 June 2020 and to be "in deed form", and was executed on behalf of the parties on 30 June 2020. The parties are stated to be Pegasus and Blue Mirror. Pegasus's business is stated to be that of a "Service and Supply Coordinator". The agreement contains the details of the contract for the supply of the examination gloves, the price, the delivery terms, representations and warranties and other terms common in supply contracts. Relevantly, the agreement contained the following terms: ACCEPTANCE AND CONFORMITY 4.1 [Blue Mirror] will appoint and pay for [Pegasus] as a third-party inspection Company. 4.2 Both parties agree that once payment is transferred into Pegasus Development Trust account then [Pegasus] can inspect at [Pegasus] nominated address. … 4.5 The Agreement will be terminated with no liability between the Parties and the 100% of the Funds deposited into Pegasus Development Trust shall be released in favour of [Blue Mirror] with [sic] two working days. … TITLE AND RISK OF LOSS … 5.1.1 Once product is confirmed to have met the government requirements of the FDA and point of destination then [Pegasus] is allowed to release the funds from Trust account. …
4. This document is not a model of drafting, but it was not prepared by a professional lawyer. The proposal was improvident on the part of Blue Mirror, as Mr Trevillian ruefully conceded in the witness box. That does not matter.
5. Blue Mirror paid USD $6,800,000 to Pegasus on 30 June 2020 into the bank account nominated by Pegasus. That was the equivalent of AUD $9,924,834. The terms of the Declaration of Commercial Intent, Service & Supply Agreement expressly provided that the money would be held in a trust account by Pegasus. The agreement provided a mechanism for the inspection of the goods and, by clause 5.1.1, Pegasus was not entitled to pay the price to the seller until it was confirmed that the government requirements at the point of destination had been satisfied.
6. The evidence establishes that Ken Tan caused Pegasus to pay out of the nominated bank account $100,000 on 30 June 2020 into a different bank account in the name of Pegasus. Between 1 and 15 July 2020, Ken Tan caused Pegasus to pay a further $320,000 into that account over four transactions. On 1 July 2020, Ken Tan caused Pegasus to pay amounts of $9,500,000 and $4,800 into a bank account in his own name, and made a cash withdrawal of $100,000.
7. These payments constituted a fraudulent misappropriation by Ken Tan and Pegasus of Blue Mirror's funds that were held on trust at the time of the payments. There was detailed evidence of the attempts made by Blue Mirror to find out from Ken Tan what was happening with the performance of the agreement. The evidence is clear that Ken Tan did not cause Pegasus to take the steps required by the agreement before Pegasus would be authorised to pay the money held on trust to the seller of the goods. While I am satisfied that those facts have been established, there is no need to record them in detail. The fact is Ken Tan and Pegasus immediately stole Blue Mirror's funds, and did so in circumstances that separately constituted the breach of an express trust.
8. Blue Mirror alleged in pars 52 to 54 of its further amended statement of claim that on 1 July 2020 Pegasus transferred $2.5 million to Tan & Tan, that on 14 July 2020, Ken Tan on behalf of Pegasus transferred $3 million to Tan & Tan and that on 21 July 2020, Ken Tan on behalf of Pegasus transferred a further sum of $3 million to Tan & Tan. The active defendants admitted those payments in par 12 of their defence, although they added that they were unaware of the source of the funds used to make those payments beyond that they came from Pegasus.
9. In par 56 of its further amended statement of claim, Blue Mirror alleged that, in the period 1 July 2020 to 21 October 2020, Tan & Tan dissipated the $8.5 million on the instructions or at the direction of Anthony Tan, including by transferring $1 million to Anthony Tan and paying $6,147,000 to ACC. The active defendants admitted the making of these payments in par 15 of the defence, save that they denied that the transfers were a dissipation of those funds.

Application of funds received by the active defendants

1. The Court received a spreadsheet that was prepared for Blue Mirror that traced almost all of the payments made from the $9,924,834 that Blue Mirror paid to Pegasus on 30 June 2020, together with a schedule that identified the evidence that proved each of the entries in the spreadsheet. The document was marked for identification as MFI 1. I am satisfied that MFI 1 is a reasonably accurate explanation of the transactions, although as will be seen, transactions occurred that had the result that almost all of Blue Mirror's funds were paid away from the active defendants, sometimes in circumstances where the purpose was unknown.
2. The information in MFI 1 is too detailed to clearly and conveniently explain verbally. The overall impression given by the document is that, during the period between 1 July and 21 October 2020, a substantial number of payments were exchanged between Ken Tan, Tan & Tan, Anthony Tan and ACC, in circumstances where some payments appeared to 'go round in circles'.
3. All of the payments that were received by Anthony Tan and ACC were made by Tan & Tan from the money paid to it either directly by Pegasus or indirectly from Pegasus through Ken Tan.
4. $1,008,000 was paid by Tan & Tan to Anthony Tan between 1 July and 22 September 2020. In the period up to 12 August 2020, Anthony Tan made repayments to Tan & Tan in amounts of $300,000, $200,000, $80,000, $5,000 and $300,000.
5. On 12 August 2020, Tan & Tan paid ACC $6 million received in a number of tranches from Blue Mirror's funds. Between 14 July and 14 October 2020, ACC received a further $147,000 from Tan & Tan in nine separate payments. MFI 1 shows ACC making nine separate repayments into various accounts of Tan & Tan in the total amount of $5,980,000.
6. MFI 1 also shows that, relative to the amount of the $9,924,834 that Blue Mirror paid to Pegasus on 30 June 2020, the residual amounts remaining in the bank accounts of Tan & Tan, Anthony Tan and ACC are inconsequential. Ultimately, almost all the funds were paid away out of the accounts of Tan & Tan. By 15 July 2020, there were cash withdrawals of $245,000 described as "Medispec" and $303,053 described as "DB11". $2,186,371 was paid to "Tuojian EB" between 15 August and 15 September 2020, $846,470 was paid to "Cars EB" between 29 July and 12 August 2020, $170,528 was paid to "Medispec Aus EB" on 1 September 2020, $3,317,382 was paid to "Ausunion" between 18 August and 3 September 2020, and on 26 August 2020, a payment of $602,250 was made by what was only described as a "foreign transfer". The total amount of these payments is $7,671,054.
7. It is significant that Blue Mirror pleaded some of these transactions in pars 56C to 56G of its further amended statement of claim. Blue Mirror appears by reason of the particulars given to have relied upon an affidavit made by Robert Wainibuka, among other information. Blue Mirror alleged that Tan & Tan paid sums totalling $2,356,707 to Toujian Co Ltd, a corporation in Hong Kong, and the sum of $602,250 to an unidentified company for the supply of 537,000 face masks. It alleged that Tan & Tan paid $3,317,606 to Ausunion Pty Ltd for 116,080 cans of milk formula powder. It then alleged that Tan & Tan on 29 March 2021 accepted an offer from Supply The World, an entity apparently based in Shanghai, to purchase the face masks and formula for the sum of $3,083,700.
8. Blue Mirror alleged in pars 70A and 72C against Tan & Tan that it held the face masks and formula, or alternatively the sum of $3,083,700, on trust for Blue Mirror.
9. Part of Blue Mirror's case, as to why the Court should infer the existence of what it called the Scheme, was a claim that all that had been done by the active defendants with the $8.5 million that Tan & Tan received from Pegasus and Ken Tan was no more than an elaborate means of spiriting Blue Mirror's money away. That is a debatable proposition to which I will return below. Anthony Tan denied it when it was put to him in cross-examination. However, in aid of this argument, senior counsel put to Anthony Tan, at T 292.41, that the milk powder never existed. This appeared to be part of a case that Tan & Tan had falsified the evidence that it sought to rely upon to explain how the $8.5 million had been expended.
10. As the hearing was conducted on the basis of the positive allegations in the further amended statement of claim that Tan & Tan had entered into the transactions that were pleaded, it is not open to Blue Mirror to pursue a case that the transactions were illusory.

Evidence tendered in active defendants' case

1. I will now turn to consider the evidence that has been tendered in support of the active defendants' case. The first subject is an alleged agreement between Tan & Tan and a person called Grant Reddy for the production and delivery of hand sanitiser to enable Tan & Tan to perform an alleged contract with Pegasus for the supply of that hand sanitiser. These contracts formed the kernel of the defence, as the active defendants sought to justify Tan & Tan's receipt of the $8.5 million on the basis that it was part payment of the price, and there was no reason for Anthony Tan to be suspicious about the circumstances in which the money was paid to it.

Grant Reddy proceedings against Tan & Tan

1. Grant Reddy commenced proceedings against Tan & Tan on 13 October 2021 by summons filed in the Commercial List of the Equity Division of this Court in proceedings No 2021/00290642. Grant Reddy sought judgment against Tan & Tan for $5,220,000 on the basis that Tan & Tan was required to retain what was called the "Pegasus Proceeds" on trust for Grant Reddy and to pay that sum by no later than 20 April 2021.
2. In the plaintiff's contentions in the commercial list statement, Grant Reddy pleaded three agreements with Tan & Tan, which were called the First Agreement, the Second Agreement and the Third Agreement.
3. Grant Reddy alleged in relation to the First Agreement that, on about 25 March 2022, Pegasus issued to Tan & Tan an invoice for the supply of two ISO tanks of ethanol for the sum of $220,000, and a purchase order for 200,000 litres of hand sanitiser at a price of $50 per litre, being a total price of $10 million. Grant Reddy then alleged that, on 25 March 2020, he entered into the First Agreement with Tan & Tan. The particulars given were that the First Agreement was negotiated orally in a series of conversations between Grant Reddy and Anthony Tan. The agreement involved Grant Reddy paying Tan & Tan $220,000 in order for Tan & Tan to pay that amount to Pegasus pursuant to the Pegasus invoice. Tan & Tan would provide Grant Reddy with the two ISO tanks of ethanol supplied by Pegasus. Grant Reddy would use the ethanol to manufacture 50,000 litres of hand sanitiser. The 50,000 litres of hand sanitiser would be provided to Pegasus in partial fulfilment of the purchase order. The amount payable by Pegasus for the 50,000 litres of hand sanitiser, being $2.5 million, would be shared equally between Grant Reddy and Tan & Tan.
4. Grant Reddy then alleged that, between 25 and 30 March 2020, he advanced $220,000 to Tan & Tan by a cash payment and four bank transfers into Tan & Tan's ANZ Bank account.
5. Then, Grant Reddy alleged on 25 March 2022, Tan & Tan issued to Pegasus invoice PEG250320 for the provision of 50,000 litres of hand sanitiser at $50 per litre, being a total price of $2.5 million.
6. On 27 March 2020, an ISO tank of ethanol was delivered to Grant Reddy by Pegasus, and a second ISO tank of ethanol was delivered on 6 April 2020.
7. Grant Reddy then alleged that pursuant to the First Agreement, in March and April 2020, he caused 52,000 litres of hand sanitiser to be produced, "which…was collected by the defendant." Grant Reddy gave particulars of the hand sanitiser being manufactured by a company called Bermuda Printing Supplies Pty Ltd under an oral contract. The hand sanitiser was alleged to have been collected by Tan & Tan from the manufacturer in 13 lots of 4,000 litres as set out in Schedule 1 to the commercial list statement.
8. Grant Reddy then made allegations concerning the Second Agreement, which concerned an invoice issued by Tan & Tan to Pegasus on 20 April 2020 for the provision of 150,000 litres of hand sanitiser at $50 per litre, being a total price of $7.5 million.
9. The Second Agreement was entered into on 20 April 2020 in the form of a document called "Deed of Understanding". The terms of the Deed of Understanding were then set out in the plaintiff's contentions. I will set those terms out separately below.
10. Grant Reddy alleged that, in April and May 2020, he caused the remaining hand sanitiser required to fulfil the balance of the 25 March 2020 purchase order to be manufactured, which was then collected by Tan & Tan from the manufacturer as set out in Schedule 1 between 1 April 2020 and 12 May 2020, by deliveries mostly in amounts of 6,000 litres.
11. Grant Reddy then alleged that he entered into the Third Agreement with Tan & Tan on 20 April 2020, on the basis that Tan & Tan would arrange for the supply by Pegasus of further ethanol, Grant Reddy would use that ethanol to manufacture as much hand sanitiser as he was able, and Tan & Tan would pay him $15 per litre for the hand sanitiser supplied by Grant Reddy. The terms of the agreement were oral and were negotiated between Grant Reddy and Anthony Tan. Alternatively, it was alleged, the Third Agreement was implied by reason of the previous course of dealing, in circumstances where Grant Reddy in fact delivered an additional 100,000 litres of hand sanitiser to Tan & Tan. The additional deliveries were also listed in Schedule 1.
12. Grant Reddy alleged that, at a time not known to him, Tan & Tan delivered 200,000 litres of hand sanitiser to Pegasus and received payments from Pegasus totalling $10 million pursuant to the purchase order. Pursuant to the Deed of Understanding and the Third Agreement, Grant Reddy alleged he was entitled to be paid sums of $3.72 million and $1.5 million by Tan & Tan, which that company was obliged to hold on trust for him.

Deed of Understanding between Tan & Tan and Grant Reddy

1. The document referred to as the Deed of Understanding in Grant Reddy's commercial list statement is a document on a Tan & Tan letterhead and is in the following terms: Deed of Understanding 20.04.2020 Tan & Tan Australia [address] And Grant Reddy [address] 1. Grant Reddy funded $220,000 (two hundred and twenty thousand dollars) for Ethanol on Pegasus Australia Development invoice 82917. 2 Grant Reddy assisted in production of sanitiser for invoice PEG250320 for $2,500,000 (two million and five hundred thousand dollars). 3. Tan & Tan Australia accepts Grant Reddy is entitled to $1,250,000 (one million, two hundred and fifty thousand dollars) from invoice PEG250320. 4. Grant Reddy will assist in the production of sanitiser to satisfy Pegasus Australia Development's purchase order of 200,000 litres. 5. Tan & Tan Australia accepts Grant Reddy will be entitled to $2,250,000 (two million, two hundred and fifty thousand dollars) for invoice PEG200420 for funding and production assistance. 6. Tan & Tan Australia is responsible for all sales and payments of sanitiser. 7. Both parties agree that Tan & Tan Australia will retain all/any payments or proceeds from the Pegasus Australia Development's purchase orders until all orders have been finalised. 8. Tan & Tan Australia guarantees to pay Grant Reddy the amount of $3,500,000 (three million, five hundred thousand dollars) by no later than 20.04.2021, which comprises of: a. $1,250,000 (one million, two hundred and fifty thousand dollars) from invoice PEG250320; and b. $2,250,000 (two million, two hundred and fifty thousand dollars) from invoice PEG200420. 9. Tan & Tan Australia guarantees it will return of [sic] the initial $220,000 (two hundred and twenty thousand dollars) payment to Grant Reddy in any event.
2. The document appears to have been signed by Anthony Tan as a director of Tan & Tan and by Grant Reddy.
3. The Deed of Understanding contains a notation that it is page 1 of 4. Page 2 of 4 is a tax invoice on the letterhead of Tan & Tan dated 20.04.2020 with reference number PEG200420 addressed to Pegasus. The invoice details are 150,000 litres of sanitiser at $50 per litre giving a total of $7,500,000. No GST is included on the basis of "N/A FOR EXPORT ONLY". The tax invoice states Tan & Tan's ANZ Bank account details under the heading "PAYMENT DETAILS".
4. Page 3 of 4 is a tax invoice on the letterhead of Tan & Tan dated 25.03.2020 with reference number PEG250320 addressed to Pegasus. The invoice details are 50,000 litres of sanitiser at $50 per litre giving a total of $2,500,000. No GST is included on the same basis as for the other tax invoice. Tan & Tan's bank account details are given for payment. It is strange that the earlier tax invoice has a later reference number than the later one.
5. Page 4 of 4 is a document that records two transactions. The first is an invoice on Pegasus's letterhead addressed to Tan & Tan dated 25.03.2020 in relation to two ethanol ISO tanks at a unit price of $110,000 for a total of $220,000 and GST of $20,000. The second transaction is a purchase order for "200,000 Sanitiser" at a price of $50 per litre giving a total price of $10,000,000. The document bears the note: "Purchase order is conditional upon purchase of the Ethanol above".

Circumstances in which Grant Reddy did not give evidence

1. Prior to the hearing, Grant Reddy's solicitor sent an email to my Associate to advise that he proposed to travel overseas during the period of the hearing and to ask whether Grant Reddy could give evidence by audio-visual link. It was entirely inappropriate for the solicitor to make the request in this informal manner.
2. It became apparent on the third day of the hearing, when the active defendants began to read their affidavits, that Anthony Tan wanted to call Grant Reddy to give evidence in the defendants' case. After looking at his solicitor's email, I discovered that Grant Reddy's itinerary involved him flying out of the country the next day, and upon further enquiry I learned that the active defendants had served Grant Reddy with a subpoena to give evidence. Grant Reddy had not attended court on the first or any other day of the hearing.
3. The Court was advised by senior counsel for Blue Mirror that his client had not been given any notice of the active defendants' intention to call evidence from Grant Reddy, no explanation had been provided as to why an affidavit by Grant Reddy had not been served, and no statement had been provided that set out the evidence that the active defendants expected Grant Reddy to give orally. Blue Mirror's position was that it did not necessarily object to Grant Reddy giving evidence by audio-visual means, but it did object to the active defendants being given leave to call oral evidence from Grant Reddy, given the factual complexity of the issues in which Grant Reddy had been involved, and the impossibility of Blue Mirror being able fairly to respond to his evidence, given that it had not been given notice that Grant Reddy would give any evidence, and that it had not been informed of the substance of the evidence that Grant Reddy was expected to give.
4. At T 182.6, I ruled that there was no utility in the Court taking any step that would command Grant Reddy to be available to give evidence, whether in person in court or by audio-visual means, because the Court would not in any event give leave to the active defendants to call oral evidence from him, because it would have been procedurally unfair to Blue Mirror for the Court to permit that evidence to be given without notice to Blue Mirror. The unfairness would have been compounded because Blue Mirror had in substance closed its case in chief, without having had the opportunity to prepare and to lead evidence to deal with the evidence that Grant Reddy may have given in the active defendants' case.

Judgment entered by the Court in favour of Grant Reddy

1. On 21 October 2022, Rees J made the following orders "in accordance with the Short Minutes of Order which are initialled by her Honour, dated today and placed with the papers": 1. Grant the plaintiff's application filed on 14 October 2022. 2. Judgment for the plaintiff against the defendant for $5,551,371.37. 3. The defendant pays the plaintiff's costs as agreed or assessed.
2. The application apparently filed on 14 October 2022 was not tendered in the present proceedings. Nor were the short minutes of order referred to by her Honour. The Court does not know whether the orders were made by consent. It appears that her Honour was not required to give reasons for the orders that she made. Apart from the summons and the commercial list statement, no other documents from the Court's file were tendered in these proceedings. The Court does not know whether Tan & Tan filed a defence. Tan & Tan's response to the allegations made against it by Grant Reddy may have had considerable forensic significance. No explanation was provided to the Court by any party to the present proceedings as to why other documents on the file in the Grant Reddy proceedings were not produced for tender.

Significance of the Deed of Understanding

1. If the Deed of Understanding between Tan & Tan and Grant Reddy is an authentic document, clause 7 permitted Tan & Tan to retain all of the money owed to Grant Reddy until all orders were finalised, but clause 8 required Tan & Tan to make a payment of $3.5 million by 20 April 2021. As is shown by the discussion of the contents of MFI 1 that is set out above, by about 24 September 2020, Tan & Tan had paid away $7,671,054 of the money received from Pegasus. The payment that the active defendants claim Tan & Tan was obliged to make to Grant Reddy by 20 April 2021 was not made, and has not been made, notwithstanding that Grant Reddy was required to obtain a judgment from the Court. It may be that Anthony Tan caused Tan & Tan to defraud Grant Reddy in much the same way as Ken Tan caused Pegasus to defraud Blue Mirror.

The active defendants' evidence

1. In their defence, Anthony Tan and ACC read affidavits made by Mr Tan affirmed on 28 October 2020, 20 November 2020 and 17 January 2022. As explained above, those defendants could not read the affidavits made by Robert Wainibuka on 20 November 2020 and 26 March 2021, because Mr Wainibuka did not attend for cross-examination. Mr Wainibuka was not appointed as a director of Tan & Tan until 29 October 2020. That date was after the active defendants had paid away almost all of the $8.5 million of Blue Mirror's funds that Tan & Tan had received from Pegasus.
2. Although Anthony Tan and ACC were not able to read Mr Wainibuka's affidavits, I record that Blue Mirror provided to the Court a detailed chronology of events which informed the Court of certain events that were proved by aspects of those affidavits. Those events generally involve the assertions that Tan & Tan had, at times before the appointment of Mr Wainibuka as the company's director, made payments for the purchase of baby formula or face masks.
3. In Anthony Tan's first affidavit made on 28 October 2020, he said that he was the sole director of Tan & Tan. The affidavit was made in response to orders made by Lindsay J on 21 October 2020, when his Honour made freezing orders against Ken Tan and Tan & Tan. Anthony Tan explained that Tan & Tan had engaged in business as a licensed motor dealer since 2013. Since February 2020, Tan & Tan had responded to the COVID-19 pandemic by expanding into personal protective equipment (PPE) and hand sanitiser. Tan & Tan also traded in baby formula. The affidavit was principally directed at explaining why the freezing order was interfering with Tan & Tan's trading business by preventing it from selling trading stock. Anthony Tan also sought an extension of time to provide the information required by the orders made by Lindsay J.
4. At par 20, Anthony Tan gave evidence of a conversation that he had with Ken Tan on a date that Anthony Tan could not recall. In essence, Ken Tan said that Blue Mirror's case was "bullshit" and that the gloves the subject of the contract with Blue Mirror had been delivered. This evidence was not admitted to prove the facts stated by Ken Tan.
5. In his 20 November 2020 affidavit, Anthony Tan explained that he had resigned as a director of Tan & Tan on 5 November 2020. He said that Mr Wainibuka "would still require me to help him comply with the disclosure order made against T & T, as he had no knowledge of the relevant transactions etc and records were contained on my computer and phone and he would also need help with making enquiries with the T & T's banks".
6. Anthony Tan said that from about 4am until about 4pm on 7 November 2020, he was involved in a kidnapping and carjacking incident involving his cousin. He said further that the van that he was driving to give his cousin money to pay to the kidnappers was involved in collisions with the car in which the cousin was being driven by the kidnappers. The cousin escaped as a result of the collision and joined Anthony Tan in the van. After a second collision, Anthony Tan and the cousin ran from the van, which was driven off by a man. Anthony Tan said that he spent most of the day of 7 November 2020 being interviewed by the police. Anthony Tan said that his work laptop was in the van at the time of the carjacking. The police advised that they had not recovered the laptop in the course of their forensic examination of the van. Anthony Tan then said that the loss of his work laptop and phone, which was retained by the police, had prevented Tan & Tan from complying fully with orders made by the Court on 5 November 2020, as some of the records that Tan & Tan required were only stored on and could only be accessed from his work laptop or phone.
7. Anthony Tan said that, in respect of Tan & Tan's sales of sanitiser, masks and milk powder, the invoices were typed up using Microsoft's Word software and were saved to the hard drive on his work laptop, but paper copies were not created. Sales and purchase invoices and orders were sent and received either by email or by the WeChat, Signal and WhatsApp messaging services. He added that he had contacted Tan & Tan's email service provider, Crazy Domains, but had not been informed by the date of his affidavit whether the emails could be recovered. Anthony Tan had also asked the messaging services whether they could recover messages saved to his phone. He said that he had also emailed Ken Tan asking him to provide copies of invoices with Tan & Tan but had not yet received a reply.
8. Anthony Tan then gave evidence that his stress and anxiety had increased after the kidnapping and carjacking, and he made claims that persons associated with Blue Mirror had made threats against him and his family. He concluded: 39. I have done the best I can to assist T & T to comply with the disclosure order but have been unable to meet the due date earlier because of restrictions on T & T's accounts, the loss of the laptop, my mobile phone is not accessible as it remains with the Police. I have lost emails and been unable to recover messages from WeChat, WhatsApp or Signal or a backup of emails from Crazy Domains and I had anxiety before the kidnapping and it is now worse after the kidnapping as I fear for the safety of my parents, my pregnant wife and our 15 month old daughter.
9. Anthony Tan provided more substantive evidence in his 17 January 2022 affidavit. A substantial part of this affidavit, which consisted of statements that were made to Anthony Tan by others, or where he made assertions without admissible evidence of their factual basis, was not admitted into evidence to prove the facts asserted.
10. In relation to his brother, Ken Tan, Anthony Tan said that he had had commercial dealings with him from time to time, but the two had never been in business together and Ken Tan had never had an interest in any of Anthony's businesses. He said: "Ken and I are brothers, but we have kept our own commercial and financial information close to our chests. I have never given him the financial or commercial details about my affairs, and he does likewise".
11. Anthony Tan gave the following evidence about his initial discussions with Grant Reddy and Ken Tan: Grant Reddy 13. Mr Grant Reddy and I went to high school together. I assisted him with refinancing a property he owned and have sold him a number of cars through my car trading business. At some point I came to know that he owned and operated a research facility in Wetherill Park. I recall going to see him there at some stage. 14. My recollection is that COVID-19 pandemic was emerging by about February 2020. I recall having a telephone conversation with Grant at about this time. 15. During our conversation: Grant said: I'm making a lot of money from my hand sanitiser operation. He asked me to look at his website page. I looked at the url he gave me while we were speaking. I recall seeing him advertising hand sanitiser on his webpage at around $50.00 a bottle. The conversation continued: Grant said: I'm having trouble sourcing ethanol. There is an ethanol shortage. Ethanol suppliers will only sell 1-2 IBC's (which I understood to be a form of liquid container) to existing customers. I am not getting the quantity of ethanol that I need; I am only getting 1,000 to 2,000 litres of ethanol at a time and it's not enough. I can only sell sanitiser based on how much ethanol I can get to produce it. I said: Who are your suppliers, how much is it costing you and how much sanitiser can you make from the ethanol you are getting? Grant said: My supplier is (he mentioned the name). I have contractors who manufacture it. The pumps and bottles are getting hard to buy. There is a shortage of those. I saw a potential business opportunity if I could source what Grant needed. I said: I might be able to help with this. Let me look into it. Ken Tan and Ethanol 16. My attention turned to trying to source ethanol with a view to either supplying it to others or with the possibility of becoming a manufacturer of hand sanitiser myself. I was aware that ethanol and drinking alcohol were produced by similar processes. I also knew that Ken held distribution rights to distribute a vodka brand, VDKA 6010 so he seemed to be an obvious person to approach about ethanol supplies. …
12. Anthony Tan continued: Sourcing Ethanol 19. At some stage, I spoke to Ken, about the possibility of getting ethanol from the VDKA 6010 vodka. By that stage, I understood that: (a) VDKA 6010 vodka was a brand owned by a company called 6010 Pty Ltd; and (b) Pegasus Australia Development[s] Pty Ltd (Pegasus) (Ken's company), rather than Ken personally, had the right to distribute VDKA 6010 vodka and had a business relation with that company's principal, Julian Moss (Julian). 20. I spoke to Ken about the possible supply of ethanol. The conversation contained words to the following effect. Ken told me that he could source bulk ethanol from Manildra, the vodka 6100 supplier. He told me that it could only be supplied in minimum quantities of 106,000 litres at $4.00 plus GST per litre. That was subsequently confirmed in an email from Simon Shibia [sic] (Simon), an operations manager at 6100 Pty Ltd, to me at my email address [email address inserted]. The email from Simon had Julian carbon copied into it. A copy of the email is at page [13] of AT-4.
13. The email dated 23 March 2020 from Mr Sibia to Ken Tan advised that 6010 Pty Ltd could supply 106,000 litres per day of hand sanitiser ethanol for the next 30 days.
14. Anthony Tan said: Supply of Ethanol 22. I spoke to Grant on 23 March 2020 and put forward a proposal on the basis that Ken could obtain the ethanol for Grant. We had a conversation with words to the effect: I said: I can supply ethanol 1,600 litres of ethanol a day for $4.00 plus GST per litre. He said: That's too much and that's too expensive per litre, it is usually around $1.00 litre. I decided to put a different proposal. I said: Can you manufacture sanitiser for me? How much can you produce? Do you think we can sell the ethanol to other sanitiser producers? Grant said: I can produce around 8,000 to 10,000 litres of sanitiser a day. Possibly, I will ask around. 23. I went back to Ken. We had a conversation with words to the effect: I said: That's too much ethanol and too expensive. Ken said: Ok. Julian [Moss] and I have buyers for hand sanitiser in America. If you buy ethanol from Julian's company and convert it into hand sanitiser, Pegasus [Australia Developments Pty Ltd] will buy back all the sanitiser you can make at $50.00 per litre. We will get you as much ethanol supply as you need. You will need to pay for the first two ISO tanks, but you don't have to pay for any ethanol in future. It will be free supply. I said: Okay. What are the payment terms? Ken said: 90 days maximum, but sooner if we are paid sooner. I said: Okay. How much for the two ISO tanks of ethanol? Ken said: $110,000 per ISO tank. I said: That is very expensive. It is usually about $1 a litre. Ken said: It's market demand. Sanitiser is driving the price of ethanol up. I said: Okay, let me get back to you. 24. I now became interested in putting together an arrangement to manufacture hand sanitiser using the two ISO tanks of ethanol that had to be purchased. I went back to Grant that same day. 25. We had a conversation: Grant said: I have a few interested buyers that can also produce sanitiser for me. Can I have the MSDS (MSDS is an acronym for Material Safety Data Sheets which set out the chemical composition and quality of the ethanol chemical that is to be provided)? … I said: Good. I am working on the ethanol. I will ask for the MSDS and send it to you as soon as I get it. 26. I relayed this request for the MSDS to Ken and we had a discussion with words to the effect: I said: How much sanitiser do you have sold overseas already? Ken said: A lot, first I need 200,000 litres to fulfil some orders.
15. Anthony Tan then said that, on 24 March 2020, he received a copy of the MSDS from Ken Tan that had been sent to him by Mr Sibia by email. A copy of the email and the MSDS is part of the exhibit to the affidavit.
16. The affidavit continued: 27. On 24 March 2020: … (b) I met with Grant at his research centre in Wetherill Park to discuss and advance sanitiser production. We had a conversation: I said: Can you make me 200,000 litres of sanitiser? The supplier of the ethanol will take 200,000 litres of sanitiser at $50 a litre if we buy the ethanol through them and produce the sanitiser. Can you pay for the ethanol, and you help me produce the sanitiser? I need to pay $220k for 2 ISO tanks. I'll take care of the sales. Those 2 tanks will return $2.5 mill, you'll take $1.25 mill. Grant said: Okay, get me a purchase order for the sanitiser from your buyer and an invoice from you to the buyer. I understood Grant's request for a purchase order and invoice to be a commercial precondition to Grant doing business with Tan & Tan. I assumed he wanted a contractual commitment from the end user, being Pegasus, prior to entering into a business relationship with Tan & Tan in relation to the production of sanitiser. (c) I then met with Ken to confirm with him that Tan & Tan would purchase the ethanol. We had a conversation: I said: I can commit to the ethanol purchase if you give me a purchase order for the sanitiser and I need invoices for the ethanol to pay for it. Ken said: Okay. 28. On 25 March 2020: (a) Tan & Tan received a purchase order for 200,000 litres of sanitiser at $50.00 per litre from Pegasus (Purchase Order). This was hand delivered by Ken. A copy of the Purchase Order is at page [39] of AT-4. (b) Tan & Tan issued an invoice with reference "PEG250320" to Pegasus for 50,000 litres of sanitiser at $50.00 per litre (First Pegasus Invoice). A copy of the Invoice is at page [38] of AT-4. I hand-delivered this to Ken. (c) I then met with Grant and provided him with a copy of the Purchase Order and First Pegasus Invoice, and we had a conversation with words to the effect: I said: Here is the purchase order and invoice for the sanitiser. Grant said: Okay. I'll start to transfer some money to fund the ethanol purchase as agreed. (d) Grant deposited $50,000.00 in two tranches of $25,000.00 into Tan & Tan's ANZ bank account [last numbers 8401]. (e) at 7:51 PM, Ken forwarded me an email he received from Simon to [email address inserted]. The email contained two invoices for two ISO tanks of ethanol from Manildra addressed to Pegasus Australia Developments Pty Limited. A copy of the email and the two invoices are at pages [16] to [20] of AT-4.
17. The documentary evidence referred to by Anthony Tan consisted of an email dated 25 March 2020 at 9:12am from Mr Sibia to a person at Manildra, which asked that Manildra invoice two ISO tanks of around 25,000 litres each to Pegasus, and he would arrange for the invoice to be prepaid. An internal Manildra email at 5:02pm asked for 50,000 litres in two ISOs to be filled at Nowra: "Customer to supply iso tanks and freight". At 5:22pm on 25 March 2020, Mr Sibia sent an email to Manildra asking for an invoice to Pegasus and saying that he would arrange an immediate EFT transfer. Manildra replied at 11:14pm on 25 March 2020 attaching two invoices and asking for advice as to the nominated transport carrier. Mr Sibia advised Manildra at 7:44am on 26 March 2020: "Will arrange payment today and confirm delivery of Braidco isotanks with Murrells". Mr Sibia asked Ken Tan at 7:47am on 26 March 2022 to "arrange payment asap". An ANZ credit deposit slip shows that on 26 March 2020 $110,000 was deposited for the credit of Manildra. Manildra issued two tax invoices addressed to Pegasus dated 26 March 2020 each for 25,000 litres of ethanol at a price of $110,000 each including GST.
18. In pars 29 and 30 of his affidavit, Anthony Tan gave evidence that Grant Reddy deposited a further $25,000 into Tan & Tan's 8401 bank account on 26 March 2010 and a further $140,000 into that account on 30 March 2020. He also said in par 30(b) that Grant Reddy gave him $5,000 in cash on 30 March 2020. The total of the payments made by Grant Reddy was $220,000.
19. Anthony Tan said in par 31 of the affidavit that Tan & Tan's redacted 8401 bank account statements, a receipt of withdrawal, and deposit slip are at pages [27] to [31], [32] and [33] of AT-4. According to the Court Book Index, the bank statements are not included and there is one deposit slip at page 356, which is the credit deposit note referred to above showing one payment of $110,000 for the credit of Manildra on 26 March 2020.
20. Then in pars 32 and 33 of his affidavit, Anthony Tan deals with events on 11 and 20 April 2020 in relation to the supply of additional hand sanitiser by Grant Reddy. The evidence is: 32. On 19 April 2020: (a) I met with Grant to discuss further commercial dealings in relation to the manufacture of hand sanitiser. We had a conversation: I said: I need another 150,000 litres of sanitiser to satisfy the purchase order. I'll pay you $15 a litre for as much as you can produce. That's $2,250,000 for 150,000 litres minimum. And $15 a litre if anything on top. You just need to help me produce the sanitiser. Grant said: Okay, we will just keep producing until there's no more sales. Can you put our agreed terms in writing, so it is clear? I also want to see another invoice. 33. On 20 April 2020: (a) Tan & Tan issued an invoice to Pegasus with the reference "PEG200420" (Second Pegasus Invoice). A copy of the Second Pegasus Invoice is at page [37] of AT-4; (b) I met with Grant and provided him with a copy of the Second Pegasus Invoice, and the deed of understanding I prepared (Deed). We had a conversation with words to the following effect: I said: Here's the invoice and agreement. Grant said: I'm happy with this. (c) Following our conversation, Grant and I (on behalf of Tan & Tan) executed the deed of understanding which contained the terms of our agreement and annexed with it the two Pegasus invoices and the Purchase Order. I left Grant with the only copy of the Deed. A copy of the Deed is at page [36] of AT-4.
21. Anthony Tan gave evidence in pars 34 and 35 of his affidavit that Grant Reddy delivered sanitiser between March 2020 and May 2020 directly to Pegasus, following telephone conversations between Anthony and Ken Tan in which the former advised the latter that Grant Reddy had informed him that a new batch of hand sanitiser was ready for collection. Tan & Tan did not handle the hand sanitiser.
22. Anthony Tan referred to the receipt from Pegasus of the three payments totalling $8.5 million between 1 July 2020 and 21 July 2020, and said: 37. When Tan & Tan received the deposits in paragraph [36] above, I treated these as part-payments for the Pegasus Invoice because of the conversation about payment terms I had with Ken as deposed in paragraph [23] above. 38. I assume that Tan & Tan was getting paid once Pegasus had sold the sanitiser and received funds from the end purchaser of the sanitiser. This is because these payments were consistent with approximately 90 days passing from the probable date of delivery of hand sanitiser by Pegasus to overseas entities Ken had advised me were its customers.
23. In pars 39 and 40, Anthony Tan gave evidence of conversations with Ken Tan in which the latter said that the final $1.5 million of the price would be paid "soon". That amount has not been paid to Tan & Tan.

Claim that agreement between Tan & Tan and Pegasus was fictitious

1. Notwithstanding that Blue Mirror did not plead that the alleged agreement between Tan & Tan and Pegasus and the invoices prepared for the purpose of that transaction were fictitious, senior counsel conducted the following cross-examination of Anthony Tan at T 252.17-253.19, commencing with the absence of evidence that Anthony Tan sought payment from Ken Tan of the unpaid balance of the money owed by Pegasus: Q. There's nothing in your evidence, either in your affidavits or the documents, that shows you after 21 July 2020 making any demand or enquiry of Ken or Pegasus for outstanding money. A. Well, when - maybe I'll leave it for you to ask me. But I have, when I've spoken to him. Q. I suggest to you that that's simply not true. You have not spoken to him about him owing you money, do you agree with that or disagree? A. Disagree. Q. I suggest to you the reason why you didn't chase him for money is because Pegasus never owed Tan & Tan any money, do you agree or disagree? A. Disagree. Q. It never owed you any money because Tan & Tan never delivered any sanitiser to Pegasus, agree or disagree? A. Disagree. Q. The invoices that were produced by Tan & Tan to give to Pegasus were pure fiction, do you accept that? A. Say again? Q. The invoices-- A. Disagree. Q. I'll take you to the invoices, in fairness. In volume 4 tab 198 page 998 should be a letter from Gladwin Legal. A. Yes. Q. You see attached to this letter at page 1001 and 1002 there are two invoices, do you see that? A. Yes. Q. The first one in time 1002 dated 25 March 2020, do you have that? A. Say - what, what - which one? Q. Page 1002. A. Yes. Q. That's 25 March 2020, and then 1001 20 April 2020, do you see that? A. Yes. Q. I suggest to you those invoices are pure fiction, do you agree or disagree? A. Disagree. Q. You received copies of these invoices with this letter at page 998, correct? A. Yes. Q. That's on 7 June 2021, correct? A. Yes. Q. Before that date, you didn't have copies of those invoices, correct? A. Well, I don't think so.
2. Given that Blue Mirror is alleging that the active defendants participated in a fraudulent breach of trust by Pegasus, in my view Blue Mirror ought to have responded to the filing of the defence by the active defendants by filing a reply in which it alleged that the agreement between Tan & Tan and Pegasus was fictitious. Blue Mirror first sought to make that claim at the hearing, and did not serve any evidence before the hearing in support of the claim.

Non-payment of price of milk formula to Tan & Tan

1. It is necessary to deal with an event that occurred during the course of the proceedings that is relevant to the fate of the milk formula that Tan & Tan purchased and allegedly agreed to sell to Supply The World. This agreement is alleged by Blue Mirror to have been made on 25 March 2021, which was a time when Tan & Tan was subject to a freezing order. Tan & Tan made an application to the Court for a variation of the freezing order so that it could safely sell the trading stock that it had on hand without risking being in contempt of court, in circumstances where the delay might cause it to lose the opportunity to sell the trading stock for the best price.
2. On 26 March 2021, Tan & Tan's application came before me and I made orders in these proceedings for the purpose of partially relieving Tan & Tan from the consequences of the freezing order that had been made against it by the Court. On 13 November 2020, Parker J made orders 5 and 6 whereby his Honour replaced freezing orders made on 29 October 2020. In essence, Tan & Tan was restrained from diminishing the value of its assets in Australia up to the unencumbered value of $8,500,000. Tan & Tan was permitted to deal with its assets in the ordinary course of its business.
3. Order 3 made on 26 March 2021 required Tan & Tan, by 29 March 2021, to identify in writing the location, trade names and quantities of the face masks and cans of formula referred to in an affidavit of Robert Wainibuka dated 26 March 2021. The products were referred to as the Trading Stock for the purposes of the orders. I then made the following orders: 4. That orders [5] and [6] made by Parker J on 13 November 2020 be varied to the extent necessary to permit Tan & Tan to sell the Trading Stock. 5. That, if the Trading Stock is sold prior to 31 March 2021: a if the proceeds of sale are received by Tan & Tan by 31 March 2021 they are to be immediately paid, without deductions, into an Australian bank account in the name of Tan & Tan, which account must not be in deficit prior to the payment of those proceeds and which account is and will remain subject to the orders [5] and [6] made by Parker J on 13 November 2020; b Tan & Tan must immediately notify the Plaintiff in writing, by its solicitors Lander & Rogers, of the fact of the sale and provide copies of all documents relating to or recording the sale, including but not limited to any contract for sale; and c Tan & Tan must immediately notify the Plaintiff in writing, via its solicitors Lander & Rogers, of the fact of the payment having been made by the purchaser, its quantum, the full details of the bank account referred to in 5(a) above and the fact of receipt of the payment and provide evidence of the payment, including but not limited to bank statements or other documents recording the payment.
4. During the course of the cross-examination of Anthony Tan, senior counsel explored, at T 286.39-292.45, the circumstances in which Tan & Tan applied part of the money that it had received from Pegasus in the purchase and sale of what was called the trading stock in the orders made by the Court on 26 March 2022. Anthony Tan's evidence was that the milk formula had been delivered to Supply The World in circumstances that were not made clear but that the price of $2,842,500 had not been paid. The cross-examination included the following at T 292.12-292.45: Q. I want to suggest to you there was never any milk powder, do you accept that? A. No. Q. You sent money to Aus Union as a way of removing that money from anywhere where Blue Mirror could get at it, that's right isn't it? A. No. Q. The suggestion that anything was being sold in 2021 is just a fiction, that's right isn't it? A. No. Q. The reason why you were never paid is because there was never any milk powder, that's right isn't it? A. No. … Q. There is not a single document supporting your evidence, I suggest to you that there was milk powder that was ever the subject of a transaction by which Tan & Tan bought it, I suggest to you that's because it never existed, do you accept that? A. No.
5. By this line of questioning, Blue Mirror sought to establish that there was no contract between Tan & Tan and Supply The World for the sale of the milk formula, when Blue Mirror had alleged in pars 56F and 56G of its further amended statement of claim that there was a contract between those parties.
6. The upshot of this evidence from Anthony Tan is that Tan & Tan appears to have suffered the same fate in relation to the milk formula that Blue Mirror suffered in its dealings with Pegasus and Grant Ready suffered in its dealings with Tan & Tan.
7. As I have explained above, the spreadsheet that is included in MFI 1 demonstrates that there is little or no money in the various bank accounts of the active defendants. The spreadsheet shows where most of the $8.5 million went, but the active defendants have almost nothing to show for it. Apart from establishing the destination of most of the funds, the evidence is almost entirely silent about why it is that the active defendants retain so little value from the payments. The evidence given by Anthony Tan in cross-examination of the dealing with Supply The World is about as much as the Court received, and that is almost entirely uninformative.

Credibility of Anthony Tan's evidence

1. Anthony Tan was not a credible witness. I do not accept his evidence as being persuasive on any issue unless it was given against his interest or is supported by the objective evidence or is consistent with the probabilities based upon other evidence accepted by the Court.
2. Anthony Tan's credibility was undermined by his own evidence that he had caused Tan & Tan to apply the proceeds of the sale of hand sanitiser to Pegasus in a manner that prevented him from honouring the trust created by the Deed of Understanding in favour of Grant Reddy.
3. Anthony Tan gave his evidence in a partisan way as if he was still standing at the bar table arguing the case for himself and ACC. He frequently treated his cross-examination as if it were a debate with senior counsel. He even went so far on a number of occasions as commenting that, if he gave an answer that might have been responsive to the question, the answer would be used against him. Anthony Tan frequently responded to questions in an evasive or begrudging way in cases where the question was simple and capable of a straightforward answer. There are significant tracts in the cross-examination in which Anthony Tan's obstructiveness was such as to make effective cross-examination practically impossible.
4. Anthony Tan's attitude to his cross-examination is exemplified by the following exchange at T 276.22-276.37: HIS HONOUR: Mr Cheshire, a small point. I'm not sure whether you're moving away from MFI 1, but $6 million went into ACC's account 4097. CHESHIRE: Yes. HIS HONOUR: And about 7.6 went out. CHESHIRE: Yes, subsequently. HIS HONOUR: I only raised that because-- WITNESS: You're chasing a ghost, dude. HIS HONOUR Q. Just wait a moment Mr Tan.
5. It may be that Anthony Tan intended to call senior counsel a "dude" rather than me, but the response demonstrated an entirely inappropriate understanding of Anthony Tan's obligations as a witness under cross-examination. Even if one makes due allowance for the fact that he was obliged to defend himself and ACC at a lengthy hearing with a senior counsel for an opponent, it is necessary for the Court to conclude that Anthony Tan was an unsatisfactory witness.
6. However, Anthony Tan promptly denied the existence of what Blue Mirror called the Scheme and any knowledge that the $8.5 million that Tan & Tan received from either Pegasus or Ken Tan was money misappropriated from Blue Mirror in breach of trust. My unwillingness to accept the evidence given by Anthony Tan on its face does not justify the Court in making a positive finding that Anthony Tan had relevant knowledge just because he denied having that knowledge.

Consideration

1. As I have explained above, I have come to the view that Blue Mirror's claim is one that must be decided on the facts having regard to the objective evidence and considerations of which parties became subject to burdens of adducing evidence, and whether those burdens were satisfied. However, in order to put the issues in context, I will briefly set out the legal principles that apply to this claim.
2. First, as to Blue Mirror's claims based upon the principles in Barnes v Addy, I respectfully adopt the following observations of Ward CJ in Eq (as her Honour then was) in Jainti Pty Ltd v Fraser Panorama Pty Ltd [2021] NSWSC 744: [324] Turning then to the question whether the claim of knowing receipt has been made good, the principles of knowing receipt on a Barnes v Addy claim are well known. A person who receives property for his or her own benefit, knowing (in the requisite sense) that its transfer is in breach of trust, will be made a constructive trustee of that property for the benefit of the principal. Whether a person has satisfied the knowledge requirement is often considered by reference to a scale of five categories of knowledge, as set out by Peter Gibson J (as the Lord Justice then was) in Baden Delvaux & Lecuit v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 (Baden Delvaux); specifically, (see at 235; 242-243): actual knowledge; wilfully shutting one's eyes to the obvious; wilfully and recklessly failing to undertake such inquiries as an honest and reasonable person would undertake; knowledge of circumstances which would indicate the facts to an honest and reasonable person; and knowledge of circumstances which would put an honest and reasonable person on inquiry. [325] The requisite degree of knowledge on the part of a third party recipient, in claims for knowing receipt, was considered by the Full Court of the Federal Court in Grimaldi. Relevantly, the Court (Finn, Stone and Perram JJ), in a unanimous judgment, said (at [268]): 268.The High Court in Farah Constructions did not settle the knowledge/notice requirement in relation to recipient liability. Nonetheless, from at least the 1990s and in the wake of the Baden classification, judges had begun in recipient liability cases to generalise from what had been said both by Gibbs J (at 398) and by Stephen J (at 412) with whom Barwick CJ agreed, about the insufficiency of traditional, or category (v), constructive notice - though not of category (iv) notice - as a basis for personal liability. To allow that, as Stephen J commented, would be "to disregard equity's concern for the state of conscience of the defendant": at 412; see eg Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 103G; Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd at 105; Hancock Family Memorial Foundation at 209; Tara Shire Council v Garner [2003] 1 Qd R 556 at [66] -[72]; Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 54 ATR 241 at [54] -[60]; see also United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 252 -254. In Kalls Enterprise Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557 - a decision which post-dates Farah Constructions - the New South Wales Court of Appeal applied Baden's categories (i)-(iv), but not category (v) to a knowing receipt claim. Kalls Enterprise in turn has been applied subsequently: see eg Horsman v MG Kailis Pty Ltd [2009] WASC 166; Fodare Pty Ltd v Shearn (2011) 29 ACLC 11-036 . [326] As the Full Court went on to say (at [269]-[270]): 269.There is, in other words, an established line of judicial decision and opinion both at first instance and in intermediate courts of appeal spanning at least 20 years adhering to the view taken in the above cited cases. We do not consider that that view is plainly wrong and should be rejected. On the contrary! Finally, for the sake of completeness, we should note we do not consider that what was said by Bryson J in Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404 at [469]-[478] is inconsistent with that view. Commendably, his Honour emphasised the fault based character of recipient liability: "[u]nconscionability cannot be fictionalised, and the grounds on which constructive trust liability is imposed should be real and substantial": at [471]. 270.Accordingly, we do not consider the primary judge erred in law in finding that knowledge falling within category (iv) of Baden was sufficient for the imposition of liability for knowing receipt… [327] In Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191, the Court of Appeal (Giles JA, with whom Ipp JA and Basten JA agreed) held that it is sufficient, in a claim for knowing receipt, that the third party recipient had constructive knowledge of the kind captured in the fourth category (but not the fifth) in the classification deployed in Baden Delvaux (see at [199]). Accordingly, for the purposes of knowing receipt, knowledge in any of the first four categories identified above is sufficient.
3. In relation to Blue Mirror's Black v S Freedman & Co claim, I adopt the following explanation given by Allsop P (as his Honour then was) in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252: [130] In Black v S Freedman & Company, a husband handed stolen money to his wife who received it as a volunteer. From the terms of the description of the claim against the wife in the judgment of Griffith CJ (at 106) and his description of the evidence and the issues (at 106-109), it is clear that the claim against the wife was based on tracing and the identification of what was in her bank account to have come from the stolen money. It is in this context that the following statements of Griffith CJ were made (at 109): "But it has been laid down in cases decided long ago that if the alienee is a volunteer the estate may be followed into his hands whether he had notice of the trust or not. … I think that where a man pays a large sum of money to his wife, and no more appears, the inference is that it is a present. Therefore the doctrine of equity is applicable. The money is identified; it came into her hands as a volunteer, and she is liable to repay it. It was pointed out by Sir George Jessel, in a well known case, that a man may at a certain stage be innocent, but that, if he knows that he has got the advantage of a fraud to which he was no party and says he will keep it, then he becomes himself a party to the fraud and is liable to the jurisdiction of the Court of Equity. In the present case the wife says she holds this money for her separate use and claims it for herself, knowing now, at any rate, the circumstances under which it came to be given to her." [131] The reference there to liability to repay was in relation to an extant bank account. It was the restoration of an identified fund that was the subject of attention. These statements of Griffith CJ do not support a personal remedy against an innocent recipient (beyond a personal obligation to restore an identified fund or asset) in addition to any proprietary remedy against the identified asset, unless, with knowledge of the character of the "advantage" from the stolen asset, the recipient seeks to retain the advantage. It was in this sense that Griffith CJ spoke of becoming a party to the fraud (in effect an accessory after the fact). That may give rise to accessory liability in equity, but it is not the same as saying that a volunteer who receives the traceable property of the wronged party comes under a personal obligation to account in money terms for property received as well as a claim to restore the property itself. Barton J agreed with Griffith CJ (at 110). [132] O'Connor J (at 110-111) agreed with Griffith CJ and then expressed himself somewhat differently, though to the same substantive effect. He said that where money is stolen it is trust money in the hands of the thief and can be followed into the hands of another person. The proprietary character of the remedy can be seen in the last sentence of his reasons (at 111): "In all the circumstances, I am of opinion that there was a prima facie case, that she was a volunteer, and that this money retains its character as trust money and she cannot be allowed to keep it."
4. In relation to Blue Mirror's claim for money had and received, I am content, with respect, to rely upon the following observations by Black J in Break Fast Investments Pty Ltd v Giannopoulos (No 5) [2011] NSWSC 1508, which Blue Mirror cited in its submissions in support of its claim: [75] ... I should first refer to the relevant authorities. In Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662 at 672-673, the High Court observed that "mere payment out of the money received by way of over-payment will constitute no defence to the action unless it can be shown that [the defendant] would sustain some identifiable and unjust detriment by reason of the mistaken payment if it were required to refund it". The court also observed that: notwithstanding that the grounds of the action for recovery are framed in the traditional words of trust or use and that contemporary legal principles of restitution or unjust enrichment can be equated with seminal equitable notions of good conscience, the action itself is not for the enforcement of a trust or for tracing or the recovery of specific money or property. It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (eg that the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognizes would make an order for restitution unjust. [76] In Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2002] QCA 158; [2003] 2 Qd R 661, McPherson JA (with whom Davies JA and Mullins J agreed) referred to the speeches of Lord Templeman and Lord Goff in Lipkin Gorman v Karpnale and noted that: it will be seen that both of their Lordships, with whom the other Law Lords agreed, regarded retention of the money (Lord Goff), or remaining unjustly enriched (Lord Templeman) as elements of the cause of action in a case like this where the defrauded plaintiff claims restitution from a recipient of the money. [77] In Ford by his Tutor Watkinson v Perpetual Trustees Victoria Ltd [2009] NSWCA 186; (2009) 75 NSWLR 42, Allsop P and Young JA noted that an inquiry as to the injustice of the retention of any money or benefit lies at the root of a claim for unjust enrichment and of any defence such as change of position; that a similar emphasis on retention as the foundation for the restitutionary action can be seen in the cases dealing with voluntary receipt of monies belonging to another and later discovery of that fact; and that the question of receipt and benefit should be viewed as matters of substance and not form or legal technicality. [78] In Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230, Allsop P (with whom Campbell JA and Handley AJA agreed) observed that the common law action for money had and received extended to property retained by a volunteer where the proprietary benefit was traceable in equity from misappropriated funds. Allsop P noted that the reasoning in Banque Belge Pour L'Etranger v Hambrouck [1921] 1 KB 321 was directed to the existence of a fund which continued to be held in money and that that case would also be authority where the retained property was an interest in land, commensurate with the traced proceeds of the plaintiff's funds; and observed that Banque Belge was not authority for the proposition that, if monies were traceable into non-money assets (as here, real estate), a personal remedy in money had and received in the amount of the sum of money traced into the property exists, independently of the liability to repay or restore what is held. Allsop P also pointed out that, where the funds that could be identified as paid into the mortgage accounts went to pay off (with other funds) both principal and interest, the value of the relevant assets may conceivably have fallen. Allsop P noted that identifying the common law right in that way focused upon: the measure of the value surviving in the hands of an innocent voluntary recipient when notice of the claim is received, rather than the measure of value received Allsop P also observed that this view was conformable with the underlying conception that it is the inequitable retention of money or benefit that lies at the root of unjust enrichment. (at [145]) [79] Allsop P also noted that the approach of the Court of Appeal in Banque Belge and of Lord Templeman in Lipkin Gorman supported an obligation at law "to restore, in money terms, the value of the retained proprietary benefit derived" from the initial receipt of funds which were traceable in equity to other property, and noted that the importance of retention of benefit, as a matter of substance, could also be seen in Ford by his Tutor Watkinson v Perpetual Trustees Victoria Ltd [2009] NSWCA 186; (2009) 75 NSWLR 42 (at [153]). Allsop P concluded that: [t]he remedy, both at law and in equity should focus upon the value properly attributable to the earlier receipts derived from misappropriations and still retained by the volunteer at the relevant time (at [157]). [80] I am bound to follow the Court of Appeal's decisions in Ford by his Tutor Watkinson v Perpetual Trustees Victoria Ltd and Heperu Pty Ltd v Belle and determine the claim by unjust enrichment by reference to the amount retained by Mr Giannopoulos as at the relevant time, which in this case is October 2009 when notice of Break Fast's claim was given to Mr Giannopoulos.
5. If the Court finds that, when Pegasus or Ken Tan paid the total sum of $8.5 million to Tan & Tan, that was a partial payment of the debt apparently owed by Pegasus under the purchase order dated 25 March 2022, then the Black v S Freedman & Co and money had and received claims will fail because Tan & Tan was not a volunteer and it would not, per se, be unjust for it to retain the partial payment of the price of the product that it sold to Pegasus. In that case, Blue Mirror could only succeed on its Barnes v Addy case, upon proof that Tan & Tan and Anthony Tan participated in the alleged Scheme, or that the active defendants received amounts from funds misappropriated from Blue Mirror with the requisite knowledge.
6. This is a case in which the Court must take care to heed the words of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, where his Honour said at 361-362: …The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences…
7. I will deal first with Blue Mirror's claim based upon the principles in Barnes v Addy. As noted above, Blue Mirror has alleged against the active defendants that they participated in the Scheme (through the conduct of Anthony Tan), and that they received funds that were misappropriated from Blue Mirror, with each of the first four categories of knowledge identified in Baden Delvaux. Blue Mirror did not in its submissions provide separate explanations of how the evidence establishes that the active defendants had each of the categories of knowledge that it alleged.
8. Blue Mirror's real case was that the Court should find on the basis of inference from all of the evidence that Anthony Tan participated in the Scheme in a conspiracy with his brother, Ken Tan, and that each of the active defendants knew precisely what the source of the payments they received from Pegasus or Ken Tan was. Blue Mirror did not at the end of the day submit that Anthony Tan shut his eyes to the obvious, or that he wilfully and recklessly failed to undertake enquiries that an honest and reasonable person would have undertaken, or that Anthony Tan was aware of circumstances that would have demonstrated the breach of trust by Pegasus to an honest and reasonable person. Those alternative grounds of knowledge were clearly pleaded by Blue Mirror in its further amended statement of claim. However, as I have explained above, the active defendants pleaded a positive defence based upon the agreements between Tan & Tan and Pegasus and between Tan & Tan and Grant Reddy. Although Blue Mirror did not adjust its pleadings, or allege that the agreements were illusory and concocted after the event, and that the documents that evidenced the agreements were falsified, that is the case that Blue Mirror ultimately sought to make. If the Court accepted that case, it would necessarily follow that Anthony Tan concocted the whole defence, it would seem, in conjunction with Grant Reddy. That would have implications in relation to Grant Reddy's Commercial List proceedings against Tan & Tan, and require a conclusion that Grant Reddy's claim was a fraudulent one, and probably also that Tan & Tan's failure to defend it was part of the conspiracy to concoct a false defence against Blue Mirror's claim. If all that were accepted by the Court, it would be difficult for the Court to justify any other finding than that Anthony Tan knowingly participated in the Scheme, or at least that he knew that the $8.5 million received by Tan & Tan was money misappropriated from Blue Mirror. That may be why in final submissions Blue Mirror did not differentiate in any detailed way between the first four categories of knowledge in Baden Delvaux.
9. I accept Blue Mirror's submission that, even if it failed to establish that the alleged agreements between Tan & Tan and Pegasus and between Tan & Tan and Grant Reddy were illusory, it could still succeed if it established that, when Tan & Tan received the $8.5 million from Pegasus or Ken Tan, it had participated in the breach of trust or received the money with one of the requisite categories of knowledge. While I accept the logic of that submission, a finding that the transactions were genuine would have significant forensic consequences. If Blue Mirror had been able to establish the case, as pleaded in its further amended statement of claim, it may have been straightforward for the Court to find that the active defendants, through Anthony Tan, had a requisite category of knowledge, because there would have been no commercial basis for Tan & Tan to have received the money, and the active defendants would not have provided a proper justification for its receipt.
10. There is no objective evidence that Tan & Tan or Anthony Tan actually participated in what Blue Mirror called the Scheme. That would be so even if the Court did not accept that the transactions upon which the active defendants based their defence were genuine.
11. The Court would not be justified in finding that Tan & Tan or Anthony Tan participated in the Scheme on the basis of inference from the other evidence in the proceedings.
12. I turn now to what the evidence did establish in relation to the agreements relied upon by the active defendants in their defence.
13. As discussed above at [107], the evidence establishes that Ken Tan on behalf of Pegasus, through the agency of 6010 Pty Ltd, entered into an agreement with Manildra under which Manildra manufactured 50,000 litres of ethanol for a price that was paid by Pegasus, and that Manildra delivered the ethanol to the order of Pegasus.
14. I take that to be an adequate objective proof that Pegasus performed its part of the bargain with Tan & Tan that required Tan & Tan to purchase 50,000 litres of ethanol from Pegasus for a total price of $220,000.
15. Blue Mirror did not engage with this evidence. It is implicit in Blue Mirror's ultimate submission that both of Tan & Tan's alleged agreements with Pegasus and Grant Reddy were fictitious and that Blue Mirror must ask the Court to find that the production of the 50,000 litres of ethanol by Manildra for Pegasus, although real and established by the evidence, was in connection with some other business of Pegasus and not its alleged agreement with Tan & Tan.
16. There was no positive evidence of the following matters:

• the delivery of the 50,000 litres of ethanol by Pegasus's nominated carrier to Grant Reddy's manufacturer.
• the manufacture by Manildra or any other manufacturer of the remaining 150,000 litres of ethanol.
• that Pegasus or any carrier on its behalf collected from Grant Reddy's manufacturer any of the 200,000 litres of hand sanitiser.

1. However, the Court did have evidence of the Deed of Understanding between Tan & Tan and Grant Reddy, Pegasus's invoice and purchase order to Tan & Tan, and Tan & Tan's two invoices addressed to Pegasus.
2. Furthermore, the Court has the evidence that, as a fact, Grant Reddy commenced and prosecuted his commercial list proceedings in this Court against Tan & Tan.
3. Blue Mirror's case is that the Court should nonetheless find that the 50,000 litres of ethanol that were delivered to Pegasus's order were for some purpose other than the performance of its agreement with Tan & Tan, and Tan & Tan's agreements with Pegasus and Grant Reddy were illusory. That would involve the Court in finding that the documents had been fraudulently prepared in order for the active defendants to avoid liability to Blue Mirror, that Grant Reddy was involved in the fraud, and that Grant Reddy had knowingly conducted false proceedings in this Court.
4. It would be necessary for the Court to make that finding in the face of the fact that Grant Reddy made an informal application to be able to respond to the subpoena that he received by giving evidence by audio-visual means, that the active defendants issued a subpoena against Grant Reddy for that purpose, and Anthony Tan made an application to the Court for arrangements to be made to allow Grant Reddy to give evidence at the hearing.
5. While Blue Mirror successfully resisted the active defendants' application for Grant Reddy to give evidence, and its ground for doing so was entirely legitimate, the fact is that unless the Court were to find that the whole exercise in attempting to call Grant Reddy to give evidence was an artifice on the part of the active defendants, and that Grant Reddy was party to that artifice, the active defendants were prepared to subject Grant Reddy to cross-examination.
6. There is therefore a question about whether it would be proper for the Court to find that the evidence led in support of the defence of the active defendants was illusory and fraudulently prepared, in the absence of any pleaded case by Blue Mirror to that effect, and in the absence of any positive evidence led by Blue Mirror capable of establishing that the agreements relied upon by the active defendants were illusory.
7. In this respect, a subpoena could have been issued to Manildra to ascertain whether it manufactured for Pegasus all or any part of the remaining 150,000 litres of ethanol. The positive evidence that was available suggested that it was Manildra that had the capacity to manufacture the additional ethanol. If evidence produced on subpoena by Manildra established that the additional 150,000 litres of ethanol was manufactured for Pegasus, that would have provided substantial evidentiary support for the active defendants' defence. The contrary would have been true, if it were established that Manildra did not manufacture the additional ethanol. In that case, an evidentiary burden would probably have fallen on the active defendants to lead evidence that the additional ethanol was manufactured by some other manufacturer.

• A wholesale price of $50 per litre for ultimate delivery to the United States of America seems improbably high, but in the absence of evidence, no conclusion can be drawn concerning market prices during the COVID-19 pandemic.
• It is not clear how 50,000 litres of ethanol would make 50,000 litres of hand sanitiser. The result would be pure ethanol. Anthony Tan gave evidence in cross-examination that the ethanol was usually a percentage of the final hand sanitiser.
• The invoice number for the 25 March 2020 invoice delivered by Tan & Tan to Pegasus had a later reference number than the 24 April 2020 invoice.
• Grant Reddy apparently agreed to supply 150,000 litres of hand sanitiser to Tan & Tan at a price of $15 per litre compared to the $25 per litre for the first 50,000 litres of hand sanitiser, when Grant Reddy already knew that the price payable by Pegasus to Tan & Tan for the additional 150,000 litres was $50 a litre.
• Anthony Tan gave evidence that he lost evidence relevant to the defence of the active defendants when he lost his work computer in extraordinary circumstances.
• The price payable by Supply The World for the delivery of the trading stock the subject of the Court's orders varying the freezing orders has not been paid.
• Although the issue was not explored in detail in the evidence, Tan & Tan appears to have few assets notwithstanding the freezing orders made by the Court that required it to maintain $8.5 million worth of assets in Australia.

1. Although the Court has noted these matters, they do not have the effect of justifying the Court in finding that Blue Mirror has proved its case.
2. As the Court has found Blue Mirror has not established its case that Tan & Tan was a volunteer when it received the $8.5 million from Pegasus and Ken Tan, and it has not established that at that time Anthony Tan knew that the source of the payment was trust money misappropriated from Blue Mirror, Blue Mirror's Black v S Freedman & Co and money had and received cases must also fail.

Order for winding up of Tan & Tan

1. On 31 January 2022, the Court received an email from the liquidators of Tan & Tan, who informed the Court that they had been appointed as liquidators of the company on 17 January 2024, following a resolution passed by the company's creditors pursuant to s 446A of the Corporations Act 2001(Cth). In the light of the consequent stay of proceedings involving the company in accordance with s 500 of the Corporations Act, the liquidators respectfully requested the Court to consider whether leave to proceed against the company should be granted prior to the Court handing down judgment in this matter.
2. In the circumstances, I am satisfied that leave to proceed should be given in respect of the claim against Tan & Tan as suggested by its liquidators.

Orders

1. Court's orders therefore are: 1. Order pursuant to s 500(2) of the Corporations Act 2001 (Cth) granting leave to proceed with these proceedings against the third defendant in liquidation. 2. Order that the plaintiff's claim is dismissed. 3. Order the plaintiff to pay the third, fourth and fifth defendants' costs.

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