DECISION
54 The judgment below was incorrect, on the material now before us, in holding that the first respondent had not seen an agreement by which he was to acquire a 49% interest in dealerships. However, the Territory Reservation Agreements are subject to the comment that they provided illusory consideration, in that they contemplated dealing with Brac Retail Pty. Limited on the terms of any document it may decide to use; and, in relation to the Parramatta dealership, the Territory Reservation Agreement was with Brac Retail Pty. Limited, not Brac Enterprises Pty. Limited to whom the $25,000.00 cheque was made out. As regards the alleged concluded contracts concerning the 49% interest in the dealerships, these contracts required payment of $250,000.00 only to companies yet to enter into agreements for the dealerships, and in one case not named, in return for allotments of shares.
55 It is also correct that the first respondent did sign an agreement setting out the terms of an investment in each of the Parramatta property and Duffys Forest property, and a mortgage purporting to be in relation to those properties. However, although the agreement in each case may have been sufficiently certain to constitute the terms of investment if and when "Brac Property" acquired the Parramatta property and Brac Holdings Pty. Limited acquired Duffys Forest, in each case for $810,000.00, there were no terms purporting to oblige Brac Property or Brac Holdings Pty. Limited to acquire either property, even by implication, because there was no basis for determining precisely what obligations either entity had to pursue the acquisition. In fact, Parramatta was not acquired by any entity associated with Mr. Brachmanis and Duffys Forest was acquired for $1.1 million, not $810,000.00, by a different Brachmanis company. In each case, the mortgages were nullities. Mr. Brachmanis, who signed the mortgages as mortgagor, never owned either property nor was there ever any intention that he would own either property.
56 There were in my opinion misrepresentations concerning Sears franchises. The agreement of Enterprises with SIMI authorised no more than the sale of specified Sears products in Australia, under their brand name. It prohibited other use of the Sears name, so that for Mr. Brachmanis to describe what he was selling as Sears franchises, or what were to be opened as Sears stores, involved breaches of the agreement, as did the use of a business card highlighting the name Sears. Accordingly, in my opinion the statements by Mr. Brachmanis that he had the contract to open Sears hardware franchises in Australia, and that Sears would take on large hardware chains, were false. It was open to be inferred that Mr. Brachmanis knew the truth about these matters, and that accordingly that these misrepresentations were fraudulent. No submissions were made below against the inference of fraud, and it was appropriate that that inference be drawn.
57 The inference was available also that there were misrepresentations concerning the property investments. The representation that a final offer had been accepted by the vendor of the Parramatta property could be inferred to be untrue from the circumstance that no purchase proceeded and that the money paid by the respondents was applied by Mr. Brachmanis for other purposes. The statement "I have recently purchased property at Duffys Forest" was untrue, in that the only purchase of the Duffys Forest property occurred many months later, by a different Brachmanis company from that to which the cheque was made out, and at a different price. Again, it could be inferred that Mr. Brachmanis knew these representations were false.
58 If those matters were the only matters of fraud, there would be force in Mr. Wood's submissions that money was paid over pursuant to voidable transactions, so that the payees became the true owners and entitled to immediate possession of the cheques, at least unless and until the transactions were avoided. But there were and are grounds for inferring a more all-embracing fraud, inducing the payments, in circumstances where there never were any genuine contracts justifying the making and retention of such payments. If the matter is considered, as the appellant asks the Court to do, in the light of the documents which were not in evidence before the primary judge, it is also appropriate to have regard to the circumstance that, when the application to re-open was made, there was evidence that the appellant was in contact with Mr. Brachmanis and able to call him to give evidence, but did not do so.
59 In the first place, there were the compelling circumstances affecting all transactions that all cheques were paid into Mr. Brachmanis' personal account at a time when Mr. Brachmanis had no possible claim to any of the cheques, this account was overdrawn by over $16,000.00 at the commencement of the transactions, there were no other payments into the account in the period 28 August 1998 to 30 November 1998, and over $900,000.00 was dissipated during that period; and that the respondents received no benefit whatsoever for nearly $1 million paid to Mr. Brachmanis. In particular, shops were not opened as promised, the Parramatta property was not purchased, and the Duffys Forest property was purchased by a different company with which the respondents had no dealings.
60 Secondly, there was the illusory nature of the rights granted by the documents actually created, as discussed earlier, and their tenuous relationship to the moneys actually paid.
61 Although, if Brac Retail chose to offer a dealership in the relevant area, each Territory Reservation Agreement would have obliged Brac Retail to offer it to the Potential Dealer, the Agreement did not require any such offer to be made, and permitted any such offer to be made on any terms Brac Retail wished; and as noted earlier, the initial cheque for $25,000.00 was not in any event in favour of Brac Retail but in favour of Enterprises.
62 As regards the agreements for the 49% interest, they provided for payment of $250,000.00 in return for the issue of shares by a company whose business was to be the operation of a dealership under agreements which had not yet been entered into and the terms of which were not determined. The respondents received documents falsely recording meetings of a company in relation to the Parramatta dealership, but they received no benefit by way of shares in either company or involvement in any agreement concerning any dealership or participation in any dealership business. The cheque in each case was made payable to "Sears", this being entirely fictional if, as the primary judge found, the word referred to Sears Roebuck & Co.; and unauthorised if it is interpreted as being a trading name used by Mr. Brachmanis or any of his companies.
63 As regards money paid in respect of land, there were no agreed terms obliging Mr. Brachmanis or his companies to buy any land, and the only agreed terms related to the position if the Brachmanis company referred to did actually buy land at the price specified; and the mortgages were nullities. In relation to those payments, the absence of any benefit to the respondents is particularly telling: although it could be argued that the lack of return from a business venture is explicable by a change of circumstances and the failure of the business, a nil return for over $490,000.00 paid for interests in property, and dissipated within two months, is strongly suggestive of thorough-going fraud.
64 In my opinion, those circumstances support a conclusion that the payments were not pursuant to merely voidable transactions, which would need to be avoided before there was entitlement to recovery; but rather, were induced by a thorough-going fraudulent scheme, in respect of which any purported consideration was non-existent or illusory. The primary judge in effect came to that conclusion, and in my opinion he was justified in doing so on the material before him. I would myself come to the same conclusion on that material, and also on the material before this Court.
65 In those circumstances, in my opinion, if the respondents had learned the true facts before the cheques had been presented for payment, they could, without first avoiding any contract, have demanded immediate return of the cheques and if necessary sought orders to restrain their presentation. The drawing of the cheques had been induced by fraud, and there was no basis for Mr. Brachmanis or the payees or any bearer to assert any entitlement to retain them: there was no concluded contract that could justify retention, which needed to be avoided. In my opinion therefore the cases relied on by the primary judge of Bute and the two Victorian cases referred to above applied, and the respondents remained the true owners and entitled to immediate possession of the cheques; and the dealings of the appellant with the cheques amounted to conversion of their property.
66 In those circumstances, the appeal should be dismissed. It is not necessary to determine the questions relating to delivery of the cheques to payees or bearer, or the effect of the rescission of voidable contracts. However, I would make some comments on those matters.
67 If there had been voidable contracts in relation to the dealerships pursuant to which another party, until avoidance, was entitled to payment, there would still be problems for the appellant. As mentioned earlier, the initial $25,000.00 was payable under the relevant agreement to Brac Retail, not Enterprises or Mr. Brachmanis. $250.000.00 was payable to a company in which Brac Retail was to be a shareholder, and not to either "Sears" or Mr. Brachmanis. Even if "Sears" were taken as a name representing the company which was to conduct the dealership, and assuming that this company was actually in existence when the cheques were dealt with, there is no reason to suppose that Mr. Brachmanis was then the sole director or managing director of that joint venture company, having actual authority on behalf of that company to authorise himself to appropriate the cheques. Thus, even assuming that ownership or right to possession of the cheques passed to that company because Mr. Brachmanis can be regarded as an agent of that company to receive the cheques, his appropriation of the cheques for his own purposes involved conversion of the cheques by both him and the appellant, which at the time was actionable by that company. Later rescission by the respondents of any contract they had with the company, with the result that they could be considered entitled to the cheques at the time of the conversion, would in my opinion give them the right to sue for conversion, as contemplated by Hunter BNZ v Maloney. The rights of the appellant would not in my opinion affect this: the only change would be as to the identity of the person entitled to sue the appellant in conversion.
68 On the other hand, if what the appellant did at the time had been no conversion at all because authorised by the then true owner, I do not think subsequent rescission could change this into a conversion: in that respect, I would adhere to what I said in Shirlaw v. Lewis; and if Hunter BNZ v. Maloney suggests the contrary, I would respectfully disagree. If a subsequent rescission could have this effect, it would mean that, if A transfers property to B pursuant to a contract induced by B's fraudulent misrepresentation, and B transfers some of this property in turn to C, a bona fide purchaser for value, and A subsequently rescinds the contract (being content to recover from B such property as B then retained), C might retrospectively become guilty of conversion. I do not accept that this could be so. In those circumstances, the intervention of C's rights would not in my opinion preclude rescission by A, but would prevent A recovering such a title to the property in question as would defeat C's title or make C guilty of conversion.