Esanda Finance Corporation Ltd v Reyes & Ors

Introduction 1 These proceedings arise from a series of transactions instigated by Lope Reyes, the first defendant, when employed as Finance Manager of the Southern Cross Hotel, Sydney. The hotel is an 11 storey building with 192 beds situated on the corner of Elizabeth and Goulburn Streets, Sydney. It was purchased in November 1991, and thereafter operated by Kengfu Properties Pte Limited ("Kengfu") a company incorporated in Singapore and registered in Australia as a foreign company and was valued at around $32M in 1997. The occupancy rate during 1996-97 was 85-95% and the average room rate, or tariff, was $100-$105 per night. The gross weekly turnover was between $100,000-$120,000. Not all these specific facts were know to the seventh defendant. Kengfu was a wholly owned subsidiary of Kengfu Investments Pte Ltd a company incorporated in Singapore which was in turn part of the Kho family group of companies. Another wholly owned subsidiary of Kengfu Investments Pte Ltd was Accord Pacific Holdings Pty Ltd ("APH") a company incorporated in Australia. Accord Pacific Properties Pty Ltd ("APP"), a company incorporated in Australia, was at all material times a wholly owned subsidiary of APH. Aircord Pty Ltd ("Aircord") was also a company incorporated in Australia and was also part of the Kho family group of companies. 2 In addition to being Finance Manager of the Southern Cross Hotel, the first defendant was a director and secretary of APH, a secretary of APP and a director and the secretary of Aircord. 3 In a series of transactions, the first of which occurred on 10 January 1997, and the last of which occurred on 5 September 1997, the first defendant fraudulently purported to sell to Esanda Finance Corporation Ltd, the plaintiff, certain goods, chattels and fixtures purportedly owned by Kengfu, APH and the first defendant, but which were not, in fact, owned by those entities, in association with hire purchase agreements between the plaintiff and the purported vendors of those goods, chattels and fixtures pursuant to which the goods, chattels and fixtures were "hired back" by Esanda to those entities. 4 Most of the goods, chattels and fixtures purportedly so sold were in use at the Southern Cross Hotel but not owned by the purported vendors, and included telephone equipment, refrigeration plant and associated equipment, beds, towels and linen. There was also computer equipment allegedly owned by the first defendant. 5 In addition, the defendant purported to sell to the plaintiff two non-existent motor cars in association with hire purchase agreements, in one case "back" to the first defendant, and in another case to one Freddie Guevara. 6 The first defendant received from the plaintiff various cheques in favour of the purported vendors of the said items or otherwise as the first defendant directed. The first defendant fraudulently and without authority purported to endorse those cheques on behalf of the payees of those cheques, and in this way was able to deposit most of the monies paid by the plaintiff into his personal bank account with the ANZ Bank, Haymarket branch. 7 From time to time thereafter, the first defendant and the seventh defendant engaged in various transactions whereby the seventh defendant lent various monies to the Southern Cross Hotel (Kengfu), or others nominated by the first defendant, at the request of the first defendant, sometimes by cheque and sometimes in cash for varying but usually short periods, and usually without any firm arrangements as to payment of interest, and without any formal record of the transactions. When the transactions were made by cheque, the cheque was not always in favour of Kengfu, and on one occasion, at least, a cheque for $31,000 was made out in favour of the fifth defendant, Virginia Castro Malong, another employee of Kengfu. In the same way, and on the same basis, from time to time, the first defendant purportedly repaid these loans on behalf of the Southern Cross Hotel such repayments being sometimes by cash, sometimes by cheque drawn by the first defendant on his personal bank account inter alia. The various loans and alleged repayments, did not always match, even allowing for interest, the precise amount of which was never the subject of specific agreement. 8 The first defendant engaged in these transactions, not only on his own behalf, but on behalf of the second defendant, his wife, and on behalf of the fourth and sixth defendants being his daughters. The seventh defendant also arranged for various loans to be made to the Southern Cross Hotel, for whom the first defendant was purportedly acting, by a number of friends of the seventh defendant, in respect of which transactions the seventh defendant said that he felt personally responsible for the repayment of any monies, so lent, but not repaid. 9 In general terms, the plaintiff in these proceedings sues the first defendant for all monies paid to him on behalf of the purported vendors of the goods the subject of the purported hire purchase agreement which the first defendant fraudulently misappropriated. As will appear later in this judgment, I am of the opinion that the plaintiff is entitled to recover all relevant monies fraudulently obtained by the first defendant from the plaintiff in the relevant circumstances set out in the further amended statement of claim of the plaintiff. 10 In the relevant circumstances, the plaintiff claims that the first defendant is liable to pay to it monies totalling $1,345,000. 11 Again in general terms, the plaintiff in these proceedings sues the second, fourth, sixth and seventh defendants, being wife, husband and two daughters, for monies received by them from the first defendant purportedly acting on behalf of the Southern Cross Hotel, being monies paid to them by the first defendant out of funds misappropriated from the plaintiff by the first defendant, which monies when received by those defendants was impressed with a constructive trust in favour of the plaintiff and which were received by those defendants with knowledge of circumstances which to an honest, reasonable person in the position of the seventh defendant would "indicate" or "tell" that a fraud, or breach of trust, was being committed, with the result that the monies so received by those defendants were also impressed with a constructive trust in favour of the plaintiff, so that those defendants are liable to repay, and/or account to the plaintiff for those monies. The seventh defendant acted in the relevant transactions not only on his own behalf, but on behalf of the second, fourth and sixth defendants, being his wife and two of his daughters respectively. As will appear hereafter, I am of the opinion that the claims of the plaintiff against those defendants are well founded and I propose to grant to the plaintiff the relief it seeks against those defendants in the further amended statement of claim. I note that during the course of appearing in this matter the claims of the plaintiff against the third and fifth defendants were compromised. 12 I also note that it was submitted on behalf of the defendants that the circumstances in which the seventh defendant, on behalf of himself and on behalf of the second, fourth and sixth defendants, engaged in the relevant transactions, were not such as to indicate to or tell an honest and reasonable person in the position of the seventh defendant that a fraud or breach of trust was being committed. 13 I also note that it was submitted on behalf of those defendants that the monies received by the seventh defendant from the first defendant were in payment of bona fide loans made by those defendants to the first defendant, so that the receipt of monies by the seventh defendant on behalf of himself and the other defendants for whom he was acting, was for consideration, bona fide and without notice of any fraud or breach of trust. I note that it was also submitted, on behalf of those defendants, that certain of the monies received by those defendants were monies of Kengfu rather than monies of the plaintiff, with the result that the plaintiff could not recover those monies from those defendants. As will appear hereafter, I have rejected these matters of defence submitted on behalf of the relevant defendants. 14 The plaintiff also made various claims against Teresita Reyes, the third defendant, who was the wife of the first defendant, but in the course of the proceedings, those claims were settled. The plaintiff also made various claims against Virginia Castro Malong, the fifth defendant, but those claims were also compromised during the course of the proceedings. 15 The first defendant did not appear, nor was he represented in the proceedings but Bryson J ordered that service of documents as described by him, should be regarded as proper service subject to the requirement that he should be served with copies of any orders made against him should he return to the jurisdiction. It appears that the first defendant left Australia for the Philippines, and remains in the Philippines, but cannot be found. 16 The proceedings were, however, defended on behalf of Hong Kiet Dinh, the seventh defendant, Buu Phuong Thai, his wife, the second defendant, Helen Dinh, the fourth defendant, a daughter of the seventh defendant and the second defendant, and Ita Dinh, the sixth defendant, also a daughter of the seventh defendant, and the second defendant.