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[2001] NSWSC 234
Supreme Court of NSW
2000-09-13
Simos J
Original judgment source is linked above.
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.
The Pleadings (Issues Arising) 17 By its further amended statement of claim filed 18 June 1998 Esanda Finance Corporation Limited, the plaintiff, alleged against various defendants, including Lope Reyes the first defendant and Hong Kiet Dinh the seventh defendant and others, that between April 1997 and September 1997 the plaintiff "advanced" (more accurately "paid") certain monies to Kengfu Properties Pte Ltd ("Kengfu"), a Singapore company, pursuant to (more accurately "in association with") certain "purported" commercial hire purchase agreements between the plaintiff and Kengfu, as particularised, being an agreement dated 10 April 1997 pursuant to ("in association with") which the sum of $95,000 was "advanced" ("paid") to Kengfu an agreement dated 26 May 1997 pursuant to ("in association with") which the sum of $400,000 was "advanced", ("paid") and an agreement dated 5 September 1997 pursuant to ("in association with") which the sum $250,000 was "advanced", ("paid") the three amounts so "advanced" ("paid") totalling $745,000. 18 Each of these purported three hire purchase agreements between the plaintiff and Kengfu followed the purported purchase, by the plaintiff from Kengfu, of various goods, chattels and fixtures used by Kengfu in the course of operating the Southern Cross Hotel in Sydney and which the plaintiff purported to hire "back" to Kengfu, pursuant to the various hire purchase agreements. 19 The goods, chattels and fixtures the subject of the purported hire purchase agreement dated 10 April 1997, comprised a second hand NEC model 12A PABX telephone system which was purportedly sold by Kengfu to the plaintiff for the sum of $95,000. The goods, chattels and fixtures the subject of the hire purchase agreement dated 26 May 1997 comprised new refrigeration plant, smoke control system, ductwork and pipework, 2 x cooling towers, forced draft type of treated galvanised metal and ventilation which were purportedly sold by Kengfu to the plaintiff for the sum of $400,000. The goods and chattels the subject of the hire purchase agreement dated 5 September 1997 comprised inter alia 250 queen size mattresses, 300 king size mattresses, 250 ¾ size mattresses, 250 single sofas and bedspreads, sheets and towels etc. which were purportedly sold by Kengfu to the plaintiff for $250,000. 20 In addition to the goods purportedly sold by Kengfu to the plaintiff and hired "back" by the plaintiff to Kengfu referred to above, APH purportedly sold to the plaintiff a new NEC model 126A multi level PABX telephone system and refrigeration plant, cooling towers etc which were used by Kengfu in the course of operating the Southern Cross Hotel for the sum of $600,000 which goods were also leased "back" to APH pursuant to a hire purchase agreement dated 30 July 1997. 21 In association with the execution of the four purported hire purchase agreements, Kengfu as mortgagor purportedly executed in favour of the plaintiff as mortgagee, a mortgage debenture dated 26 May 1997 registered No. 592802, APH as mortgagor purportedly executed in favour of the plaintiff as mortgagee, a mortgage debenture dated 30 July 1997 registered No. 613585 and the plaintiff, Kengfu, APH and APP, a wholly owned subsidiary of APH and Aircord, purportedly executed a cross guarantee and indemnity in favour of the plaintiff dated 30 July 1997. 22 These four purported hire purchase agreements were the subject of the first count of the further amended statement of claim.
First Count (Against the First Defendant) 23 The first defendant did not appear, and was not represented at the hearing, and evidence was given in the course of the hearing that he had gone to the Philippines. 24 It is alleged in the statement of claim that none of the four hire purchase agreements, and none of the three security documents were executed or delivered, or authorised to be executed or delivered, to the plaintiff by any of Kengfu, APH, APP or Aircord. It is alleged rather that the common seals of the various companies affixed to the said documents, and the various signatures on the said documents, were affixed and signed by the first defendant fraudulently and without authority. As alleged in the statement of claim, the first defendant caused the four purported hire purchase agreements and the three security documents to be purportedly executed by all the parties except the plaintiff and to be delivered in purported executed form to the plaintiff. It is also alleged in the statement of claim that the four purported hire purchase agreements and the three purported security documents were, in fact, not duly executed or delivered or authorised to be executed or delivered to the plaintiff by any of Kengfu, APH, APP or Aircord. 25 It is further alleged in the statement of claim that, to the knowledge of the first defendant, the goods the subject of the four purported hire purchase agreements either did not exist, or to the extent that they did exist, had already been transferred to another financier so that title to those goods was not available to the plaintiff and the plaintiff did not obtain title to any of those goods. 26 It is alleged that the plaintiff was, in this way, defrauded by the first defendant of the total amount paid by it for the purported purchase of the goods the subject of the above four purported hire purchase agreements, and that the first defendant is, accordingly, liable to pay to the plaintiff that total amount of $1,345,000. I note in passing that, to the extent that these monies were received into the personal bank account of the first defendant, they would have been impressed with a constructive trust in favour of the plaintiff: see Black v S Freedman & Co (1910) 12 CLR 105 at 109-110 and cf. Muschinski v Dodds (1985) 160 CLR 583 at 614-615. 27 Counsel for the second, fourth and sixth defendants did not challenge this result nor any of the facts upon which it was based except as appears hereafter.
Third Count 28 It is alleged in the statement of claim that, in circumstances which will appear hereafter, out of the sum of $107,572.12 deposited to the defendant's personal account on 28 May 1997 the first defendant paid the following amounts inter alia:-
(a) $32,450 to the second defendant on 29 May 1997; (b) $30,000 to the third defendant on 29 May 1997; and (c) $523.622, for or on behalf of the second defendant on 16 June 1997.
The plaintiff alleges that the second defendant received the benefit of the sums of $32,450 and $523.62 respectively either with notice that such monies were not those of the first defendant or as a volunteer or otherwise than for valuable consideration and bona fide as a result of which, so it is alleged by the plaintiff, the second defendant received and holds the said sums upon a constructive trust for the plaintiff and/or is otherwise liable to account to the plaintiff for the same. 29 By her defence, the second defendant, who is the wife of the seventh defendant, admits receiving the sum of $32,450 from the first defendant by personal cheque drawn by the first defendant on his personal bank account and denied that she received the money with notice that it was not the first defendant's money, and further said that she received the sum "as part of a series of advances from the first defendant, advances to or at the request of the first defendant and repayments thereof, particulars which were set out in the schedule below." The schedule is appended to this judgment as appendix 1. 30 In the same way, and on the same basis, the plaintiff claimed that the third defendant received and holds the said sum of $30,000 upon a constructive trust for the plaintiff and/or is otherwise liable to account to the plaintiff for the same but during the course of the hearing the plaintiff's claims against the third defendant were compromised.
Fifth Count 31 It appears not to be in dispute that, as alleged in the statement of claim, out of the sum of $300,000 deposited to the first defendant's personal account on 31 July 1997 the first defendant paid the following amounts:- (a) $54,000 to the second defendant on 1 August 1997; (b) $35,000 to the fifth defendant on 5 August 1997. 32 It is alleged that the second defendant and the fifth defendant respectively hold the sums upon a constructive trust for the plaintiff and/or are otherwise liable to account to the plaintiff for those sums. The proceedings as against the fifth defendant have been settled. 33 By her defence in respect of this count, the second defendant admitted receiving the sum of $54,000 on 1 August 1997 from the first defendant, but denies that she received the said sum with notice that it was not the first defendant's money. The second defendant also says that she received the said sum "as part of a series of advances from the first defendant, advances to or at the request of the first defendant and repayments thereof, particulars of which are set out in the schedule below" being appendix 1 to this judgment. 34 In further answer to the fifth count (and also the sixth count) the second defendant says that the plaintiff delivered the cheques referred to in paragraph 23 of the statement of claim totalling $600,000 and being by way of four bank cheques each in the sum of $100,000 and one bank cheque in the sum of $200,000 each drawn by the plaintiff in favour of Kengfu, "intending to transfer property in them to Kengfu, and that receiving those cheques for Kengfu was within the actual or apparent authority of the first defendant, or alternatively Kengfu, by appointing him to the position of finance officer held him out as having authority to receive those cheques on his behalf, by reason whereof it was alleged that the property and the cheques passed to Kengfu when the plaintiff delivered them to the first defendant, so that if the first defendant converted the cheques or otherwise dealt with them fraudulently, he deprived Kengfu, not the plaintiff, of property in them." Presumably it would follow if this submission were correct, that the monies the subject of this count received by the second defendant from the first defendant would have been received by the first defendant subject to a constructive trust in favour of Kengfu, rather than a constructive trust in favour of the plaintiff as alleged. 35 In my opinion however, and for reasons as will appear hereafter, this submission should be rejected. It is plain, in my opinion, that whatever the first defendant did with the subject cheques and the monies represented by them, was not done with the actual authority of Kengfu with the result that those monies cannot be treated as having been received by Kengfu but remain the monies of the plaintiff, or more accurately remained in the hands of the first defendant, impressed with a constructive trust in favour of the plaintiff. 36 Even if as between Kengfu and the plaintiff the plaintiff could have established that the first defendant had the actual, or apparent authority of Kengfu to receive the cheques in favour of Kengfu and deal with the monies representing them, that would not, in my opinion, alter the position as between the plaintiff and the first defendant by reason whereof the monies would have been received by the first defendant upon a constructive trust for the plaintiff. In any event, I am of the opinion that it is plain, on the evidence, that the first defendant did not have the actual authority of Kengfu to deal with the money in the manner in which he did, and further, no conduct on behalf of Kengfu held the first defendant out as having such authority. In particular, I am of the opinion that, the business card of the first defendant, describing the first defendant as the Finance Manager of the Southern Cross Hotel, does not have this effect, nor does the letter of 13 March 1997.
Sixth Count 37 It is alleged in the statement of claim that out of the sum of $100,000 deposited to the personal account of the defendant on 8 August 1997 the first defendant paid the following amounts:- (a) $31,000 to the fifth defendant on 11 August 1997; (b) $26,800 to the fourth defendant on 11 August 1997; (c) $804.99 to, for or on behalf of the second defendant on 14 August 1997; (d) $523.77 to, for or on behalf of the second defendant on 14 August 1997. 38 The plaintiff claims that each of the fifth, fourth and second defendants received each of these sums respectively in circumstances in which they held those sums upon a constructive trust for the plaintiff and were otherwise liable to account to the plaintiff for the same. As stated above, the proceedings against the fifth defendant have been settled. 39 By her defence, the fourth defendant admitted that the first defendant paid her the sum of $26,800 as alleged, but denied that she received the said sum with notice that it was not the first defendant's money and further alleged that she received the money as a loan from the first defendant and that on, or about, 26 August 1997 she paid the money to the first defendant. The fourth defendant also alleged that the source of these monies was cheques in favour of Kengfu in respect of which the property had passed to Kengfu with the result that if the monies were subject to a constructive trust in the hands of the first defendant, that constructive trust was in favour of Kengfu, and not in favour of the plaintiff as alleged in the further amended statement of claim. As stated above, in another context, this submission has been rejected.
Eighth Count 40 It is alleged that out of the sum of $150,000 deposited by the first defendant to his personal account on 5 September 1997 referred to above the first defendant paid the following amounts:- (a) $15,400 to, for or on behalf of the sixth defendant on 8 September 1997; (b) $8,000 to, for or on behalf of the seventh defendant on 11 September 1997; (c) $17,000 to the second defendant on 22 September 1997. 41 In the relevant circumstances of those payments, the plaintiff claims that each of the sixth defendant, the seventh defendant and the second defendant hold each of those sums in a constructive trust for the plaintiff and/or are otherwise liable to account to the plaintiff for the same. 42 The plaintiff further alleges that the sum of $15,400 was paid to Richardson & Wrench on behalf of the sixth defendant and applied as the deposit on the sixth defendant's purchase of the property 1/20 Myra Road Dulwich Hill NSW which is allegedly accordingly charged in favour of the plaintiff with the repayment of the said sum of $15,400 and interest. 43 By her defence, the second defendant, inter alia, admitted receiving the said sum of $17,000 but denied that she received the sum with notice that it was not the first defendant's money and further said that "she received the sums alleged as part of a series of advances from the first defendant, advances as to or at the request of the first defendant and repayments thereof, particulars of which are set out in the schedule below" (being appendix 1 to this judgment). 44 The second defendant also alleged that the source of this payment to her was a cheque in favour of Kengfu allegedly received in circumstances which made the monies held by the first defendant impressed with a constructive trust in favour of Kengfu, and not the plaintiff. As stated above, this submission has been rejected. 45 By her defence the sixth defendant admitted that she received the sum of $15,400 and denied that she received that sum with notice that it was not the first defendant's money. The sixth defendant further alleged that on or about 6 November 1996 she lent the first defendant $13,000 and says that the subsequent payment to her of the said sum of $15,400 comprised repayment of the sum of $13,000 plus interest and further that, on receipt of the cheque, the sixth defendant paid the first defendant $2,000 cash. 46 By his defence, the seventh defendant admitted payment to him by the first defendant of the sum of $8,000 but denied that he received the said sum with notice that it was not the first defendant's money. The seventh defendant further said in his statement of defence, that on or about 11 August the fourth defendant, his daughter, received $26,800 as a loan from the first defendant and that on or about 26 August 1997 the fourth defendant repaid the first defendant $35,000 being repayment of the $26,800 and an advance of $8,200. The seventh defendant further said that the first defendant paid him the $8,000 as part repayment of the $8,200 advance.
Ninth Count 47 It is alleged in the statement of claim that, on 7 March 1997 the plaintiff purportedly purchased a Mercedes motor vehicle registration No. AAE-77K from the first defendant and hired the same to the first defendant pursuant to a hire purchase agreement between the plaintiff and the first defendant dated 7 March 1997. The payment by the plaintiff of the said sum of $95,000 was by way of a cheque made out in favour of the first defendant who paid the sum into his personal bank account on 7 March 1997. 48 It is also alleged that to the knowledge of the first defendant, no such motor vehicle existed and by reason thereof, the first defendant defrauded the plaintiff in the sum of $95,000 in respect of which it is claimed by the plaintiff that the defendant held the said sum upon a constructive trust for the plaintiff and/or is otherwise liable to account to the plaintiff for the same.
Tenth Count 49 It is alleged in the statement of claim that, out of the said sum of $95,000 referred to above, the first defendant paid the sum of $40,000 to the second defendant on 7 March 1997 in circumstances in which it is alleged that the second defendant held the said sum of $40,000 upon a constructive trust for the plaintiff and/or is otherwise liable to the plaintiff for the same. 50 By her defence, the second defendant admitted receiving the said sum of $40,000 but denied that she received the said sum with notice that it was not the first defendant's money. The second defendant further alleged that "she received the sums alleged as part of a series of advances from the first defendant, advances to or at the request of the first defendant and repayments thereof, particulars of which are set out in the schedule below" (being appendix 1 to this judgment). 51 The second defendant also alleges that the source of the sum of $40,000 was a cheque in the sum of $95,000 in favour of Kengfu received by the first defendant in circumstances in which the said cheque for $95,000 became the property of Kengfu and not the plaintiff, by reason whereof, presumably, it is said that the $40,000 was subject to a constructive trust in the hands of the first defendant in favour of Kengfu and not in favour of the plaintiff. As stated above, this submission has been rejected.
Twelfth Count 52 It is alleged that, on 10 January 1997 the plaintiff purportedly paid the sum of $98,500 to Kengfu for the purchase of certain computer equipment owned by Kengfu in association with a hire purchase agreement between the plaintiff and the first defendant dated 10 January 1997 in respect of the computer equipment. 53 It is further alleged that the said payment purportedly made to Kengfu of $98,500 was made by way of cheque drawn in favour of Kengfu which was fraudulently (by the first defendant) purportedly endorsed on behalf of Kengfu by the first defendant and deposited to his personal bank account. To the knowledge of the first defendant the computer equipment did not exist. By reason thereof, it is alleged that the first defendant defrauded the plaintiff of the said sum of $98,500 and holds the same upon a constructive trust for the plaintiff and/or is otherwise liable to account to the plaintiff for the same.
Thirteenth Count 54 In this count the plaintiff claimed that the first defendant had received from the plaintiff, and deposited to his personal account, monies totalling $847,572.12 which are claimed by the plaintiff to be payable by the first defendant to the plaintiff for monies had and received by the first defendant to the use of the plaintiff.
The First Defendant 55 As stated above, the first defendant was not present or represented at the hearing.
The First Transaction 56 The evidence satisfies me that on or about 10 April 1997 Kengfu purported to sell to the plaintiff, and the plaintiff purported to buy from Kengfu, for the sum of $95,000 one second hand NEC model 12A PABX telephone system used in the Southern Cross Hotel. The plaintiff paid the sum of $95,000 by cheque in favour of 'Southern Cross Sydney', which it handed to the first defendant in association with the purported execution of a hire purchase agreement dated 10 April 1997 whereby the plaintiff leased back to Kengfu the said telephone system. The first defendant fraudulently endorsed the said cheque on behalf of Kengfu, and paid the same into his personal bank account with the ANZ Bank, Haymarket branch. The purported execution by Kengfu of the hire purchase agreement was a forgery for which the first defendant was fraudulently responsible. 57 In my opinion, in the circumstances the first defendant received the said sum of $95,000 upon a constructive trust for the plaintiff and is liable to account to the plaintiff for the same.
The Second Transaction 58 The evidence satisfies me that on or about 26 May 1997 Kengfu purported to sell, and the plaintiff purported to buy from Kengfu for the sum of $400,000, fixtures and equipment used by Kengfu in its operation of the Southern Cross Hotel, namely, "new refrigeration plant, smoke control system, duct work and pipe work, two cooling towers, forced draft type of treated galvanised metal and ventilation". On or about 26 May 1997 the plaintiff caused to be delivered to the first defendant, four cheques in favour of Kengfu in the sum of $100,000 each, which the plaintiff fraudulently purported to endorse in his favour and paid the same into his personal bank account. The purported payment by the plaintiff to Kengfu of $400,000 was made in association with a hire purchase agreement between the plaintiff and Kengfu dated 26 May 1997 whereby the plaintiff leased back to Kengfu the said fixtures and equipment. 59 In the relevant circumstances, and for the reasons set out above, I am of the opinion that in the circumstances the first defendant held the sum of $400,000 upon a constructive trust for the plaintiff and is liable to account to the plaintiff for the same.
The Third Transaction 60 The evidence satisfies me that on or about 30 July 1997 APH purported to sell to the plaintiff and the plaintiff purported to buy from APH for the sum of $600,000 certain fixtures and equipment purportedly owned by APH and used in the Southern Cross Hotel, namely, one new NEC model 126A multi level PABX system, air conditioning plant including "refrigeration plant, smoke control system, associated duct work and pipe work, two cooling towers, forced draft type of treated galvanised metal and ventilation". The plaintiff paid for the said fixtures and equipment by delivering bank cheques to the value of $600,000 to the plaintiff in favour of APH. The first defendant fraudulently purported to endorse the said cheques on behalf of APH and paid the same into his personal bank account. The said purported purchase and sale was made in association with a lease back by the plaintiff to APH of the said fixtures and equipment pursuant to a hire purchase agreement dated 30 July 1997, which the plaintiff fraudulently caused to be purportedly executed by APH. 61 In the relevant circumstances, I am of the opinion that for the reasons set out above in relation to the earlier transactions, mutatis mutandis, the first defendant received the said sum of $600,000 upon a constructive trust for the plaintiff, and is liable to account to the plaintiff for the same.
The Fourth Transaction 62 The evidence satisfies me that on or about 5 September 1997, certain mattresses and linen, including 250 queen mattresses, 300 king mattresses, 250 ¾ mattresses, pillow cases, bedspreads, sheets, towels and 250 single sofas used by Kengfu in its operation of the Southern Cross Hotel were purportedly sold by Kengfu to the plaintiff. The plaintiff paid the sum of $250,000 by way of two cheques, one for $100,000 and another for $150,000 in favour of Kengfu, which it handed to the first defendant. The first defendant fraudulently endorsed the said cheques on behalf of Kengfu and paid the same into his personal bank account. The said purported sale and purchase was in association with a hire purchase agreement between the plaintiff and Kengfu dated 5 September 1997 whereby the plaintiff leased back to Kengfu the said items. 63 In the relevant circumstances, I am of the opinion that for the reasons referred to above in relation to the earlier transaction, mutatis mutandis, the first defendant held the said sum of $250,000 upon a constructive trust for the plaintiff and is liable to account to the plaintiff for the same. 64 There is clear evidence of all the facts alleged against the first defendant in the first, ninth and twelfth counts of the statement of claim, and in those circumstances I am satisfied that the plaintiff should have the appropriate orders it seeks against the first defendant in respect of these counts. 65 I will defer further consideration of the second, fourth, seventh, eleventh and thirteenth counts as they may involve some duplication of the claims of the plaintiff.
The Third and Fifth Defendants 66 As stated above, the plaintiff's claims against the third and fifth defendants were compromised during the course of the hearing.
The Other Defendants (being the Second, Fourth, Sixth and Seventh Defendants) 67 So far as concerns the second, fourth, sixth and seventh defendants, the evidence establishes, and it is accepted by all parties, that it was the seventh defendant who was the party to the relevant transactions with the first defendant, on their behalf.
The Facts 68 The second and seventh defendants are wife and husband, and are the parents of the fourth and sixth defendants. The money and assets of this family of four are held separately in individual names, but it is accepted on behalf of the second, fourth, sixth and seventh defendants that the seventh defendant "effectively controls them, with little notice or accounting to the other family members." 69 Hong Kiet Dinh, the seventh defendant, was born on 16 July 1948 and formerly lived in the Republic of Vietnam. He left Vietnam in 1977 and came to Australia. From 10 April 1965 to 1977 he worked in Vietnam for the Cholon Branch of the International Commercial Bank of China. From 1 August 1982 the seventh defendant worked for A & A Commodities (Australia) Pty Limited, a futures trader, as an assistant section head and account executive. From 1 July 1983 he worked for Elders AML Futures Limited (later Elders Drexel Australia Limited) as an account executive and from 1 November 1985 he worked for Romy and Brother Holdings Pty Limited. In about September 1985 the seventh defendant was involved in a car accident and suffered injuries to his neck and back, as a result of which he became dizzy when looking at a computer monitor, and was unable to continue to work for Romy and Brother Holdings Pty Limited. 70 In cross-examination the seventh defendant stated that he held the position of Deputy Chief of a branch office of the International Commercial Bank of China in Vietnam in which more than 200 staff were employed. As part of his duties in this position, the seventh defendant was involved in foreign currency exchanges which usually involved exchanging US currency for local currency. He claims to have been able to identify counterfeit US bank notes. In his capacity as an account executive with A & A Commodities (Australia) Pty Limited, the seventh defendant was involved with trading on the futures exchange, usually for Chinese clients. He stated that his duties included, inter alia, keeping proper and accurate records of transactions undertaken on behalf of clients of the company. Although the company had what he describes as 'good accountants', he was still required to furnish details of transactions for the accountants who would keep their own records in addition to those held by the trader. 71 When the seventh defendant moved to Elders Drexel Australia Limited in 1983 and then to Romy & Brother Holdings Pty Ltd in 1985, he continued to work in the futures industry. Romy & Brothers Holdings Pty Ltd was a Hong Kong based company with a branch office in Sydney, of which the seventh defendant was the local manager. His role was to supervise some 10 staff who would undertake trading transactions on the futures market. The cross examination of the seventh defendant included the following:- "A. When there are buys and sells, it went through the computer. I stood there and supervised or watched over the transactions. Q. And were those transactions undertaken by other employees in the office? A. There was an accountant who works there. Q. As manager did you have to report to the Hong Kong office? A. My boss was here also. Q. And your role was to supervise, was it, the transactions that other employees were undertaking within the Sydney office? A. Yes." 72 The seventh defendant gave evidence by affidavit, which I accept, that from time to time he had opened bank accounts for members of his family namely his wife, Buu Phuong Thai the second defendant, and his daughters Helen Dinh, the fourth defendant, Ita Dinh, the sixth defendant, and Isa Dinh, who is not a party to the proceedings. 73 The seventh defendant was always a signatory for those accounts and operated them as he thought appropriate. 74 It appears that the seventh defendant met Mr Lope Reyes, the first defendant, in about 1992 at a restaurant in Chinatown in Sydney where the seventh defendant used to eat regularly. Both the first and seventh defendants went to the same acupuncturist and would sometimes meet in the waiting room. They began conversing and found out that they both lived at Dulwich Hill. They became quite friendly and had lunch together at a restaurant in Chinatown many times. 75 Early in the relationship which, as stated above, began in about 1992, the seventh defendant knew or was told that the first defendant worked in a hotel but it was not until 1994 or 1995 that he found out that the first defendant worked for the Southern Cross Hotel. The first defendant gave the seventh defendant at about this time, a business card that referred to the Southern Cross Hotel and described the first defendant as "Finance Manager". 76 At some time during the early 1990's, the first defendant began to borrow money from the seventh defendant from time to time. On the first such occasion, according to the seventh defendant, the first defendant asked for "a few thousand dollars" by way of loan saying in effect that he would repay it the following week. When the first defendant began to explain why he wanted the loan, the seventh defendant said to him words to the effect that there was no need to explain what the loan was for, and that the seventh defendant would lend the money. The first defendant then asked the seventh defendant in effect, how much interest the seventh defendant required, to which the seventh defendant replied that as it was a loan to a friend for such a short time there was no need to pay any interest. The loan was made in due course, and repaid as arranged. It does not appear whether or not this initial loan was made or repaid by cheque or with cash (but see below). 77 As stated in the affidavit of the seventh defendant: "After the first occasion, Reyes borrowed similar amounts of money (presumably meaning "a few thousand dollars") from me many times. He always paid in cash within a week or two after he borrowed the money. He did not pay interest, but sometimes he bought me lunch in return for lending him money and sometimes when we were at the acupuncturist at the same time, he paid my bill." 78 In 1995 the first defendant asked the seventh defendant, at the first defendant's home at Dulwich Hill, to lend him $65,000 which he wanted to hold in a term deposit in his name, to provide security for money he was borrowing to build a new house. The first defendant told the seventh defendant that the seventh defendant would get interest on the deposit, and that if ever he ran short of money the first defendant would lend him whatever he needed. A few days later, the first defendant showed the seventh defendant and his wife, a block of land at Earlwood where the first defendant said he was going to build his new house. The seventh defendant says that by this time he trusted the first defendant and agreed to lend him the $65,000 which he withdrew on the 16 November 1995 from the second defendant's bank account in the form of a bank cheque which he gave to the first defendant. 79 On the same day the first defendant gave the seventh defendant a Commonwealth Bank acknowledgment of term deposit for $65,000 with a commencing date of 15 November 1995. The following day the first defendant told the seventh defendant that this term deposit had been cancelled and replaced by a second one in respect of which he gave the seventh defendant another acknowledgment of term deposit for $65,000 with a commencing date of 17 November 1995. Although the seventh defendant understood that the first defendant was not "supposed" to make any withdrawals from this term deposit he discovered, after the first defendant left the country, that the first defendant had withdrawn the whole amount. 80 According to the seventh defendant, in about 1996 the first defendant said to him words to the following effect:- "Sometimes the company (meaning the Southern Cross Hotel) has cash flow problems. Business is good, but it is building a new building. Sometimes it needs money to pay wages. If you have any money being idle for nothing to use, let them borrow. They will give it back in 10 days." 81 In my opinion, in accordance with the principles to be referred to hereafter, this statement in its relevant context would to an honest reasonable person in the position of the seventh defendant have indicated or told of fraud or breach of trust having regard in particular, inter alia¸ to the fact that, in my opinion, it would not have been conceivable that a business entity such as Kengfu operating the Southern Cross Hotel, and undertaking construction and other activities would wish to borrow funds from a private individual in this way, for the stated purpose. Moreover, in my opinion, this perception on the part of such an honest reasonable person would only have been confirmed by the later course of dealings between the relevant parties. 82 According to the seventh defendant, after that conversation he "lent money to the Hotel many times". On one occasion the first defendant asked him to lend the Hotel $30,000 and asked for two bank cheques: one made out to the Southern Cross Hotel, and one made out to the Office of State Revenue. The first defendant said he wanted the money before 12.00 midday. On 13 March 1997 the seventh defendant withdrew $30,000 from the bank account of the second defendant and obtained a bank cheque for $20,000 in favour of the Office of State Revenue and one for $10,000 in favour of the Southern Cross Hotel. The seventh defendant took the cheques to the Southern Cross Hotel where he gave them to the first defendant, having made photocopies of the cheques prior to that time. The first defendant gave the seventh defendant a document, with the Southern Cross Hotel letterhead, dated 13 March 1997, signed by him, which stated that the $30,000 was to be deposited into the Southern Cross Hotel's bank payroll account, but it appears that this did not happen. The document dated 13 March 1997 was:- "13 March 1997 THIS IS TO AGREE THAT:- 1. Southern Cross Hotel, Sydney 2. Southern Cross Hotel, Sydney requests Ms Buu Phuong Thai agrees to advance $30,000 to meet the short-term shortage. 3. Ms Thai will deposit $30,000 by bank cheque into our Sydney Commonwealth Bank, payroll account. 4. Southern Cross Hotel Sydney will repay Ms Thai the principal sum of $30,000 on or before 28 April, 1997 plus $500 being interest." 83 The form of agreement was signed by the first defendant, described as "Finance Manager". 84 Thereafter, other loans and repayments were made as described in the following paragraph of the affidavit of the seventh defendant:- "16. In the paragraphs below, I set out the details of a number of loans that are relevant to these proceedings. Generally, they followed the same procedure. When Reyes requested me to lend money to the Hotel, he would usually ring me and tell me how much he wanted to borrow. Sometimes he would tell me why the Hotel wanted the money, but not always. If the money was needed for the payroll, he would usually ring me on a Thursday. After Reyes rang me, I would then go to the Advance Bank and get a bank cheque for the amount he asked for. I usually took a cheque to the Southern Cross Hotel and gave it to Reyes there. The money was usually repaid within the agreed time. There was usually no formal agreement for the payment of interest but when he repaid the money to me, there was usually a little bit of money on the top. As I was unable to work, I welcomed the opportunity to get some money in this way. 85 In relation to this evidence, the seventh defendant also stated in his affidavit that "when I refer to lending money to Reyes, I am referring to lending money from one or other of the accounts of my wife or daughters and I am referring to lending money as requested by Reyes to him or to one or other of the companies associated with the Southern Cross Hotel or with him". 86 The seventh defendant also gave evidence which, in general, I accept, that during the time the seventh defendant was lending money to the first defendant, the seventh defendant "kept track" of how much he had lent the first defendant and how much the first defendant repaid, and the seventh defendant usually knew how much the first defendant owed him. The seventh defendant did not ever add up the total amount of all the loans made, and did not ever add up the total amount of all repayments, so he never knew what those figures were. 87 The seventh defendant also gave evidence which, in general, I accept, that during the time he was lending money to the first defendant, he, the seventh defendant, knew that the Southern Cross Hotel was a large hotel, and had been there for some time. The seventh defendant said that it appeared to him to be quite successful, however, he did not know anything about its true financial standing or whether it was running at a profit. The seventh defendant also said that during the time he was lending money to the first defendant, he knew that the Southern Cross Hotel was involved in building two further buildings, and that based upon what the first defendant had said to him (see above) the seventh defendant believed that this was causing the hotel to have cash-flow problems. 88 The seventh defendant said that in relation to the documentation of loans, on one occasion the first defendant signed and gave him the written agreement dated 13 March 1997 (see above) but that he kept his own detailed records of the loans. The seventh defendant said that he did this by photocopying documents, making notes and stapling other documents to the photocopies, and that he also made notes on bank passbooks and statements. The seventh defendant said that he did not know what records the first defendant kept of the loans, but he never had any disagreement with the first defendant about the amounts from time to time, so the seventh defendant assumed that the first defendant had some record of them. 89 The first defendant also gave evidence in one of his affidavits, in the following terms:- "6. I did not see anything unusual in (the first defendant) requesting the loans from me. I thought that the amounts involved were probably fairly small compared with the overall cash flow of the business and I assumed that it was more convenient for (the first defendant) to obtain advances from me than to go to a bank" 90 The issues relevant to the second, fourth, sixth and seventh defendants as arising from the further amended statement of claim and their respective defences, relate to the third, fifth, sixth, eighth and tenth counts in the further amended statement of claim, the alleged (by the seventh defendant) factual context of which is described later in this judgment 91 In this connection I interpose to state that I accept in general the evidence of the seventh defendant (whose evidence was in any event corroborated by documents) save as appears hereafter, and in particular, I am of the opinion that the evidence of the seventh defendant as to conversations relating to the alleged repayment of loans involved a large measure of reconstruction (save where corroborated by documentary evidence) on the part of the seventh defendant to the extent that I am unable to regard the whole of such evidence as reliable, although I do not mean to suggest, and I do not suggest, that the seventh defendant gave deliberately untrue evidence.
The Plaintiff's Claims. 92 In respect of all the plaintiff's claims against each of the second, fourth, sixth and seventh defendants, the plaintiff's principal case is that all monies paid by the first defendant to these defendants, were sourced in monies which the first defendant held upon a constructive trust for the plaintiff, and that the circumstances in which each of those defendants received those monies, were such as to indicate to or tell an honest, reasonable person in the position of the seventh defendant at relevant times, of fraud or breach of trust with the result that those monies, when received by each of those defendants, remained impressed with a constructive trust in favour of the plaintiff, rendering each of those defendants liable to account to the plaintiff for the same. I acknowledge that many submissions were made on this general subject matter on behalf of the plaintiff, but those submission did include, as I understood them, the submission which I have described and which, as will appear hereafter, is, in my opinion, the correct principle to be applied in the circumstances of the present case.
The Defendants' Defences 93 As stated above, and as will appear in more detail hereafter, it was submitted on behalf of the second, fourth, sixth and seventh defendants that, even if this was the correct statement of principle, it did not apply in the circumstances of the present case. It was also submitted on behalf of those defendants as stated above that, certain of the monies received by them from the first defendant were impressed with a constructive trust in favour of Kengfu, rather than with a constructive trust in favour of the plaintiff. It was also submitted on behalf of those defendants, in effect, that all relevant monies received by them from the first defendant, were in repayment of loans previously made by them bona fide and without notice to the first defendant or to the companies which the first defendant nominated, so that the receipt by them of monies in repayment of those loans was for consideration, bona fide and without relevant notice, by reason whereof no such monies received by them from the first defendant were, in their hands, impressed with a constructive trust in favour of the plaintiff.
The Relevant Principles 94 The starting point is the following celebrated passage from the judgment of Lord Selborne in Barnes v Addy (1874) 9 CH App 244 at 251-252: "Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort , or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees ". (Underlining supplied). 95 Subsequent cases have dealt with the meaning in particular circumstances of the requirement that strangers are not to be made constructive trustees "unless they assist with knowledge" in a dishonest and fraudulent design on the part of the trustee and, in particular, as to the meaning of the word "knowledge" in this context. 96 The most recent case in the High Court of Australia in which these principles were discussed and applied is the case of Consul Development Pty Ltd v D P C Estates Pty Ltd (1975) 132 CLR 373. In that case Gibbs J (as he then was) held (at 397) inter alia, as follows:- I therefore conclude, on principle, that a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation. This conclusion is supported by Selangor United Rubber States Ltd v Cradock (No. 3) Karak Rubber Co Ltd v Burden and the earlier similar case of Gray v Lewis (reversed on other grounds), although it represents a slight extension of those cases, since in all of them the defendant had obtained possession of what was regarded as trust property." (Underlining supplied) 97 It is apparent from this passage that Gibbs J was citing the Selangor Case with approval as also appears from his reference to that case in the following passage (at 396):- "Although in this passage Lord Selborne speaks of dishonesty and fraud it is clear that the principle extends to the case 'where a person received trust property and dealt with it in a manner inconsistent with trusts of which he was cognizant': Soar v Ashwell; Lee v Sankey; and in In re Blundell; Blundell v Blundell. All of these authorities, however, are dealing with trustees and trust property in the strict sense and the question is whether the principle applies to impose liability on strangers who knowingly participate in a breach of fiduciary duty committed by a person who is not a trustee or is at most a constructive trustee. In Selangor United Rubber Estates Ltd v Cradock (No. 3), Ungoed-Thomas J held that directors of a company should be regarded as holding on trust any monies of the company under their control and that agents of the directors who receive monies of the company in circumstances that showed that they assisted 'with knowledge in a dishonest and fraudulent design' on the part of the directors were liable as constructive trustees. He held that what is 'dishonest and fraudulent' for this purpose has to be judged according to 'the plain principles of a Court of Equity'. After an exhaustive discussion of the question of what knowledge is required to satisfy the test stated in Barnes v Addy he expressed his conclusions on that matter as follows: "The knowledge required to hold a stranger liable as constructive trustee in a dishonest and fraudulent design, is knowledge of circumstances which would indicate to an honest, reasonable man that such a design was being committed or would put him on inquiry, which the stranger failed to make, whether it was being committed . Acts in the circumstances normal in the honest conduct of affairs do not indicate such a misapplication, though compatible with it. And answers to enquiries are prima facie to be presumed to be honest…". This decision was followed by Brightman J in Karak Rubber Co Ltd v Burden". 98 Later, at 398, Gibbs J added: "I respectfully agree with what was said in Selangor United Rubber States Ltd v Cradock (No.3) as to the meaning of 'dishonest and fraudulent' for the purposes of the rule . This expression is to be understood by reference to equitable principles, and as I have already indicated, in my judgment it includes a breach of trust or of fiduciary duty …
It may be that it is going too far to say that a stranger will be liable if the circumstances would have put an honest and reasonable man on inquiry, when the stranger's failure to inquire has been innocent and he has not wilfully shut his eyes to the obvious. On the other hand, it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper . It would not be just that a person who had full knowledge of all the facts could escape lability because his own moral obtuseness prevented him from recognising an impropriety that would have been apparent to an ordinary man. However, for reasons that will appear, it is unnecessary for me to express any concluded view on these questions and I assume for the purposes of this case, but without finally deciding, that the formulation of principle on this point in the Selangor Case was correct." (Underlining supplied). 99 Although his Honour did not finally decide the point, I am of the opinion that the principles, which his Honour assumed for the purposes of that case to be correct, are in accordance with the existing authorities and should be applied in the present case. In this connection I am of the opinion that the seventh defendant, and through him, those for whom he acted, had actual knowledge of circumstances which would have indicated to or told an honest, reasonable person in the position of the seventh defendant at the relevant times, that a dishonest and fraudulent design (which words include in the present case and generally a breach of trust or of fiduciary duty) was being committed. I am further of the opinion, however, that, within the meaning of these principles, the present case is also one in which the seventh defendant is relevantly liable upon the basis that, in my opinion, the relevant circumstances "would have put an honest and reasonable man on inquiry" and that the seventh defendant's failure to inquire has not been innocent and he has, in effect, "wilfully shut his eyes to the obvious". 100 I am also of the opinion that this is the case, even if making appropriate allowance for the general knowledge, intelligence, experience and cultural background of the seventh defendant is required, although the authorities which refer to this principle are far from clear as to how that principle should be applied in the present case. 101 The relevant principles were also dealt with in the Consul Development Case by Stephen J (at 412), with whom Barwick CJ agreed, inter alia as follows:- "In my view the state of the authorities as they existed before Selangor did not go so far, at least in cases where the defendant had neither received nor dealt in property impressed with any trust, as to apply to them that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry. If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from inquiry for fear lest he learn of fraud . But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant." (Underling supplied). 102 I am also of the opinion that, within the meaning of this particular statement of principle, the facts of the present case justify the conclusion that the seventh defendant did know of facts "which themselves would, to a reasonable man, tell of fraud or breach of trust". 103 In my opinion these conclusions, and the principles which I have applied, are consistent with the fundamental approach that in order that a stranger should be declared a constructive trustee, his or her conscience should have been affected in such a way as to justify the imposition of a trust upon him. As stated by Sir Robert Megarry VC in In re Montagu's Settlement Trust (1987) 1 Ch 264 at 277:- "In determining whether a constructive trust has been created, the fundamental question is whether the conscience of the recipient is bound in such a way as to justify equity in imposing a trust on him." 104 His Lordship also said, in an earlier judgment in the same case, at 272-273:- "It should also be remembered that the doctrines of purchaser without notice and constructive trusts are concerned with matters which differ in important respects. The former is concerned with the question whether a person takes property subject to or free from some equity. The latter is concerned with whether or not a person is to have imposed upon him the personal burdens and obligations of trusteeship. I do not see why one of the touchstones for determining the burdens of property should be the same as that for deciding whether to impose a personal obligation on a man. The cold calculus of constructive and imputed notice does not seem to be to me an appropriate instrument for deciding whether a man's conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee." 105 His Lordship also referred to the Consul Development Case (at 281) in the following terms:- "I should also mention certain other cases. Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 is a case where from the judgments of Barwick CJ and Gibbs and Stephen JJ may be collected a somewhat tentative acceptance of type (iv) knowledge, but not of type (v)". [as formulated by Gibson J in Baden v Societe Generale SA (1993) 1 WLR 509 at 575-576]. 106 As to the Baden Case his Lordship held (at 277) as follows: "Now until recently I do not think there had been any classification of 'knowledge' which corresponded with the classification of 'notice'. However, in the Baden Case, at p.407, the judgment sets out five categories of knowledge, or of circumstances in which the Court might treat a person as having knowledge. Counsel in that case were substantially in agreement in treating all five types as being relevant for the purpose of a constructive trust: and the judge agreed with them: p.415. These categories are (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. If I pause there, it can be said that these categories of knowledge correspond to two categories of notice: Type (i) corresponds to actual notice, and type (ii), (iii), (iv) and (v) correspond to constructive notice. Nothing, however, is said (at least in terms) about imputed knowledge." 107 The approval by Gibbs J of the passage quoted by him from the judgment Ungoed-Thomas J in the Selangor Case does at least indicate, to use his Lordship's words, "tentative acceptance" by Gibbs J of categories (iv) and (v) in Baden. 108 Be that as it may the present position in England is now different from the position in Australia and appears to be governed by the decision of the Privy Council in Royal Brunei Airlines v Tan (1995) 2 AC 378 in which case their Lordships held as follows:- (at 387) :- "Given, then, that in some circumstances a third party may be liable directly to a beneficiary, but given also that the liability is not so strict that there would be liability even when the third party was wholly unaware of the existence of the trust, the next step is to seek to identify the touchstone of liability. By common accord dishonest fulfils this role. Whether, in addition, negligence will suffice is an issue on which there has been a well-known difference of judicial opinion." 109 Their Lordships also said (at 389):- "….in the context of the accessory liability principle acting dishonestly, or with lack of propriety, which is synonymous, means simply not acting as an honest person would in these circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, the subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property he will not escape a finding of dishonest simply because he sees nothing wrong in such behaviour. In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless their is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions lest he learn something he would rather not know, and then proceed regardless." 110 Later their Lordships held (at 390-391) as follows:- "The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to retain the standard which would be observed by an honest person placed in those circumstances (and)…when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court would also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did." 111 Their Lordships also held (at 392) by way of conclusion as follows:- "Drawing the threads together their Lordships' overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation . It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. ' Knowingly' is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden (1993) 1 WLR 509 scale of knowledge is best forgotten ." (Underlining supplied). 112 See also the decision of Foster AJ in Gertsch v Atsas & Ors (1999) NSWSC 898 at 9-14. 113 To recapitulate, I am of the opinion that in the present case, I should apply the relevant principles as enunciated by Stephen J in the Consul Development Case, as quoted above, as well as the approach expressed in the judgment of Ungoed-Thomas J in Selangor assumed by Gibbs J in the Consul Development Case to be correct for the purposes of that case, namely that:- "The knowledge required to hold a stranger liable as constructive trustee in a dishonest and fraudulent design, is knowledge of circumstances which would indicate to an honest, reasonable man that such a design was being committed or would put him on inquiry which the stranger failed to make, whether it was being committed . Acts in the circumstances normal in the honest conduct of affairs do not indicate such a misapplication, though compatible with it." (Underling supplied). 114 I reiterate the test laid down by Stephen J (with whom Barwick CJ agreed) in the Consul Development Case which was in the following terms (at 412):- "If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust" (the stranger will be liable as constructive trustee as he or she will be also) "if the defendant has consciously refrained from inquiry for fear lest he or she learn of fraud." 115 As also stated above, I am of the opinion in the present case that the seventh defendant had "knowledge of circumstances" at relevant times, which would have indicated to or told an honest, reasonable man that a dishonest and fraudulent design, which indicates a breach of trust or of fiduciary duty, was being committed, and which, as well, would have put such a man on inquiry which the seventh defendant failed to make, as to whether it was being committed (per: Gibbs J in the Consul Development Case) and also "(knew) of facts which would to an honest, reasonable man tell of fraud or breach of trust" and also "consciously refrained from inquiry for fear lest he learn of fraud" or breach of trust (per Stephen J in the Consul Development Case).
Claims Against The Second, Fourth, Sixth and Seventh Defendants 116 The plaintiff claims to recover from the above defendants various amounts as set out in following paragraphs.
The Second Defendant 117 The following payments totalling $143,450 made from the personal bank account of the first defendant to the second defendant:-
(a) 7 March 1997: ANZ bank cheque for $40,000 in favour of the second defendant purchased with funds from the first defendant's bank account with the ANZ Bank (tenth count).
(b) 29 May 1997: cheque for $32,400 in favour of the second defendant drawn by the first defendant on his personal bank account with the ANZ Bank (third count).
(c) 31 July 1997: cheque in favour of the second defendant for $54,000 drawn by the first defendant on his personal bank account with the ANZ Bank (fifth count).
(d) 5 September 1997: cheque in favour of the second defendant for $17,000 drawn by the first defendant on his personal bank account with the ANZ Bank (eighth count).
The Fourth Defendant 118 The following payment of $26,800 made from the personal bank account of the first defendant to the fourth defendant:-
11 August 1997 cheque in favour of the fourth defendant for $26,800 drawn by the first defendant on his personal bank account with the ANZ Bank (sixth count).
The Sixth Defendant 119 The following payment of $15,400 made from the personal bank account of the first defendant to the sixth defendant:-
5 September 1997 cheque in favour of Richardson & Wrench for $15,400 drawn by the first defendant on his personal bank account with the ANZ Bank. This amount was applied to the deposit on the purchase by the sixth defendant of the home unit 1/20 Myra Road, Dulwich Hill (eighth count).
The Seventh Defendant 120 The following payment of $8,000 made from the personal bank account of the first defendant to the seventh defendant:-
Cheque in favour of cash drawn by the first defendant on his personal bank account with the ANZ Bank (sixth count). 121 The plaintiff claims that each of these seven payments were made by the first defendant to the various named defendants, at a time when the funds were subject to a constructive trust in favour of the plaintiff, and in circumstances in which the defendants who received the monies, received those monies also subject to a constructive trust in favour of the plaintiff. 122 The relevant transactions so far as concerns actual payments and repayments, as the case may be, are matters of record and accordingly are not in dispute. There is, however, in addition, evidence from the seventh defendant in particular, as to what was said at the time of the various transactions as between the seventh defendant and the first defendant and related matters, some of which the plaintiff does not accept and has challenged in cross examination. The more precise statement of facts, however, as contained in this judgment is largely derived from the affidavit and other evidence of the seventh defendant, although I have referred to the more material differences between the parties in relation to this evidence. 123 In Appendix 2 to this judgment there is reproduced from the further submissions made on behalf of the second, fourth sixth and seventh defendants, a schedule of facts for which those defendants contend, in relation to the various relevant counts in the further amended statement of claim. There is also reproduced, in Appendix 3 to this judgment from the written submissions on behalf of the plaintiff, the plaintiff's response to Appendix 2. 124 The features of the various transactions which constituted the course of dealing between the first defendant and the seventh defendant and which, inter alia in my opinion, would, to an honest and reasonable person in the position of the seventh defendant, indicate or tell of fraud or breach of trust include the following (as set out in substance in the written submissions on behalf of the plaintiff):-
(1) Alleged repayments of loans allegedly made by the relevant defendants to the Southern Cross Hotel were sometimes repaid wholly, or in part, by cheques drawn by Kengfu and sometimes by personal cheques of the first defendant, drawn on his personal account. It was submitted on behalf of the second, fourth, sixth and seventh defendants that there were various possible explanations for this, but in my opinion, each of those possible explanations would necessarily be regarded by the relevant honest and reasonable person, as extremely unusual, and as indicating or telling of fraud or breach of trust.
(2) As well as acting as agent for members of his own family, namely his wife and two daughters, the seventh defendant also participated in a large number of payments to and fro between the first defendant, usually allegedly on behalf of the Southern Cross Hotel or Kengfu, and many of the friends of the seventh defendant. The result was a very large number of payments and repayments in varying amounts and for varying short periods, all of which, in my opinion, would have been regarded by the relevant honest and reasonable person in the position of the seventh defendant as extremely unusual and indicating or telling of fraud or breach of trust.
(3) The seventh defendant dealt only with the first defendant on behalf of the Hotel, and no other person from the Hotel confirmed or participated in those transactions in any way.
(4) The seventh defendant knew that the first defendant did not own the Southern Cross Hotel but was rather an employee of the Hotel who had other "bosses".
(5) The seventh defendant knew that the Hotel was a large enterprise and it would not to be expected, by the honest and reasonable person in the position of the seventh defendant, to be carrying on business by way of short term loans and repayments of varying amounts for varying short amounts of time from individuals.
(6) No person on behalf of the Southern Cross Hotel, other than purportedly the first defendant, verified the alleged needs of Kengfu or APH for short term financial accommodation.
(7) Certain Kengfu cheques were, in effect, given in exchange for cash (see transactions numbers 47, 60, 66, 85, and 86, referred to in Appendix 4) and various Kengfu cheques were drawn to cash and given in exchange for cheques from family members of the seventh defendant (see transaction numbers 27, 61, 63 and 64).
(8) None of the purported loans were made with any agreement as to the specific time for repayment, the rate of interest or the particular amount to be repaid from time to time.
(9) The seventh defendant said that "my personality is I don't ask questions" and that "it is not necessary for me to know" how he got hold of the money from Kengfu.
(10) The seventh defendant never obtained any receipts from Kengfu for any payments of cash to Kengfu.
(11) On a number of occasions immediately following a payment received from the seventh defendant the seventh defendant was asked to make further loans to the first defendant or the Hotel, which he withdrew from the accounts of members of his family to which the payment had originally been made. (See for example transaction numbers 86 and 87.)
(12) The seventh defendant claims that he understood that the "boss" of the first defendant had told the first defendant to borrow money, but he made no inquiries because he said "his boss would definitely not see me."
(13) In April 1996 the seventh defendant gave the first defendant two cheques dated 27 April 1996 (exhibit L) allegedly being loans from third parties to the Hotel. One cheque was in favour of V Malong, the fifth defendant, for $29,000. The seventh defendant knew that Ms Malong was a girlfriend of the first defendant who was also employed by the Hotel. Even if he did not know this in April 1996, he subsequently learned it.
(14) The seventh defendant gave evidence to the effect that he did not want to know why the first defendant needed cash because he thought that the first defendant did not want him to know.
Third Count 125 As stated above, on 26 May 1997 Kengfu (through the alleged agency of the seventh defendant) purported to sell to the plaintiff refrigeration plant, cooling towers etc installed at the Southern Cross Hotel for the sum of $400,000 in association with a hire purchase agreement dated 26 May 1997 whereby the plaintiff leased back to Kengfu those items for use in the operation of the Southern Cross Hotel. The hire purchase agreement of 26 May 1997 was not executed by Kengfu but as a result of the fraudulent conduct of the first defendant, as set out in the further amended statement of claim, purported to be executed by Kengfu, and the plaintiff at the request of the first defendant purported to pay to Kengfu the sum of $400,000 by way of four bank cheques each in the sum of $100,000 drawn by the plaintiff in favour of Kengfu and delivered to the first defendant on behalf of Kengfu on 26 May 1997. As stated earlier, one such bank cheque was banked by the first defendant into the account of Kengfu at the Commonwealth Bank of Australia, another bank cheque for $100,000 was banked by the first defendant into an account of Kengfu at the National Australia Bank whilst the remaining two bank cheques, each of $100,000 were fraudulently endorsed by Kengfu in favour of the first defendant and were given by the first defendant to the plaintiff on 28 May 1997 with instructions to pay the sum of $92,427.88 towards the liability of the first defendant to the plaintiff upon another account, and to deposit the remainder of the $107,572.12 to the personal bank account of the first defendant. 126 Out of the sum of $107,572.12 deposited to the personal account of the first defendant on 28 May 1997, the first defendant paid the following amounts:-
(a) $32,450 to the second defendant on 29 May 1997; (b) $30,000 to the third defendant 29 May 1997; (c) $523.62 to for or on behalf of the second defendant 16 June 1997. 127 The seventh defendant's version of the circumstances in which these amounts were paid to the second and third defendants (through the agency of the seventh defendant) is set out inter alia in his affidavit of 23 February 2000. 128 According to the seventh defendant, on or shortly before 14 May 1997, the first defendant telephoned him and asked if the seventh defendant could lend him $31,000 "for Accord Pacific Holdings". The seventh defendant says he did not know exactly what Accord Pacific Holdings was, but believed it was a company associated with the Southern Cross Hotel. In a previous conversation, the first defendant had told him that Accord Pacific owned the property at 1 Dixon Street, where it was building a 21 storey apartment building, in relation to which the first defendant had said that if the seventh defendant himself bought a unit "off the plan" the first defendant would get him a discount of $33,500, and if he bought another apartment, or introduced another buyer, he would get the seventh defendant a 5% discount on commission. The seventh defendant said that he thought that he might want to accept one of these offers and that it was important to keep a good relationship with the first defendant, and that this was one reasons he was prepared to lend Accord Pacific Holdings the $31,000 when the first defendant asked for it. The loan of $31,000 was, in fact, made on 14 May 1997 by an Advance Bank cheque in favour of Accord Pacific Holdings which was paid for from the Advance Bank account of the second defendant. 129 I interpose to note that the seventh defendant did not, in his affidavit, say that the first defendant gave any specific reason as to why this particular loan might be required by Accord Pacific Holdings, nor for how long it might be required, nor as to whether or not interest would be payable, nor did the seventh defendant ask. 130 According to the seventh defendant on 29 May 1997 about two weeks after the original loan, the first defendant gave the seventh defendant a personal cheque for $31,450 made out to the second defendant, in repayment of the loan. The seventh defendant says he took the additional $1,450 to be something "on top" in return for the loan. 131 In my opinion, it is plain that the sum of $107,572.12 deposited to the credit of the first defendant's personal bank account were monies which had been fraudulently obtained by the first defendant from the plaintiff in the circumstances mentioned, with the plain result, in my opinion, that those monies were originally held by the first defendant upon a constructive trust for the plaintiff. 132 It was argued on behalf of the seventh defendant, as stated above, that this amount inter alia should be regarded as having been held by the first defendant upon a constructive trust for Kengfu because, in the circumstances, what had happened was that the first defendant had defrauded Kengfu of those monies and not the plaintiff. This was said to be because of the fact that the first defendant had received those monies from the plaintiff in the first instance by way of cheques drawn in favour of Kengfu, with the result that the plaintiff had discharged its debt to Kengfu, and Kengfu could not sue the plaintiff to recover those monies because the first defendant had actual or ostensible authority from Kengfu to receive those monies on its behalf. 133 In my opinion, however, the subject monies represented by the cheques were never, in fact or in law, received by Kengfu and remained at all times relevantly in the ownership of the plaintiff (because the seventh defendant was not authorised by Kengfu to do anything that he in fact did in this connection) until they found their way into the personal bank account of the first defendant, at which point of time, in my opinion, as stated above, those monies were held by the first defendant upon a constructive trust for the plaintiff. 134 In this connection I note that a deed of settlement, or the like, has been entered into by various parties, including the plaintiff and Kengfu, and presumably this deed was entered into on the basis that the monies being sought to be recovered, by the plaintiff, do not include any monies purportedly paid to Kengfu. 135 In my further opinion, the circumstances in which these transactions took place were circumstances which themselves would have "indicated to" (per Gibbs J in Consul or "told" (per Stephen J in Consul) an honest, reasonable person in the position of the seventh defendant that a fraud or breach of trust was being committed. 136 In my opinion, these particular transactions, the subject of the third count of the further amended statement of claim must be seen in the general context of the general course of dealing between the first defendant and the seventh defendant, as set out in Appendix 4 to this judgment (being a document submitted on behalf of the plaintiff - transactions 54 and 58) and including what the first defendant said to the seventh defendant in 1996, as set out above, namely:- "Sometimes the company (meaning the Southern Cross Hotel) has cash flow problems. Business is good, but it is building a new building. Sometimes it needs money to pay wages. If you have any money being idle for nothing to use, let them borrow. They will give it back in ten days." 137 The transactions, the subject of the third count of the further amended statement of claim, took place after that conversation at the request of the first defendant that the seventh defendant lend the Hotel $30,000 as described above. Moreover the seventh defendant gave evidence by affidavit, as stated above, that "after their conversation, I lent money to the Hotel many times" and further that "sometimes" the first defendant would tell the seventh defendant why the Hotel wanted to borrow money, "but not always", and further that "there was usually no formal agreement for the payment of interest but when he returned the money to me, there was usually a little bit of money on the top". 138 In my opinion, as stated above, to an honest, reasonable person in the position of the seventh defendant, the relevant circumstances would have indicated or told of fraud or breach of trust inter alia because what was being done would be understood to be not normal in the ordinary course of business by reason inter alia of the following facts, namely, that it would be most unusual that the owners and/or operators of APH and of the Southern Cross Hotel, if they did have temporary shortages in cash-flow from time to time, would not have an overdraft facility or some other arrangement with a financial institution to cover such shortfalls, more especially having regard to the relative smallness of the amounts being borrowed and repaid and not least of all because there could be no guarantee that the seventh defendant would always be able to accommodate the alleged needs in this regard of APH or of the Southern Cross Hotel at the time when such accommodation was needed and also having regard to the relative shortness of time that the loans were outstanding. 139 Further, in my opinion, an honest, reasonable person in the position of the seventh defendant, would have considered it unusual to say the least, that there was no proper documentation relating to these transactions and that there was no standard or ad hoc agreement as to the payment of interest at the time the various loans were sought, and given. There was also the circumstance that sometimes the loans were made in cash, at least in part, or by cheque in favour of the first defendant or someone other than Kengfu, and were repaid by the personal cheques of the first defendant, or by cash, rather than by a cheque drawn by one or other of the relevant companies. 140 It is true that the seventh defendant may well have come to trust the first defendant, but, in my opinion, that trust, having regard to the unusual nature of the relevant transactions, could not have prevented an honest and reasonable person in the position of the seventh defendant from concluding that the relevant circumstances told, or would have indicated or told, of fraud or breach of trust. 141 There is also the circumstance that, as submitted on behalf of the seventh defendant, there is evidence to the effect that the seventh defendant and/or members of his family may well have lent monies of their own to one or other of the companies, and that this was an important consideration in assessing the circumstances in the light of the relevant legal principles. Be that as it may, however, I am of the opinion that even if that were the case, the circumstances would have indicated or told, as I have said, to an honest and reasonable man of fraud or breach of trust. 142 Accordingly, I conclude that, in respect of the transactions, the subject of the third count of the further amended statement of claim, the second defendant held the sum of $32,450 paid to her on 29 May 1997 by the first defendant upon a constructive trust for the plaintiff and that although this sum cannot be traced into any relevant bank account or property of the second defendant, she is liable to account to the plaintiff for this amount. 143 It is true that the first defendant was, at relevant times, the Finance Manager of the Southern Cross Hotel and had an office in the hotel on the lower ground floor, but in my opinion, that fact does not outweigh the other considerations to which I have referred. 144 Although the statement of claim alleges that the first defendant also paid the sum of $523.62 for or on behalf of the second defendant, this does not appear to have been established on the evidence.
Fifth Count 145 On 30 July 1997 the plaintiff purportedly purchased from APH a PABX telephone system and certain refrigeration equipment in use at the Southern Cross Hotel in association with the lease back of these items to APH pursuant to a hire purchase agreement dated 30 July 1997 purportedly executed by APH. The hire purchase agreement was purportedly executed under the common seal of APH as a result of the fraudulent conduct of the first defendant. 146 The payment of $600,000 by the plaintiff was made by way of four bank cheques, each in the sum of $100,000 and one bank cheque in the sum of $200,000 each drawn by the plaintiff in favour of Kengfu at the purported direction of APH and delivered to the first defendant on behalf of Kengfu on 30 July 1997. One bank cheque for $100,000 was deposited by the first defendant to the bank account of Kengfu with the Commonwealth Bank, a further bank cheque for $100,000 was deposited by the first defendant to the account of Kengfu at the Advance Bank a third bank cheque for $100,000 and the bank cheque for $200,000 purportedly endorsed by Kengfu in favour of the first defendant were deposited by the first defendant to his personal account on 31 July 1997. The fourth bank cheque for $100,000 was also purportedly endorsed by Kengfu in favour of the first defendant and was deposited by the first defendant into his personal bank account on 8 August 1997. The purported endorsements by Kengfu were the result of fraudulent conduct by the first defendant and in the relevant circumstances including the fact that each of the five bank cheques were made out in favour of Kengfu, for the reasons stated above, I am of the opinion that the first defendant held the sum of $400,000 upon a constructive trust for the plaintiff. 147 According to the seventh defendant, on 26 June 1997 the first defendant asked the seventh defendant for a loan of $9,000 for the Southern Cross Hotel's payroll and this amount was so lent by way of Advance Bank cheque paid for from the second defendant's Advance bank account on 26 June 1997. 148 On 3 July 1997 the first defendant telephoned the seventh defendant and asked for an additional $30,000 for the "Southern Cross Hotel's payroll". According to the seventh defendant, the first defendant also said: "The Southern Cross needs some cash and mentioned the sum of $4,000. I went to the Advance Bank, obtained a bank cheque for $30,000 and withdrew $4,000 in cash from the second defendant's account. I then went to the Southern Cross Hotel and gave the cheque and cash to Reyes." 149 On 4 July and again on 7 July 1997, the first defendant telephoned the seventh defendant and asked for $5,000 for the Southern Cross Hotel, in each case in cash. On each occasion the seventh defendant would remove the amount from the second defendant's Advance Bank account take it to the Southern Cross Hotel and give it to the first defendant. 150 According to the seventh defendant, on 31 July 1997, the first defendant gave the seventh defendant a personal cheque of the first defendant for $54,000 "in repayment of the five advances set out above". The seventh defendant says that he "took the additional $1,000 to be consideration for the loan." Although the first defendant left the payee's name blank on his personal cheque for $54,000 the seventh defendant filled in the name of the second defendant and deposited the cheque to her account at the Advance Bank on 1 August 1997, 151 In my opinion when these transactions, the subject of the fifth count, are considered in the context inter alia of the course of dealing between the first defendant and the seventh defendant up to that point of time, (see appendix 4, transactions 62,66 67,69,75) they would, to an honest and reasonable person in the position of the seventh defendant, have indicated or told of fraud or breach of trust having regard inter alia to the relevant features of those transactions and those that preceded them, mutatis mutandis, as stated in respect of the transactions the subject of the third count of the further amended statement of claim. In particular, I have had regard, inter alia, in relation to the transactions the subject of the fifth count of the statement of claim, to the fact that the first defendant asked the seventh defendant for loans to assist in the Southern Cross Hotel's payroll, being $9,000 on 26 June 1997 and $30,000 on 3 July 1997 on which date the first defendant also asked for $4,000 in cash for the Hotel as well as asking for $5,000 cash for the Hotel on each of 4 July 1997 and 7 July 1997. No particular reason was given as to why the Hotel needed the cash amounts asked for by the first defendant, that is to say so far as the evidence reveals, it was not stated that those amounts of cash were needed for the Southern Cross Hotel's payroll. 152 The regular amounts sought by way of loan, the short periods of time that elapsed between each request for a loan, and the relatively short period of time which elapsed before all of these individual amounts were repaid by one cheque, in an amount being $1,000 more than the amounts advanced, would, in my opinion, to an honest reasonable person in the position of the seventh defendant, and in conjunction with all the other circumstances, have indicated or told of fraud or breach of trust. 153 In all the circumstances I am, accordingly, of the opinion that the second defendant held the said sum of $54,000 upon a constructive trust for the plaintiff. 154 In my opinion, the fact that the payment of the sum of $54,000 may have included repayment of $5,000 in cash, withdrawn from the Advance Bank account of the second defendant and given to the first defendant on 7 July 1997, makes no difference. I am of the further opinion, that the plaintiff has no relevant claim to trace the relevant funds into the bank account of the second defendant since those monies were subsequently dealt with by or on behalf of the second defendant, resulting in a reduction of the Advance Bank account of the second defendant to a small debit amount.
Sixth Count 155 This count relates to the bank cheque for $100,000 in favour of Kengfu which was purportedly endorsed by Kengfu in favour of the first defendant and which was deposited by the first defendant to his personal account on 8 August 1997 as referred to above. 156 In my opinion, for the reasons stated earlier in relation to other cheques drawn in favour of Kengfu and fraudulently endorsed in the name of Kengfu by the first defendant, I am of the opinion that the sum of $100,000 was, in the relevant circumstances, held by the first defendant upon a constructive trust for the plaintiff. 157 From the said sum of $100,000 deposited to the personal account of the first defendant on 8 August 1997 the first defendant paid the following amounts:
(a) $31,000 to the fifth defendant on 11 August 1997; (b) $26,800 to the fourth defendant on 11 August 1997; (c) $804.99 to, for or on behalf of the second defendant on 14 August 1997; (d) $523.77 to, for or on behalf of the second defendant on 14 August 1997. 158 As stated earlier, the plaintiff's claims against the fifth defendant were compromised. 159 According to the seventh defendant, on or shortly before 1 March 1997 the first defendant asked the seventh defendant for a cash loan of $26,800 which the seventh defendant withdrew from the Advance Bank savings account of his daughter Helen, the fourth defendant, on 1 March 1997. 160 On 11 August 1997 the first defendant gave the seventh defendant a personal cheque, that is, a cheque drawn on the first defendant's personal bank account for $26,800 with the name of the payee left blank, in repayment of the said loan. The seventh defendant deposited the said cheque to the credit of the savings account of the fourth defendant with the Advance Bank on 11 August 1997. 161 In my opinion, in the general context of the course of dealing between the first defendant and the seventh defendant, up to and including the time of the last of these transactions, (see appendix 4, transactions 39,81) the subject of the sixth count of the statement of claim, the relevant circumstances would, to an honest and reasonable person in the position of the seventh defendant, have indicated or told of fraud of breach of trust, having regard to the relevant features of the previous course of dealing between the parties referred to earlier, as well as the circumstances of the transactions the subject of the sixth count, and in particular, inter alia, having regard to the fact that a loan of such magnitude was sought in cash and was repaid by a personal cheque of the first defendant and with no allowance for interest, despite the fact that the original loan had been made over five months earlier. 162 In all the circumstances, I am of the opinion that the fourth defendant held the said sum of $26,800 upon a constructive trust for the plaintiff and is liable to account to the plaintiff for the same. 163 There does not appear to be any evidence as to the sums of $804.99 and $533.77 said to have been paid by the first defendant to, for or on behalf of the second defendant on 14 August 1997 and accordingly I make no finding in respect of those amounts.
Eighth Count 164 On 5 September 1997 the plaintiff purportedly purchased from Kengfu linen (including 600 pillowcases, 400 towels and 300 bath mats) beds and sofas used by Kengfu in operating the Southern Cross Hotel for the sum of $250,000 in association with the leasing back to Kengfu of those items pursuant to a hire purchase agreement dated 5 September 1997. 165 The said sum of $250,000 was paid by the plaintiff by way of two bank cheques each drawn in favour of Kengfu, one for $150,000 and one for $100,000 delivered by the plaintiff to the first defendant on behalf of Kengfu on 5 September 1997. The bank cheque for $100,000 was deposited by the first defendant in the Advance Bank account of Kengfu. The bank cheque for $150,00 was fraudulently endorsed by the first defendant in the name of Kengfu and was deposited by the first defendant in his personal bank account on 5 September 1997. In the circumstances the first defendant held the said sum of $150,000 upon a constructive trust for the plaintiff for the reasons mentioned above mutatis mutandis in relation to other cheques in favour of Kengfu delivered by the plaintiff to the first defendant, and is liable to account to the plaintiff for the same. 166 According to the seventh defendant, on or about 6 November 1996 the first defendant asked the seventh defendant for a loan for $13,000 for the Southern Cross Hotel. It appears that the first defendant told the seventh defendant that he wished to borrow the sum of $13,000 for two months. The seventh defendant withdrew this amount from the account of his daughter, Helen, the fourth defendant, and purchased a bank cheque in favour of the first defendant personally. 167 The seventh defendant said that the first defendant stated that he wanted the money for the company, but he asked that the cheque be drawn in his favour, personally, but did not say why and the seventh defendant did not ask why. 168 I also state that my conclusion in this respect has taken account of, and is not altered by, the circumstances in which the first defendant gave the seventh defendant a power of attorney in relation to certain properties. 169 On 31 July 1997 the first defendant asked the seventh defendant for $2,000 in cash which the seventh defendant withdrew from the Advance Bank savings account of the fourth defendant. 170 According to the seventh defendant, in the second half on 1997 the seventh defendant's daughter, Ita, the sixth defendant, had about $14,000 in a bank account which was mostly money which relatives had given her over the years. The seventh defendant, and other members of the family, decided to buy a unit in the name of the sixth defendant, and when they decided upon a particular unit to purchase, the seventh defendant asked the first defendant to repay the sum of $15,400 which had been lent to him from the account of the sixth defendant. The seventh defendant told the first defendant that they were buying a unit for the sixth defendant, and asked the first defendant for a cheque payable to Richardson & Wrench. The first defendant gave the seventh defendant a cheque for $15,400 in purported repayment of the sum $13,000 and the further sum of $2,000 and the seventh defendant said that he regarded the $400 extra "as his payment in return for the loan." 171 In my opinion, when these transactions are considered in the context of the previous course of dealing between the first defendant and the seventh defendant up to this point in time, (see appendix 4, transactions 18, 91, 94) the relevant circumstances, having regard to their various features referred to earlier in relation to other transactions, would, to an honest reasonable person in the position of the defendant, have indicated or told of fraud or breach of trust. In the present case, in addition to the features already adverted to, the making of the loan by bank cheque in favour of the first defendant personally, together with the circumstance that it was apparently sought for two months only but had not been repaid by the end of the first half of 1997 and the further request for $2,000 in cash would have been regarded by an honest, reasonable person in the position of the seventh defendant, as not normal in the ordinary course of business, and indeed, as being most unusual. 172 In the relevant circumstances, I am of the opinion that the sum of $15,400 was received and held by the sixth defendant upon a constructive trust for the plaintiff notwithstanding that payment was in purported repayment for the two loans made by the sixth defendant to the first defendant for the Southern Cross Hotel. The amount of $15,400 was paid by cheque in favour of Richardson & Wrench on account of the sixth defendant and was used as a deposit on her purchase of a home unit. It is accepted by the sixth defendant that she paid a deposit to the estate agents, Richardson & Wrench, in respect of her purchase of the home unit being 1/20-22 Myra Road Dulwich Hill, with a cheque for $15,400 in favour of the agents being a personal cheque from the first defendant. It follows, in my opinion, as submitted on behalf of the plaintiff that the plaintiff is entitled to a charge over this unit to secure the repayment of the said sum of $15,400. The plaintiff accepts that there is no other proprietary claim in respect of its claims against the second, fourth, sixth and seventh defendants 173 It was, of course, submitted on behalf of the sixth defendant that this result could, and should not follow, having regard to the fact that so far as the evidence is concerned the initial loans of $13,000 and $2,000 came from the funds of the sixth defendant. This argument is not without force, but in my opinion, it is nevertheless the case in such circumstances, that if a payment of an existing debt is received in circumstances which indicate or tell of fraud or breach of trust, those monies are impressed with a constructive trust and do not operate to discharge the debt owed to the recipient of the monies. In other words, a debtor cannot repay a creditor with funds which the creditor knows are funds to which the debtor is not entitled. 174 This count also deals with a payment of $8,000 made by the first defendant to the seventh defendant on 11 September 1997, the said sum being paid out of the said sum of $150,000 deposited to the first defendant's personal account on 5 September 1997. The circumstances of this payment of $8,000 were such that the seventh defendant held that amount upon a constructive trust for the plaintiff. According to the seventh defendant, this amount of $8,000 was repaid in cash withdrawn from the second defendant's Advance Bank account on 29 September 1997. This repayment, however, did not in my opinion, affect the earlier fact that the seventh defendant received and held the sum of $8,000 upon trust for the plaintiff, since a payment by the seventh defendant to the first defendant, simply has no effect upon the seventh defendant's liability to account to the plaintiff for $8,000. 175 This count also deals with a payment of $17,000 by the first defendant to the second defendant from the sum of $150,000 deposited to the personal account of the first defendant on 5 September 1997 as referred to above. 176 According to the seventh defendant, on 6 and 7 August 1997 the first defendant asked the seventh defendant for loans to the Southern Cross Hotel of $10,000 and $7,000 in cash respectively. On each of those days the seventh defendant withdrew the amount requested from the second defendant's Advance Bank account "and delivered them to Reyes in accordance with the usual arrangements." The seventh defendant said that he did not know what those amounts were for. 177 On 5 September 1997, approximately one month later, the first defendant gave the seventh defendant a personal cheque for $17,000 in favour of the second defendant in repayment of the two loans. The first defendant also gave the seventh defendant a personal cheque for $42,000 in favour of the fourth defendant. It is reasonable to infer in the circumstances that these monies were originally paid, by the first defendant, on a constructive trust for the plaintiff and in my opinion, an honest, reasonable person in the position of the seventh defendant (as agent for the second defendant) would have so inferred. At the time of delivery of the said cheques the first defendant said that he would inform the seventh defendant when there was money in the bank to honour the cheques. On 22 September 1997 the first defendant informed the seventh defendant, by telephone, that the cheque for $17,000 could be deposited, and the seventh defendant did, in fact, deposit that cheque in the Advance Bank account of the second defendant on that day. After the seventh defendant heard that the first defendant had gone overseas, in about October 1997, he deposited the cheque for $42,000 in favour of the fourth defendant, in the fourth defendant's bank account, but the cheque was not honoured. 178 In my opinion, when these transactions are considered, as they must be, in the context of the course of dealing between the first defendant and the seventh defendant, prior to that point of time, (see appendix 4, transactions 78, 79, 91) the relevant circumstances would indicate or tell of fraud or breach of trust, to an honest reasonable person in the position of the seventh defendant having regard to the various features of the relevant transactions referred to above. In particular, inter alia such a person, in my opinion, would have had regard to the fact that on successive days, namely 6 and 7 August 1997 the first defendant had asked for loans of $10,000 and $7,000 in cash without being told what the cash was required for, as well as to the fact that the two amounts were repaid in about a month by a personal cheque of the first defendant and without any additional amount on account of interest and without any specific agreement being made for payment of interest. These transactions, in the relevant context of all the other circumstances, would clearly have been regarded by such a person as unusual in the ordinary course of business and indeed as extremely unusual, such that they would, in my opinion, indicate or tell such a person of fraud or breach of trust. 179 Accordingly, in my opinion, as stated above, the relevant sum of $17,000 was received and held by the second defendant upon a constructive trust for the plaintiff, notwithstanding that, so far as the evidence goes, it appears that an equivalent sum had been previously lent to Mr Reyes, personally, or to Mr Reyes as agent for the Southern Cross Hotel.
Tenth Count 180 On 7 March 1997 the first defendant purported to sell to the plaintiff a Mercedes motor vehicle registration no. AAE-77K in association with the lease of that vehicle from the plaintiff to the first defendant pursuant to a hire purchase agreement dated 7 March 1997. The said sum of $95,000 was paid by the plaintiff by way of a bank cheque in favour of the first defendant which was delivered by the plaintiff to the first defendant on 7 March 1997. The first defendant deposited the bank cheque for $95,000 to his personal account on 7 March 1997. As the first defendant knew there was no such motor vehicle, by reason whereof the first defendant received the said sum of money $95,000 upon a constructive trust for the plaintiff and is liable to account to the plaintiff for the same. 181 On or about 7 March 1997 the seventh defendant asked the second defendant to lend him $40,000. Within a few days the first defendant gave the seventh defendant a bank cheque in favour of the second defendant for $40,000 presumably having been requested to make the loan in this way by the seventh defendant. In my opinion, considered in the context of the course of dealing between the first defendant and the seventh defendant up to that point in time, (see appendix 4, transaction 40) and having regard to the various features of the various transactions between the first defendant and the seventh defendant up to that point of time, as referred to in earlier paragraphs, I am of the opinion that the relevant circumstances would to an honest reasonable person placed in the position of the defendant at that point of time, have indicated or told of fraud or breach of trust, namely, that the monies were impressed with a constructive trust in favour of the plaintiff having regard to the first defendant's previous course of dealing with the seventh defendant and members of his family and friends, by reason thereof in my opinion, the said sum of $40,000 was held by the second defendant upon a constructive trust for the plaintiff and the second defendant is liable to account to the plaintiff for that sum. 182 It was submitted on behalf of the second defendant, that this amount of $40,000 had been repaid to the first defendant, as a result of which the liability to account to the plaintiff for this amount had been extinguished. The payment of the various sums in repayment of this total amount of $40,000 were not, however, made to the plaintiff and accordingly, in my opinion, the second defendant's liability to account the plaintiff for the sum of $40,000 was not extinguished. 183 According to the seventh defendant, the three payments totalling $40,000 paid to the first defendant in alleged repayment of this amount of $40,000 were as follows:- (a) on 10 July 1997 the seventh defendant gave to the son of the first defendant an Advance Bank bank cheque in favour of the first defendant in the sum of $4,000 paid for from the Advance Bank account of the second defendant.
(b) on 15 July 1997 the sum of $21,000 was transferred from the Advance Bank account of the second defendant to the Advance Bank account of the Southern Cross Hotel. This transfer was pursuant to a conversation between the first defendant and the seventh defendant in the coffee shop of the Southern Cross Hotel in which the first defendant said to the seventh defendant: "We need $21,000 in the Hotel. Can you transfer $21,000 to the Southern Cross account?" The first defendant and the seventh defendant then went, together, to the Advance Bank in Chinatown and arranged for the transfer of the funds from the second defendant's Advance Bank bank account.
(c) On 6 August 1997 the seventh defendant withdrew $15,000 in cash from the Advance Bank account of the second defendant, and gave it to the first defendant at the Southern Cross Hotel. This was pursuant to a telephone conversation between the first defendant and the seventh defendant on that date namely 6 August 1997 in which conversation the first defendant said to the seventh defendant words to the effect: "The Southern Cross needs $15,000 cash." 184 As none of these three payments were payments made to, or on behalf of the plaintiff, those payments did not, in my opinion, as stated above, result in the extinguishment of any liability on the part of the second defendant to account to the plaintiff for the sum of $40,000 referred to above. 185 In my opinion, this result is not affected by the circumstance that the seventh defendant says that he asked for the loan of $40,000 "on the basis" that in 1995 $65,000 had been lent to the first defendant to be held in a term deposit for security, and that if ever the seventh defendant needed money the first defendant would lend him whatever was needed. Nor, in my opinion, is this result affected by the other transactions on behalf of the second defendant with the first defendant as set out in the schedule to the defence of the second defendant at paragraph 51 of the affidavit of the seventh defendant sworn 23 February 2000. 186 In my opinion, these other transactions only serve to confirm the conclusion that the circumstances of the relevant payment would have indicated to or told an honest, reasonable person in the position of the seventh defendant (acting as agent for the second defendant), of fraud or breach of trust as the case may be. In relation to these transactions, I refer inter alia, in particular, to the short periods of time between the various transactions which included advances by way of bank cheque and cash to the Southern Cross Hotel as well as the cheques drawn by Kengfu in favour of the second defendant, and especially the payment of $22,000 in cash to the first defendant for the Southern Cross Hotel, the Advance Bank cheque from the second defendant's account given to the first defendant on 18 June 1997 said by the first defendant to have been needed for water rates, and the additional $800 "on top" paid to the seventh defendant on behalf of the second defendant on 14 June 1997 by cheque of Kengfu for $12,800 and the absence of any agreements or payments for interest on any of the other amounts.
Other Matters of Defence 187 This section involves some recapitulation of material dealt with earlier in this judgment.
Course of Dealing 188 It was submitted on behalf of the second, fourth, sixth and seventh defendant's that it was impermissible to have regard to transactions between the first defendant and the seventh defendant (as agent for the second, fourth and sixth defendants) other than the particular transactions the subject of the present proceedings. In my opinion it was, and is, permissible in the present proceedings to have regard to such other transactions because, in my opinion, those other transactions form the context in which the particular transactions relied upon by the plaintiff occurred. It would be quite artificial, in my opinion, to ignore all those other transactions for the purpose of the present proceedings, since in reality, the particular transactions relied upon by the plaintiff did, in fact, occur in the context of the course of dealing between the first defendant and the seventh defendant prior to, and including each of the particular transactions relied upon by the plaintiff. In my opinion, the proper application of the relevant principles necessitates this.
Personal Cheques 189 It was also submitted, as stated above, on behalf of the second, fourth and sixth defendants that the fact that certain repayments were made by cheques drawn on the personal bank account of the first defendant would not, to an honest and reasonable person in the position of the seventh defendant, have been regarded as unusual since such payments are consistent with
(a) the first defendant discharging personal obligations of his own for the Southern Cross Hotel; (b) the first defendant doing so as a matter of convenience and in the expectation of being immediately reimbursed by the Southern Cross Hotel; (c) the first defendant himself making advances to the Southern Cross Hotel. 190 In my opinion, if any of these alleged possible explanations had occurred to an honest and reasonable person in the position of the seventh defendant at the relevant time or times, that person would have regarded each of those reasons as being quite unusual, that is, as being other than in the normal course of business, and as such, supporting the conclusion that these circumstances, together with all the other circumstances of relevance would, to an honest reasonable person, indicate or tell of fraud or breach of trust. 191 Thus, in my opinion, the honest and reasonable person in the position of the seventh defendant, would have regarded it as extremely unusual that the first defendant was discharging personal obligations owed by him, to the Southern Cross Hotel, by means of paying amounts by personal cheque to parties who had dealings with the Southern Cross Hotel, more especially having regard to the random times and random amounts in respect of which this was done, as well as the accounting obligations that would be caused by such transactions. In my opinion, even if it were to be assumed that it was not unusual that the Finance Manager of a large organisation such as the Southern Cross Hotel should borrow monies personally from his employer from time to time, this would be a most unusual way of repaying those advances. 192 The same is true, in my opinion, in respect of the suggestion that the payments by the first defendant by way of personal cheque were in the nature of personal advances by the first defendant to his employer, the Southern Cross Hotel, and even more so, the suggestion that the first defendant was personally making loans to his employer, the Southern Cross Hotel, in the expectation of being "immediately reimbursed" (as stated in the further submission on behalf of the second, fourth, sixth and seventh defendants) by the Southern Cross Hotel. Equally unusual in the relevant circumstances, in my opinion, would be the suggestion contained in the said submissions that in addition to those matters, the first defendant "must be taken to have assumed some personal obligation to (the seventh defendant) to repay the advances or to see that they were repaid." It follows that I also reject the submission contained in the said submissions, that "given (the first defendant's) position and standing at the time, any of these (explanations) is a far more likely explanation of the fact than the one that the plaintiff must advance to succeed on this point, namely, that the circumstances indicated that (the first defendant) was misapplying money defrauded from (presumably) the Southern Cross Hotel."
Monies Used For Authorised Purchases 193 It was also submitted on behalf of the second, fourth sixth and seventh defendants that in respect of the particular transactions, the subject of the proceedings against those defendants, even if it were accepted that the circumstances would have indicated to an honest and reasonable person that the monies that the first defendant was paying to the seventh defendant, were monies that belonged to, and hence were subject to some sort of trust in favour of the Southern Cross Hotel the fact was that those monies were being paid to the seventh defendant in discharge of legitimate obligations of the Southern Cross Hotel, and accordingly were not being misapplied. In my opinion, however, where, as I have held, in the present case, the circumstances would, to an honest reasonable person in the position of the seventh defendant, have indicated or told of fraud or breach of trust, such person would not assume that the monies being paid by the first defendant to the seventh defendant, were necessarily being paid with the authority of the Southern Cross Hotel for the purposes for which they were purportedly being paid, since in such a context the whole course of dealings was such as to indicate that the second defendant was paying those monies without authority or was authorised by the Southern Cross Hotel to use those funds for some other purpose or purposes.
Repayment of Loans 194 As to the third count, it is submitted on behalf of the second defendant, that the cheque for $32,450 in favour of the second defendant and dated 29 May 1997 drawn on the personal bank account of the first defendant, was in payment of a loan made on 14 May 1997 of $31,000 by Advance Bank cheque in favour of Accord Pacific Holdings Ltd and paid for from the bank account of the second defendant. It is by no means clear that this was, in fact, the case, but even if it was so, I am of the opinion, nevertheless, that in the relevant circumstances, including the prior course of dealings between the first defendant and the seventh defendant, that even if the payment of $32,450 by the first defendant to the seventh defendant, on behalf of the second defendant, purported to be a repayment of the loan of $31,000 made on 14 May 1997, the result would nevertheless remain that the so called "repayment" would constitute funds which in the relevant circumstances would be held by the second defendant upon a constructive trust for the plaintiff. 195 The same is true in relation to the transactions the subject of the fifth count, as to which again it is submitted on behalf of the second defendant that the amount sought to be recovered by the plaintiff was simply a payment made in repayment of certain loans. 196 In my opinion, the same is also true in relation to the amounts sought to be recovered by the plaintiff on the sixth, eighth, and tenth counts. 197 I record however, that, although it would make no difference to my decision, I am by no means satisfied, on the evidence, that the amounts sought to be recovered by the plaintiff, which were submitted on behalf of the defendants to constitute repayments of the loans, were in fact, repayments of loans.
Monies Impressed With a Constructive Trust in Favour of Kengfu 198 It was submitted in relation to various transactions (as well as to similar transactions) that the relevant monies had, in effect, been paid to Kengfu by delivery of the cheques in favour of Kengfu to the first defendant, and that the first defendant's misappropriation of those funds by means of his fraudulently endorsing the relevant cheques on behalf of Kengfu, in effect, defrauded Kengfu of the subject monies, rather than the plaintiff, and further that in such circumstances, the plaintiff could argue that it had paid the relevant monies to Kengfu by reason of having delivered the cheques to the first defendant who had actual, or ostensible authority of Kengfu to receive the same, with the result that Kengfu could not succeed in recovering those funds from the plaintiff, with the result that it could not be said that the funds remained subject to a constructive trust in favour of the plaintiff. 199 In my opinion however, and whatever the position may have been as between the plaintiff and Kengfu on that analysis, the substance of what happened was that the plaintiff gave the subject monies to the first defendant, on terms that he would pay those monies to Kengfu. In breach of that arrangement, the first defendant, in effect, paid those monies to himself, instead of paying them to Kengfu, with the result, in my opinion, that those monies were held by him on a constructive trust for the plaintiff.
Authority of First Defendant 200 It was submitted, on behalf of the second, fourth sixth and seventh defendants that there was no evidence, or no satisfactory evidence, that the transactions between the Dinh family and the first defendant, were not authorised by Kengfu, however, as submitted on behalf of the plaintiff, the evidence was that the General Manager only, had the authority to incur expenditures on behalf of Kengfu, up to $5,000. For sums between $5,000 and $50,000 only Mr Kho had authority, and over $50,000 only the Board of Directors had authority. Moreover, there was evidence that the first defendant did not have any authority to apply, on behalf of Kengfu, to any financier for any financial facility. Further, the evidence is that the first defendant left Australia at very short notice soon after the auditors commenced their investigations in September 1997 for the purposes of Accord being listed publicly on the Australian Stock Exchange. 201 In the circumstances I am satisfied that the first defendant, relevantly, did not have any actual authority to undertake, on behalf of Kengfu, any of the relevant transactions the subject of the present proceedings. 202 It is true that the first defendant gave the seventh defendant a business card on which he was named Finance Manager of the Southern Cross Hotel, but in my opinion, this does not constitute any evidence of any particular actual authority that the first defendant may have had on behalf of Kengfu. Nor, in my opinion, does it constitute the holding out of the seventh defendant by Kengfu as being authorised to undertake any particular financial transactions of any particular magnitude on behalf of Kengfu. 203 In the final analysis, I am satisfied on the evidence that the first defendant did not have the actual authority of Kengfu, or Accord, to undertake any of the transactions which he undertook being the subject of the present proceedings. I am further satisfied on the evidence that, nothing was done by, or on behalf of, Kengfu or Accord Pacific Holdings which could be construed as a holding out by either of those entities of the seventh defendant as having any particular authority. There was no attempt by any party to produce evidence as to what authority a person designated as a Finance Manager might have in relation to companies such as Kengfu operating a Hotel such as the Southern Cross Hotel and any such evidence, may, in any event, have been inadmissible.
Knowledge of Seventh Defendant 204 It was also submitted on behalf of the second, fourth sixth and seventh defendants that the seventh defendant knew nothing of the true financial position of the Southern Cross, this being submitted, presumably, for the purpose of supporting the view that in those circumstances it could not be said of seventh defendant that he must have known that, in respect of an entity the size of the Southern Cross Hotel and its owners and operators, the transactions undertaken by him with the first defendant, must have been regarded as extremely unusual by any honest and reasonable person in his position. 205 The evidence satisfies me, however, that the seventh defendant did know sufficient about Kengfu and the Southern Cross Hotel and other matters to cause an honest and reasonable person in the position of the seventh defendant, to be of the view that the relevant transactions were extremely unusual, to the extent of telling an honest and reasonable person in the position of the seventh defendant (even allowing for his knowledge, experience and cultural background) that the first defendant was engaged in conduct which was fraudulent or in breach of trust. 206 As submitted on behalf of the plaintiff, although the seventh defendant was uncertain of the corporate structure of the group, he thought that Kengfu was the branch of the Southern Cross Hotel, and he also knew of what he called the Southern Cross Funding Company. He also understood that the company which owned the Southern Cross Hotel was building a building next door to the Hotel, and was going to build a 21 storey apartment block at 1 Dixon Street. It appeared to the seventh defendant that the Southern Cross Hotel was quite successful and that it "should be because it is so big". The seventh defendant also knew that the company which was putting money into these properties "was a very big property company", and he also stated in evidence that the company which owned the Hotel, the building next door to the Hotel and 1 Dixon Street "should be very rich". 207 As also submitted on behalf of the plaintiff, there was in my opinion, no evidence that the Hotel and/or associated companies were "in financial difficulties" and in any event, there is no evidence that the seventh defendant had any knowledge of this, one way or the other, other than what he had been told by the first defendant.
208 On balance I am unable to conclude, and do not conclude, that the seventh defendant was a fully knowing party to the fraudulent conduct of the first defendant, but that conclusion does not alter my conclusion that for the reasons stated, the second, fourth sixth and seventh defendants are nevertheless liable to the plaintiffs for the amounts sought to be recovered from them. 209 The seventh defendant actually knew the size of the Southern Cross Hotel and its associated companies. He knew that the company was part of the Lian Huatt group of companies which was a big property company, and that Kengfu was associated with this group of companies and the Southern Cross Hotel. 210 The first defendant was the Finance Manager of the Hotel and worked in the small office downstairs in the basement in the accounts department of the Hotel, without even a window. The seventh defendant knew that the first defendant did not own the Hotel. 211 The seventh defendant had experience in finance and banking both in Vietnam and Australia and he knew the importance of records. He was also aware of the improbability that such a large organisation would need to borrow the sums that he and his family were paying to the first defendant, since large corporations and hotels were usually funded by banks. The seventh defendant did not ask why the first defendant did not borrow money from an overdraft facility. 212 As submitted on behalf of the plaintiff, the seventh defendant was unconcerned, for example, about whether the first defendant's explanation for the need for $30,000 was true or untrue. He did not know to whom the cheques would be handed over. He did not ask why two different cheques were required. He did not worry about where the money he was given came from and says he did not see any difference between Kengfu, Accord and the first defendant, even thought he was aware that a cheque drawn on Kengfu's account came out of a different account from the cheque drawn on the first defendant's account, and that Kengfu was part of the Lian Huatt group. He also knew that the first defendant was not the owner of the Hotel. 213 The evidence also establishes that the seventh defendant did not inquire why money was not borrowed from an overdraft facility from the bank, which companies normally have, and did not even ask if Kengfu owned the Hotel. He did not inquire as to why the first defendant would ask for a cheque to be made out in favour of himself if it was loaned to the Hotel, nor did he inquire why the first defendant would give him a cheque one day and ask for the equivalent in cash the next day, or even give consideration as to whether the first defendant might use the cash for himself. The first defendant handed over cash without inquiring what it was for and gave no consideration as to the propriety of being asked to cash one of these cheques. 214 The plaintiff drew attention to the following passages in the cross examination of the seventh defendant by way of example:- "Q. You did not want to ask him too many questions because you were afraid to upset him? A. No, not only him but my personality is that I don't ask questions. Q. You did not want to know how he got hold of the money from Kengfu did you? A. It is not necessary for me to know. Q. You did not want to know, did you? A. That is right, I don't need to know… Q. But you did not want to know why he wanted cash? A. I did not think that he wanted me to know … Q. Did you not think it was odd that he would give you a cheque for $50,000 and ask for an equivalent amount of money back the following day? A. At that time I didn't think of this, however, after this matter was brought against me then I was able to think what it was… Q. Did he tell you why he needed a personal cheque of $35,000 and cash of $7,000? A. No. He - He asked to borrow so I lend it. Q. He didn't tell you what it was for? A. I don't know." (underlining supplied) 215 In paragraph three of his affidavit of 12 April 1998, the seventh defendant said that he did not know anything about the company's true financial standing, but failed to inquire. He said he also understood that the first defendant's boss had told him to borrow, but again did not make inquiries of that "boss". 216 At the time of the relevant transactions, the first defendant was employed by Kengfu as its Finance Officer, as the seventh defendant knew from the business card of the first defendant. He was also a director, and the secretary, of Accord Pacific Holdings Pty Ltd, a secretary of Accord Pacific Properties Pty Ltd and a director and the secretary of Aircord Pty Ltd although there is no evidence to suggest that the seventh defendant was aware of these matters.
Absence of Actual Knowledge of Seventh Defendant 217 Submissions were made on behalf of the plaintiff to the effect that, in effect, that the seventh defendant must have been a fully knowing party to the fraudulent conduct of the first defendant, principally because, as I understood it, the assets of the second, fourth, sixth and seventh defendants had increased appreciably in value during the time of the transactions between the seventh defendant and the first defendant, and in particular, by reason of certain properties including home units which had been purchased by one or other of those defendants. 218 On the other hand, it was submitted on behalf of those defendants that to the extent that this was so, it was because the properties had been purchased with the proceeds of sale of gold and silver and valuable stamps which the seventh defendant had in Vietnam but which were brought to Australia and sold, and there is certainly some evidence to this effect. 219 On balance, however, I am unable to find, and do not find, that the seventh defendant was a fully knowing party to the fraudulent conduct of the first defendant.
Admissibility of MFI "2": The Unsworn Affidavit of Seventh Defendant Dated 15.12.97 220 In all the circumstances, I am not satisfied that this unsworn affidavit accurately reflects instructions given by the seventh defendant to his then solicitor in December 1997, principally because of the language difficulties which existed at that time between the seventh defendant and solicitor in all the circumstances then prevailing. Accordingly, I reject the tender of this unsworn affidavit.
Direction 221 I direct the plaintiff to bring in Short Minutes of Order giving effect to these reasons for judgment.
SCHEDULE "APPENDIX 1" DATE ITEM DEBIT CREDIT BALANCE $ $ $ 7/3/97 From first defendant 40,000.00 - 40,000.00 13/3/97 To Office of State Revenue 20,000.00 - 20,000.00 13/3/97 To Southern Cross Hotel 10,000.00 - 10,000.00 27/3/97 To Southern Cross Hotel 28,000.00 18,000.00 17/4/97 To Southern Cross Hotel 22,000.00 40,000.00 24/4/97 To Southern Cross Hotel 4,500.00 44,500.00 29/4/97 From first defendant 14,000.00 30,500.00 5/5/97 From first defendant 16,750.00 13,750.00 14/5/97 To Accord Pacific 31,000.00 44,750.00 23/5/97 From first defendant 28,500.00 16,250.00 29/5/97 From first defendant 32,450.00 - 16,200.00 5/6/97 To Southern Cross Hotel 12,000.00 - 4,200,00 5/6/97 To Southern Cross Hotel 22,000.00 17,800.00 14/6/97 From Southern Cross Hotel 12,800.00 5,000.00 16/6/97 To Southern Cross Hotel 9,845.68 14,845.68 18/6/97 Sydney Water 13,077.90 27,923.58 20/6/97 To Southern Cross Hotel 9,000.00 36,923.58 30/6/97 From first defendant 70,000.00 - 33,076.42 3/7/97 To Southern Cross Hotel 4,000.00 - 29,076.42 3/7/97 To Accord Pacific 30,000.00 923.58 4/7/97 To Southern Cross Hotel 5,000.00 5,923.58 7/7/97 To Southern Cross Hotel 5,000.00 10,923.58 10/7/97 To first defendant 4,000.00 14,923.58 15/7/97 To Southern Cross Hotel 21,000.00 35,923.58 31/7/97 From first defendant 54,000.00 - 18,076.42 6/8/97 To Southern Cross Hotel 10,000.00 - 8,076.42 6/8/97 To Southern Cross Hotel 15,000.00 6,923.58 7/8/97 To Southern Cross Hotel 7,000.00 13,923.58 22/9/97 From first defendant 17,000.00 - 3,076.42
Date Event Source Reference Shortly before 14 May 97 Conversation, Reyes-Hong Kiet Dinh: "Can you lend me $31,000 for Accord Pacific Holdings?" Dinh, H.K., 23 Feb 00 Par 19 Hong Kiet Dinh withdraws $31,000 from Thai's Advance Bank account and obtains Advance Bank cheque no. 311680 in favour of Accord Pacific Holdings Ltd Gives cheque to Reyes. Plaintiff admits Reyes received. Defence, Second defendant Schedule, transaction 9 NOTE: Wednesday. 14 May 97 Repaid, Thai 11, 29 May 97. Dinh, H.K., 23 Feb 00 Pars 22-23, "F" This was probably [part of?] the deposit on Reyes's purchase of the unit. But Hong Kiet Reply to 2, 4, 6 and 7 ds Par 2(b) Dinh's annotation, "Lope's company", is consistent with his belief at the time that he was lending the money to the company. Reyes deposits $107,572.12 to Reyes ANZ Par 12 account. Further amended scl 28 May 97 NOTE: $92,427.88 used to discharge Par 9(e), "CS commercial hire-purchase agreement, 7 Mar Smith, 11 Feb 00 19", par 10 97. Further amended scl Par 16(b)
Baird, 10 Dec 97 Pars 11, 12 (a) 29 May 97 Reyes pays $30,000 out of ANZ account by cheqe no. 1040 to Teresita Reyes. Smith, 11 Feb 00 Par 23(a)(ii), "CS 27" Reyes, Teresita, 22 Par 6 Feb 00 Further amended scl Par 16(a)
Reyes draws cheque no. 1039 for $32,450 in favour of Thai on Reyes ANZ account; gives cheque to Hong Kiet Dinh. Defence, Second Schedule, Per Dinh: Repayment of loan of $31,000, 14 May 97. defendant transaction 11 NOTE: Cross ref: Thai 9 Not mixed fund; because: Dinh, H.K., 23 Feb 00 Par 24, "G" 29 May 97 Relevant deposit: 28 May 97, $107,572.12 Balance before deposit: 27 May 97, $426.18. Baird, 10 Dec 97 Pars 11, 12(d) Exhausted by cash cheque 1039, $7,500, debited 29 May 97. Smith, 11 Feb 00 Par 23(a)(i), "CS 26" Ex. "R" Thai, Heading 1, Item 3 Reyes pays $523.62 for or on behalf of Thai. 16 Jun 97 Further amended scl Par 16(c) NOTE: Not admitted.
Date Event Source Reference
26 Jun 97 (Thu) Hong Kiet Dinh withdraws $9,000 from Thai's Defence, Second Schedule, Advance Bank account and obtains Advance defendant transaction 17 Bank cheque no. 312728 in favour of Southern Cross Hotel. Dinh, H.K., 23 Feb 00 Par 27, "H" Gives cheque to Reyes. Per Kho: Received. Kho, Tx, Day 1 Ex. "G" NOTE: Wrongly dated 20 Jun in defence. Reply to 2, 4, 6 and 7 Par 2(a) Advance Bank deposit slip, "BC WDL ds 00312728 SOUTHERN", a/c no. 151318817, Thai, Buu P. Repaid by part of $54,000 payment, 31 Jul 97 (Thai.25).
3 Jul 97 (Thu) Hong Kiet Dinh withdraws from Thai's Defence, Second Schedule, Advance Bank account and obtains Advance defendant transaction 20 Bank cheque 312738 for $30,000 payable to Accord Pacific Holdings; gives to Reyes. Dinh, H.K., 23 Feb 00 Par 28, "I", "J, Plaintiff admits Reyes received. "K" NOTE: Advance Bank cheque 312738, a/c no. 151318817, in favour of Accord Pacific Reply to 2, 4, 6 and 7 Par 2(b) Holdings. ds Repaid by part of $54,000 payment, 31 Jul 97 (Thai 25).
3 Jul 97 (Thu) Hong Kiet Dinh withdraws $4,000 cash from Defence, Second Schedule, Thai's Advance Bank account; gives to Reyes. defendant transaction 19 NOTE: Advance Bank withdrawal slip, "CASH WITHDRAWAL", a/c 151318817, Thai, Buu P. Dinh, H.K., 23 Feb 00 Par 28, "I", "K" Repaid by part of $54,000 payment, 31 Jul 97 (Thai 25).
3 Jul 97 Telephone call, Reyes-Hong Kiet Dinh: Dinh, H.K., 23 Feb 00 Par 28 Requests $30,000 for Southern Cross Hotel's payroll and $4,000 cash.
4 Jul 97 (Fri) Hong Kiet Dinh withdraws $5,000 cash from Defence, Second Schedule, Thai's Advance Bank account; gives to Reyes. defendant transaction 21 NOTE: Repaid by part of $54,000 payment, 31 Jul 97 (Thai 25). Dinh, H.K., 23 Feb 00 Par 29, "K"
4 Jul 97 Telephone call, Reyes-Hong Kiet Dinh: Dinh, H. K, 23 Feb 00 Par 29 Requests $5,000 cash for Southern Cross Hotel.
Date Event Source Reference
7 Jul 97 Hong Kiet Dinh withdraws $5,000 cash from Defence, Second Schedule, Thai's Advance Bank account; gives to Reyes. defendant transaction 22 NOTE: Monday. Repaid by part of $54,000 payment, 31 Jul 97 Dinh, H.K., 23 Feb 00 Par 29, "L" (Thai 25).
31 Jul 97 Reyes deposits $300,000 from $600,000 Further amended scl Par 23 advance (30 Jul 97) to ANZ account: 1 bank cheque for $200,000 and 1 bank cheque for $100, 000.
31 Jul 97 Bank cheque 832413 for $100,000 and bank Smith, 11 Feb 00 Par 12 cheque 832417 for $200,000 in favour of Southern Cross Sydney deposited to Reyes ANZ account. NOTE: Cheques dated 30 Jul 97.
31 Jul 97 Reyes gives Hong Kiet Dinh cheque no. 1057 Further amended scl Par 27(a) for $54,000. Hong Kiet Dinh inserts Thai as payee. Defence, Second Schedule, NOTE: Per Further amended scl, Baird and defendant transaction 25 Smith: 1 Aug 97 Per HK Dinh: Reyes gave the cheque to him Dinh, H.K., 23 Feb 00 Par 30, "M" on 31 July; he deposited on 1Aug. Baird, 10 Dec 97 Pars 11, 12(d) HK Dinh filled in name of B.P. Thai. ANZ cheque 001057, a/c no. 5528-33692, Smith, 11 Feb 00 Par 23(b), "CS drawn by Lope Reyes in favour of B.P. Thai. 28" Advance Bank deposit slip, a/c 151318817, Thai, Buu P. Ex. "R" Thai, Par 1, Repayment of 26 Jun 97 ($9,000 to Southern Item 4 Cross Hotel) (Thai 17), 3 Jul 97 ($4,000 cash to Southern Cross Hotel) (Thai 19), 3 Jul 97 ($30,000 to Accord Pacific Holdings) (Thai 20), 4 Jul 97 ($5,000 to Southern Cross Hotel) (Thai 21) and 7 Jul 97 ($5,000 to Southern Cross Hotel).
1 Aug 97 Hong Kiet Dinh deposits Reyes's cheque no. Dinh, H.K., 23 Feb 00 Par 30, "M" 1057 for $54,000 to Thai's Advance Bank account. NOTE: Not mixed fund; because: Relevant deposit: 31 Jul 97, $300,000. Balance before deposit: 27 May 97, $ 1,552.08 Exhausted by cheque 1047, $1,800, debited 31 Jul 97.
5 Aug 97 Reyes pays $35,000 out of ANZ account to V. Further amended scl Par 27(b) Malong. Baird, 10 Dec 97 Pars 11, 12(c)
Date Event Source Reference
1 Mar 97 Dinh withdraws $26,800 in cash from Helen Dinh, H.K., 23 Feb 00 Pars 32, 33, "N" Dinh's savings account; lends to Reyes. NOTE: Repaid, 11 Aug 97.
On or shortly before 1 Conversation, Reyes-Hong Kiet Dinh: Dinh, H.K., 23 Feb 00 Par 32 Mar 97 Requests cash loan, $26,800.
30 Jul 97 Esanda advanced $600,000 to Accord Pacific Further amended scl Par 5 Holdings pursuant to commercial hire- purchase agreement, 30 Jul 97 Smith, 11 Feb 00 Par 11
8 Aug 97 Reyes deposits $100,000 from $600,000 Further amended scl Par 23 advance (30 Jul 97) to ANZ account: 1 bank cheque for $100,000.
8 Aug 97 Deposit slip to Reyes ANZ account: Cheque, Smith, 11 Feb 00 Par 11 (g) $100,000.
11 Aug 97 Reyes pays $31,000 out of account to V. Further amended scl Par 34(a) Malong. Baird, 10 Dec 97 Pars 11, 12(c)
11 Aug 97 Reyes draws cheque no. 1071 for $26,800 Further amended scl Par 34(b) from Reyes ANZ account; Hong Kiet Dinh deposits to Helen Dinh's Advance Bank Dinh, H.K., 23 Feb 00 Pars 34, 35, savings account. "N", "O" NOTE: ANZ Chinatown Branch, cheque no. 001071, a/c 5528-33692, drawn by Lope Baird, 10 Dec 97 Pars 11, 12(e) Reyes , payee blank. Smith, 11 Feb 00 Par 23(c) Advance Bank deposit slip, a/c 150246487, Helen Dinh. Ex. "R" Helen Dinh, Repayment of loan, 1 Mar 97. Heading 3, Item Not mixed fund; because: 1 Relevant deposit: 8 Aug 97, $100,000. Balance before deposit: 7 Aug 97, $2,873.23. Exhausted by cheque 1069, $31,000, debited 11 Aug 97.
14 Aug 97 Plaintiff alleges: Reyes pays $804.99 out of Further amended scl Par 34(c) ANZ account to, for or on behalf of Thai. Not admitted.
14 Aug 97 Plaintiff alleges: Reyes pays $523.77 out of Further amended scl Par 34(d) ANZ account to, for or on behalf of Thai. Not admitted.
Date Event Source Reference
6 Nov 96 Hong Kiet Dinh withdraws $13,000 from Helen Dinh's account, obtains Advance Bank cheque no. 1137861 in favour of "R Lope". Dinh, H.K., 23 Feb 00 Pars 38,40, "P", "Q"
Thai pays $10,000 cash to Southern Cross Hotel. 6 Aug 97 NOTE: Wednesday. Defence, Second defendant Schedule, transaction 26 Repaid, 22 Sep 97 (Thai 29)
6 Aug 97 Reyes asks Hong Kiet Dinh for. $10,000 cash. Dinh, H.K., 23 Feb 00 Par 43
6 Aug 97 Hong Kiet Dinh withdraws $10,000 cash from Thai's Advance Bank account a/c no. 151318817 and gives to Reyes Dinh, H.K., 23 Feb 00 Par 43, "T"
Thai pays $7,000 cash to Southern Cross Hotel. Defence, Second defendant 7 Aug 97 (Thu) HOTE: Repaid 22 Sep 97 (Thai 29). Schedule, transaction 28 Bank statement, 4 Sep 97
7 Aug 97 Reyes asks Hong Kiet Dinh for $7,000 cash Dinh, H.K., 23 Feb 00 Par 43
7 Aug 97 Hong Kiet Dinh withdraws $7,000 cash from Thai's Advance Bank account a/c no. 151318817 and gives to Reyes. Dinh, H.K., 23 Feb 00 Par 43, "T"
Further amended scl Par 41 5 Sep 97 Reyes deposits bank cheque 409048 for $150,000 in favour of Kengfu Properties Pty Ltd. to Reyes ANZ account. Smith 11 Feb 00 Par 13(c), "CS 21", par 14
5 Sep 97 Reyes draws cheque no. 1083 for $17,000 in favour of B.P. Thai on Reyes ANZ account. Cheque Par 44 Dinh, H.K., 23 Feb 00
5 Sep 97 Reyes gives Hong Kiet Dinh personal cheque no. 1084 for $42,000 in favour of Helen Dinh. Dinh, H.K., 23 Feb 00 Par 44; par 46, "V"
5 Sep 97 Conversation, Reyes-Hong Kiet Dinh: "I will ring you up when the bank has money in it and you can deposit the cheques." Dinh, H.K., 23 Feb 00 Par 44
Date Event Source Reference
8 Sep 97 Reyes draws $15,400 in favour of Richardson Further amended scl Pars 44A(a), & Wrench on Reyes ANZ account; 44B deposit on Ita Dinh's property, 1/20 Myra Road, Dulwich Hill. Smith., 11 Feb 00 Par 23(d)(i) NOTE: Mixed fund; bc: Balance against which drawn includes part of deposit, 28 Aug 97, $60,000; and deposit, 8 Sep 97, $3,000.
11 Sep 97 Reyes pays $8,000 from ANZ account to, for Further amended scl Par 44a(b) or on behalf of Hong Kiet Dinh. NOTE: Per Dinh: Repaid, 29 Sep 97. Smith, 11 Feb 00 Par 23(d)(ii) Mixed fund; because: Balance against which funds drawn included Ex. "R" Hong Kiet Dinh, deposit, 8 Sep 97, $3,000. Heading 2, Item
22 Sep 97 Reyes draws cheque 1083 for $17,000 in Further amended scl Par 44A(c) favour of B.P. Thai on Reyes ANZ account. Defence, Second Schedule, NOTE: Cheque dated 5 Sep 97 but deposited defendant transaction 29 22 Sep 97. Smith, 11 Feb 00 Par 23(d)(iii)
Ex. "R" Thai, Heading 1, Item 5
22 Sep 97 Telephone call, Reyes-Hong Kiet Dinh: Tells Dinh, H.K., 23 Feb 00 Par 45 him he can deposit cheque.
26 Sep 97 Hong Kiet Dinh withdrew $8,000 cash from Dinh, H.K., 23 Feb 00 Par 42; "S" Thai's a/c 151318817.
29 Sep 97 Hong Kiet Dinh repaid $8,000 (borrowed 11 Dinh, H.K., 23 Feb 00 Par 42 Sep 97) to Reyes.
10th Count Date Event Source Reference
7 Mar 97 Esanda obtains bank cheque 753208 for $ Further amended scl Par 45 95,000 in favour of Reyes. Goods: Mercedes AAE-77K. Smith, 11 Feb 00 Par 17, "CS 24" NOTE: Esanda alleges that car did not exist (see Smith, Par 17). Baird, 10 Dec 97 "l"; par 9, "0"
7 Mar 97 Reyes draws cheque no. 1021 for $70,000 Smith, 11 Feb 00 Par 23(f), "CS cash on Reyes ANZ Bank, 665-69 George St., 34" Haymarket. Ex. "R" Thai, Heading 1, item 1
7 Mar 97 Reyes obtains ANZ Bank cheque no. 465073 Further amended scl Par 50 for $40,000 in favour of B.P. Thai. out of cash drawn from Reyes ANZ account. Defence, Second Schedule, NOTE: Loan against $65,000 that Dinh's defendant transaction 1 family lent to Reyes for term deposit. Repaid: 10 Jul 97, $4,000 cheque (Thai 23); Baird, 10 Dec 97 Pars 11, 12(d) 15 Jul 97, $21,000 transfer to Southern Cross Cheque Hotel (Bank statement, 4 Aug 97; 6 Aug 97, $15,000 cash. Smith, 11 Feb 00 Par 23(f) Not mixed fund; because: Relevant deposit: 7 Mar 97, $95,000. Ex. "R" Thai, Heading Balance before deposit: 28 Feb 97, $991.29. 1, Item 2 Exhausted by cheque 1017, $1,059.55, debited 7 Mar 97. Dinh, H.K., 23 Feb 00 Par 48, 'W"
10 Jul 97 (Thu) Thai pays $4,000 to Reyes. Defence, Second Schedule, Plaintiff admits Reyes received. defendant transaction 23 NOTE: Advance Bank cheque 3127600, a/c 151318817, in favour of Lope Reyes. Cheque Handwritten receipt, (endorsed on photocopy) "Received above cheque. Lope Reyes". Reply to 2, 4, 6 and 7 Par 2(b) Obliterated deposit/withdrawal slip. ds Part repayment of $40,000, 7 Mar 97 (Thai 1). Dinh, H.K., 23 Feb 00 Par 50(1), "X"
15 Jul 97 Thai transfers $21,000 to Southern Cross Defence, Second Schedule, Hotel account, Advance Bank. defendant transaction 24 Per Kho: Received. NOTE: Part repayment of $40,000, 7 Mar 97 Bank statement, 4 Aug 97 (Thai 1).
Reply to 2, 4, 6 and 7 Par 2(a) ds Dinh, H.K., 23 Feb 00 Par 50(2), "L"
Date Event Source Reference
6 Aug 97 Thai pays $15,000 to Southern Cross Hotel. Defence, Second Schedule, NOTE: Part repayment of $40,000, 7 Mar 97 defendant transaction 27 (Thai 1). Dinh, H.K., 23 Feb 00 Par 50(3); "T"
A RESPONSE TO THE SCHEDULE TO THE DEFENDANTS' SUBMISSIONS
The Schedule to the defendants' submissions summarises the defendants' case with respect to each of the sums claimed by the plaintiff. This document reproduces each of the defendants' schedules in respect to each of the claims and provides a response.
The references to paragraphs and Annexures are, unless the contrary appear, references to the affidavit of HK Dinh of 23 February 2000 and annexures.
The references to Transaction Nos in square brackets are cross-references to the transaction numbers in the Plaintiff's Chronology of Transactions which is behind Tab 3 of this submissions folder. SECOND DEFENDANT THIRD COUNT FROM REYES REPAYMENT OF REFERENCES DATE AMOUNT DATE AMOUNT 29 May 1997 $32,450.00 14 May 1997 $31,000.00 Dinh, H.K., 23 Feb 00, To Accord pars 22-23, "F" Pacific Holdings 16 Jun 1997 $523.62 Not admitted; no evidence
On 14 May 1997 Mr Dinh handed LR an Advance Bank cheque for $31,000.00 [Trans No 54]. The payee was Accord Pacific Holding Ltd. The source of the funds was BP Thai's account at the 182 George Street, Sydney branch of the Advance Bank. (HKD para 22 - 23, Annexure F, Exhibit T)
Mr Dinh paid the money because LR telephoned him and said, "Can you lend me $31,000.00 for Accord Pacific Holdings" (para 19). He did not know exactly what the company was except that it owned 1 Dixon Street where it was building a 21 storey apartment building. He said that one of the reasons he lent was to obtain a discount on the purchase of on of the apartments in the building.
On 29 May 1997 LR gave Mr Dinh a cheque dated that date (CS 26) drawn on LR's ANZ account for $32,450.00. The payee was BP Thai. This is the sum claimed by the plaintiff in the third count [Trans No 58].
There is nothing to connect this cheque with the cheque of $31,000.00 paid to APH dated 14 May 1997. The amounts are different. It is not said that LR said it was in repayment of $31,000.00. He says he assumed that the additional $1,450.00 "was something on top for the return of the loan".
Why, for example, was the "loan" not repaid by the payments of Kengfu cheques of $28,000.00 and $12,200.00 on 23 and 26 May, respectively [Trans Nos 55 and 56] or the cash repayments of $3,000.00 and $4,000.00 on 27 May 1997? [Trans No 57]
6 The cheque to Accord of $31,000.00 was for the benefit of LR. It was used as part settlement of LR purchasing Unit 702 Hyde Park Towers from Accord. The settlement took place on 14 May 1997 - the date of the cheque. At para 32(d) of the plaintiff's outline of submissions detail is set out. See Annexure J to the affidavit of Mr Kho dated 27.1.00 at pp 41 - 50.
FIFTH COUNT FROM REYES REPAYMENT OF REFERENCES DATE AMOUNT DATE AMOUNT 31 Jul 1997 $54,000.00 26 Jun 1997 $9,000.00 Dinh, H.K, 23.Feb 00, par 30, To Southern "M"; par 27, "H" Cross Hotel 3 Jul 1997 $4,000.00 Dinh, H.K, 23 Feb 00, par 28, Cash; to "I", "K" Southern Cross Hotel 3 Jul 1997 $30,000.00 Dinh, H.K., 23 Feb 00, par 28 To Accord "I", "J", "K" Pacific Holdings 4 Jul 1997 $5,000.00 Dinh, H.K, 23 Feb 00, par 29, "K" 7 Jul 1997 $5,000.00 Dinh, H.K, 23 Feb 00, par 29, Cash; to "L" Southern Cross Hotel
1 On 31 July 1997 LR handed Mr Dinh a cheque dated that day drawn on LR's personal account at the ANZ Bank. The payee is "BP Thai" the amount is $54,000.00. This is the sum the plaintiff claims in the fifth count. [Trans No 73]
Mr Dinh says that the cheque for $54,000.00 was in repayment of five loans which total only $53,000.00*. He explains the difference of $1,000.00 by, "I took the additional $1,000.00 to be consideration for the loan". (para 30) [* Trans Nos 62, 67, 68]
The circumstances of the payment are odd. LR gave him the signed cheque for $54,000.00 with the payee left blank (para 30). On the same day (31 July) as LR handed Mr Dinh the cheque, LR asked Mr Dinh for $2,000.00 cash which Mr Dinh paid him. He withdrew the $2,000.00 cash from Helen's account. (para 39, T295.56) [Trans No 74]
The "loans" said to be repaid were the following payments given to LR:- (a) A bank cheque dated 26.6.97 drawn on BP Thai's Advance Bank account for $9,000.00 in favour of "Southern Cross Hotel". This payment was banked by Kengfu (para 27). LR had told him that the money was for payroll (para 27). [Trans No 62] (b) On 3.7.97 cash of $4,000.00 drawn from BP Thai's account. LR said "the Southern Cross needs some cash". [Trans No 67] Note: There was a cheque/cash swap going on at the same time. On 2.7.97 LR asked for $3,000.00 cash which Mr Dinh gave him drawn from Helen's account. On 4.7.97 LR repaid him with a cheque [Trans No 66; T295) (c) On the same day, 3.7.97, Mr Dinh gave LR an Advance Bank cheque for $30,000.00 in favour of Accord Pacific Holdings. The funds were drawn from BP Thai's account at the Advance Bank. [Trans No 67] LR asked for $30,000.00 for Southern Cross Hotel's payroll (para 28). The cheque was in fact used for LR's failed purchase of Unit 2803 Hyde Park Towers from Accord (see below). (d) The next day, on 4.7.97, LR asked for $5,000.00 cash for Southern Cross (para 29). There is no evidence by way of bank records to establish the withdrawal of this amount or it payment. (e) On 7.7.97 LR asked for another $5,000.00 cash for Southern Cross (para 29). [Trans No 681
Why would LR give Mr Dinh a personal cheque for $54,000.00 in repayment of:-
à a loan of $23,000.00 to Southern Cross - a cheque of $9,000.00 and $14,000.00 in cash.
Why would the hotel require these relatively modest sums of cash on Thursday 3 July, Friday 4 July, Monday 7 July and at the same time require $30,000.00 for Accord?
As was pointed out in para 32(d) of the submissions, the clear inference is that the cheque of $30,000.00 to Accord was for LR's purchase of Unit 2803 Hyde Park Towers from Accord. The purchase did not proceed and Accord reimbursed him $38,832.50 (Kho pp 41, 49).
FROM REYES REPAYMENTS OF REFERENCES DATE AMOUNT DATE AMOUNT 14 Aug 1997 $804.99 Not admitted; no evidence 14 Aug 1997 $523.77 Not admitted; no evidence
FROM REYES REPAYMENT OF REFERENCES DATE AMOUNT DATE AMOUNT 5 Sep 1997 $17,000.00 6 Aug 1997 $10,000.00 Dinh, H.K, 23 Feb 00, par 44; Cash; to par 43, '"T" Southern Cross Hotel 7 Aug 1997 $7,000.00 Dinh, H.K, 23 Feb 00, par 43, Cash; to "T" Southern Cross Hotel
1 On 5 September 1997 LR gave Mr Dinh a cheque dated that day drawn on his personal account at the ANZ Bank for $17,000.00. The payee was BP Thai (CS 32). The plaintiff claims this amount was part of the eighth count. [Trans No 88]
The cheque is said to be in repayment of two loans of cash $10,000.00 on 6 August and $7,000.00 on 7 August. Both sums were taken from BP Thai's account. [Trans Nos 76 and 77] Mr Dinh said, I do not know what those amounts were for" (para 43).
If the loans were for the hotel, why were they repaid by personal cheque?
FROM REYES REPAID BY REFERENCES DATE AMOUNT DATE AMOUNT 7 Mar 1997 $40,000.00 10 Jul 1997 $4,000.00 Dinh, H.K., 23 Feb 00, par To Reyes 50(1), "X" 15 Jul 1997 $21,000.00 Dinh, H.K., 23 Feb 00, par Transfer; to 50(2), "L" Southern Cross Hotel 6 Aug 1997 $15,000.00 Dinh, H.K., 23 Feb 00, par Cash; to 50(3), "T" Southern Cross Hotel
1 On 7 March 1997 LR gave Mr Dinh a cheque for $40,000.00 dated that day. The payee was BP Thai. The cheque was an ANZ Bank cheque drawn on LR's ANZ Branch at 665 - 669 George Street, Haymarket. The plaintiff claims this sum as the tenth count. [Trans No 40]
Mr Dinh said that he was short of money at T144, 'You say that you were short of money because you had lent Mr Reyes the $65, 000 we spoke about earlier? A: Yes, correct." He later gave different answers.
Mr Dinh says that he repaid the $40,000.00 loan with the following payments. (a) 10.7.97 An Advance Bank cheque for $4,000.00 from funds from BP Thai's account. The payee was Lope Reyes. The cheque was for LR's son also known as Lope Reyes and was given to his son. (para 50(1), Annexure X) (b) 15.7.97 a transfer of $21,000.00 to Kengfu. This was received by it. LR had rung Mr Dinh on that day and said, "We need $21,000 in the Hotel. Can you transfer $21,000 to the Southern Cross Account?' The both went to the Advance Bank in Chinatown. LR told him the account number and Mr Dinh arranged the transfer. (para 50(2)) (c) 6.8.97 a payment of $15,000.00 cash which was drawn from BP Thai's account. LR rang him that morning and said, "The Southern Cross needs $15,000 cash." (para 50(3)) [Trans No 75]
The loan of $40,000.00 by LR to Mr Dinh is said to have been repaid by $36,000.00 to the hotel and $4,000.00 to Lope Reyes Junior. How these payments to other entities/people can be regarded as a discharge of a loan made by LR personally to Dinh is unclear. It is submitted that in the circumstances, it is extremely doubtful that payment of $40,000.00 was in fact a loan, particularly in light of the explanation that he would borrow from LR if he was short of cash. On Saturday 1 March Mr Dinh said he had lent LR (or Southern Cross) $26,800.00 cash (transaction 39, sixth count). It is difficult to accept that Mr Dinh was "short of money" at this time so as to warrant requiring a loan from LR some six days later if he was in a position to make such a loan. [Trans No 39]
Furthermore, even if the $40,000.00 - was a loan, it is submitted that it is highly improbable that the payments in July and August were in fact requirements of that "loan" when substantial payments were made by Dinh to LR/Kengfu six days after the loan was made:- (a) He is said to have borrowed $40,000.00. LR's $40,000.00 cheque was deposited to BP Thai's Advance Bank account that day. The prior balance was only $1,049.00 (see Exhibit T). [Trans No 40] (b) At the request of LR and said to be for the hotel. * A bank cheque for $20,000.00 to OSR; * A bank cheque for $10,000.00 to Kengfu. [Trans no 41]
This, in the plaintiff's submission demonstrates how contrived is the matching of payments by the defendants in their schedule. Why would the payment of $30,000.00 from the loan of $40,000.00 not be regarded as part repayment of the loan?
FOURTH DEFENDANT SIXTH COUNT FROM REYES REPAYMENT OF REFERENCES DATE AMOUNT DATE AMOUNT 11 Aug 1997 $26,800.00 1 Mar 1997 $26,800.00 Dinh, H.K., 23 Feb 00, pars 34- Cash; to 35, "N", "0", pars 32-33, "N" Southern Cross Hotel
1 On 11 August 1997 LR gave Mr Dinh a personal cheque dated that day for $26,800.00 drawn on LR's account at the ANZ Bank. The payee was the fourth defendant, Helen Dinh. The plaintiff claims this payment as the sixth count. 2. Again the cheque was blank as to its payee (Annexure O to HKD's affidavit). 3. Mr Dinh says this was repayment of a cash loan to LR on 1 March 1997 of $26,800.00. He withdrew the money from Helen's account at the Advance Bank and wrote "LR" next to the entry in the passbook. In his oral evidence he said that LR rang him on Saturday morning and asked for $26,800.00 cash for the company (T145.39), that Southern Cross "required the money to do something" (T148.12). He delivered the cash to LR at the hotel (T148).
FROM REYES REPAYMENT OF REFERENCES DATE AMOUNT DATE AMOUNT 8 Sep 1997 $15,400.00 6 Nov 1996 $13,000.00 Dinh, H.K, 23 Feb 00, par 38, To "R Lope" 40, "P", "Q" 31 Jul 1997 $2,000.00 Dinh, H.K, 23 Feb 00, pars 39, Unidentified 40, "R"
1 On 5 September 1997 LR drew a cheque for $15,400.00 in favour of "Richardson and Wrench". On 8 September 1997 that cheque was paid as a deposit on lta Dinh's (sixth defendant) purchase of Unit 1 20 Myra Road, Dulwich Hill. The plaintiff claims this sum as part of the eighth count.
Mr Dinh now says that this payment constituted repayment of the following loans:- (a) On 6.11.96 Mr Dinh withdrew $13,000.00 cash from Helen's account and obtained an Advance Bank cheque for $13,000.00. The payee of the cheque was "R Lope". He gave the cheque to LR (see paras 38, 40; the cheque is Annexure P) (b) On 31.7.97 LR asked him to give him $2,000.00 cash which he withdrew from Helen's account and gave to LR (para 39).
The payment to lta is said to be in discharge of a loan made by Helen to LR. This is, it is submitted, unlikely.
Firstly, the sums do not match - the sums said to comprise the loan add up to $15,000.00. Dinh said, "I regarded the $400.00 as his payment in return for the loan". (para 41)
Secondly, look at the number of transactions between 6 November 1996 and 5 September 1997. There have been many payments flowing to and from between Helen's account and Kengfu/LR.
Look also at the number of transactions between 31 July 1997 and 5 September 1997. On 31 July itself LR gave Mr Dinh a personal cheque for $54,000.00 (fifth count) which was blank as to the payee.
The sixth defendant's explanation in her defence dated 26 June 1998 and sworn 8 October 1998 is different. She says that $15,400.00 was partly the repayment of the $13,00.00 loan, but she in effect gave LR $2,000.00 change by way of cash.
The defendant says that:- (3) ... the first defendant paid her the $15,400 by cheque, the amount comprising repayment of the $13,000 plus $400 interest, and that on receipt of the cheque the sixth defendant paid the first defendant $2,000 cash
FROM REYES REPAYMENTS REFERENCES DATE AMOUNT DATE AMOUNT 11 Sep 1997 $8,000.00 29 Sep 1997 $8,000.00 Dinh, H.K, 23 Feb 00, par 42, Cash; to "S" Reyes
1 On 11 September 1997 LR paid Mr Dinh a cheque drawn to cash in the sum of $8,000.00 on his ANZ personal account. The plaintiff claims this was the eighth count.
The attached chronology sets out the details of the following:
All payments made to the defendants sought to be recovered by the plaintiff in these proceedings.
All transactions (of which the plaintiff is aware) between Mr Dinh, or friends/relatives of Dinh, and Reyes.
All transactions (of which the plaintiff is aware) between Mr Dinh, or friends/relatives of Dinh, and the Southern Cross Hotel, Kengfu and APH.
All payments (of which the plaintiff is aware) from the Southern Cross Hotel (Kengfu or APH) to WJ Sun.
All property purchases by the Dinh family and LR.
It is submitted that it is necessary to view the alleged "loans" as set out in the schedule to the defendant's' submissions in the context of the entirety (so far as the plaintiff is aware) of the transactions between the extended Dinh family and friends and LR. These transactions viewed together show the extent of the payments of money into and out of Kengfu and APH accounts of which Mr Dinh or others in the Dinh family were aware. It is submitted that as the plaintiff's money forms but a small part of the money moving between LR and/or Kengfu or APH and the Dinh family, it is relevant when assessing the state of mind of Mr Dinh and/or his family and whether inquiries should have been made, to consider their understanding or awareness of the entirety of their transaction history with LR and Kengfu/APH. References to properties purchased by HKD or LR in buildings built by the Accord Pacific Group in Sydney are relevant as a number of the impugned transactions concern the plaintiff's money claimed to have been diverted into these purchases. Other property purchases by the Dinh family, and the sale of stamps, have been included for completeness in relation to financial transactions and property purchases. ESANDA V REYES CHRONOLOGY
TRANS. DATE EVENT REFERENCES/ NO COMMENTS 1 6.12.93 HKD borrowed $10,000 from HKD 26.4.00 para Hong Ye He. The money was 8, T395.50-396.25. paid by cheque. He cashed the cheque and gave the cash to LR, who did not know the money came from Hong Ye He. 2 Sept 94 HKD borrowed $20,000 from HKD 26.4.00 para Wang Tian Xiang which he lent to 8, T396.30-396.15. LR. HKD agreed to pay interest at 10% p.a. 3 10.11.94 BP Thai purchases family home at 9/42-44 Terrace Road, Dulwich Hill. Purchase price $172,000. Advance Bank loan $100,000. 4 27.10.95 Helen passbook account opens Exhibit Q, T243.55. with a deposit of $500.00. 5 16.11.95 HKD lent LR $65,000 by bank HKD 23.2.00 para cheque drawn from BP Thai's 11. Advance Bank account. LR placed money on term deposit with CBA. Loan was to be used for the building of LR's house. 6 Jan 96 HKD arranged for Dr Zhu to lend HKD 26.4.00 para LR $10, 000 and YL Lian to lend 8, T397-398.30. him $18,000. The money was paid in cash. HKD guaranteed payment. 7 29.4.96 HKD arranged for Ren Gu Xiang HKD 26.4.00 para and Pu Xu Qin to lend $59,400 to 8, T398.30-402. Southern Cross. LR said, Victoria Malong was "Southern Cross needed to LR's girlfriend: see borrow". HKD received the the submissions on cheques. One cheque for credit in which it is $30,400 was in favour of submitted that HKD Southern Cross and the other knew Ms Malong cheque for $29,000 was in favour was his girlfriend of V Malong. and must have known that there was something improper about the transaction at the time the money was paid.
LR said that if they lend the money he would employ them as chefs in the western cuisine area. That is why they did not require LR to pay interest: T401-402. 8 8.6.96 Cash withdrawal of $5,000 from Exhibit Q, T275.37 - Helen's account and given to L N.B. the transcript Reyes - "Lope" is written next to erroneously refers the entry in the passbook. to $500 instead of $5,000. 9 28.6.96 HKD arranged for Vinh Thai to T404.16, HKD lend LR $29,000. HKD obtained 26.4.00 para 8 a cheque blank as to the payee. T404.05-45. LR filled out the payee. "The money was borrowed for HKD did not think it Southern Cross". The cheque strange that money was paid into LR's personal for the hotel was account. being paid into LR's account. LR said the hotel used it to pay wages: T404.49-.56. HKD 26.4.00 para 8. 10 11.7.96 Ng Pu Keong gave HKD a cheque T405, HKD 26.4.00 for $50,000 in favour of Lope. para 8. This was a deposit on the purchase by HKD on a unit on the 11th floor of 1 Dixon Street. 11 22.8.96 Cash withdrawal of $3,000 from Exhibit Q, T275. Helen's account for $3,000 HKD He made no inquiry, has written next to the entry in the "Q: but you did not passbook "Southern Cross". He want to know why gave the cash to Lope. he needed cash? A: I did not think that he wanted me to know" T276. The transcript erroneously refers to $600 not $3,000. T275 - NB the transcript erroneously refers to $600 not $3,000. He made no inquiry.
12 16.9.96 An unauthorised cheque drawn Kho p 173. from Kengfu CBA account in (a) HKD arrange favour of WJ Sun for $14,500. the loans from Wei Jun Sun to LR in 1996 and 1997. He introduced them: T254.43, 256.17, 428.40,428.56 (b) "All of us went together" to lend the money: T428.4, 255.37 (c) HKD was a signatory on her account and every time he operated on her account to may money to LR: T254.51, 255.40-42, 428.53 (d) HKD knew WJ Sun was receiving cheques from Kengfu in payment of her loans: T254.55- 255.05. He knew that between Sept 1996 - January 1997 WJ Sun was receiving many cheques from Southern Cross Hotels. He said that this was because they were repayment of many loans to Southern Cross: T255.34.
(e) The total payments to WJ Sun between September 1996 and January 1997 were $117.000: see transactions plus a further payment of $24,000 on 29.7.97 (transaction 74) 13 18.9.96 An unauthorised cheque drawn Kho p 173: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $14,500. above. 14 18.9.96 Helen purchased 38/333 Bulwarra Road, Ultimo: purchase price $242,000. Advance Bank loan $150,000. 15 15.10.96 An unauthorised cheque drawn Kho p 173: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $12,500. above. 16 18.10.96 An unauthorised cheque drawn Kho p 173: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $12,500. above. 17 31.10.96 An unauthorised cheque drawn Kho p 173. from Kengfu CBA account in favour of WJ Sun for $9,361. 18 6.11.96 Bank cheque withdrawal Helen's Exhibit Q in favour account. of R Lope for $13,000. Lope said he wanted the money for the company but he asked that the cheque be drawn in favour of Lope but did not say why. He did not make inquiries or ask why or suspect that LR might use the cash for himself (T277). 19 5.12.96 Helen purchased 7/42-44 Terrace Road, Dulwich Hill: purchase price $137,500. Advance Bank loan $50,000.
20 6.12.96 LR gave HKD Kengfu CBA Exhibit R, T254 cheque 231 for $12,000 payee WJ Sun endorsed to Helen Dinh and paid into her account. 21 9.12.96 An unauthorised cheque drawn Kho p 173: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $12,000 above. 22 14.12.96 Bank cheque withdrawal from Exhibit Q. Helen's account of $10,000 - "Southern Cross" written next to entry in passbook. 23 30.12.96 LR gave HKD Kengfu CBA Exhibit R. cheque 237 for $20,000 Helen Dinh is payee. 24 2.1.97 HKD gave LR a bank cheque for Exhibit Q, T287- $12,000. Southern Cross is 288. payee. Money drawn from Helen's account. 25 8.1.97 HKD drew a cheque from Helen's Exhibit Q, T280- account for $18,556.47 in favour 285. The cheque of the NSW Sheriff's Office was to pay a judgment against LR Exhibit NN. HKD recorded the payment as "Lope" (T281, yellow stickers in Exhibit JJ) but he said it was for Southern Cross (T281-285). 26 9.1.97 HKD gave LR $5,500 cash drawn Exhibit Q, T286.10. from Helen's account. HKD said it was for Southern Cross 27 10.1.97 The next day LR paid the $5,500 Exhibit Q, Exhibit R, back to HKD with cheque No 243 T286. drawn on Kengfu account with the ANZ Bank drawn to "cash" for an LR was receiving amount of $5,000 and $500 cash cash from HKD one which he banked in Helen's day and paying it account. back with a Kengfu cheque the next. He did not even inquire why such a big hotel would do this. He said at T287.8 If I agreed to lend it why should I ask any questions".
It might be thought that this is a clear example of wilful blindness. 28 10.1.97 An unauthorised cheque drawn Kho p 173: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $25,500. above. 29 13.1.97 LR gave HKD Kengfu CBA Exhibit R. cheque 249 for $19,000 drawn to Helen Dinh as payee. 30 24.1.97 An unauthorised cheque drawn Kho p 173: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $25,500. above. 31 30.1.97 HKD withdrew $18,500 cash from Exhibit Q. He gave Helen's passbook. the cash to LR. LR said the hotel needed the cash. He did not make any inquiries as to what he was going to do with the cash or whether or not LR was going to use it (T287). 32 7.2.97 LR gave HKD a cheque for Exhibit Q, T288, $29,000 which he deposited in Exhibit A CS17. Helen's account - it bounced. He also gave HKD a cheque for $3,000 said to be in reduction of the Southern Cross debt (Exhibit Q, T288). It is recorded in the passbook as "cheque deposit". 33 13.2.97 HKD gave LR a cheque for Exhibit Q, T290. $9,000 drawn on Helen's account. The payee of the cheque is unclear but HKD says it was for Southern Cross. Helen's passbook records it as a bank cheque. HKD has written "SC Hotel" against the entry in the passbook. 34 14.2.97 Transmission from Hong Kong of T336. $A42,194 from sale of stamps. 35 19.2.97 LR gave HKD a cheque for Exhibit Q, T291. $9,000. LR's ANZ statement show that it was not banked in that account.
36 24.2.97 HKD withdrew $12,000 from T291, Exhibit Q. Helen's account and gave it to Lope's son. It was a bank cheque. 37 28.2.97 HKD deposited a cheque for Exhibit Q, T291. $12,300 in Helen's account which The evidence does was said to be the repayment of not disclose the $12,000 Lope Jr plus $300 drawer of the interest. cheque. 38 28.2.97 BP Thai purchased 43 Terrace Road, Dulwich Hill: purchase price $172,000. Advance Bank loan $100,000. 39 1.3.97 Alleged loan from Helen to L HKD para 32. Reyes of $26,800, in cash, said to be for Southern Cross. The cash was withdrawn from Helen's account. 40 7.3.97 LR gave HKD an ANZ bank cheque for $40,000. Payee is BP Thai. Drawn on LR's branch of the ANZ (1Oth Count). 41 13.3.97 Alleged loan from BP Thai to HKD para 14. Southern Cross of $30,000; $20,000 to OSR, $10,000 to Exhibit T. The Southern Cross Hotel. Both cheque for $10, 000 cheques drawn from BP Thai's was banked in Advance Bank account. Kengfu's account (Exhibit G). There is no record of the cheque to OSR. The cheques of $10,000 and $20,000 were drawn from the deposit of $40,000 from LR on 7.3.97 (Exhibit R). Prior to the deposit of $40,000 the balance was $1,049. 42 14.3.97 Transmission from Hong Kong of T336. $A45,183.15 from sale of stamps. 43 26.3.97 LR gave HKD Kengfu CBA Exhibit R: Kho p cheque No 293 for $11,200 drawn 173, which sets out to cash which he used to pay off bank traces. Helen's Visa card.
44 27.3.97 LR gave HKD Kengfu CBA Exhibit R. cheque No 294 for $11,800 drawn to cash which he used to pay off Visa card. 45 27.3.97 HKD gave LR an Advance Bank Exhibit G. Exhibit cheque drawn to Southern Cross T. Hotels as payee for $28,000 and drawn from BP Thai's account. The cheque was received by Kengfu. 46 14.4.97 HKD withdrew $5,000 from Exhibit Q. T291- Helen's account and gave it to LR 292. who said it was for Southern Cross. He recorded "Lope" LR did not say what against the entry. the money was for (T294.05). 47 16.4.97 HKD cashed a cheque of $5,000 Exhibit Q, T294- from Southern Cross. The 295. Again he cheque for $5,000 was deposited made no inquiries. and there was a corresponding He said this was a cash withdrawal on the same day. "swap exchange" (T295.25). 48 17.4.97 HKD gave LR an Advance Bank HKD para 51(1), cheque for $22,000 drawn to HKD Annexure Y, Southern Cross Hotel as payee Exhibit G. from BP Thai's account. Cheque received by Kengfu. 49 24.4.97 HKD withdrew $4,500 cash from HKD 51(2), BP Thai's account and given to L T295.15, Exhibit Q. Reyes. HKD withdrew $6,000 in cash from Helen's account and gave it to Lope for the hotel. 50 28.4.97 LR gave HKD a Kengfu CBA Exhibit R. cheque 329 for $14,000. The payee is BP Thai. 51 5.5.97 LR gave HKD a Kengfu CBA Exhibit R. cheque 333 for $16,750. The payee is HK Dinh. 52 12.5.97 LR gave HKD a Kengfu CBA Exhibit R. cheque 338 for $10,000. The payee is HKD. He used it to reduce his Visa Card. 53 12.5.97 LR gave HKD a Kengfu CBA cheque 339 for $8,000. The payee is HKD (endorsed to JP Xu). 54 14.5.97 HKD gave LR a cheque for HKD affidavit para $31,000 drawn in favour of 20, submissions Accord Pacific. para 32(d). This payment was associated with the
purchase of Unit 702 Hyde Park Towers from Accord. 55 23.5.97 LR gave HKD a Kengfu CBA Exhibit R. cheque 350 for $28,500. The payee is BP Thai. 56 26.5.97 LR gave HKD a Kengfu CBA Exhibit R, Exhibit Q. cheque 352 for $12,200 drawn to cash which was deposited in Helen Dinh's account. 57 27.5.97 HKD drew two amounts of cash Exhibit Q. The from Helen's account of $3,000 passbook also and $4,000. HKD has written records a cheque "Lope" next to these entries in the deposit of $$7,000 passbook. on 5.8.97. This entry has 27/5 written next to it. 58 29.5.97 L Reyes ANZ cheque 1039 for $32,450. The payee is BP Thai (3rd count). 59 5.6.97 HKD gave LR - cash of $22,000. HKD 51(7), In the passbook next the entry is Annexure DD. "Lope borrow cash" written in Chinese - bank cheque for $12,000. The payee is Southern Cross Hotels drawn from BP Thai's Advance Bank account 60 6.6.97 LR gave HKD $5,000 in cash Exhibit Q, T295. 10.6.97 which was deposited in Helen's Another cash swap account and LR received a for a cheque. cheque for $5,000 drawn from Helen's account. 61 14.6.97 LR gave HKD Kengfu CBA Exhibit R. cheque 364 for $12,800 drawn to cash which was deposited in BP Thai's account. 62 26.6.97 Alleged loan of $9,000 to HKD para 27, Southern Cross for hotel's payroll Annexure H. - HKD gave LR a bank cheque. The payee is Southern Cross Hotel. Drawn from BP Thai's account. 63 27.6.97 LR gave HKD Kengfu CBA Exhibit R. cheque 373 for $5,000 drawn to cash. Deposited to BP Thai's account
64 30.6.97 LR gave HKD Kengfu CBA Exhibit R. cheque 376 for $1,750 drawn to cash deposited to BP Thai's account. 65 30.6.97 LR gave HKD Kengfu Advance Exhibit R. cheque 100061 for $70,000. The payee is BP Thai. 66 2.7.97 HKD gave LR $3,000.00 cash Exhibit Q, T295. 4.7.97 withdrawn from Helen's account Another cheque and he gave HKD a cheque for "swap" of $3,000 $3,000 which he deposited in from Helen's Helen's account. Account. 67 3.7.97 Alleged loan of $34,000 to HKD Annexure 1, Southern Cross comprised of:- HKD para 28, (a) Cash of $4,000 drawn from Exhibit R. BP Thai's account. (b) An Advance Bank cheque The payment is said drawn to Accord Pacific to be because Holdings for $30,000 from Southern Cross BP Thai's account. needed cash (para 28). The cheque to Accord was for LR's purchase from Accord of Unit 2803 Hyde Park Towers. See submissions para 32(d). 68 7.7.97 Alleged loan to Southern Cross HKD para 29. for $5,000 cash. HKD drew the cash from BP Thai's account and gave it to LR. 69 7.7.97 Cash withdrawal of $4,000 from Exhibit Q. There is Helen's account. no evidence as to who received the cash. 70 10.7.97 Advance Bank payment of $4,000.00 to Lope Reyes Jnr. 71 15.7.97 Transfer of $21,000.00 to Kengfu (see p7 of Response to Schedule) 72 22.7.97 LR gave HKD Kengfu CBA Exhibit R, Kho p cheque 390 for $10,075 drawn to 174, T237. He cash. HKD used it to reduce his knew the cheque Visa card account. was drawn on Kengfu and did not come out of LR's personal account: T237-38. 73 28.7.97 HKD alleged purchase of 130/336 Sussex Street, Sydney purchased in LR's name.
74 29.7.97 An unauthorised cheque drawn Kho p 174: see from Kengfu CBA account in transaction 12 favour of WJ Sun for $24,000. above. 75 31.7.97 L Reyes ANZ cheque 1057 for $54,000 drawn to BP Thai as payee (5th count). 76 31.7.97 Alleged loan to LR for $2,000 HKD para 39, cash. HKD withdrew the cash Exhibit Q, T295. from Helen's account and gave it to LR. 77 6.8.97 HKD alleged payment of $15,000 Schedule to BP to Southern Cross. Thai's defence. Exhibit G. 78 6.8.97 HKD gave LR $10,000 cash HKD para 43. drawn from BP Thai's account 79 7.8.97 HKD gave LR $7,000 cash from HKD para 43. "I do BP Thai's account. not know what the amounts were for". 80 7.8.97 Cash withdrawal of $6,000 from Exhibit Q. The Helen's account. evidence does not show who received the cash. 81 11.8.97 L Reyes ANZ cheque 1071 $26,800 to Helen Dinh as payee (6th count). 82 14.8.97 Bank cheque withdrawal of Exhibit Q - payee $12,000 from Helen's account. unknown. 83 18.8.97 Cash withdrawal of $4,000 from Exhibit Q. The Helen's account. evidence does not show who received the cash. 84 19.8.97 Cash withdrawal of $10,000 from Exhibit Q. The Helen's account. evidence does not show who received the cash. 85 22.8.97 LR gave HKD a cheque for Exhibit Q, T252.53. $38,000. Said to be in repayment of a loan 86 26.8.97 HKD drew a cheque for $35,000 Exhibit Q, T251 - in favour of LR from Helen's 252. He did not say account. what it was for. HKD drew cash of $7,000 from her account and gave it to LR. 87 27.8.97 LR gave HKD Kengfu Advance Exhibit Q. cheque 100104 for $50,000 to Helen Dinh as payee.
88 28.8.97 LR asked HKD for the $50,000 Exhibit Q, T244- back - $20,000 in cash and a 247, Exhibit R. cheque for $30,000 which HKD HKD made no paid. inquiry and did not think it odd that the alleged loan of $50,000.00 would be required to be repaid the following day. He did not consider whether he might be using the cash himself. 89 29.8.97 BP Thai purchased 8/29 Myra Road, Dulwich Hill: purchase price $132,500. Advance Bank loan $98,000. 90 5.9.97 L Reyes ANZ account 1083 for $17,000 to BP Thai as payee (8th count). 91 5.9.97 L Reyes ANZ cheque 1082 for 10% deposit on $15,400 on behalf of Ita Dinh in purchase of 1/20 favour of Richardson & Wrench Myra Road: see (8th count). transaction 94. 92 11.9.97 L Reyes ANZ cheque 1097 for $8,000 to HK Dinh (to pay of Visa Westpac credit card) (8th count). 93 12.9.97 Transmission from Hong Kong of $A40,214.48 from sale of stamps: T336 94 14.11.97 Ita purchased 1/20 Myra Road, Dulwich Hill: purchase price $154,000. Advance Bank loan $92,000.
Last Modified: 06/12/2001 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.
Esanda Finance Corporation Ltd
Reyes & Ors
CITATION : Esanda Finance Corporation Ltd v Reyes & Ors [2001] NSWSC 234 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5084/97 HEARING DATE(S) : 28/02/00, 29/02/00, 2/03/00, 13/04/00, 14/04/00, 19/04/00, 20/04/00, 26/04/00, 28/04/00, 3/05/00 (Final submissions received 13 September 2000) JUDGMENT DATE : 12 April 2001
(1910) 12 CLR 105
(1975) 132 CLR 373
(1985) 160 CLR 583