Commonwealth Bank of Australia v Saleh & Ors

Commonwealth Bank of Australia - Plaintiff Mohamad Saleh - First Defendant Neil Petts - Second Defendant Zia ul-Islam Qureshi - Third Defendant Australia and New Zealand Banking Group Limited - Fourth Defendant PARTIES : Hassanien Saleh - Fifth Defendant Perpetual Trustees Australia Limited - Sixth Defendant National Australia Bank Limited - Seventh Defendant Quaid Real Estate Pty Ltd - Eighth Defendant J. Biady & Associates Pty Ltd - Ninth Defendant William Lowe Edge - Tenth Defendant

A.A. Henskens, A. Zahra - Plaintiff/Respondent COUNSEL : G.M. Watson SC, J.A. Steele - 10th Defendant/Applicant

Henry Davis York - Plaintiff SOLICITORS : J. Biady & Associates - 10th Defendant/Applicant

1 This is an application by the Tenth Defendant ("Mr Edge") for the dissolution of injunctions restraining him from dealing with funds held in a trust account established pursuant to consent orders. 2 On 24 June 2005, the Plaintiff ("the Bank") sought and obtained ex parte a number of injunctions restraining various persons from dealing with what the Bank said were the proceeds of a very substantial fraud which had been perpetrated against it. The Bank alleges that it has been defrauded of an amount of $7M in circumstances to which I will come shortly. 3 When the proceedings were commenced, Mr Edge was not a party but the Bank had joined his solicitors, the Ninth Defendant, J. Biady & Associates Pty Ltd, who had in their trust account a sum of almost $1M which the Bank said was part of the proceeds of the fraud. 4 On 29 June 2005, by consent, the injunctions obtained on 24 June were continued until 13 July 2005. On 13 July 2005, the Court made various orders by consent. They include the continuation of injunctions against various Defendants, as well as the following orders relating to Mr Edge. By order 4, Mr Edge was joined as Tenth Defendant to the proceedings. Orders 5 to 9 were in the following terms: "5. orders that the ninth defendant establish an account at National Australia Bank Limited in the name "J Biady & Associates Pty Ltd in trust for William Edge and the Commonwealth Bank of Australia" noting that neither Edge nor the plaintiff make any admission with respect to the entitlement of the other to the beneficial ownership of the monies in the account;

6. orders that for the purpose of interim preservation during the course of these proceedings, the ninth defendant to pay the sum of $970,000 from its trust account into the account referred to in paragraph 5 above;

7. orders that, upon completion of orders 4, 5, and 6, the proceedings be discontinued against the ninth defendant with no order as to costs;

8. orders that Edge be restrained from dealing with the $970,000 in the ninth defendant's trust account, or the account referred to in paragraph 5 above, as the case may be, in a manner otherwise than in accordance with these orders or subsequent orders of this Court;

The consent orders were signed by the legal representative of the Ninth Defendant and Mr Edge as the Tenth Defendant. 5 In accordance with Order 5 of the consent orders, an account was established at the National Australia Bank in the name of J. Biady & Associates Pty Ltd in trust for Mr Edge and the Bank and the funds which had been held by the Ninth Defendant were paid into that account. Subsequently, proceedings against the Ninth Defendant were discontinued in accordance with paragraph 7 of the Orders. The issues

6 Mr Edge now applies for the dissolution of the injunction granted by consent in terms of paragraphs 6 and 8 of the consent orders. He says that the injunctions ought not to be continued because no prima facie case generally has been made against him by the Bank and, in particular, no prima facie case has been made out that there was any dishonest participation by him in the fraud so as to attract the principles discussed in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. 7 Mr Henskens, who appears with Mr Zahra for the Bank, says that the application ought to be refused for two reasons. The first is that the injunctions are granted by a consent order which is the result of a contract between the parties. He says that consideration for the contract has been performed by the Bank in that it has discontinued proceedings against the Ninth Defendant. 8 Mr Henskens says that no occasion has been shown for varying what is, in essence, an agreement between the parties embodied in the terms of a consent order. 9 The second basis upon which the Bank opposes the application is that it has demonstrated not only a prima facie case, but a strong case, that Mr Edge was a knowing participant in the fraud: it says that its case is made even stronger by the fact that, in the face of express allegations of dishonesty made against him, Mr Edge has chosen not to adduce any evidence and, indeed, has chosen not to appear at all in person to refute the allegations made against him. Are the consent orders akin to a contract?

10 A plaintiff seeking an interlocutory injunction always bears the burden of demonstrating that the circumstances of the case warrant the Court, in its discretion, granting what can often be an intrusive remedy before the case is fully heard on the merits. An order that is commonly made by consent in proceedings where an interlocutory injunction is sought is that the injunction be granted against the defendant and continued "until further order of the Court"; "leave to apply" is usually granted in addition, although it is implicit in any event. The formulation "until further order - liberty to apply" signifies that the defendant is at liberty to apply to the Court at any time prior to final determination of the proceedings in order to ask the Court to exercise its discretion afresh as to whether the interlocutory injunction should be continued. 11 As a general rule, if a defendant who has consented to an interlocutory injunction "until further order", brings the matter back before the Court for further consideration, it remains the burden of the plaintiff who obtained the injunction to satisfy the Court that the injunction should be continued; the mere fact that the defendant has previously consented to the injunction "until further order" does not reverse the burden so that the defendant must then satisfy Court that the injunction should be discharged. 12 This, of course, is the general rule: it will not apply where the terms of the consent orders show that the parties had a different intention. 13 Mr Watson SC, who appears with Ms Steele for Mr Edge, submits that Order 6 in combination with Order 8 amount to what is, in effect, a consent order that the injunction restraining Mr Edge be continued "until further order": that is, they amount to the usual formulation of an order which may be discharged in the exercise of the Court's discretion if the defendant brings the matter back to Court before the final hearing and requires the plaintiff to show why the interlocutory injunction should be continued. 14 Mr Henskens disputes that construction of the Orders and says that there is, in effect, a contract for the continuation of the interlocutory injunction either until the end of the proceedings or until some other order is made by consent by way of variation of the contractual terms embodied in Orders 6 and 8. 15 In my view, Mr Henskens' construction of these Orders is the correct one. I do not think that the terms of the Orders indicate an intention that Mr Edge's use of the subject funds be restrained only "until further order" in the sense that the injunction would be subject, at Mr Edge's will, to further argument as to the exercise of the Court's discretion. It seems to me that that construction is made clear not only by the words "for the purpose of interim preservation during the course of these proceedings", but also by the fact that the Orders require the Ninth Defendant, which had control of the monies, to transfer the monies into a special trust account, whereupon the Ninth Defendant is to be released from the proceedings for all purposes with no order as to costs. This goes beyond merely "preserving the status quo", which is usually the reason for parties consenting to interlocutory injunctions "until further order", and puts in place a special agreement between the relevant parties. 16 Mr Henskens relies on a decision of the Court of Appeal in Paino v Hofbauer (1988) 13 NSWLR 193. In that case the consent orders were by way of final settlement of proceedings, whereas the consent orders in this case are interlocutory orders. However, I think that the rationale expressed in that judgment is applicable in the present case. 17 At page 198 of the judgment, McHugh J says: "English courts have gone so far as to say that a court will only interfere with a consent order based on a contract on the grounds that it interferes with any other contract: Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185; [1982] 1 All ER 377. In Harvey v Phillips (1956) 96 CLR 235 the High Court (at 244) approved the statement of Lindley LJ in Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 at 280, where his Lordship said: "... To my mind, the only question is whether the agreement upon which the consent order was based can be invalidated or not. Of course, if that agreement cannot be invalidated the consent order is good."

The issue in Harvey v Phillips , and in General Credits Ltd v Ebsworth [1986] 2 Qd R 162, which applied it, was whether a consent order based on a compromise agreement could be set aside. The issue in the present case is different. The Court does have a discretion. Moreover, I am not prepared to adopt the English approach to consent orders based on contracts. The discretion conferred by Pt 2, r 3, is not to be equated with the extent of the Court's powers to vary or set aside contracts.

Nevertheless, when a party asks that a consent order based on a contract should be set aside or varied and the underlying contract could not be set aside or varied, the case would need to be exceptional before the Court would exercise its discretion in favour of an applicant ." [Emphasis added.] 18 This passage makes clear that although the Court always has control over its own orders and therefore retains a discretion to vary orders even if made by consent pursuant to what can be described as an underlying contract, there would have to be exceptional circumstances for the Court to make such an order without consent of both parties, if the underlying contract itself could not otherwise be set aside under the general law. 19 This is not a case of consent orders made "until further order" in the sense of the general rule to which I have referred. It is a case of orders made pursuant to an underlying contract between the parties, which has been performed. There is no submission that the underlying contract could be set aside under the general law. There is nothing in the evidence adduced by Mr Edge which demonstrates exceptional circumstances justifying the exercise of the Court's retained discretion to vary the consent orders as he seeks. 20 However, in case I am wrong in this conclusion, I should proceed to consider the second ground of opposition to the orders sought by Mr Edge which has been advanced by Mr Henskens. Whether a sufficient case of fraud is made against Mr Edge

21 Mr Henskens says that there is evidence as to Mr Edge's complicity in the fraud which has not been answered. Consideration of this question is hampered somewhat at this stage by the fact that there is no pleading which sets out the nature of the case which is alleged against Mr Edge. The haste with which these proceedings have been commenced and the difficulties encountered by the Bank in investigating the circumstances of the fraud explain sufficiently why the pleading has not yet been formulated. I expect that this difficulty will be removed shortly by reason of directions which will carry the proceedings forward to trial. 22 Nevertheless, Mr Henskens has been able to enunciate the causes of action which, as the Bank presently conceives the case, will be alleged against Mr Edge. There are five in all. They include a cause of action founded upon tracing, a cause of action founded on unjust enrichment, a cause of action founded upon fraudulent misappropriation to which Mr Edge was a knowing party, a claim in contract and a claim founded upon misleading and deceptive conduct. 23 For the purposes of this application, I do not need to consider any cause of action but that which alleges fraudulent misappropriation to which Mr Edge was a knowing party. 24 Mr Henskens has made it clear in his opening that the Bank intends to allege that Mr Edge was directly complicit in a conspiracy with the other defendants in the proceedings to misrepresent to the Bank that a company, TDM, had some $8.7M worth of debtors to proffer the Bank as security for a loan when the reality was that TDM had nothing like that amount in debtors. 25 It is plain from the evidence which has been adduced by the Bank, to which there has been no response whatsoever from Mr Edge, that there is, to say the least, a very strong case indeed that a fraud has been perpetrated on the Bank in that an asset upon which it was invited to lend was very grossly overstated, if it existed at all. There is very strong prima facie evidence of dishonest conduct on behalf of a number of the Defendants, principally the first named Defendant, Mr Mohamad Saleh who, I gather, now cannot be found. There is no question but that the Bank has parted with $7M in reliance upon representations as to the worth of TDM's book debts. 26 Mr Henskens says that there is evidence that Mr Edge was a knowing participant in the fraud. He points to a number of circumstances. It will not be necessary for me to examine all of them. I will examine only one or two because, in my view, those circumstances were sufficient to require a direct answer from Mr Edge if he wished to contest the allegations of dishonesty made against him. 27 I should say at this point that Mr Watson SC has very frankly and fairly conceded that before this application was brought on for hearing this morning, he and Mr Edge were in no doubt that a case of fraud was alleged against Mr Edge. Although there has as yet been no pleading filed, the affidavits filed by the Bank are unmistakable in their import that what is alleged against Mr Edge is actual dishonesty. 28 As I have said, Mr Edge has not given evidence. In the course of discussion with Mr Watson I inquired whether, in view of the allegation of actual dishonesty made against Mr Edge, he wished an adjournment in order to be able to have Mr Edge present to rebut the allegations of dishonesty. Mr Watson declined to make any application for adjournment. One is, therefore, left in a situation in which the Bank has adduced evidence of activity on the part of Mr Edge which the Bank says strongly suggests dishonesty, and Mr Edge has consciously chosen not to avail himself of the opportunity proffered to rebut that evidence and that suggestion. 29 The circumstances to which I need refer are as follows. Firstly, the central misrepresentation which the Bank says was made to it is that the book debts of TDM were worth in excess of $8.5M when, in reality, the book debts of the company were not remotely in that order of magnitude. 30 Mr Edge became a director of TDM - indeed, its sole director - on or about 11 April 2005, which was well before the representation about TDM's book debts was made to the Bank. 31 One would expect that Mr Edge, as a director of TDM, would have been thoroughly familiar with its financial affairs and, in particular, its book debts by the time that the various representations to the Bank were made. Most of the representations are alleged to have been made by Mr Mohamad Saleh, a former director of the company, but in a document sent by Mr Edge to the Bank on 3 June 2005 Mr Edge himself, on behalf of TDM, warrants expressly to the Bank that the book debts of the company are some $8.7M. The document is signed by Mr Edge. 32 That document in itself is evidence of Mr Edge's direct participation in a statement to the Bank of the value of TDM's book debts in circumstances where it might reasonably be expected that Mr Edge would know that the statement was false. 33 The second circumstance to which I will refer is as follows. On the basis of the statements as to the value of TDM's book debts which were made to the Bank, the Bank paid over a sum of $7M, at the direction of Mr Edge, on 3 June 2005. The sum was paid in the account of Mr Mohamad Saleh. 34 On the same day, Mr Budai, an officer of the Bank, tried to contact Mr Edge to make an appointment to arrange for the realisation of the book debts of TDM over which the Bank had just taken its security. On 5 June, Mr Edge telephoned Mr Budai and told him that he was not able to meet Mr Budai on the following Monday because he had to fly urgently to China on business and would be absent until 20 June. 35 On 6 June, Mr Mohamad Saleh told Mr Budai that he would let him know of Mr Edge's contact details in China. On the same day, Mr Saleh sent Mr Budai a fax with contact details for Mr Edge in China. Mr Budai attempted to contact Mr Edge using those contact details on a number of occasions but was unsuccessful: the person to whom he spoke did not appear to understand English, or did not appear to know anything at all about Mr Edge. 36 On 8 June, dispersal of the moneys which had been paid into Mr Mohamad Saleh's account began to occur and a deposit of $970,000 was made into Mr Biady's trust account, this being the sum which is now in contention. Various other sums were paid to various other defendants shortly afterwards. 37 On 14 June, Mr Edge spoke by telephone with Mr Budai and told him that he would be back from China on 16 June. 38 On 16 June, Mr Budai again attempted to contact Mr Edge without success. On 17 June, Mr Budai's attempts to contact Mr Edge were again unsuccessful. 39 On 24 June 2005, Mr Edge telephoned Mr Budai and told him that he had returned from China and was now able to organise a meeting with the Bank to set up a system either for assignment of TDM's book debts to the Bank or for some repayment to the Bank of the proceeds of these book debts. 40 It is clear that, from 5 June until 24 June, Mr Edge was representing to the Bank that he was unable to meet with Bank officers because of his absence in China. It transpires, however, that Mr Edge was not in China at all during this time and that he had never left Australia. This is now conceded by Mr Watson. 41 Mr Henskens says that on the uncontested evidence which is presently before the Court there is a strong inference to be drawn that Mr Edge lied to the Bank officers about his unavailability to meet with them immediately after the funds had been provided by the Bank, and that his purpose in doing so was to keep the Bank in the dark about the fraud for a sufficient time to enable the proceeds to be disbursed by the fraudsters without being traced by the Bank. 42 In view of the false representation by Mr Edge to the Bank as to his absence in China, as appears from the evidence which is uncontradicted at this stage, and in view of Mr Edge's election not to give evidence himself in this application in the circumstances to which I have earlier adverted, it seems to me that the inference which Mr Henskens suggests is one which is available. 43 In my view, this case falls squarely within the application of the principles discussed in Patterson v BTR Engineering. There is no question, on the evidence so far filed, that a gross fraud in a very substantial sum has been perpetrated against the Bank. There is evidence suggesting dishonest representations by Mr Edge both as to the quantum of the book debts of TDM and as to his whereabouts, which has not been rebutted by Mr Edge despite the opportunity given to him to do so. 44 In those circumstances, the Bank has demonstrated amply that there are sufficient reasons for believing that, if the injunction is dissolved, there is a real risk that Mr Edge will dishonestly seek to dissipate the subject funds to avoid execution of a judgment against him. Order

45 Mr Edge's application for dissolution of the interlocutory injunctions against him is refused. ~ oOo ~

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.