Hraiki v Hraiki

Background 9In 2004 the Dutton Street property was jointly owned by George and Colleen Hraiki. Colleen had inherited her half share in the property from her mother who died in February 2004. George and Colleen agreed to sell a one-third share in the property to Rodney if he agreed to accept responsibility for the mortgage. In 2007 they agreed to buy the share back. They agreed to pay $63,000 to Rodney and to refinance the existing mortgage so as to discharge him from responsibility under the mortgage. 10In about mid-2007 Colleen contacted her cousin Shadi and asked him to organise finance of about $300,000. George and Colleen Hraiki attended on two occasions at the home of Sam and Shadi Hraiki's parents which doubled as an office for Shadi. This was in Richmond Street, Croydon. On the first occasion they signed a loan application to Westpac. Colleen noticed that the application was for $380,000. She queried this and was told by Shadi that she would not have to use all the money, but it was there if they needed it. That loan application did not proceed. 11Shadi Hraiki must have used the services of another finance broker or other finance brokers. On 11 September 2007 a Marissa Fabriola wrote to a solicitor, Mr Graham Barnett, of Mackellar Crain & Barnett. Evidently that firm acted for persons who were willing to make private loans on the security of real property. Ms Fabriola, writing on the letterhead of Milan Services Pty Ltd, apparently a finance broker, advised Mr Barnett that " I have been instructed to arrange finance for the abovenamed clients [viz George and Colleen Hraiki]." She said that the loan amount sought was 75 per cent of the valuation of the Dutton Street property and the purpose of the loan was to repay the existing loan, with the balance of the moneys to be used for investment. 12Neither George nor Colleen Hraiki gave evidence of any dealings with Milan Services Pty Ltd or Ms Fabriola. It was not suggested to them in cross-examination that they had conveyed those instructions. Ms Fabriola did not give evidence. I infer that she received her instructions from Shadi Hraiki or Sam Hraiki. 13Another person engaged to assist in the raising of finance was a Mr Charles Kolotas. On 17 September 2007 he wrote to Ms Fabriola as follows: " Hi Marissa I attach as requested the Accountants [sic] letter for Mr G Hraiki and two current payslips for Colleen Hraiki. As discussed this matter needs to settle before close on Friday 21 st of September. Please confirm the above and the terms and conditions in the offer letter. If we are not able to complete by the above timeframe please let me know immediately so I may arrange alternate finance. " 14Neither George nor Colleen Hraiki gave evidence of having had any communications with Charles Kolotas and it was not suggested to them in cross-examination that they had done so. The " accountant's letter " attached to Mr Kolotas' facsimile appeared to be on the letterhead of Finn Warner & Associates and appeared to have been signed by Mr Finn. It stated, amongst other things, that Mr Finn was the accountant for George Hraiki and had acted for him for the last ten years and understood that he had applied for a loan of $800,000. It purportedly certified that Mr Hraiki was a self-employed builder earning $150,000 per annum and was able to repay the loan. Mr Finn gave evidence that the document was a forgery. The letterhead purporting to be that of Finn Warner & Associates was not that firm's letterhead. The purported signature was not his signature. He deposed that " there are a series of letters in this form with my signature forged thereon in circulation and are simply, forgeries ." His evidence that the letter was a forgery was not challenged. 15Mr Finn gave evidence that he had never met George Hraiki or Colleen Hraiki, and that Finn Warner & Associates had never done any work for them and he did not become aware of them until proceedings were commenced. I accept Mr Finn's evidence in these respects. I accept his evidence that the letter was a forgery. The clear implication is that he was unaware that the letter had been prepared. The contrary was not suggested. I infer that the forged letter was produced as part of a fraudulent scheme of either Sam or Shadi Hraiki to raise moneys of up to 75 per cent of the value of the Dutton Street property. 16On 17 September 2007 Ms Fabriola wrote to a Mr Elias Tabthourie of Macquarie Lawyers in Burwood. She said: " I have been advised that you will be acting for the abovenamed clients [viz George and Colleen Hraiki] in regard to finance that I have arranged for them using their property ... Dutton Street, Bankstown as security. " 17Neither George nor Colleen Hraiki gave any evidence of retaining Macquarie Lawyers. Nor was it suggested to them in cross-examination that they had done so. It can be inferred again that Ms Fabriola's instructions came from Sam or Shadi Hraiki. Two days later Macquarie Lawyers wrote to Mackellar Crain & Barnett providing particulars of title to the property. 18On 20 September 2007 Ms Fabriola sent a fax addressed to "Charles" who I infer was Charles Kolotas. She said: " Re: Hraiki. Documents are not ready to be picked up as one of the lenders wants to go and look at the property on the weekend. The lenders solicitor and Mr Finn have agreed on a loan amount of $600,000. I will prepare a mandate for 1% GST = $6,600 - but the lender usually protects me and draws a cheque at settlement. Regards, Marissa " 19Mr Finn gave no evidence about this facsimile. He was not asked about it in cross-examination. Ms Fabriola did not give evidence. 20On 24 September 2007 Mackellar Crain & Barnett advised Macquarie Lawyers that subject to satisfactory searches and valuations the intending mortgagees agreed to lend $600,000 on security of the Dutton Street property. The loan was to be for a term of 12 months at an interest rate of nine per cent per annum, with the first three months' interest to be paid in advance. They enclosed mortgage documents to be executed. These documents must have been provided by Macquarie Lawyers to Shadi or Sam Hraiki. 21On 26 September 2007 Colleen and George Hraiki went to the home of Shadi and Sam Hraiki's parents in Richmond Street, Croydon. According to Colleen the other persons present were Shadi Hraiki and his parents. She said that " Sam was sort of in the background ". On that occasion George and Colleen Hraiki signed the instrument of mortgage. They signed each of the pages of the mortgage. The third page of the document included a sentence that the " Mortgagors hereby acknowledges [sic] receipt of the principal sum of $600,000.00 ". The second page contained typed figures of the amounts to be lent as the contributory proportions of the four mortgagees which totalled $600,000. The plaintiffs' signatures appear at the foot of those pages. Colleen and George Hraiki both deposed that when the documents were signed they were part of a bundle and only part of the page was lifted up by Shadi Hraiki for them to sign. I accept that evidence. 22George and Colleen Hraiki also signed various authorities and acknowledgments. They signed a form authorising Mackellar Crain & Barnett to pay the mortgage advances as their solicitor might direct. They signed a declaration that the advance was for predominantly business or investment purposes and an acknowledgment of having received independent legal advice. They did not consider the truth of these documents. George Hraiki, whose first language is Arabic, would not have been able to understand the documents. 23The signatures of Colleen and George Hraiki were purportedly witnessed by a solicitor, Mr Adam Ly. George and Colleen Hraiki denied that Mr Ly had been present when the documents were signed. Mr Ly disputed this. That issue has no direct relevance in the present case. What is significant is that Adam Ly gave evidence to the effect that when the documents were signed he gave advice to George and Colleen Hraiki about the documents they were signing, including that they were borrowing $600,000 and there was discussion that the balance of the funds to be advanced, after paying out Perpetual (the outgoing mortgagee), would be paid to Finn Warner & Associates. 24Mr Ly did not have a file note or any written evidence to confirm his attendance. His mobile phone records, however, indicated that he was in the Croydon area at the relevant time and in contact with Shadi shortly before he arrived. He had an existing business relationship with Shadi. Shadi was a mortgage broker who referred clients to Mr Ly when mortgages or other conveyancing documents needed to be executed. 25Mr Ly's mobile phone records showed his making a telephone call to Shadi at 8.58am on 26 September 2007 and a further phone call to Mackellar Crain & Barnett at 9.41am on 26 September 2007. The records corroborate his making the second call from Croydon which is consistent with his being at Shadi's parents' house at that time. Mr Ly gave evidence that he was introduced to Sam Hraiki and to Colleen and George Hraiki, and that they all sat around a table where documents were put in front of him and he sat down and spoke to Colleen and George " about the nature of [the] documents and the nature of the transaction which they were getting into and what their obligations were ". He said that after going through the documents and explaining them to George and Colleen Hraiki, he had them signed where he indicated and witnessed their signatures. 26Mr Ly was asked whether he could describe Colleen and George Hraiki, and in his evidence in chief said that he was unable to do so. When he gave that evidence, Colleen and George Hraiki were sitting in the back of the court. Mr Ly was also asked whether there were any further discussions with Colleen or George or Sam or Shadi. He said: " We talked about - I said that I couldn't attend settlement because I was busy in court all that week, and I, of course, couldn't also drop off the mortgage documents to the mortgagee. They said they wanted to settle urgently, and I said 'Well I can't attend settlement.' We also had a discussion about the structure of the loan and where the money was going to go. " Mr Ly was asked who he had the discussion with. He said: " Collectively with Sam, Shadi and Colleen and George Hraiki. " 27By " collectively " he meant that they were all present " and it was all part of the discussion ". He said that: " Sam told me that certain amount of moneys were to be drawn by way of cheque on settlement to a Rodney Hraiki who I understood, by looking at the paperwork and speaking to the mortgagors, was to be taken off as a proprietor of the property. A certain amount of funds [were] to go to discharge the mortgagee ... and the surplus of the funds was to go to accountants by the name of Finn Warner. " 28Mr Ly said that this was discussed at the table in the presence of Colleen, George, Sam and Shadi Hraiki. He said that he asked them whether that was okay and they said " yes ". 29In his evidence in chief Mr Ly did not give any evidence of explaining to George and Colleen Hraiki what amount was to be borrowed. He did not give evidence in chief of there being any discussion as to the amount of the loan except that he said that Sam said that a " certain amount of moneys was to be drawn by way of cheque to Rodney Hraiki " and a " certain amount of funds [was] to go to discharge the mortgagee " and the " surplus " was to go to Finn Warner. 30The following day, that is, 27 September 2007, Mr Ly wrote to Mackellar Crain & Barnett authorising and directing them to draw bank cheques on settlement as follows: " 1. Rodney Hraiki $63,000 2. Perpetual Trustee Company Limited $247,625.48 3. Finn Warner & Associates $Balance of Available Funds. " 31In cross-examination Mr Ly gave the following evidence: " Q. ... Can I suggest that when you sent that letter you didn't know how much was being lent or proposed to be lent to George and Colleen Hraiki? A. It was the day after I explained the mortgage documents. Q. Yes. I am suggesting to you that when you sent that letter you didn't know how much the loan was? A. I didn't know the exact amount, no. " 32This answer was not consistent with Mr Ly's having read the document, nor with his having explained to Colleen and George Hraiki the amount of the loan, nor with his having been present when the amount of the loan was discussed. 33Later in his cross-examination Mr Ly gave the following evidence: " Q. Now, can you tell me what you told Mr Hraiki and Ms Hraiki about the transaction, that is, what did you tell them by way of explanation of the documents? A. I didn't read through every single paragraph of every page, but the nature of the documents, what their obligations were under the loan, what would happen if they didn't pay it back or make the repayments in time. Things of that nature. Pertinent features of the loan. Q. Did you enquire as to why there was such an excess of funds over and above the amount needed to payout the former mortgagee? A. I don't recall. " 34Earlier, My Ly had been asked how much he understood George and Colleen Hraiki were borrowing and said " I can't recall the loan document, sorry ". Later he said " It is six hundred and something, I think ". This was the only evidence Mr Ly had given at that point of being aware that there was " an excess of funds over and above the amount needed to pay out the former mortgagee ". 35Mr Ly gave the following further evidence in answer to questions that I asked: " Q. What did you say about the nature of the documents? A. I said that they were mortgage documents and they were borrowing from a certain people or peoples, your Honour. Q. And what did you say about the obligations that they would assume? A. I recall, I think, it being a short term loan and there was considerably high interest rate, and I explained those terms to them, and if they didn't repay them back on time that the mortgagee had the right to execute or to take possession of the property if they didn't pay it back. Q. What did you say about the pertinent features of the loan? A. That it was a short term loan and they had to pay, I think it was close to three to six months they had to pay it back. There was an interest rate, I recall, close to 10 per cent, or something like that. It was a high interest rate. I explained that to them, and I explained all the other ancillary documents that accompanied the main mortgage document and the loan agreement. Q. You haven't yet said that you told them how much was being borrowed. Did you or not? A. I am sure I did, your Honour, but I can't specifically say the amount now I know. Q. You told me earlier, in answer to a question from Mr Rogers, that on the following day you didn't know the exact amount that was borrowed? A. No, your Honour. Q. Have you got an explanation for that? A. Your Honour, I gave the mortgage documents straight back to either Sam or Shadi or Colleen or George Hraiki, and I didn't take a copy of them back to my office because I couldn't deliver - I didn't have the time to deliver them, so I left it in the family's hands. " 36In re-examination Mr Ly was asked about his earlier answer in cross-examination that he did not know the exact amount of the loan. He said that he was unaware of what fees and charges were for establishing a mortgage that would be deducted from the final amount. That was not an adequate explanation as he had previously said that he did not know the exact amount of the loan, not that he did not know the exact amount to be available to the borrowers after deduction of costs and expenses.

Plaintiffs did not authorise payment to Finn Warner & Associates 37The critical question is not whether Mr Ly was present when George and Colleen Hraiki signed the mortgage and other documents, but whether they appreciated that they were borrowing $600,000 and concurred in the balance of the funds available after paying Rodney Hraiki $63,000 and discharging the debt to Perpetual, being paid to Finn Warner & Associates. It is quite possible that Mr Ly was present without the plaintiffs recalling his presence. He, like Sam Hraiki, may have been " in the background ". But I do not accept that Mr Ly explained to Colleen and George Hraiki the documents they were asked to sign, or told them that they were borrowing $600,000. Had he provided such an explanation, they would have objected. Had Mr Ly consulted the plaintiffs about the purpose of the loan, he would not, one trusts, have permitted the plaintiffs to sign a declaration that the credit to them was to be applied wholly or predominantly for business or investment purposes. It is also unlikely that he would not have been able to describe his clients. Moreover, the fact that he did not know the exact amount of the loan and that his initial explanation for that was that he had given the mortgage documents straight back and had not kept a copy, also indicates that he did not tell Colleen and George Hraiki how much was being borrowed, and there was no discussion in his presence of the amount of the loan. 38I am satisfied that Colleen and George Hraiki did not know that they had signed documents under which they borrowed $600,000. I am satisfied that that information was kept from them by Shadi and Sam Hraiki and was not disclosed to them by anyone else. This is a likely scenario, given that Sam Hraiki thereafter dealt with the moneys for his own purposes. It was not put to either Colleen or George Hraiki that they authorised Sam Hraiki to deal with those moneys. I do not accept that George or Colleen Hraiki authorised payment of any sum to Finn Warner & Associates. They had never dealt with Finn Warner & Associates and there is no reason they would have given such authority, unless they had knowingly agreed to borrow more than was necessary so as to allow Sam or Shadi Hraiki to deal with the surplus. There is no evidence that they did. Colleen Hraiki was a witness of credit. Whilst there were difficulties with the obtaining of responsive answers from George Hraiki (who gave his evidence mostly through an interpreter) I am satisfied that he understood that he and his daughter were borrowing only approximately $300,000 to pay out Rodney Hraiki and Perpetual.

Sam Hraiki liable as constructive trustee 39It follows that Sam Hraiki committed a fraud on the plaintiffs. It is unnecessary to decide, and in any event, impossible to say, whether Shadi Hraiki was complicit in the fraud. I infer that Sam Hraiki either directly or through Shadi Hraiki instructed Mr Ly to direct payment of the balance of the mortgage advance to Finn Warner & Associates. In dealing with those moneys (that totalled $260,426.52) for his own benefit, Sam Hraiki was liable as constructive trustee. A person who obtains property by fraud holds it on trust for the true owner. Whether the trust is characterised as a constructive trust ( Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716) or as a presumed resulting trust ( Robb Evans of Robb Evans & Associates v The European Bank Ltd [2004] NSWCA 82; (2004) 61 NSWLR 75 at 100 [112]), it arises at the time the fraudster obtains the property ( Black v S Freedman & Co (1910) 12 CLR 105 at 110; Robb Evans & Associates v European Bank Ltd at 100 [113]-[115]; Westdeutsche Landesbank Girozentrale v Islington London Borough Council at 714-715). 40Sam Hraiki acted in breach of trust by disbursing the moneys otherwise than for the benefit of the plaintiffs by paying it to Finn Warner & Associates and thereafter drawing $100,000 in cash, directing payment of $155,500 to his sister, and directing or permitting payment of $4,870 to Finns Bin Investments.

Peter Finn liable as an accessary 41The next question is whether Mr Finn became personally liable to account to the plaintiffs for the moneys received into the Finn Warner & Associates bank account and disbursed by him on the ground that he assisted with knowledge in a dishonest breach of trust by Sam Hraiki. 42Mr Finn deposed that in about May 1993 he established a taxation practice then known as Finn Maher & Associates ("FMA") in partnership with a Mr Adrian Maher. In about February 2006 Mr Warner purchased Mr Maher's interest in the practice and became an equal partner with Mr Finn. They carried on business as partners under the name of Finn Warner & Associates ("FWA"). That partnership was dissolved upon Mr Finn's becoming a bankrupt on 31 March 2008. 43Mr Finn deposed that he first met Shadi Hraiki in the late 1990s and completed his personal income tax returns from 1997 to 2007. He arranged a loan for one of his clients through Shadi Hraiki who was a mortgage broker at the time. Mr Finn deposed that he first came to know Sam Hraiki in about 1995 and since that time completed Sam Hraiki's personal income tax returns and in later years the income tax returns for a company with which Sam Hraiki was associated. He also deposed as follows: " 17. In or about 2003, I commenced to lend money from time to time to Sam, or money to persons introduced to me by Sam. Lending transactions on this basis took place regularly through me personally or FBI, but never through FWA, nor FMA. All these loans were on a short term basis - 3, 6 or 12 month durations. 18. From time to time, Sam would deposit varying amounts into bank accounts maintained by FMA and FWA. As Sam was an existing client of the practices for a number of years, therefore I would agree to Sam's numerous requests that he pay loan and property transaction proceeds into the accounts of FMA and FWA from time to time. Sam would often need the settlement of funds urgently and could not wait for normal clearance times, therefore I would draw on the deposited funds on the same day. 19. The payment of $260,426.52 on 28 September, 2007, into the FWA Business Management Account maintained with the National Australia Bank and numbered [xx-xxx-xxxx] ( Bank Account ), was one such transaction. ... 30. I recall these cheques being drawn, but I cannot recall the circumstances surrounding how they were drawn. What I do recall about the deposit and the drawing of the cheques on the Account is:- I recall a conversation with Sam in which the following words or words to the following effect were said: Sam said: Pete, I have a bank cheque on a settlement of one of my properties. Can I get it made out to Finns Bin Investments? I need the money quick. I said: I can't give you the cleared funds until the cheque clears because I don't have sufficient funds in the Finns Bin Investments bank account. Sam said: What about Finn Warner? I said: Yeah, we do have funds there. That would be OK. On 28 September, 2007, I recall attending the National Australia Bank at Burwood with Sam and cheque 1209 drawn on the Account. At this time, cheque 1209 was cashed at the teller at the Bank and the cash of $100,000.00 was given to Sam who took it away with him. Cheque 1211 was money owing by Sam to [Finns Bin Investments] in relation to the payment earlier made by [Finns Bin Investments] in relation to a telephone account held by Sam. Cheque 1210 was handed to Sam on 28 September, 2007, which he took away with him from my office ." 44In oral evidence in chief Mr Finn said that when he referred to " Sam " in para 18 of his affidavit, he was referring to companies associated with Sam Hraiki. He later added that there were also other third parties who deposited money into the FMA or FWA account and that " we should add other third party mortgages totally unrelated to Sam that he would have organised ". He said that moneys flowed on from these short term mortgages on a regular basis when he (Mr Finn) was lending money. Mr Finn said that through Finns Bin Investments he would lend money to third parties under short term mortgages organised by Sam Hraiki. He said that when money was repaid it was often needed again quickly, sometimes on the same day, to re-lend under a new short term mortgage and Mr Finn would draw on the FMA or FWA account before the funds from the previous mortgagor had been cleared, rather than have the repayments deposited to Finns Bin Investments' account and drawn from that account. He could draw on the FMA or FWA account before the deposited cheque was cleared because it was in credit. 45As at the close of business on 27 September 2007 (the day before the deposit of $260,426.52) the Finn Warner account was in credit to the extent of $256,911.55. This was due to the crediting to the account of payments from the Australian Taxation Office, evidently as tax refunds for clients of the practice. Although the account was not styled or operated as a trust account, Finn Warner & Associates would have been required to account to its clients for the moneys received, less, presumably, any fees it was entitled to deduct from the receipts. I infer that this was also the position for the earlier periods in respect of which Mr Finn described his practice of drawing on the account to provide loans through Finns Bin Investments to clients of Sam Hraiki before cheques deposited to the account in repayment of earlier loans had been cleared. 46There was no evidence to corroborate Mr Finn's evidence of that practice. He had been subpoenaed by the plaintiffs to produce any correspondence with Sam Hraiki between 1 January 2007 and 31 December 2008. No documents were produced. He said he had lost all his emails. He was subpoenaed to produce documents in relation to deposits made by Sam Hraiki into bank accounts of Finn Warner & Associates as described in para 18 of his affidavit. He produced no such documents on the ground that the deposits were made not by Sam Hraiki, but by companies associated with Sam Hraiki. This was notwithstanding that Mr Finn had deposed by affidavit that the deposits were made by Sam Hraiki. 47Mr Finn accepted in cross-examination that the transaction of 28 September 2007 with Sam Hraiki which he described in his affidavit was not a transaction of the kind he described in paras 17 and 18 of his affidavit. 48Mr Finn gave oral evidence in cross-examination in connection with the deposits and withdrawals of 28 September 2007 that went beyond the recollection to which he deposed in para 30. He said that Sam Hraiki told him that he was under financial distress and pleaded with Mr Finn to get at least some of the money as cash (T56). Sam Hraiki told Mr Finn that he was threatened with physical violence unless he paid $100,000 in cash the next day. According to Mr Finn, Sam Hraiki told him that the reason he was drawing a cheque payable to his sister was that he owed his sister money. Mr Finn said that Sam Hraiki told him that he could not clear funds quickly enough through his own bank account. Mr Finn said that " no doubt he was having problems with his bankers " but also said he was not aware of that at the time. 49Mr Finn understood that Sam Hraiki had financial troubles at the time. On 24 August 2007 a cheque for $165,000 had been deposited to the Finn Warner & Associates account. It was dishonoured. According to Mr Finn, Sam Hraiki explained this transaction by saying that the cheque had been deposited in error. Mr Finn said that at that time he asked Sam Hraiki why he put the cheque in the bank. He said he could not remember Sam Hraiki's answer, but he was told that Sam Hraiki was under financial stress (T56). 50Mr Warner did not call evidence to corroborate Mr Finn's evidence. I was told that Sam Hraiki was in prison. That did not mean that he was not a compellable witness. There was no evidence to corroborate Mr Finn's assertion that Sam Hraiki owned property in Wollongong. Nor was there any evidence to contradict Mr Finn's evidence that Sam Hraiki did own real property. 51I do not consider that Mr Finn was a credible witness. His evidence as to the practice of deposits being made to the account of Finn Warner & Associates shifted from his saying that deposits were made by Sam Hraiki, to saying that they were made by companies associated with Sam Hraiki, to saying that they were made by borrowers from Finn Bin Investments unrelated to Sam Hraiki except through his having organised the loans. His evidence that the transaction on 28 September 2007 involving the payment of $260,426.52 was " one such transaction " (as described in para 18 of his affidavit) was inconsistent with the rest of his evidence. Mr Finn gave his evidence as if each shift were a clarification of what he had attempted to convey earlier. This was not credible. 52In cross-examination Mr Finn said that having been asked by Sam Hraiki to clear funds through Finn Warner's account, he received a telephone call from a lady who said she was from the office of Adam Ly & Associates who said to him words to the effect " We have a property settlement relating to Mr Hraiki and he has asked us to put the funds into Finn Warner. Is that correct? " Mr Finn said that he said that that was okay and that he checked with his bank that the bank cheque had been deposited. He gave no evidence of that in his affidavit. Mr Ly gave evidence that he gave no instructions to anyone from his firm to contact Mr Finn and he was the only person in the firm who had any dealings with any of the participants in the loan transactions. He said that although there was a woman in the office working as a clerk, she had no dealings in relation to the matter and he gave no instructions to anyone to make any phone calls in relation to it. I accept that evidence. I do not believe Mr Finn's evidence that he received a call from Adam Ly & Associates about the pending deposit to the Finn Warner account. 53Mr Finn's evidence is inconsistent with the facsimile from Ms Fabriola to Charles Kolotas dated 20 September 2007 which states that the lender's solicitor and Mr Finn, had agreed on the loan amount of $600,000 (at [18] above). I would not reject his evidence on that account. As I have said, Ms Fabriola was not called. Mr Finn gave no evidence about that letter and was not asked about it in cross-examination. I infer that both counsel took a forensic decision as to whether to broach the matter. There were arguably two competing principles at play. On the one hand, where a party fails to ask a witness questions in chief about a relevant topic, it may be inferred that the party fears to do so lest the examination in chief expose facts unfavourable to the party ( Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418). As Ms Fabriola's facsimile had been tendered and admitted without objection it might have been expected that Mr Finn would have been asked questions in chief to explain or contradict the conclusion that might otherwise be drawn from the document that he was aware that the moneys deposited to the account were the proceeds of a loan to a client of Mr Hraiki's. On the other hand, there is also a principle that if a party intends to submit that an inference adverse to a witness should be drawn from evidence adduced in the case, the relevant matter should be put to the witness in cross-examination so that the witness can deal with it ( Browne v Dunn (1893) 6 R 67; see generally Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth) [1983] 1 NSWLR 1 at 22-23). 54No notice was given in any of the affidavits that the plaintiff might rely upon the document in question as contradicting Mr Finn's evidence. It was tendered as an exhibit. In his affidavit Mr Finn said that he did not become aware of George or Colleen Hraiki, or know of them until the commencement of the proceedings. He was not challenged on that evidence. The correspondence from Ms Fabriola cannot be relied on to contradict that evidence. He also gave evidence in his affidavit as to his understanding of the source of funds deposited to the Finn Warner account which was inconsistent with the conclusion that could otherwise be drawn from Ms Fabriola's facsimile. 55In those circumstances I think that it was necessary for counsel for the plaintiffs to put to Mr Finn that he had agreed with the lender's solicitor the amount of the loan and was aware that the source of the funds was from a loan organised by Sam or Shadi Hraiki, if that submission was to be put. 56In any event, in the absence of evidence from Ms Fabriola, I would infer that the information that she conveyed to Mr Kolotas was information given to her by Sam or Shadi Hraiki, but not that the information so provided to her was true. Such a statement may well have been made to allay any query from her as to the disposition of the balance of the loan. 57Nonetheless, the transaction must have appeared suspicious to Mr Finn. On his version of events Sam Hraiki was directing payment of the proceeds of sale of one of his properties. One of the payments was to be made to his sister to repay a debt owed to her. Mr Finn could advance no plausible legitimate reason why, if Sam Hraiki wished to repay money he owed to his sister, he would not have simply drawn a cheque on settlement payable to her and provided it to her. There was no advantage in obtaining a quick clearance of moneys by obtaining a bank cheque payable to Finn Warner & Associates, and then drawing a personal cheque of that firm payable to Sam Hraiki's sister which she would then have to clear. 58Moreover, Mr Finn knew that Sam Hraiki was in financial distress. On his version of events he was told that Sam Hraiki was having dealings with an underworld figure who threatened physical violence if he was not paid $100,000 in cash. He knew that Sam Hraiki organised loans for clients. He must have known that passing the proceeds through the Finn Warner account could be a means of making it difficult to trace the money in the hands of its recipients to the source of payment. In the vernacular, Sam Hraiki was laundering the money through the account. The fact that the moneys in the account, or a substantial part of them, had to be accounted for to clients of the firm (whether or not they were strictly trust moneys) should only have heightened the need for inquiry. 59I accept Mr Finn's evidence that he understood that Sam Hraiki was in financial distress. That was corroborated by the dishonour of the earlier cheque for $165,000. That transaction was not explained. Mr Finn said that he asked Sam Hraiki why he put the cheque for $165,000 in the bank, but said he could not remember his answer, except to say that it was done in error. That is hardly a satisfactory explanation. Mr Finn gave no evidence that he was expecting any deposit from Sam Hraiki by way of a repayment of a loan of the kind he described elsewhere in his evidence. He did not say that Sam Hraiki wanted to clear those funds quickly by drawing on the credit balance of the account, and that is not what happened. It was an event that called out for explanation. 60Mr Finn assisted Sam Hraiki's breach of trust by agreeing to his depositing the payment of $260,426.52 to the Finn Warner & Associates bank account and withdrawing cash and drawing cheques on his direction. Although Sam Hraiki was a constructive trustee and not an express trustee, Mr Finn is also potentially liable as an accessary to Sam Hraiki's breach of trust if he assisted the breach with the requisite knowledge ( Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [159]-[160]). 61In Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 the High Court held that the requirement of " knowledge " for the purposes of the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 254 was satisfied by any of the following states of mind: " 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. " 62It is not sufficient if the third party merely has knowledge of circumstances which would put an honest and reasonable man on inquiry (at [171]-[178]). 63Counsel for George Hraiki submitted that Mr Finn wilfully and recklessly failed to make such inquiries as an honest and reasonable man would have made. For the reasons above I agree with that submission. Even if I were to accept Mr Finn's evidence that he was told by Sam Hraiki that the moneys to be deposited to the Finn Warner account were the proceeds of sale of a property owned by Sam Hraiki, the position called out for inquiry, in particular, as to why moneys to be paid to Sam Hraiki's sister should first be passed through the Finn Warner account. At one point it was submitted by counsel for Mr Warner that the reason may have been that only a limited number of cheques could be obtained on settlement of a conveyancing transaction. There was no evidence to that effect and that was not an explanation put forward by Mr Finn. 64Mr Finn knew that Sam Hraiki was a mortgage broker, and therefore had the ability to deal with other people's money, and he knew that Sam Hraiki was in financial distress. Even if he were told by Sam Hraiki that the moneys in question were the proceeds of a sale of one of Sam Hraiki's properties, he still needed to satisfy himself as to why the proceeds of sale were to be passed through Finn Warner's account before being disbursed. Even if I were to accept Mr Finn's evidence as to what he was told by Sam Hraiki, I would be satisfied that he nonetheless wilfully and recklessly failed to make inquiries. That is to say, I would be satisfied that he deliberately did not make inquiries for fear of what he might learn. 65As it is, I am not persuaded by Mr Finn's uncorroborated evidence as to what he was told by Sam Hraiki. Although there is nothing to contradict Mr Finn's version, I am simply not persuaded that he is a credible witness. 66As I do not accept Mr Finn's evidence of his discussions with Sam Hraiki, I am left in the position that Mr Finn was aware that Sam Hraiki was a finance broker who had the ability to deal with other people's money, was himself in financial distress, and used the Finn Warner account in a way consistent with his wishing to make it more difficult for someone to trace a recipient of funds with the source of the funds. In my view Mr Finn's failure to make inquiries was deliberate and satisfies the third of the categories of knowledge sufficient to satisfy the requirement of knowledge expressed in the second limb of Barnes v Addy . 67This conclusion is strengthened by my further conclusion that Mr Finn received a substantial personal reward for allowing Sam Hraiki to use Finn Warner's bank account. In cross-examination he gave the following evidence (T57): " Q. Why did you also write him a cheque for $155,000? A. I assumed that that was his money, keeping in mind the assumption was $260,000-odd was his money. I gave him the balance back - I think I drew a cheque to his sister and he owed me some money for a few bills I paid for him, well, Finns Bins actually. Q. There was, in fact, a shortfall of some thousands of dollars which remained in the Finn Warner account, that was so, was it not? A. There was a fee. Q. Yes, but the cheque was for $260,000? A. I must have paid that out at a later date. Okay, yes, there would have been a fee at that point in time in the Finn Warner account ." 68This evidence was not easy to follow. Mr Finn had deposed in his affidavit that after paying $100,000 in cash and $155,500 to Sam Hraiki's sister, Rita Aoun, a cheque was drawn to Finns Bin Investments for $4,870 that was "in relation to the payment earlier made by [Finns Bin Investments] in relation to a telephone account held by Sam". The difference between the amount received and the amount paid out was only $56.52. I infer that the so-called "fee" was the payment of $4,870 to Finns Bin Investments that Mr Finn elsewhere said was in relation to earlier payments made by Finns Bin Investments for Sam Hraiki. There was no corroboration of his evidence that Finns Bin Investments had paid a telephone or any other account for Sam Hraiki. The "fee" was not paid to the partnership. 69George Hraiki has established that Mr Finn was under a personal liability to account as constructive trustee for the moneys paid into the Finn Warner account. 70However, Mr Finn is bankrupt and the proceedings against him are stayed. The question is whether Mr Warner is vicariously liable for the same amount. It is not suggested that Mr Warner had any knowledge of the facts giving rise to Mr Finn's liability. He did not authorise the transaction.

Transaction not in the ordinary course of the firm's business 71Subsection 10(1) of the Partnership Act provides: " 10 Liability of firm for wrongs (1) Subject to subsection (2), where by any wrongful act or omission of any partner in a firm other than an incorporated limited partnership acting in the ordinary course of the business of the firm, or with the authority of the partner's co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act ." 72Subsection (2) is not relevant. 73In Chittick v Maxwell (1993) 118 ALR 728, Young J (as his Honour then was) said (at 734): " I should note at this stage that care must be taken to distinguish between liability for legal wrongs and situations where there is a breach of fiduciary duty. Sections 9 and 10 of the Partnership Act are directed to common law wrongs and not to breaches of fiduciary duty: see Estate Realties Ltd v Wignall [1992] 2 NZLR 615 at 633-5. Even though there may have been a breach of fiduciary duty during the course of the ordinary business of the firm, an innocent partner may not be held to be a constructive trustee unless and until he had such notice or knowledge of the circumstances as to make it appropriate to tax him as a constructive trustee (at 635). " 74Although he did not refer to Chittick v Maxwell , counsel for Mr Warner did submit by reference to Estate Realties Ltd v Wignall [1992] 2 NZLR 615 that even if Mr Finn was found to be acting in the ordinary course of the partnership, Mr Warner could not be held vicariously liable for the wrongful acts of Mr Finn as he had no knowledge, actual or otherwise, and did not play a part in the transaction. In Estate Realties Ltd v Wignall the plaintiff alleged that the defendant was vicariously liable as a partner of an alleged wrongdoer to account for profits derived by the wrongdoer. Tipping J accepted that there was a wrongful act by the defendant's partner because he had breached his fiduciary duty. He held that the defendant was not vicariously liable because the plaintiff was not suing for loss or injury, but was seeking an account of profits (at 633). 75Subsequently in Dubai Aluminium Co Limited v Salaam [2002] UKHL 48; [2003] 2 AC 366, the House of Lords held in relation to the equivalent provision of the Partnership Act 1890 (UK) that the expression " any wrongful act or omission " was not limited to common law torts and that the section could be used to impose vicarious liability on an innocent partner for the conduct of another partner if done in the ordinary course of the business of the firm whereby the other partner became liable as an accessary under the second limb of Barnes v Addy by participating in a fraud. 76Counsel did not submit that I should not follow the House of Lords' decision in Dubai Aluminium Co Limited v Salaam . In my view the reasoning in Dubai Aluminium Co. Limited v Salaam as to the scope of the words " wrongful act or omission " is persuasive and should be followed. 77The question is whether what Mr Finn did was in the ordinary course of the business of Finn Warner & Associates. The focus of inquiry is on what the partners in the firm were accustomed to do in carrying on the business of the firm, not what may be done by accountants in general. The onus of establishing that Mr Finn was acting in the ordinary course of the business of Finn Warner & Associates lies on George Hraiki, but the court will take into account the ability of George Hraiki to lead evidence on that subject in assessing whether the onus of proof has been discharged. In this case knowledge of the ordinary business of the firm lay with Mr Warner and Mr Finn. That does not mean that Mr Warner had the onus of proving that what was done was not in the ordinary course of the business of the firm. But any inferences favourable to the plaintiff could be more readily drawn where Mr Warner did not give evidence on that matter. Mr Warner did not give any evidence as to the nature of the firm's business, otherwise than by annexing the partnership agreement. 78It can be inferred that the firm's business at least extended to providing taxation services to clients. If it were limited to that, then plainly Mr Finn's conduct would not be in the ordinary course of business. However, Mr Finn gave evidence by affidavit which Mr Warner did not contradict, that he used the Finn Warner account to clear funds for Sam Hraiki. He later sought to qualify that evidence by saying that the account was used to clear funds for companies associated with Sam Hraiki or for transactions involving loans organised by Sam Hraiki. There was no corroboration of either assertion. This presents a problem because I do not consider Mr Finn to be a credible witness. But if the facts deposed to in Mr Finn's affidavit were known not to be true I would expect Mr Warner to give evidence about it. Mr Finn's affidavit, sworn 27 August 2010, was witnessed by the solicitor for Mr Warner and was filed on Mr Warner's behalf. Mr Warner's affidavit was sworn on 2 September 2010. Mr Warner did not say that the matters deposed to by Mr Finn were incorrect, or that he had no knowledge of them. Thus, I can take Mr Warner to accept that from time to time Sam Hraiki deposited varying amounts into the bank account maintained by Finn Warner & Associates so that funds could be drawn down from the account urgently without waiting for clearance of the cheques so deposited. Neither Mr Finn nor Mr Warner said this practice was confined to cases where Mr Finn was acting only on his own account as a lender. The evidence is silent as to whether on these prior occasions Mr Finn was acting as a partner of Finn Warner and Associates and doing its business, or whether he was acting in his personal capacity in making the firm's or its clients' money available to Sam Hraiki. If Mr Warner had no knowledge of such conduct or contended that in his view Mr Finn was not acting as a partner of the firm, he could be expected to have said so. I conclude that the ordinary course of business of Finn Warner & Associates included paying cheques for Sam Hraiki before deposited funds were cleared. 79Mr Warner did give evidence that in about October 2007 he was looking at the bank statements and the transaction in question struck him as an unusual transaction (T73). I accept that evidence. However, Mr Warner did not say why the information on the bank statements struck him as being unusual. I would not conclude that Mr Finn's conduct was not in the ordinary course of the firm's business merely because it struck Mr Warner as unusual in the absence of evidence as to why that was so. 80A firm is liable for the wrongful acts of a partner where the act belongs to the class of acts the partner is authorised to do. A partner is authorised to act in the ordinary course of the firm's business ( National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21; (1986) 160 CLR 251 at 275). The fact that a partner acts fraudulently or in such a way as to make himself liable as a constructive trustee does not of itself mean that the partner's conduct is beyond his authority and that firm is not liable for the consequences of the wrong. 81Identification of the scope of the ordinary business of the firm starts with the terms of any partnership agreement. In Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1 Mahoney JA said (at 11): " In considering whether the act of a person is done in the ordinary course of the business of a firm of which he is a member, it is, of course, necessary to determine what the business of the firm is. Sometimes the business of the firm is defined or described in the partnership agreement. In such a case, the court must decide, as a question of fact, whether the act in question can be and was done in the course of carrying it on. This may be decided by reference to specific evidence that an act of the kind in question is apt to be, or was, done in carrying on such a business. Or, in some cases, the court may be in a position to take notice of the fact that a business of the kind in question is apt to be carried on by doing acts of the relevant kind. In other cases, where the business is not defined or described in the partnership agreement, it is necessary to decide, on the facts of the case, what the business is and what acts are apt to be done in carrying it on. The present case is of this latter kind. The parties practised together as accountants. The inference is that their business included the acceptance of appointment as receiver or receiver and manager and the doing of acts done to carry out such an appointment. This is the kind of thing which accountants of their kind are apt to do and it is what, in the present case, they habitually did. " 82Mr Warner gave unchallenged evidence that he and Mr Finn entered into a partnership agreement in terms of a document that was unsigned. It defined the business of the partnership to be the business of accountants and tax agents and such other business as the parties agreed. For the reasons above it can be inferred that either Mr Finn and Mr Warner agreed to the use of the Finn Warner account to provide funds to Sam Hraiki before cheques deposited to the account were cleared, or Mr Finn was accustomed to do those acts in carrying on the firm's business as accountants. 83A firm will not be liable for the partner's wrongful acts or omissions if the partner is not pursuing the business of the firm, but is engaged solely in pursuing his own interests. If the partner is not pursuing the firm's business it matters not that the acts done are the kind of acts usually done in the course of the firm's ordinary business ( Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 at 475; Dubai Aluminium Company Ltd v Salaam at [35], [130]). 84It will almost always be the case that a partner or employee who commits fraud will be acting in his or her own interests and not those of the employer or firm. It will be no answer to a claim that the employer or firm is vicariously liable for the wrongdoer's conduct to say that the wrongdoer is acting in his or her own interests if the employer or firm has undertaken to do work for the defrauded plaintiff and the fraud is committed in the wrongful performance of that work, or if the plaintiff is defrauded by an employee or partner acting within his or her apparent authority. That is not this case. On the other hand, as Lord Millet said in Dubai Aluminium Company Limited v Salaam at [130], a partner doing work of the kind customarily done in the ordinary course of the firm's business might so act for his own improper purpose or that of his confederates such that it should be concluded he is not acting in his role as a partner of the firm but was engaged " as a frolic of his own ". 85Mr Finn's evidence (and the only evidence on the topic) was that Sam Hraiki initially asked if he could have the cheque to be deposited and drawn against made out in the name of Finns Bin Investments. In making that request Sam Hraiki was not seeking to engage the services of Finn Warner & Associates. It was only when Mr Finn said that there was not a sufficient credit balance in Finns Bin Investments' account that Sam Hraiki asked whether the Finn Warner account could be used. Mr Finn agreed to do so, but, as I have found earlier in these reasons at [69], he did so for a personal reward not accounted for to the partnership. Even though I have concluded that the ordinary course of business of the firm included paying cheques for Sam Hraiki before deposited funds were cleared, I consider that in this instance Mr Finn was not pursuing the business of the partnership in assisting Sam Hraiki, but was " on a frolic of his own ". 86For this reason I conclude that Mr Finn was not acting in the ordinary course of business of the firm, notwithstanding my finding at [78] above that the ordinary course of business of the firm included paying cheques for Sam Hraiki before deposited funds were cleared.

Proprietary Claim 87There remained $56.52 in the Finn Warner account that Mr Finn and Mr Warner received as volunteers. No bank statements were tendered showing the state of the account after 28 September 2007. The account was then in credit in the sum of $278,594.34. This balance included $56.52 belonging to the plaintiffs. That money can be traced. Mr Warner is liable to account for that money as a volunteer ( Heperu Pty Limited v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230).

Conclusion 88I give judgment for the plaintiffs against the fourth defendant in the sum of $56.52 together with interest pursuant to s 100 of the Civil Procedure Act 2005 at the rates prescribed for the purposes of s 101 of the Civil Procedure Act . I will hear the parties on costs. 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. Decision last updated: 30 June 2011