CE Sales Pty Ltd v Elyas

Category: Consequential orders

Parties: CE Sales Pty Ltd (Plaintiff)
M Elyas (First Defendant)

Representation: Counsel:
H Mann (Plaintiff)
S Saadat (Solicitor – First Defendant)
Solicitors:
Bartier Perry (Plaintiff)
Invictus Legal (First Defendant)

File Number(s): 2024/266344

Publication restriction: N.A.

JUDGMENT

1. By Notice of Motion filed on 24 January 2025, the Plaintiff (CE Sales) seeks:

2. an order that [16]-[18] of the First Defendant’s (Mr Elyas**’s**) Defence filed on 16 December 2024 be struck out, pursuant to Uniform Civil Procedure Rules 2005 (NSW) rule 14.28(1);

3. judgment on admissions against Mr Elyas in the amount of $3,324,463.71 (together with interest to the date of judgment), pursuant to UCPR rule 17.7;

4. in the alternative, summary judgment against Mr Elyas pursuant to UCPR rule 13.1 in the amount of $3,324,463.71 (together with interest to the date of judgment); and

5. Mr Elyas to pay the Plaintiff’s costs of the motion.

The Pleadings

2. Paragraphs [25]-[33] of the Statement of Claim filed on 14 October 2024 allege as follows (omitting particulars):

[25] Between 3 August 2021 and 14 May 2024, Elyas made payments totalling $3,624,463.71 from CES funds to a bank account in his name or LJI FS (Payments).

[26] Elyas had authority to pay out of CES bank accounts genuine expenses incurred by CES as part of its business, to the legitimate suppliers of those expenses, but not otherwise.

[27] The Payments were not payments of any bills or other expenses in fact incurred by CES.

[28] The Payments were made by Elyas for his personal benefit and without any authority from CES.

[29] Accordingly, the funds the subject of the Payments were misappropriated by Elyas.

[30] On about 28 May 2024, the sum of $300,000 was paid by Elyas to CE Sales.

[31] Elyas was authorised by CES only to make such payments from CES bank accounts as were required to pay CES’ genuine expenses.

[32] The Payments were made by Elyas to himself without authority from CES.

[33] Accordingly, Elyas is liable in restitution to repay to CES the amount of the Payments.

3. Those paragraphs are admitted by Mr Elyas - see Defence at [6]-[7]. That is, Mr Elyas admits that the Payments were made by him for his personal benefit and without authority from CE Sales, and that the funds the subject of the Payments were misappropriated by him. He admits that he is liable in restitution to repay the amount of the Payments.

4. Paragraph [10] of the Defence provides as follows:

The first defendant admits that he is liable for the repayment of some of the misappropriated fund but further pleads the matters contained in paragraphs [X to X] in respect of liability and proportion of any damages.

5. The reference to “[X to X]” is plainly a mistake. The intention was to refer to [16]-[18] of the Defence. Those paragraphs provide as follows:

[16] Further, and in the alternative, and in answer to the whole or part of the plaintiff’s claim, the first defendant say that if the plaintiff has suffered loss and damage as alleged, or at all, then such loss or damage was caused by the plaintiff’s own conduct and negligence and/or failure to mitigate its’ alleged loss.

Particulars

(a) at all material times, the plaintiff was aware of the risks of entering into the agreement with the third defendant, including the risks associated with outsourcing it’s financial interests and financial control in the company;

(b) the plaintiff failed to take proper precautions against the risk;

(c) the plaintiff failed to exercise reasonable care for its’ own interests;

(d) the plaintiff failed to take proper precautions in having appropriate mechanisms and approval processes in place;

(e) the plaintiff failed to provide proper supervision; and

(f) further particulars to be provided following evidence and discovery.

[17] By reason of the matters pleaded in paragraphs 16 above, the plaintiff was contributorily negligent within the meaning of section 5R of the Civil Liability Act 2002 (NSW) and any liability of Elyas for any loss and damage suffered by the plaintiff should be reduced.

[18] Further, and in the alternative, and in answer to part or the whole of the claim, the first defendant relies upon section 5D of the Civil Liability Act 2002 (NSW) and says that any loss or damage sustained by the plaintiff was not caused or contributed to by any act or omission on the part of the second defendant but may have been contributed to by an act or omission on the part of the third defendant.

The “agreement with the third defendant” referred to in the particulars appears to be a reference to a services agreement between CE Sales and the Third Defendant by which the Third Defendant provided accounting services. Mr Elyas was an employee of the Third Defendant.

6. I am told that insofar as [10] of the Defence admits that Mr Elyas is liable for the repayment of “some” of the misappropriated funds, the qualification embodied in the word “some” is intended to pick up the defences that are pleaded at [16]-[18] of the Defence. That is, the reason why Mr Elyas contends that he is only liable for “some” of the misappropriated funds is because the defences pleaded at [16]-[18] of his Defence would serve to reduce the extent of his liability.

Mr Elyas’s Contentions

7. Mr Saadat, who appeared for Mr Elyas, submitted as follows in respect of [16]-[18] of the Defence:

The plaintiff seeks to strike out Elyas’ reliance on ss 5D and 5R of the CLA (Defence at [16]-[18]) on the basis that Part 1A of the CLA applies only to claims resulting from negligence and not claims in restitution.

However, while the plaintiff frames its claim as one of restitution, it is clear that factual issues concerning causation and mitigation arise. The principle in Astley v Austrust Ltd (1999) 197 CLR 1 confirms that contributory negligence may be relevant in non-tortious claims where statutory language allows for it.

Although the submissions referred to “factual issues concerning causation”, it is apparent that the causation issue that is said to arise is the issue of whether there was negligence on the part of CE Sales that was a cause of the loss. Mr Elyas accepts that his wrongful conduct caused loss. Mr Elyas does not resile from his admission that he misappropriated the Payments and that he is liable in restitution to repay the amount of the Payments.

8. Mr Saadat relied, in particular, on Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 (per Gleeson CJ, McHugh, Gummow and Hayne JJ) at [29]–[30]. Those paragraphs provide (omitting footnotes):

In our opinion the reasoning of the Court of Appeal in Daniels is correct. There is no rule that apportionment legislation does not operate in respect of the contributory negligence of a plaintiff where the defendant, in breach of its duty, has failed to protect the plaintiff from damage in respect of the very event which gave rise to the defendant’s employment. A plaintiff may be guilty of contributory negligence, therefore, even if the “very purpose” of the duty owed by the defendant is to protect the plaintiff’s property. Thus, a plaintiff who carelessly leaves valuables lying about may be guilty of contributory negligence, calling for apportionment of loss, even if the defendant was employed to protect the plaintiff’s valuables.

A finding of contributory negligence turns on a factual investigation of whether the plaintiff contributed to his or her own loss by failing to take reasonable care of his or her person or property. What is reasonable care depends on the circumstances of the case. In many cases, it may be proper for a plaintiff to rely on the defendant to perform its duty. But there is no absolute rule. The duties and responsibilities of the defendant are a variable factor in determining whether contributory negligence exists and, if so, to what degree. In some cases, the nature of the duty owed may exculpate the plaintiff from a claim of contributory negligence; in other cases the nature of that duty may reduce the plaintiff’s share of responsibility for the damage suffered; and in yet other cases the nature of the duty may not prevent a finding that the plaintiff failed to take reasonable care for the safety of his or her person or property. Contributory negligence focuses on the conduct of the plaintiff. The duty owed by the defendant, although relevant, is one only of the many factors that must be weighed in determining whether the plaintiff has so conducted itself that it failed to take reasonable care for the safety of its person or property.

9. Mr Saadat submitted that Astley v Austrust supports the proposition that contributory negligence may be relevant in non-tortious claims where statutory language allows for it.

10. Mr Saadat also submitted that there “may be things that need to be amended or fixed in the defence” and referred to Bendigo and Adelaide Bank Ltd v Williamson [2017] NSWSC 939. In that case, Ward CJ in Eq declined to grant summary judgment. Her Honour held that various defences were inadequately pleaded but accepted that a reasonably arguable defence could potentially be pleaded (at [93]).

Consideration

11. Mr Elyas admits that he misappropriated $3,624,463.71 and that he is liable to make restitution in that amount. He has paid $300,000. The only question that arises is whether he has any viable defences. The defences he relies on are those set out in his Defence at [16]-[18], which are set out above.

12. There are serious difficulties with those paragraphs of the Defence.

13. Paragraph [16] is a rolled-up plea alleging contributory negligence “and/or” a failure on the part of CE Sales to mitigate its loss.

Contributory negligence

14. I accept Mr Saadat’s submission that contributory negligence may be relevant in non-tortious claims where statutory language allows for it. However, he did not point to any statutory language that allowed for it in the present circumstances. There is nothing from Astley v Austrust that supports the contention that Mr Elyas can defeat (in part) a claim against him for restitution in respect of misappropriated funds because of the alleged negligence on the part of CE Sales.

15. As the plurality observed in Astley v Austrust at [21], at common law, contributory negligence defeated a plaintiff’s cause of action in negligence. The common law position was modified by section 9 of the *Law Reform (*Miscellaneous Provisions) Act 1965 (NSW). But section 9 has no application to the present case. It does not erect a defence of contributory negligence to a claim for restitution in respect of misappropriated funds. Section 9 applies where the defendant’s conduct gives rise to a liability in tort in respect of which the defence of contributory negligence is available at common law, or where the defendant’s conduct amounts to a breach of a contractual duty of care that is concurrent and co-extensive with a duty of care in tort: see section 8. That is not this case.

16. Nor does the Civil Liability Act erect any defence of contributory negligence upon which Mr Elyas could rely.

17. Mr Elyas seeks to rely on section 5R of the Civil Liability Act – see Defence at [17].

18. Section 5A(1) of the Civil Liability Act provides:

This Part applies to any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise.

The reference to “This Part” is a reference to Part 1A. Section 5R is in this Part, and provides:

(1) The principles that are applicable in determining whether a person has been negligent also apply in determining whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm.

(2) For that purpose—

(a) the standard of care required of the person who suffered harm is that of a reasonable person in the position of that person, and

(b) the matter is to be determined on the basis of what that person knew or ought to have known at the time.

19. Section 5R provides no assistance to Mr Elyas. The claim against him is not a “claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise”. CE Sales’ claim against him for restitution in respect of misapplied funds is not a claim for harm resulting from negligence. CE Sales’ claim does not become a claim for damages for harm resulting from negligence merely because Mr Elyas wishes to advance a defence of contributory negligence. That being so, Part 1A (including section 5R) of the Civil Liability Act does not apply. Furthermore, section 5R does not create any defence; it modifies the way the law of contributory negligence operates under the *Law Reform (*Miscellaneous Provisions) Act 1965: see ACQ Pty Ltd v Cook (2008) 72 NSWLR 318; [2008] NSWCA 161 at [158].

20. It would be a remarkable outcome if a defendant who has misappropriated funds to himself for his personal benefit (as in this case) could resist an order that he give full restitution on the basis that the person whose funds were misappropriated was careless in allowing the defendant to misappropriate. A defendant who takes advantage of another person’s (alleged) carelessness to misappropriate funds from them cannot be rewarded by being able to, in effect, retain some of the benefits of the misappropriation.

21. This case is unlike one where the very purpose of the duty owed by the defendant is to protect the plaintiff’s property, where the defence of contributory negligence may still lie (see Astley v Austrust at [29]). In this case, Mr Elyas did not cause harm because he failed to exercise reasonable care in protecting CE Sales’ property. He caused harm because he misappropriated CE Sales’ property. He must give restitution in respect of the amounts so misappropriated. He misappropriated all of the Payments for his personal benefit and he cannot retain any of that benefit. There is no occasion to weigh any negligence on the part of CE Sales with negligence on the part of Mr Elyas.

Failure to mitigate loss

22. The Defence does not expose an alleged failure to mitigate loss separately from the allegation of contributory negligence. The particulars supporting the plea of the alleged failure to mitigate are the same as those supporting the plea of contributory negligence. There has been no articulation (in the Defence or otherwise) of how the defence could apply. It would be extraordinary if a person who misappropriated funds for his or her own personal benefit is excused from making full restitution on the grounds that the victim failed to mitigate its loss.

23. In this case, CE Sales has avoided some of its loss because it has recovered $300,000 from Mr Elyas. It does not claim that amount. It seeks to recover from Mr Elyas the remaining amounts that he misappropriated but has failed and refused to restore. There could not be any mitigation that required CE Sales to do anything other than to seek to recover from the person who misappropriated its property.

24. There has not been any articulation of a reasonably arguable defence of failure to mitigate.

Causation

25. Mr Elyas pleads a causation defence at [18] of the Defence. This paragraph relies on section 5D of the Civil Liability Act.

26. Section 5D provides:

(1) A determination that negligence caused particular harm comprises the following elements—

(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and

(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused (scope of liability).

(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent—

(a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and

(b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

27. Having regard to the terms of section 5A (set out above), section 5D does not apply in this case. Nor can I discern how section 5D would have any application even apart from section 5A.

28. Mr Elyas alleges that “any loss or damage sustained by the plaintiff was not caused or contributed to by any act or omission on the part of the second defendant but may have been contributed to by an act or omission on the part of the third defendant”. I do not understand how this, if correct, operates as a defence for Mr Elyas, the First Defendant. The fact, if it be correct, that the Third Defendant “may” have contributed to CE Sales’ loss does not exonerate Mr Elyas from his admitted liability to CE Sales.

Strike out

29. UCPR rule 14.28(1) provides:

(1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading—

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c) is otherwise an abuse of the process of the court.

30. I am satisfied that [16]-[18] of the Defence do not disclose a defence and are embarrassing. They should be struck out.

31. Mr Saadat accepted that those paragraphs might be deficient. But he did not articulate how they could be improved to advance a reasonably arguable defence. No reasonably arguable defence has been identified.

Judgment on admissions

32. UCPR rule 17.7 provides:

(1) If admissions are made by a party, whether by his or her pleadings or otherwise, the court may, on the application of any other party, give any judgment or make any order to which the other party is entitled on the admissions.

(2) The court may exercise its powers under this rule even if the other questions in the proceedings have not been determined.

33. Mr Elyas has admitted that he has misappropriated $3,624,463.71 and that he is liable in restitution to repay to CE Sales the amount of the Payments. He has repaid $300,000 to date. The balance is $3,324,463.71, which is the amount sought by CE Sales.

34. The only defences advanced by Mr Elyas are those at [16]-[18] of the Defence. For the reasons set out above, I accept that none of those paragraphs in their current form disclose a defence. Nor am I able to discern based on the submissions how Mr Elyas could reformulate his Defence in a viable way.

35. I have a discretion as to whether to exercise power under UCPR rule 17.7 to give judgment in favour of CE Sales by reason of the admissions in the Defence. If there had been some articulation of a possible reformulation of [16]-[18] of the Defence that was reasonably arguable, I would have declined to give judgment and would have given Mr Elyas an opportunity to propound an amended Defence.

36. In those circumstances, in my view the interests of justice lie in favour of giving CE Sales judgment against Mr Elyas based on his admissions that he misappropriated funds from CE Sales. There should be no delay in CE Sales’ attempts to recover the amounts that were misappropriated.

Summary judgment

37. CE Sales seeks, in the alternative, summary judgment pursuant to UCPR rule 13.1. In light of my conclusion about judgment on admissions, I do not need to consider this alternative. I note, however, that if I had not concluded that CE Sales was entitled to judgment under UCPR rule 17.7, I would not, for the same reasons, have granted summary judgment.

Orders

38. The orders of the Court are:

39. Paragraphs [16]-[18] of the First Defendant’s Defence are struck out.

40. Judgment against the First Defendant in the amount of $3,324,463.71.

41. The First Defendant is to pay interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW).

42. The First Defendant is to pay the costs of the Plaintiff’s Notice of Motion filed on 24 January 2025.

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