Blue Mirror Pty Ltd v Tan & Tan Australia Pty Ltd

Catchwords

[2004] HCA 7 Barnes v Addy (1874) LR 9 Ch App 244 Black v S Freedman & Co (1910) 12 CLR 105[1910] HCA 58 Blatch v Archer (1774) 1 Cowp 63[1938] HCA 34 Byers v Saudi National Bank [2023] UKSC 51[2024] 2 WLR 237 Cassaniti v Ball as liquidator of RCG CBD Pty Limited (in liq) (2022) 109 NSWLR 348[2016] NSWCA 81 Foskett v McKeown [2001] 1 AC 102[2000] UKHL 29 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Great Investments Ltd v Warner (2016) 243 FCR 516[2016] FCAFC 85 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296[2012] FCAFC 6 Helton v Allen (1940) 63 CLR 691 Heperu Pty Ltd v Belle (2009) 76 NSWLR 230[2009] NSWCA 252 Ho v Powell (2001) 51 NSWLR 57263 ACSR 557 Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361[2011] HCA 11 McFee v Reilly [2018] NSWCA 322 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 6667 ALJR 170 Nguyen v Cosmopolitan Homes [2008] NSWCA 246 Rejfek v McElroy (1965) 112 CLR 517[1965] HCA 46 Robb Evans v European Bank Ltd (2004) 61 NSWLR 75[2004] NSWCA 82 Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552

Judgment (17 paragraphs)

[1]

Background

Blue Mirror Pty Ltd appeals as of right from judgments entered in favour of the third, fourth and fifth defendants, Tan & Tan Australia Pty Ltd ("Tan & Tan"), Mr Anthony Tan, and Australian Construction Company Pty Ltd ("ACC") respectively, following a five day trial in November 2023 in the Equity Division of this Court: Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd (in liq) [2024] NSWSC 28. Mr Anthony Tan is the brother of the second defendant at trial, Mr Ken Tan, against whom judgment in the sum of $10,264,429.62 was entered on 22 March 2022. A winding up order was made against the first defendant at trial, Pegasus Australia Developments Australia Pty Ltd ("Pegasus"), on 22 September 2021, and it did not defend the claims made against it. At the times of the events giving rise to this litigation, Mr Anthony Tan was the sole director of Tan & Tan and ACC, while Mr Ken Tan was the chief executive officer of Pegasus. It will be convenient to refer to Anthony and Ken by their given names, without conveying disrespect or informality.
The only respondents to the appeal were Tan & Tan, Anthony and ACC. There was no appearance for Tan & Tan, to which a liquidator was appointed in January 2024 shortly before the primary judge delivered judgment, and Blue Mirror did not seek leave to proceed with its appeal against the judgment in favour of Tan & Tan. However, in contrast to the position at trial, Anthony and ACC were represented in this Court by senior and junior counsel retained by a law firm. The primary judge had acceded to an application by the same firm, shortly before the trial, for permission to cease to act, and the result was that Anthony, Tan & Tan and ACC had been unrepresented at trial, although they were able to rely upon the steps taken earlier in the litigation by the lawyers who had previously been retained.
The main issue in the appeal is whether the primary judge erred in failing to find that Anthony, Tan & Tan and ACC were liable following their receipt of substantial sums of money taken in breach of trust by Ken from Pegasus' trust account. Tan & Tan was the "immediate recipient" of trust funds, and Anthony and ACC were "downstream recipients" to whom those funds were transferred and who also, as will be seen, shortly thereafter retransferred those funds to or at the direction of Tan & Tan. While Anthony was the sole director of Tan & Tan and ACC, the appeal has proceeded on the basis that each company is legally distinct from its director.
Blue Mirror's claims were advanced at first instance and in this Court both at law (for money had and received) and in equity (pursuant to both limbs of Barnes v Addy and on the basis that Anthony and his companies were volunteers who had received trust money). As will be seen, each claim has different elements.

[2]

The trust money received first by Tan & Tan and then Anthony and ACC

The facts giving rise to the transfer of Blue Mirror's money were undisputed. Blue Mirror had, on 30 June 2020, transferred $9,924,834 into a trust account in Pegasus' name, pursuant to a contract whereby Pegasus would supply 100 million surgical gloves to Blue Mirror. It was common ground that it was held on trust for Blue Mirror pending the supply of the gloves. No gloves were ever supplied. The day after payment by Blue Mirror was made, most of the money ($9,504,800) was transferred from the Pegasus account to Ken's personal bank account with St George ending in 3299. Thereafter, the following transactions occurred: 1. On 1 July 2020, Ken transferred $2,500,000 from his personal 3299 account to Pegasus' account ending in 6553, and on the same day Ken transferred $2,500,000 from the Pegasus 6553 account to Tan & Tan's ANZ account ending in 8401; 2. On 14 July 2020, Ken transferred $3,000,000 from his personal account to Tan & Tan's 8401 account; 3. On 21 July 2020, Ken transferred $3,000,000 from his personal account to Tan & Tan's ANZ account ending in 4177.
Thus in the three weeks after Ken transferred $9,504,800 from Pegasus' trust account to his personal account, he caused $8,500,000 to be transferred to his brother's company Tan & Tan.
It is not necessary for the purposes of this appeal to descend into the detail of how the other $1,004,800 was dissipated by Ken, although the diagram which became MFI 1 and which is annexed to this judgment exposes what occurred. The large majority of the transfers recorded in MFI 1 were supported by primary banking documents such as deposit slips, receipts or bank statements which were in evidence. A deal of the complexity in MFI 1 is a consequence of the fact that Tan & Tan operated at least four bank accounts (three with ANZ, one with St George) into which funds were deposited and withdrawn, ACC operated three accounts with ANZ and Anthony also operated three accounts, although not all contained withdrawals or deposits relevant to this litigation.
As is plain from MFI 1, between July 2020 and October 2020 (when Mareva relief was obtained) there were in excess of sixty transfers of funds, principally between accounts in Anthony's name or in the names of his companies. These included transfers from Tan & Tan of $1,000,000 to Anthony's personal account and $6,147,000 to ACC.

[3]

Did Anthony and ACC "repay" the $1,000,000 and $6,147,000 transferred to them?

In oral submissions at the hearing of the appeal, Anthony and ACC relied upon the fact that the amounts received by them had been "repaid" in answer to part of Blue Mirror's case. That is not reflected in MFI 1, and it was unclear whether that was reflected in the primary financial records from which MFI 1 was derived. This led to a request from the Court after the hearing in the following terms: At page 46 of the transcript of the hearing on Thursday 5 September 2024, Mr Ashhurst SC pointed out that in relation to Blue Mirror's claim at common law against Anthony Tan and ACC, both had repaid the money transferred to them from Tan & Tan. Mr Ashhurst SC is recorded as submitting that: "Our learned friend's submissions seem to just gloss over the fact that the advances were made to Tan & Tan and any loans to Tan & Tan made to the second and third respondents were repaid. And therefore it is necessary for the appellant to establish against those respondents [that] they took with knowledge of the breach of trust." The Court invites the parties, if they so choose, to make further submissions on the effect of the repayment by Anthony and ACC of the $1,000,000 and $6,147,000, and in particular (a) whether Blue Mirror accepts that the amounts were repaid, (b) whether Blue Mirror accepts that if the amounts were repaid, that was a complete answer to its claim at common law, and (c) whether Anthony and ACC accept that if the amounts were repaid, that was not an answer to Blue Mirror's claims for knowing receipt.
The parties thereafter provided submissions in accordance with the leave granted. It emerged from those submissions that: 1. it was common ground that MFI 1 contained an error in relation to part of the transfers subsequently made by ACC; 2. Blue Mirror did not accept that any of the subsequent transfers by Anthony or ACC were properly characterised as "repayments"; 3. Blue Mirror accepted that in some circumstances, the subsequent transfer by Anthony or ACC of funds received would be a defence to the claim for money had and received, and 4. Anthony and ACC accepted that the repayment by them of the amounts received was not an answer to Blue Mirror's claims for knowing receipt.
It is convenient to address immediately whether Anthony and ACC retransferred or "repaid" the $1,000,000 and $6,147,000 each received from Tan & Tan.

[4]

Blue Mirror's claim at common law

Blue Mirror's common law claim turned on Anthony and his companies being volunteers. If Tan & Tan provided nothing in exchange for the $8,500,000 transferred to it by Ken, then it was liable at common law to repay the amount, subject to defences. Further, when Tan & Tan transferred $1,000,000 to Anthony, and $6,147,000 to ACC, Anthony and ACC were liable to repay the amounts received, subject to defences. It was not necessary for Blue Mirror to establish any level of knowledge on the part of Tan & Tan, Anthony or ACC, because its claims were based on its (beneficial) ownership of the money: Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 at [43]-[56]; Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85 at [60]-[68]. Claims based on title are quite distinct from claims based on conscience.
Anthony and ACC made no objection that Blue Mirror lacked legal title to the money transferred to it. They were correct to take that course. The trustee, Pegasus, had legal title to the money held by it in its trust account (more precisely, it was the legal owner of the bank's debt). However, this is a clear case where Blue Mirror, as sole beneficiary of the trust, would be permitted to bring proceedings in its own name, joining Pegasus, so as to permit it to sue at common law. It is clear that the "special circumstances" in which that course is permitted extend to cases of collusion between the trustee and the third party: see Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109; [2004] HCA 7 at [55]-[56].
Nor did Anthony or ACC make any objection to Blue Mirror's claims against them as downstream recipients of property, as opposed to its claim against the immediate recipient, Tan & Tan. This is more controversial. There is no doubt that a common law claim for a chattel may be made against a downstream recipient. The example in Fistar v Riverwood Legion and Community Club Ltd at [62] was a thief who steals a painting and gives it to his mother, who in turn, not liking it, donates it to a gallery. The painting's owner can sue the gallery in detinue. But money is different. The customer's "money in a bank account" represents a debt, not a bailment (save for the customer who has deposited gold coins in a safety deposit box), and the transfer of money from one account to another is not assignment, but a series of debits and credits which represent the transaction. As explained by Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 127-128; [2000] UKHL 29: We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked.

[5]

Blue Mirror's claims in equity

Blue Mirror also claimed that each active respondent was required to account to it for knowing receipt of trust money. The fact that there was no continuing proprietary claim does not, at least in this country, stand in the way of a third party recipient's obligation to account: McFee v Reilly [2018] NSWCA 322 at [108]; Turner v O'Bryan-Turner (2022) 107 NSWLR 171; [2022] NSWCA 23 at [103]; cf Byers v Saudi National Bank [2023] UKSC 51; [2024] 2 WLR 237. The claims based on both limbs of Barnes v Addy were pleaded to extend to all available forms of knowledge, namely (i) actual knowledge of the supply agreement and that Anthony had no entitlement to the funds, alternatively (ii) that he deliberately shut his eyes, or (iii) that he deliberately failed to make the inquiries an honest and reasonable person would make, or (iv) that he knew of circumstances which to an honest and reasonable person would have indicated those matters. The fourth category was treated as sufficient in Kalls Enterprise Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; 63 ACSR 557 at [176]-[199], a position which was confirmed in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [263]-[270] and applied in Turner v O'Bryan-Turner (2022) 107 NSWLR 171; [2022] NSWCA 23 at [139]. In each case, what was alleged was that Anthony had the relevant level of knowledge that Ken was not entitled to transfer the money to Tan & Tan. Happily, this appeal is not one which turns on the gradations of knowledge.
Anthony was the sole director of Tan & Tan and ACC, and thus his knowledge was imputed to each of those companies. Anthony's knowledge was not an element of Blue Mirror's claim at common law, but was an element of its claims based on Barnes v Addy. That meant that the question of onus depended on the particular claim being analysed. As Walsh JA said in Currie v Dempsey (1967) 69 SR (NSW) 116 at 125 in a familiar passage: In my opinion, [the legal burden of proof] lies on a plaintiff, if the fact alleged (whether affirmative or negative in form) is an essential element in his cause of action, eg, if its existence is a condition precedent to his right to maintain the action. The onus is on the defendant, if the allegation is not a denial of an essential ingredient in the cause of action, but is one which, if established, will constitute a good defence, that is, an "avoidance" of the claim which, prima facie, the plaintiff has.

[6]

The positive case advanced by Anthony and his companies that they were not volunteers

The primary judge observed, with respect correctly, that it was unnecessary to address most of the details concerning the contract between Blue Mirror and Pegasus Australia, nor the transfers of funds in breach of trust, which were uncontroversial and established by banking records. Controversy instead centred upon the positive case advanced on behalf of Anthony and his companies to the effect that the monies paid to Tan & Tan were in partial payment of existing obligations concerning a deal to convert industrial alcohol to sanitising liquid.
The essence of the positive case advanced by Anthony and his companies was as follows.
Anthony said that his school friend Mr Grant Reddy, to whom he had sold a number of cars, had been supplying sanitiser at the commencement of the COVID-19 pandemic, and had told him that he had had difficulty obtaining ethanol. Anthony had approached his brother Ken because Ken held rights to distribute a brand of vodka, and might therefore be a person who knew how to source ethanol. In around March 2020, Tan & Tan and Pegasus (ie the companies controlled by Ken and Anthony respectively) entered into an agreement whereby Tan & Tan agreed to sell to Pegasus some 200,000 litres of hand sanitiser at $50 per litre. That contract was reflected in a purchase order dated 25 March 2020 in the amount of $10,000,000, and invoices, dated 25 March and 20 April 2020, in the amounts of $2,500,000 and $7,500,000 respectively.
It was said that for the purpose of supplying that hand sanitiser, Tan & Tan contracted with Mr Reddy to manufacture 200,000 litres, which, by late May 2020, had been delivered, directly to Pegasus. The respondents claimed that the $8,5000,000 received by Tan & Tan was part of the purchase price under the agreement, leaving $1,500,000 outstanding. The three payments, totalling $8,500,000, which Tan & Tan received, were said to be payments of the purchase price for the 200,000 litres of hand sanitiser.
The centrepiece of this defence was a "Deed of Understanding" between Tan & Tan and Mr Reddy, and Tan & Tan's invoices to Pegasus for the $10,000,000. Because the full force of those documents is not captured by any textual summary, they are reproduced, as well as summarised, below.
The "Deed of Understanding" was a one page document as follows:

[7]

The reasons of the primary judge

The primary judge delivered a substantial judgment of 59 pages on 1 February 2024. His Honour addressed a number of procedural features of the trial which bore upon the inferences he was asked to draw. One was the fact that Anthony and his companies had been professionally represented until shortly before the trial, but Anthony had thereafter conducted his own defence. Another was that Anthony had resigned as a director of Tan & Tan in November 2020. The new director of Tan & Tan, Mr Wainibuka, did not attend to be cross-examined, and so his affidavits could not be read. A third was Mr Tan's application for Mr Reddy to attend on subpoena and give evidence, which was dismissed in light of its lateness and the absence of any indication of what he would say. A fourth, which bore directly upon his Honour's reasons, was the absence of a reply.
The primary judge described the essence of the litigation early in his judgment, at [18]-[23]. Those paragraphs explain the claims advanced by Blue Mirror against Pegasus and Mr Ken Tan, and those advanced against the three active defendants, as follows: 18 … 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.
His Honour observed that Blue Mirror asked the Court to infer serious dishonesty based on the relationship between the parties (notably, that Ken and Anthony were brothers) and the apparent absence of any commercial legitimacy in the transactions which ensued. His Honour then observed: 20 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. 21 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. (emphasis in original)

[8]

The dispositive reasoning of the primary judge

The dispositive reasoning of the primary judge is at [136]-[165]. It may be summarised as follows.
First, his Honour observed that despite there being no amendment to its pleadings, Blue Mirror's real case was that the positive defence based on the agreements between Tan & Tan and Pegasus and Mr Reddy was that they were illusory and concocted after the event. His Honour observed that if so, it must follow that Anthony had concocted the whole defence, seemingly in conjunction with Mr Reddy. His Honour said at [136]: … 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.
His Honour then observed that even if Blue Mirror failed to establish that the agreements with Pegasus and Grant Reddy were illusory, it could still succeed if it established that Tan & Tan had the requisite state of knowledge when it received money from Ken.
His Honour observed that the evidence established that Pegasus, through the agency of 6010 Pty Ltd, entered into an agreement with Manildra, pursuant to which Manildra manufactured 50,000 litres of ethanol for a price that was paid by Pegasus, and that the ethanol was delivered by Manildra to the order of Pegasus. His Honour regarded that as "adequate objective proof" that Pegasus performed its part of the bargain with Tan & Tan. His Honour observed that Blue Mirror "did not engage with this evidence" and, further, that Blue Mirror must be asking the Court to find that although the production and supply of 50,000 litres of ethanol by Manildra to Pegasus was both real and established by the evidence, it was nonetheless "in connection with some other business of Pegasus and not its alleged agreement with Tan & Tan". His Honour then reiterated the evidentiary position as follows: 144 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. 145 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. 146 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. 147 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.

[9]

Blue Mirror's appeal

Tan & Tan Australia Pty Ltd (in liq) did not appear when the appeal was heard. Blue Mirror's failure to seek leave to proceed against it was expressly raised by the Court. No application pursuant to s 500 of the Corporations Act was made. In the absence of any application for leave, the appeal against that company in liquidation must be dismissed.
The notice of appeal contained numerous grounds. They were addressed collectively in its written and oral submissions, and I shall follow the same course.
Central to the challenge made by Blue Mirror on appeal to the reasoning of the primary judge was the proposition that this was a trial which depended on circumstances and burdens resulting from the parties' forensic choices. The fundamental submission made by Blue Mirror was that the primary judge had erred in failing to have regard to the totality of the evidence in order to determine whether Tan & Tan had provided consideration for the $8,500,000 received by it and whether the active defendants had the requisite knowledge of the payments received by Tan & Tan in breach of trust.
Before dealing with this, it is best to address certain aspects of the reasoning of the primary judge with which I respectfully disagree.

[10]

Doubts as to Tan & Tan's case which should not have been held

The primary judge correctly observed that there were a number of "odd aspects" to Tan & Tan's positive case. However, I have concluded that in two respects, the primary judge understated the evidence available to support the active defendants' case. It is best to address these at the outset, before turning to the difficulties with Tan & Tan's positive case.
First, as already noted, the primary judge found at [144] that there was "no positive evidence" of, inter alia, "the delivery of the 50,000 litres of ethanol by Pegasus' nominated carrier to Grant Reddy's manufacturer". It is not entirely clear whether the primary judge was there referring to the initial delivery from Manildra or alternatively to some second delivery from Pegasus to Mr Reddy's manufacturer (although it seems improbable that there were not one but two movements of the unprocessed denatured alcohol supplied by Manildra). During the hearing, it was pointed out that the documents tendered from the defendants' discovery included apparently contemporaneous documents to which the primary judge did not refer and appears not to have been directed. There were four such documents, which are reproduced as Annexure 'B' to this judgment.
One was a Manildra certificate of analysis, which referred to delivery docket 12460572, to be transported on "Transport ID BPTU2606179". It recorded that the alcohol strength was a minimum of 94% and that the product contained "0.25% TBA", which is to be understood as a reference to tertiary butyl alcohol, a denaturing agent.
The second was a bill of lading dated 27 March 2020 upon which was written in hand "BPTU2606179", which referred to the same trip number (12460572) and that the load had started at "27/MAR/20 12:56" and had around 24,700 litres; the two measurements of volume, of 24,700 and 24,604 litres, reflect the fact that the volume of ethanol depends on its temperature (this is how the alcohol thermometers found in many homes work) and also the relative accuracy of measuring a flow of liquid while it is being poured, as opposed to measuring the amount of liquid in a container by its depth.
The third document was a consignment note on the letterhead of FBT Transport which identified the container as "BPTU2606179" and the customer order as 12460571. It identified the driver, the registration number of the truck, and the delivery address on Blaxland Rd in Campbelltown.

[11]

The absence of a reply

The primary judge regarded the absence of a reply to be significant. His Honour said at [115] that "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". At [156] his Honour said that "Given that there was no pleaded allegation by Blue Mirror that the documents had been fraudulently concocted, the active defendants were entitled to rely upon their prima facie evidentiary effect".
Although not squarely raised by any ground of appeal, the reliance by the primary judge upon the absence of a reply was raised during the hearing. Senior Counsel for the respondents, who had not appeared at trial, candidly acknowledged that the absence of a reply was something of a "red herring". That concession was properly made. It is as well to explain the position which obtained after Tan & Tan filed its positive defence. 1. First, there is no general obligation upon a plaintiff to file a reply, although there was an entitlement to do so if a plaintiff so chooses: UCPR r 14.4(1). 2. Secondly, UCPR r 14.14 provides that in a defence or subsequent pleadings a party must plead specifically any matter that, if not pleaded specifically, may take the opposite party by surprise. 3. Thirdly, absent any reply, there was an implied joinder of issue on the defence: UCPR r 14.27(2). The effect of the implied joinder of issue was to operate as a denial of every allegation of fact made in the defence: r 14.27(5).
Thus, Blue Mirror was taken to have denied every allegation of fact in the active defendants' defence. However, it was not taken to have alleged that the documents upon which the active defendants relied were forgeries or shams or had been concocted for the purposes of cloaking the transfers of money with a commercial purpose.
The absence of a reply did not elevate the status of the invoices and "Deed of Understanding" at the heart of the active defendants' case to some "prima facie evidentiary effect". Conversely, had a reply been served which contended they were fabrications, that of itself would not have devalued the evidentiary value of the invoices and "Deed of Understanding". Irrespective of the pleading, the inferences to be drawn from those documents fell to be assessed against the entirety of the evidence.

[12]

Subpoenas

The primary judge considered that there was an onus upon Blue Mirror to serve subpoenas upon Manildra, the carrier and Mr Reddy. As mentioned above, the primary judge considered that the "forensic obligation" to issue subpoenas upon Mr Reddy, Manildra and the carrier fell upon Blue Mirror (at [156]) and that in the face of the apparent ability of Blue Mirror to do so, "Blue Mirror was not entitled to do nothing, but still expect the Court to make positive findings of high levels of dishonesty against Anthony Tan and Grant Reddy": at [157]. Blue Mirror's challenge to this reasoning was prominent in its submissions. I do not agree with this aspect of his Honour's reasoning.
First, there was debate about subpoenas during the trial. At one stage (by reference to packet numbers) the Court was told that at least 28 subpoenas had been issued. Whether they included subpoenas to Manildra, the carrier and Mr Reddy was not known to the primary judge. Indeed, at an early point in his Honour's reasons, the primary judge stated as much: after referring to the possibility of issuing subpoenas, his Honour noted at [46] "If any such enquiries were made, their fruits did not become apparent at the hearing". However, at the dispositive portion of his reasons 100 or so paragraphs later, his Honour proceeded on the basis that no relevant subpoenas were issued. That was an error. There was no evidence before the primary judge (a) as to whether subpoenas were issued to Manildra, the carrier or Mr Reddy, or (b) if they were, what was produced in response.
Secondly, it is true that one question posed at trial was whether the documents on which Tan & Tan relied were fabrications. As the primary judge observed, that was the practical consequence of the most likely and most plausible way in which Blue Mirror advanced its case. But it was not the only question. Nor was it the question which arose most directly on the pleadings.
To reiterate, there was no issue about the money being transferred from Pegasus to Tan & Tan, in circumstances where Pegasus had no right to do so. Blue Mirror advanced a case at common law based on Tan & Tan being a volunteer. In order to establish that it was not a volunteer, Tan & Tan asserted that it had supplied $10,000,000 worth of sanitiser to Pegasus. This case was propounded in its positive defence. As explained above, there was an implied joinder of issue, amounting to a denial by Blue Mirror of all factual allegations.

[13]

Did the active defendants make out their positive defence?

For the foregoing reasons, the fact-finding process at trial has miscarried, and it is necessary for this Court to intervene. As Blue Mirror pointed out, this Court is in no materially worse position than the primary judge. It follows that rather than ordering a retrial, this Court should in accordance with UCPR r 51.53 exercise its powers to make findings of fact.
Blue Mirror does not seek to interfere with the finding that Anthony lacked credibility, and contends that the correct finding on the whole of the evidence is that the active defendants failed to establish that the payment of $8,500,000 was part payment for the supply of sanitiser.
The most important matters emerging from the evidence are as follows.
First, the starting point is the known fact that Ken caused Pegasus to transfer more than $9,000,000 from Blue Mirror to Tan & Tan on 1 July 2020 in breach of trust, into the two Tan & Tan accounts nominated in the invoices by three payments made in the following fortnight. As was said in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 67 ALJR 170 at 171, the high degree of satisfaction which allegations of fraud demand reflects "a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct". But for the purposes of this litigation it must be taken as a premise that Ken did in fact engage in fraudulent and criminal conduct. The evidence in this civil trial is to be assessed on that basis, most obviously, in respect of the inferences to be drawn from the Pegasus document whereby Pegasus purported to purchase $10,000,000 of sanitiser. A document on the fraudster's letterhead, purporting to justify the transfer of the very amount of money which, it has already been established, was fraudulently taken from the plaintiff, is the opposite of the ordinary state of affairs to which the High Court referred in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd.
There are other curious aspects to the document on Pegasus letterhead. It purports simultaneously to be an invoice for two "Ethanol ISO tanks" and a purchase order for "200,000 Sanitiser" (presumably litres) at $50 per litre. If it is to be inferred that the 50,000 litres of ethanol would suffice to make the entirety of the sanitiser (which is to say, the main ingredients would be 25% ethanol and 75% water) then it is an extraordinarily profitable contract. The same is true even if the concentration of ethanol in the sanitiser is higher.

[14]

Anthony's knowledge of Ken's fraud

Blue Mirror's claims in equity turn on Anthony's knowledge, and unlike the positive case advanced by the defendants, the onus rested upon Blue Mirror to establish Anthony's knowledge. It is common ground that the repayment by Anthony and ACC is no defence to Blue Mirror's claim for knowing receipt.
All of the matters mentioned above when dealing with the active defendants' positive case bear upon this issue too. But there are additional considerations in play. 1. The first is that it is one thing to find that a positive case that Tan & Tan was not a volunteer has not been made out, and another to conclude that Anthony had knowledge of fraud. That reflects the fact that "the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved", as a unanimous High Court said in Rejfek v McElroy (1965) 112 CLR 517 at 521; [1965] HCA 46, and which is reflected in s 140 of the Evidence Act 1995 (NSW). Further, although these are civil proceedings, weight is to be given to the presumption of innocence and exactness of proof is required. 2. A second is that it is not open to this Court, in the absence of any submissions on the point and without having seen Anthony being cross-examined, to go further than the primary judge and rely upon his unsatisfactory evidence as itself supporting the conclusion that he was lying about his knowledge. 3. A third is that although Blue Mirror did not disavow lesser forms of knowledge which are sufficient to found liability under either limb of Barnes v Addy, its primary case advanced was that Anthony had actual knowledge of Ken's breach of duty. That carried with it, at least for practical purposes, the consequence that Mr Reddy had participated in litigation which was based on a fabrication. That is because it is one thing to conclude that the defendants had not established their factual case, and another to conclude positively that they had knowledge of breach of duty. 4. That is to say, although I have concluded that the primary judge was wrong to dismiss the entirety of Blue Mirror's case because he was not prepared to make findings of serious dishonesty against Anthony and Mr Reddy because that approach disregarded Blue Mirror's claim at common law which did not turn on knowledge but only on Tan & Tan being a volunteer, I respectfully agree with the primary judge that on Blue Mirror's Barnes v Addy claims insofar as they turn on Anthony's state of mind, one must have regard to the gravity of the conclusions to be reached about Anthony and Mr Reddy. Not lightly would those conclusions be reached.

[15]

Conclusions on Blue Mirror's claims against Anthony and ACC

It follows that had Blue Mirror sought leave to appeal against Tan & Tan, I would also have upheld its claim based on knowing receipt, because Anthony's knowledge is imputed to Tan & Tan. However, in light of Blue Mirror's forensic decisions to proceed only against Anthony and ACC, it is necessary to consider the claims against those downstream recipients.
As explained earlier in these reasons, Anthony and ACC retransferred amounts exceeding $1,000,000 and $6,147,000 respectively to or at the direction of Tan & Tan. If the approach taken by equity of tracing into a mixed fund were applied, the amounts re-transferred reflect the "same" money which was transferred to Anthony and ACC (whose bank accounts otherwise contained relatively small amounts of money). But even if it be assumed that Blue Mirror was able to bring a claim for moneys had and received against the downstream recipients for the trust money, those recipients did not retain the money. On that basis the claims at common law must fail. It is not necessary to address the further evidence on which Anthony and ACC relied, namely that the amounts were in the case of Anthony an undocumented loan repayable on demand, and in the case of ACC a documented loan.
Turning to the position in equity, Anthony and ACC accept that the repayment is no defence to a claim for knowing receipt. At all times after 1 July 2020, Anthony and through him, ACC, had knowledge of Ken's fraud. It follows that each is liable to account to Blue Mirror as a knowing recipient of trust funds. The alternative claim as volunteers who received trust funds takes the matter no further.
Anthony was also alleged to be liable in the amount of $8,500,000 as a knowing assistant in (a) the breaches of trust committed by Pegasus, and (b) in further breaches of fiduciary duty by Pegasus, Ken and Tan & Tan with knowledge of "the Scheme". The "Scheme" was elaborately defined in the pleadings and its essence was that Pegasus and Ken, or alternatively Pegasus, Ken and Anthony took steps permanently to deprive Blue Mirror of the trust funds including by the transactions in MFI 1 and in various dealings with Blue Mirror in July 2020. Although by its notice of appeal Blue Mirror sought judgment against Anthony in the amount of $8,500,000, this aspect of its appeal was far from prominent in its written or oral submissions. Indeed, it was not squarely pressed at all. Instead, the focus was upon Anthony being aware of Ken's breach of trust, rather than Anthony being a participant together with Ken in any "Scheme". That may reflect a forensic appreciation of Anthony's inability to satisfy any substantial judgment. But whether or not that be so, I am unpersuaded that Blue Mirror has established that Anthony was complicit with Ken prior to the transfer of trust money to Ken's personal account, or that he participated in a scheme, so as to render himself liable to account to Blue Mirror for the $8,500,000 transferred by Pegasus as a knowing assistant.

[16]

Conclusion and orders

The foregoing may be summarised as follows: 1. There is no dispute that Tan & Tan received by bank transfer $8,500,000 of trust money which was beneficially owned by Blue Mirror by reason of the breach of trust by the trustee Pegasus. 2. If Tan & Tan is a volunteer, it is liable without more at common law. The onus lay upon it to establish a positive defence. Tan & Tan claimed that the $8,500,000 represented part payment of sanitiser supplied by it, and adduced a tax invoice and "Deed of Understanding" in support. 3. The absence of a reply did not alter the fact that the onus rested with Tan & Tan to establish it was not a volunteer. 4. Tan & Tan failed to discharge its onus, and was liable at common law on that basis. 5. It was open to find that the documents relied on by Tan & Tan were fabrications. That was not a pleadable issue, and had been squarely put to Anthony in cross-examination. Following a review of the entirety of the evidence, that was the appropriate finding. 6. Assuming favourably to Blue Mirror that the downstream recipients Anthony and ACC were liable at common law for the $1,000,000 and $6,148,000 transferred to them by Tan & Tan, the fact that they had retransferred those amounts to Tan & Tan or at its direction was an answer to the claims at common law. 7. Anthony had knowledge of the breach of trust from 1 July 2020, when he transferred the first $1,000,000 which had been received from the trustee Pegasus into his personal account. His knowledge was imputed to ACC. Both Anthony and ACC were liable to account to Blue Mirror as knowing recipients of the trust money, and it was common ground that the repayment to Tan & Tan was no answer to that claim.
For those reasons, the appeal should be allowed and the judgments in favour of Anthony set aside, and in lieu judgment should be entered in favour of Blue Mirror against Anthony in the amount of $1,000,000 and ACC in the amount of $6,147,000. Those judgments should carry interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) from 26 July 2020 (when demand was made). In the absence of an application for leave to proceed against Tan & Tan, the appeal against that company should be dismissed, despite the fact that I respectfully disagree with the reasons given by the primary judge.
As presently advised, I incline to the view that (a) costs should follow the event, (b) Blue Mirror's decision not to seek leave to proceed against Tan & Tan in this Court should not have any material bearing upon the exercise of the discretion as to costs payable by Anthony and ACC, and (c) there should be no interference with the order that Blue Mirror must pay Tan & Tan's costs at first instance, and to the extent that any costs were incurred by Tan & Tan in this Court, on appeal. However, the orders I propose will permit the parties to be heard as to costs both at first instance and in this Court.

[17]

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 October 2024

Currie v Dempsey (1967) 69 SR (NSW) 116 Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 Foskett v McKeown [2001] 1 AC 102; [2000] UKHL 29 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 Helton v Allen (1940) 63 CLR 691 Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 Jainti Pty Ltd v Fraser Panorama Pty Ltd [2021] NSWSC 744 JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 Kalls Enterprise Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; 63 ACSR 557 Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 McFee v Reilly [2018] NSWCA 322 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 67 ALJR 170 Nguyen v Cosmopolitan Homes [2008] NSWCA 246 Rejfek v McElroy (1965) 112 CLR 517; [1965] HCA 46 Robb Evans v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 Silversea Cruises Australia Pty Ltd v Abellanoza [2019] NSWCA 306 SSABR Pty Ltd v AMA Group Ltd [2024] NSWCA 175 State of New South Wales v Beck; Commissioner of Police v Beck [2013] NSWCA 437 Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 Tantau v MacFarlane [2010] NSWSC 224 Toksoz v Westpac Banking Corporation [2012] NSWCA 199; 289 ALR 577 Turner v O'Bryan-Turner (2022) 107 NSWLR 171; [2022] NSWCA 23 Texts Cited: J Edelman, "Understanding Tracing Rules" (2016) 16(2) Queensland University of Technology Law Review 1 D Fox, Property Rights in Money (Oxford University Press, 2008) M Hafeez-Baig and J English, The Law of Tracing (Federation Press, 2021) Category: Principal judgment Parties: Blue Mirror Pty Ltd (Appellant) Tan & Tan Australia Pty Ltd (in liq) (First Respondent) Anthony Tan (Second Respondent) Australian Construction Company Pty Ltd (Third Respondent) Representation: Counsel: A Cheshire SC (Appellant) M Ashhurst SC, S Burchett (Second and Third Respondents)

HEADNOTE [This headnote is not to be read as part of the judgment] In 2020, Pegasus Australia Developments Pty Ltd held money on trust for the appellant, Blue Mirror Pty Ltd. Mr Ken Tan caused Pegasus to disburse $9,504,800 in breach of trust to the first respondent, Tan & Tan Australia Pty Ltd, a company controlled by his brother, Mr Anthony Tan, the second respondent. Tan & Tan then transferred trust money to Anthony, who also transferred to another company of which he was director, Australian Construction Company Pty Ltd, the third respondent. Blue Mirror obtained judgment for $10,264,429.62 against Ken and Pegasus was wound up. Neither played any active part in the trial or appeal. Blue Mirror sued Tan & Tan, Anthony and ACC claiming that they were liable at law for money had and received, that they were each knowing recipients of trust property and that Anthony was a knowing assistant in Ken's breaches of fiduciary duty. The respondents' positive defence was that they lacked knowledge of the breach of trust because they believed that they were receiving those funds in partial satisfaction of debts owed to them by Pegasus for the supply of sanitiser. In support, the respondents pointed to a purchase order on Pegasus letterhead, a series of invoices by Tan & Tan to Pegasus, an agreement with a Mr Grant Reddy for the delivery of ethanol and other documents concerning the supply and delivery of ethanol, and the fact that Mr Reddy obtained judgment in 2022 for some $5,000,000 against Tan & Tan for amounts due to him. Blue Mirror contended that some of these documents were concocted to justify the receipt of funds after the fact, but the primary judge held that Blue Mirror had not established its case. Liquidators were appointed to Tan & Tan shortly before judgment was delivered. The primary judge found that Anthony was an unsatisfactory witness and noted a number of "odd aspects" to the documentary evidence, but placed weight on the facts that Blue Mirror had not filed a reply alleging the agreements to be fictitious, had failed to subpoena the original supplier, Manildra, to disprove the veracity of these transactions, and that the findings sought by Blue Mirror were tantamount to fraud involving both Anthony and Mr Reddy. On appeal, Blue Mirror argued that the primary judge erred in failing to look at the totality of the evidence, and had reversed the onus of proof by suggesting there was a "forensic obligation" on the appellant to subpoena the supplier. The Court (Leeming JA, Ward P and Mitchelmore JA agreeing) held, allowing the appeal: 1. The appeal against Tan & Tan must be dismissed because the first respondent had entered into liquidation and the appellant did not seek leave to proceed against it under section 500(2) of the Corporations Act 2001 (Cth). But for that, Blue Mirror would have succeeded against Tan & Tan on the basis that it had failed to make out its positive defence and therefore received the money as a volunteer: at [75], [116]-[134]. 2. The absence of a reply did not detract from the fact that Blue Mirror was taken to have denied every allegation of fact in the respondents' defence, because there was an implied joinder of issue on the defence. Whether the documents upon which the respondents relied were fabricated was not a material fact which needed to be pleaded. Anthony was confronted with that proposition, and the finding was available: at [91]-[106]. 3WJ Pty Ltd & Anor v Kanj [2008] NSWCA 321; Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336, considered and applied. 1. The effect of the reasons of the primary judge was impermissibly to impose an onus upon the appellant to subpoena the supplier failing which the respondents' positive case would be accepted: at [107]-[115]. 2. There were obvious inconsistencies in the purported transactions - including inconsistencies as to dates and the nominated bank accounts, the absence of GST, and the fact that they were on improbably uncommercial terms. The sudden receipt by the respondents of several millions of dollars called for explanation. Although some matters told against the finding (including the seriousness of the finding and the reliability of documents suggesting a supply of ethanol), the facts that the purchase order was on Pegasus letterhead, deficiencies in the respondents' discovery, the failure to point to the critical documents in early affidavits or to give an adequate explanation for failing to do so, and implausibilities in the documents themselves resulted in the positive finding that the documents were produced after the event. The absence of any intermediate case meant that the appropriate finding was that Anthony had actual knowledge of Ken's breach of trust upon receipt: at [116]-[155]. Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 67 ALJR 170; Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168; Toksoz v Westpac Banking Corporation [2012] NSWCA 199; 289 ALR 577, applied. 1. The repayment of the traceable proceeds of the trust money by Anthony and ACC did not defeat a claim in knowing receipt. They became liable to account in equity from the moment Anthony became aware that the money had been transferred into Tan & Tan's account in breach of trust: at [135]-[155]. Cassaniti v Ball as liquidator of RCG CBD Pty Limited (in liq) (2022) 109 NSWLR 348; [2022] NSWCA 161; Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252, considered. 1. The claim at law in money had and received against Anthony and ACC must fail as the recipients repaid and did not retain the money: at [157]. Discussion of: 1. The different elements of the appellant's causes of action at law and in equity: at [26]-[34]. 2. The circumstances when conscious fraud by a defendant is a pleadable issue: at [91]-[104].

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