In the matter of DCA Enterprises Pty Ltd [2023] NSWSC 11 - NSWSC 2022 case summary — Zoe

NSWNSWSC

In the matter of DCA Enterprises Pty Ltd [2023] NSWSC 11

[2023] NSWSC 11

Supreme Court of NSW|2022-10-12|Before: Black J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2022-10-12

Before

Black J

Catchwords

[2015] FCA 342 - Australian Securities and Investments Commission (ASIC) v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305
23 ACLC 929
[2005] NSWSC 267 - Australian Securities and Investments Commission (ASIC) v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553
[2006] VSC 192 - Balagiannis v Balagiannis [2022] NSWCA 18 - Black v S Freedman & Co (1910) 12 CLR 105

Source

Original judgment source is linked above.

Catchwords

[2015] FCA 342 - Australian Securities and Investments Commission (ASIC) v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 30523 ACLC 929[2005] NSWSC 267 - Australian Securities and Investments Commission (ASIC) v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553[2006] VSC 192 - Balagiannis v Balagiannis [2022] NSWCA 18 - Black v S Freedman & Co (1910) 12 CLR 105[1910] HCA 58 - Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508 - Briginshaw v Briginshaw (1938) 60 CLR 336[2021] NSWCA 24 - Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732[2016] NSWCA 81 - Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522[2003] FCAFC 313 - Galati v Deans [2021] NSWSC 1094 - Gambotto v WCP Ltd (1995) 182 CLR 432(1992) 109 ALR 638 - John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 - Lewis v Australian Capital Territory (2020) 271 CLR 192[2020] HCA 26 - Magill v Magill (2006) 226 CLR 551[2006] HCA 51 - Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1205 ALR 402[2016] NSWSC 62 - Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233[2007] NSWSC 589 - Watson v Foxman (1995) 49 NSWLR 315 - Yang v Zhang [2022] FCA 697 - Yorke v Lucas (1985) 158 CLR 66

Judgment (20 paragraphs)

[1]

td (No 2) [2008] FCA 810 - James v Hill [2004] NSWCA 301 - Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526; (1992) 109 ALR 638 - John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 - Lewis v Australian Capital Territory (2020) 271 CLR 192; [2020] HCA 26 - Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 - Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1; 205 ALR 402; [2003] FCAFC 289 - Menzies v Perkins [2000] NSWSC 40 - Musca v Astie Corporation Pty Ltd (1988) 80 ALR 251 - Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 - No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345 - Re Atlas Advisors Australia Pty Ltd [2022] NSWSC 705 - Re Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 - Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 - Re DJG Equities Pty Ltd [2014] NSWSC 194 - Re McDonough Management Pty Ltd (2019) 139 ACSR 447 - Re Mediation & Online Dispute Resolution Operating Network Pty Ltd [2022] NSWSC 5 - Re Reserve Hotels Pty Ltd [2021] NSWSC 376 - Re Seabay Kitchen Pty Ltd [2019] NSWSC 790 - Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313 - State of NSW v Ibbett (2006) 229 CLR 638; [2006] HCA 57 - Stav Investments Pty Ltd v Taylor [2022] NSWSC 208 - Stuart v Rabobank Australia Ltd [2021] FCA 1388 - Swiss Re International SE v Simpson (2018) 354 ALR 607 - Sze Tu v Lowe (2014) 89 NSWLR 317 - Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 - Varma v Varma [2010] NSWSC 786 - Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 - Wambo Coal Pty Ltd v Ariff & Anor (2007) 63 ACSR 429; [2007] NSWSC 589 - Watson v Foxman (1995) 49 NSWLR 315 - Yang v Zhang [2022] FCA 697 - Yorke v Lucas (1985) 158 CLR 66; [1985] HCA 65 Category: Principal judgment Parties: Dylan Charles Azzopardi (First Plaintiff/First Cross-Defendant) Justin Joseph Azzopardi (Second Plaintiff/Second Cross-Defendant) Karla Patricia Pichardo (Third Plaintiff/Third Cross-Defendant) Dominic Gerardo Galati (First Defendant/First Cross-Claimant) Alberto Mariani (Second Defendant) Acell Holdings Pty Ltd (Third Defendant) Kerry Anne Hyland (Fourth Defendant) Australian Securities and Investments Commission (Fifth Defendant) DCA Sydney Enterprises Pty Ltd (Sixth Defendant/Second Cross-Claimant) Care A2 Plus Pty Ltd (Seventh Defendant/Third Cross-Claimant) Care A2 Australia Pty Ltd (Eighth Defendant/Fourth Cross-Claimant) Raymond Nehme (also known as Raymond Younan) (Ninth Defendant) Chloe Azzopardi (Fourth Cross-Defendant) Mary Azzopardi (Fifth Cross-Defendant) Joseph Azzopardi (Sixth Cross-Defendant) Representation: Counsel: A J McQuillen (Plaintiffs/Cross-Defendants) A Butt (Defendants (except ASIC)/Cross-Claimants)

[2]

Solicitors: Metri Legal (Plaintiffs/Cross-Defendants) Nelson McKinnon (Defendants (except ASIC)/Cross-Claimants) File Number(s): 2021/278723

[3]

Nature of the proceedings

By Amended Originating Process filed on 15 November 2021 the Plaintiffs, Mr Dylan Azzopardi (to whom I will refer, without disrespect, as "DA") and others sought a range of relief against the Defendants, Mr Dominic Galati (to whom I will refer, without disrespect, as "DG") and others. The relief sought was somewhat narrowed when the Plaintiffs failed in an application to bring derivative proceedings on behalf of the Sixth Defendant, DCA Sydney Enterprises Pty Ltd ("DCA"), and further narrowed when other aspects of the relief sought in Amended Originating Process ("AOP") were struck out, including because the Plaintiffs did not seek standing to seek the relief claimed.
By their Amended Statement of Cross-Claim filed on 26 April 2022, the Cross-Claimants in turn sought equitable compensation, an account of profits or statutory compensation against certain Cross-Defendants and a declaration that any contract made between any of the Cross-Claimants and Cross-Defendants is void. The scope of that Cross-Claim was also somewhat narrowed by reason of the Cross-Claimants' lack of standing to seek parts of the relief claimed.
DA brings a claim of false imprisonment against several Defendants, and the Cross-Claimants make several allegations of fraud and bring a claim of intentional deceit against the Cross-Defendants. In determining these allegations, I have regard to the approach identified in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and its equivalent under s 140 of the Evidence Act 1995 (NSW). Where a party advances allegations of impropriety, the Court must take account of the gravity of the matters alleged in deciding whether the inference should be drawn and, although the standard of proof remains proof on the balance of probabilities, the strength of the evidence necessary to establish a given fact to the civil standard may vary according to the nature of what it is sought to be proved. In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450; [1992] HCA 66, the plurality observed that: "The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." [citations omitted]

[4]

Affidavit evidence

Both parties read affidavit evidence which included evidence of oral conversations. I have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41]; Varma v Varma [2010] NSWSC 786 at [424]-[425]. I also have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining matters of credit that arise as to the affidavit evidence: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 at [10] ("Colorado").
The principles applicable to assessing claims for representations in oral form were also helpfully summarised by Slattery J in Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [87] as follows: "The principal conduct of the defendants that [the plaintiff] alleges was misleading or deceptive was the speaking of words in the course of a series of conversations. Special considerations apply when assessing alleged misleading and deceptive conduct in such a context. It is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in proved circumstances: Watson v Foxman (1995) 49 NSWLR 315 at 318 per McLelland CJ in Eq In assessing whether spoken words were misleading the Court may have to examine relatively subtle nuances flowing from the use of one word, a phrase or a grammatical construction rather than another or the presence or absence of some qualifying word, phrase or condition: Watson v Foxman (1995) 49 NSWLR 315 at 31. The fallibility of human memory and the overlaying of memory with perceptions of self-interest leading to sub conscious reconstruction are all hazards of ordinary human experience to which a Court must be alert in assessing whether particular spoken words are misleading or deceptive: Watson v Foxman (1995) 49 NSWLR 315 at 319. Ultimately each element of the cause of action must be proved to the reasonable satisfaction of the Court which means that the Court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not obtained or established independently of the nature and consequences of the fact or facts to be proved", including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712."

[5]

Factual findings

I now set out my factual findings as to relevant events, as to which I have had regard to the parties' chronologies, the affidavit evidence and cross-examination and the documents tendered, and reached findings as to contested facts as necessary. The broad chronology of events is not controversial, although the content of particular meetings is controversial.
In late 2017, DA started a business, conducted through DCA and known as "Sportsflick", which provided a platform to broadcast or stream sports events (DA2 [4]). From February 2020, DA and JA were each director and secretary respectively of DCA (DA1 [2]).
Sportsflick had the opportunity to bid for broadcast and streaming rights for the RLWC in December 2020, initially with a suggested bid of $5m to $10m, and text messages were exchanged between CK and DA in relation to the potential acquisition of the RLWC rights (DA2, [6]). On 15 February 2021, a video call took place between DA, Mr Michael Turner of DCA and RD of RDA (RD, [5]). In early April 2021 DCA submitted a bid of $5m (an amount which it did not then have) to RDA for the 2021 RLWC broadcast and streaming rights (Ex J1, 1028; DA2 [10]; RD [7]). RDA responded by email dated 16 April 2021 (Ex J1, 1027) noting, inter alia: "Financial: we will need an improved upfront payment (which will be payable into a solicitor's escrow account immediately prior to contract signature), please propose. In terms of the overall guaranteed revenue share, how would you effectively guarantee this which provides the organisers with 100% security?"
By email dated 19 April 2021 (Ex J1, 1026), DA responded: "Financial We will pay the entire rights fee up front of $5 million which is 100% security, We can then add you as a user to our back end to see what the PPV numbers are with our new platform that Sportradar are building. Once the competition has finished we will make the appropriate payment of what the final revenue is." That correspondence occurred prior to DA's first meeting with DG and BM which took place on 27 April 2021.
About 18 April 2021, BM and DG became aware of "Sportsflick" from newspaper articles and BG sent a message to Sportsflick on 26 April 2021 (BM1 [2]-[7]). About 22 April 2021, CK suggested a budget for the provision of the RLWC of $9m.
On 23 April 2021, RDA emailed DA requesting company information concerning DCA and proof of its ability to make the $5m payment to RDA (RD [11]). By email dated 23 April 2021, DA advised RDA that DCA wanted to negotiate an agreement before providing the requested information and DA emailed RDA on the same day saying he would get KP to send the proof of DCA's ability to pay $5m to secure the suggested deal (RD [12]).

[6]

Whether the Plaintiffs were validly removed as directors and shareholders of DCA

First, the Plaintiffs seek relief (AOP [1], as reinserted in the Amended Originating Process in the course of the hearing) rectifying the "register" maintained by the Australian Securities & Investments Commission ("ASIC") to exclude certain documents. The relief raises the substantive question whether the Plaintiffs were validly removed as directors and shareholders of DCA. They also seek an associated order (AOP [2]) restraining the lodgement of further documents with ASIC in respect of changes of directors and shareholders of DCA and an order (AOP [3]) restraining several Defendants from holding themselves out as, inter alia, directors and shareholders of DCA. The Plaintiffs also seek a declaration (AOP [10]) that, in breach of s 1071B of the Corporations Act 2001 (Cth), several defendants caused Acell to be registered as a shareholder of 2565 shares in DCA without a proper instrument of transfer.
In respect of this claim, the Plaintiffs' plead (SOC [24]) that DG, BM and/KH wrongfully caused documents relating to changes to members and officeholders of DCA to be lodged with ASIC which were materially false or misleading within the meaning of s 1308 of the Corporations Act. The Defendants do not admit that allegation, and contend that DA and KP agreed, on 3 July 2021, "to not being involved in the ownership and governance of [DCA] due to their fraudulent activity" and that the Defendants have since offered to restore the previous membership and officeholding of DCA. The Plaintiffs have not accepted those offers. The Plaintiffs also plead (SOC [25]) that, in breach of s 1071B of the Act and DCA's constitution, DG, BM, Acell and KH purported to register a transfer of shares in DCA held by the several Plaintiffs to KH without a proper instrument of transfer. The Defendants do not admit that allegation (Defence [25]). The Plaintiffs also plead, and the Defendants do not admit (SOC [26], Defence [27]) that on or about 3 July 2021, several Defendants caused changes to shareholdings to be notified to ASIC that were materially false or misleading for the purposes of s 1308 of the Corporations Act. The Plaintiffs contend (SOC [28]) that several Defendants, by reason of these matters, have engaged in conduct that contravenes s 205B of the Corporations Act (relating to notice of the name and address of directors and secretaries to ASIC), s 1071B of the Act (relating to instruments of transfer) and s 1308 of the Corporations Act (relating to the making of false or misleading statements). The Defendants respond that the Plaintiffs here seek to engage with s 1324 of the Corporations Act, and point to their attempts to restore the status quo, which have not been accepted by the Plaintiffs.

[7]

Plaintiffs' claim for declarations and damages for contraventions of the Corporations Act

Putting aside several applications for relief that have been struck out where the Plaintiffs had no standing to bring them, the Plaintiffs also seek a declaration (AOP [8]) that, pursuant to s 1324 of the Corporations Act, several Defendants had engaged or are engaging in conduct that has constituted or constitutes contraventions of the Corporations Act. Section 1324 of the Corporations Act is a remedial provision, dealing with the grant of injunctions, and it is not apparent how it is engaged in respect of the declaration that is sought. In any event, the Court could not make a declaration in that form, which does not identify either the conduct to which it is directed or the contraventions which are said to have occurred. The Plaintiffs also seek an order (AOP [9]) under s 1324(10) of the Corporations Act that several defendants pay damages to the Plaintiffs and seek a corresponding order in paragraph 1 of the Statement of Claim. The Court cannot make such an order where it is now well-established that an order for damages under s 1324(10) of the Corporations Act cannot be made in respect of conduct which could no longer be the subject of injunctive relief: Colorado Products at [401]-[402]. The Plaintiffs have not in any event led evidence that would establish the claim for damages in this respect.
The Plaintiffs also seek a declaration (AOP [11]) that, in contravention of s 1308 of the Corporations Act, several Defendants lodged or submitted documents to ASIC containing statements which were false in a material particular as pleaded in the Statement of Claim. The Court would not make such a declaration, for the reasons noted above, and because it has no practical consequence, where the lodgement of documents with ASIC did not bring about a change in the identity of shareholders or directors of the company, under its constitution or under relevant provisions of the Corporations Act, and the Court would also be generally reluctant to make a declaration of a contravention of an offence provision of the Act.

[8]

Leave to bring derivative proceedings and equitable compensation

The Plaintiffs sought (AOP [12]) leave to commence and continue these proceedings in the name of DCA in respect of the causes of action pleaded in the Statement of Claim. An initial and a further application for that leave were dismissed in the course of the proceedings.
In opening submissions, Mr McQuillen submitted that DCA lost valuable benefit in respect of the streaming rights to the RLWC and lost further opportunities. It is not necessary to address that claim, which was struck out where the Plaintiffs did not have standing to bring it on behalf of DCA and were unsuccessful in an application for leave to bring derivative proceedings on behalf of DCA; and any loss which they personally suffered was reflective loss, derivative of the suggested loss suffered by DCA. In any event, that claim would have had substantial difficulties, where, obviously enough, DCA could not obtain the rights to the RLWC without paying for them. In closing submissions, Mr McQuillen also addressed the circumstances in which a contract could come into existence between the Plaintiffs on the one hand and DG or other Defendants on the other. Nothing turns on that proposition where the Plaintiffs' attempt to bring that claim also failed in the course of the hearing.
In closing submissions, Mr McQuillen also submitted that, if the Court finds that there has been a contravention of the Corporations Act by the several Defendants, depriving the Plaintiffs of their shares and removing them as office holders of DCA and, in respect of an unpleaded claim as to the bank accounts, it may order that the Defendants pay damages to the Plaintiffs. Assuming, without deciding, the correctness of that submission, there is no evidence to support a claim for damages in favour of the Plaintiffs and it is likely that the shares in DCA had minimal or no value without DG's financial support. I do not accept Mr McQuillen's further submission that the Court could or should make an award of damages in favour of the Plaintiffs, calculated by the reference to the value of the shares had the Defendants paid the $9m contemplated by the original arrangement, where I have found that that arrangement was induced by misleading and deceptive conduct to which I have referred above, and DCA would not have been entitled to retain that amount, had it been paid.

[9]

DA's claim for false imprisonment

DA brings a claim (SOC [3]) for false imprisonment including aggravated damages. Paragraphs 29-32 of the Statement of Claim in turn plead the claim in false imprisonment of DA, which is denied by the Defendants. This claim relates to the events at a meeting on 3 July 2021, which I addressed in my findings of fact above.
In opening submissions, Mr McQuillen addressed the 3 July meeting in strong terms, contending that DA had been "lured" to the meeting on the "false pretext" that he would be introduced to another investor for DCA; that DG and RY "made threats of violence [and] intimidation" and impersonated police officers at that meeting "in an attempt to extort money from [DA]" and made threats of violence and intimidation to KP. Mr McQuillen also addressed, in closing submissions, the circumstances of that meeting, characterised RY as a "stand over person", and submitted that neither DG or RY would allow DA to leave DG's apartment until they had received answers to the questions relating to the funds of $2.2m that the Care A2 companies had invested in DCA.
Mr McQuillen submits, and I accept, that use of actual force or direct physical contact is not necessary to make out a claim for false imprisonment, if there is a constraint upon a person's will that is sufficiently great to induce him or her to submit. He refers to the observations of Gageler J in Lewis v Australian Capital Territory (2020) 271 CLR 192; [2020] HCA 26 at [24]ff, as follows: ""To constitute the injury of false imprisonment", as Sir William Blackstone put it, "there are two points requisite: 1. The detention of the person; and, 2. The unlawfulness of such detention." Despite the onus shifting to the defendant to negative the element of unlawfulness where the plaintiff establishes the element of detention, it is detention in combination with unlawfulness that constitutes the tort. Through the tort, the "right to personal liberty" is protected by the common law - not from all restraints, but from those restraints for which "lawful authority" cannot be shown. The right to personal liberty continues to be protected by the tort of wrongful imprisonment though liberty is vulnerable to restraint in the exercise of lawful authority. Whether a citizen or an alien and whether subject to a sentence of imprisonment imposed by a court or not, a person whose status or prior conduct renders that person especially vulnerable to detention in the exercise of lawful authority is not an outlaw. The person is entitled to expect that if, when, and for so long as, detention occurs in fact it will occur only in accordance with law. If the person is in fact detained for any period otherwise than in the exercise of lawful authority, the person is entitled to maintain an action for wrongful imprisonment in which the person is entitled to obtain an award of compensatory damages if the compensatory principle is satisfied." [citations omitted] Mr McQuillen also refers to Gordon J's observations in that case as to the circumstances in which exemplary damages may be awarded.

[10]

The Cross-Claim brought by DG and others

By their Amended Statement of Cross-Claim filed on 26 April 2022, the Cross-Claimants seek equitable compensation, an account of profits or statutory compensation against certain Cross-Defendants and a declaration that any contract made between any of the Cross-Claimants and Cross-Defendants is void. The First, Second, Third and Fourth Cross-Defendants are DA and JA, KP and CA respectively. As I noted above, the Parents were joined as the Fifth and Sixth Cross-Defendants but the Cross-Claimants rightly abandoned the claim against them in the course of the hearing. The Cross-Claimants abandoned claims brought in the name of DCA late in the hearing, on 8 December 2022, and were correct in doing so where those claims had not been properly authorised by any corporate decision of DCA, since DA was not validly removed as the sole director of DCA, KH was not validly appointed to that position and DG and his associates could not and did not authorise DCA to bring the Cross-Claim and did not seek or obtain leave to bring it as a derivative action.

[11]

The Cross-Claimants' misleading and deceptive conduct claim

DG and the Care A2 companies bring a claim for misleading and deceptive conduct against DA, JA, KP and CA, which is pleaded by reference to representations alleged to have been made at several meetings. I address the alleged representations in turn below. The alleged 27 April representations
First, the Cross-Claimants plead representations made by DA to DG and BM and DG on 27 April 2021 (ASCC [2]-[3]). I have addressed the evidence as to the meeting on that date in paragraphs 39-49 above. The Cross-Claimants plead that DA represented to BM and DG on 27 April 2021 that: "(a) [DCA] secured a winning bid for the rights from [RDA] to stream/broadcast the [RLWC] into Australia for [$]9 [million]; (b) [DCA] needed funding in that exact amount, [$]9 [million] in order to pay the fee to enjoy those rights; and (c) The profit to be realised for [DCA] by broadcasting/steaming the rugby matches at 6,000 hotel venues in a deal then being finalised between [DCA] and Australian Hotels Association ("AHA Deal") would yield $2,500 per venue and a total amount of [$]15 [million] per year."
The Cross-Defendants deny (Defence to ASCC [3]) that the representation pleaded in paragraph 2(a) was made at the meeting on 27 April 2021 and contend that DLA informed that meeting that he had been advised that DCA was the "winning bidder for the rights to stream/broadcast" the RLWC and DCA was the winning bidder for the RLWC at a price of $5 million. The Cross-Defendants deny (Defence to ASCC [4]), in response to paragraph 2(b)), that DA informed that meeting that $9 million would need to be paid to DCA for DCA to stream/broadcast the RLWC and for DG or his nominee to acquire 60% of DCA shares. The Cross-Defendants deny (Defence to ASCC [5]) the representation in paragraph 2(c) and contend that DA informed the first meeting that the anticipated income to DCA from streaming/broadcasting the RLWC would be generated from up to 6,000 venues at a range of between $500 and $2,500 per venue each month but the amounts in the range provided depended upon the venue.
The Cross-Claimants seek to falsify the representation pleaded in ASCC [2] (ASCC [9]) on the basis that DCA had not secured a winning bid for rights from RDA to stream/broadcast the RLWC for $9 million on and funding was not needed by the Cross-Defendants in order to secure RLWC streaming/broadcasting rights in an amount of $9m and all that was needed for that purpose was $5 million and there was no deal being finalised between DCA and AHA (NSW).

[12]

Claim for accessorial liability

The Cross-Claimants also plead (ASCC [16]) that each of DA, JA, KP and CA is accessorially liable for actions of the other, aided, abetted, counselled or procured induced or were knowingly concerned in the relevant contravention.
The particulars provided to this allegation in the Amended Statement of Cross-Claim refer only to CA, and refer to the Flick TV Loan Agreement and the fact that CA's signature appeared on agreements purported to be signed by other persons. It does not follow, of course, that she necessarily placed her signature on those agreements. A letter dated 21 April 2021 from the Cross-Claimants' solicitors (Ex J1, 3102) provided further particulars of the allegations of accessorial liability as against DA, JA and KP as follows: "(i) [DA] was involved in all material communications and representations pertaining to RDA/RLWC and AHA and related payments/invoice matters. (ii) [JA] was involved at all times and inter alia in 11 May meeting with [DG] and [BM]; the meeting on 31 May with [DA], [BM], [DG] and Michael Turner; [JA] attended a meeting at AHA with [DG], [Mr Turner], [Ms Cruden] and [Ms Morrissey] at which it was apparent that AHA never considered paying [DCA] money … (iii) [KP] was involved at all times and inter alia, emailed to [BM] of 7 May; email on 11 May re Accounts; 13 May 2021 copied on letters of offer; communications with [BM] in mid-late May re due diligence; 18 May 2021 email from Accounts; email of 27 May 2021 seeking payment; purported tax invoice for RLWC for AUD9 million on 25 June 2021; 7 June 2021 email correspondence seeking payment; 7 June 2021 correspondence to [BM]; received remittances on 9 June 2021 and email from [KP] confirming receipt; 11 June 2021 emails to [BM]; 17 June 2021 email to [BM] concerning company cash flow; 30 June 2021 sent fraudulent CommBiz documents and related false communication" [omitting references to evidence]
I recognise that a person may be knowingly concerned in a contravention if he or she is an intentional participant in a contravention and this requires knowledge of the essential matters which make up the contravention, although it is not necessary to know that the matters amount to a contravention; and, in the case of liability for misleading and deceptive conduct, this requires that that person must know that the relevant conduct has occurred and at least the facts that make the conduct false or misleading or likely to mislead or deceive: Yorke v Lucas (1985) 158 CLR 661 at 668; [1985] HCA 65. In Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1; 205 ALR 402; [2003] FCAFC 289 at [15], Moore J (with whom Mansfield J agreed; Stone J to the contrary), held that accessorial liability for misleading and deceptive conduct could be established by showing that a person knew of the matters that allowed a representation to be characterised as misleading or deceptive or likely to mislead or deceive, without requiring that he or she knew that the representation had that character; that decision was followed in Australian Securities and Investments Commission (ASIC) v Activesuper Pty Ltd (in liq) (2015) 105 ACSR 116; [2015] FCA 342 at [456]. Actual knowledge is required but may be inferred from a combination of suspicious circumstances and a wilful failure to make inquiry: Yorke v Lucas at 668; Australian Securities and Investments Commission (ASIC) v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553; [2006] VSC 192 ("PFS") at [390]. However, knowing concern is not established if a person only becomes aware of the essential matters constituting the contravention after it has occurred, even if that person then fails to take appropriate action: Australian Securities and Investments Commission (ASIC) v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305; 23 ACLC 929; [2005] NSWSC 267; PFS at [391].

[13]

Deceit

The Cross-Claimants also bring (ASCC [17]ff) a claim in deceit, relying on representations made by DA, JSA, KP and CA from 27 April 2021 in respect of the price or fee for the rights to the RLWC and the AHA (NSW) arrangement. They claim loss of $2.2 million in that respect, being the amount paid by the Care A2 companies to DCA and exemplary damages. The Cross-Defendants deny that they made the alleged representations, or did so with the intention of inducing the Cross-Claimants to pay $2.2 million to DCA, and say that DCA had already secured the RLWC streaming/broadcasting rights at the time DCA had received that amount.
More specifically, the Cross-Claimants plead the claim in deceit (ASCC [18]) by reference to false representations from 27 April 2021 onwards in relation to the price of the rights from RDA to stream or broadcast the RLWC in Australia, falsely representing the fee price to be $9 million and the AHA (NSW) arrangement and repeat several paragraphs of their misleading and deceptive conduct claim which I have addressed above. They also rely on "silence or active deceit" and particularise the sending of the Purported AHA Agreement (to which I referred in paragraph 88 above) and claim the falsity of the representations was only discovered by the Cross-Defendants on 3 July 2021.
The Cross-Claimants also plead (ASCC [19]) that the representations were made with the knowledge that they were false or that DA, JA, KP and CA were reckless or careless as to the falsity of the representations. They plead, in this respect, the falsity of the False Sub-Licence Agreement (to which I referred above) and the lack of an agreement with AHA (NSW) would generate profits for services to be provided to AHA (NSW). The Cross-Claimants plead (DG [20]) that the false representations were made with the intention that they would rely on them and (ASCC [21]) that they did so by sending $2.2m in the belief that DCA had already secured RLWC streaming/broadcasting rights and would receive profits through the arrangement with AHA (NSW) and claim loss and damage in that amount.
In opening submissions, Mr Butt identifies the matters which support the claim in deceit, as well as the misleading and deceptive conduct claim, succinctly, as follows: "The deal presented to [the Cross-Claimants] by the Plaintiffs, however, was done so [sic] in fraudulent circumstances, portraying the true cost of the rights acquisition as being $9M (not $5M), using a fabricated and forged contract, coupled with representations that the deal would yield profits in Australian pubs and clubs through an agreement with the [AHA (NSW)] ($15M profits later $30M). Again, fabricated and forged documentation was utilised to induce the payment of money." Mr Butt also refers to the use of false invoices, false remittances and correspondence from non-existence employees of CBA, Messrs Geggo or Greggo and Mr Moseley and the legal advice from Mr Vitoz as distinct from the real Mr Vittoz.

[14]

Claim in unjust enrichment

The Cross-Claimants abandoned a contract claim (ASCC [24]-[31]) in the course of the hearing, on 8 December 2022, but pursued an unjust enrichment claim (ASCC [32]-[34]). Mr Butt submits that no contract ever came into existence between the parties, which he contends for present purposes are the Cross-Claimants other than DCA and the First to Third Cross-Defendants "in their right and then for DCA on the other". There are, as I have noted above, significant complexities as to the parties to any contract and its terms, but it is not necessary to determine this claim, or any claim for unjust enrichment arising from it, where this claim would add nothing to the orders that will be made in the Care A2 companies' favour by reason of their claims in misleading and deceptive conduct and for deceit.

[15]

Cross-claims purportedly brought by DCA

The Cross-Claimants abandoned claims (ASCC 35]ff) brought against the Cross-Defendants for breaches of the Corporations Act and breaches of fiduciary duty in the course of the hearing, on 8 December 2022. Those claims were rightly although belatedly abandoned, where DA was not validly removed as the sole director of DCA, KH was not validly appointed as a director of DCA, and the Cross Claimants could not authorise DCA to bring the Cross-Claim and leave to bring a derivative claim was neither sought nor obtained.

[16]

Claim for a constructive trust against the Parents

The Care A2 companies then plead a claim in respect of a constructive trust against the Parents (ASCC [42]ff), relating to a payment of $800,000 made by DCA to a solicitor's trust account, which funded the release of a mortgage over their Kellyville property. The Cross-Claimants rightly abandoned a corresponding claim purportedly brought by DCA in the course of the hearing, on 8 December 2022, where (as I noted above) DA was not validly removed as a director of DCA, KH was not validly appointed as a director of DCA and the Cross Claimants could not authorise DCA to bring that claim and leave to bring a derivative claim was neither sought nor obtained. They then rightly, although belatedly, abandoned the claim brought by the Care A2 companies immediately prior to closing submissions, where they pleaded no facts and led no evidence that could establish that the Parents' knew that the payment of the mortgage was wrongful before it was made, so as to allow an exception to indefeasibility under s 42 of the Real Property Act, and that claim was unsustainable for the reasons noted in in Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508 at [100]-[103]; Sze Tu v Lowe (2014) 89 NSWLR 317, [2014] NSWCA 462 at [241]-[243] ("Sze Tu v Lowe") and Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313 ("Rheem") at [224]-[229].

[17]

Claim for proprietary relief against other Cross-Defendants

The Cross-Claimants also brought, and maintained, a claim for several forms of proprietary relief in respect of payments made by DCA to DA, JA, KP and CA, which were likely sourced in large part from funds paid to it by the Care A2 companies (ASCC [52]ff). Mr Butt submitted that payments made by the Care A2 companies to DCA became impressed with a constructive trust in favour of the Care A2 companies, referring to El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717, Menzies v Perkins [2000] NSWSC 40 and Alesco Corporation Ltd v Te Maari [2015] NSWSC 469. These decisions broadly stand for the proposition that, where money has been stolen or misappropriated, equity imposes a constructive trust on the thief immediately upon receipt of those stolen moneys.
Turning now to the applicable case law, in Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58 ("Black v Freedman"), the High Court held that money given by a thief to a third party who received that money as a volunteer could be recovered by the victim of the theft although the third party had not participated in the theft.
In Wambo Coal Pty Ltd v Ariff & Anor (2007) 63 ACSR 429; [2007] NSWSC 589 at [40]-[41], White J summarised the relevant principles as follows: "Where property is stolen, the property is trust property in the hands of the thief and can be traced into the hands of a third party who receives the property otherwise than as a bona fide purchaser of the legal estate for value without notice. The property is trust property in the hands of the thief because the thief is bound in conscience to hold the property on behalf of its true owner. Whether the trust is characterised as a resulting trust (Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [1-3]-[117]), or as a constructive trust (Westdeutsche Landesbank v Islington London Borough Council per Lord Browne-Wilkinson at 716), the trust is of an institutional rather than a remedial character. It arises because the conscience of the thief is bound. In the same way, where property is acquired by fraud and there is a complete failure of consideration, the trust arises immediately on the receipt of the property: Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [155]-[156] and cases cited. So, in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd's Rep 658, referred to with apparent approval in Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 104; [1994] 3 NZLR 385 at 404, where the payee received payment from its principal of moneys which were not impressed with an express trust, but which were to be used in performance of a contract which the payee knew could not take place, the payee held the payment on trust for the payer from the time of its receipt. The circumstances which created the trust in Neste Oy were that the payee knew (as was the fact) that there could be no performance under its contract, so that there was a total failure of consideration for the payment, and the payment could not in conscience be retained. The trust was an institutional trust which attached to the moneys from the time of receipt."

[18]

Claim for knowing receipt

The Cross-Claimants abandoned, in the course of the hearing, on 8 December 2022, a claim for knowing receipt brought by DCA against the Parents (ASCC [55]ff) and a claim for knowing receipt or knowing assistance against JA, KP and CA. These claims were also not maintainable by the Cross-Claimants personally or by DCA, where DA was not validly removed as a director of DCA, KH was not validly appointed as a director of DCA and the individual Cross Claimants could not authorise DCA to bring the Cross-Claim.

[19]

Orders

For these reasons, I will make order 1 set out in the Plaintiffs' Amended Originating Process and the individual Cross-Defendants and Acell Holdings must pay the costs of that claim as agreed or as assessed. There should be judgment in favour of Care A2 Plus and Care A2 Australia against DA of the amounts they respectively paid to DCA with interest, including an amount of $75,000 referable to exemplary damages, and my preliminary view is that DA must pay the Care A2 companies' costs of the Cross-Claim against him as agreed or as assessed. The Cross-Claim should be dismissed as against JA, KP and CA and my preliminary view is that the Cross-Claimants (other than DCA) must pay JA's, KP's and CA's costs of the Cross-Claim against them as agreed or as assessed.
I make the following orders:
Direct the parties to bring in agreed short minutes of order to give effect to this judgment and as to costs within 14 days or, if there is no agreement, their respective draft short minutes of order and submissions not exceeding eight pages in Arial font 12 and in one and half spacing concerning the differences between them.
Exhibits and subpoenaed material be returned forthwith; any exhibits returned must be retained by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.

[20]

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: 24 January 2023

I also bear in mind the observations of Bell P (as the Chief Justice then was, with whom Bathurst CJ agreed) in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [27]-[29]: "Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin): "the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." (emphasis added) Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents."

The Plaintiffs also rely on the affidavit dated 4 March 2022 ("JA1") of DA's brother, Mr Justin Azzopardi (to whom I will refer, without disrespect, as "JA"). Some parts of JA's affidavit were inadmissible and were not admitted. JA was also cross-examined at some length and was a somewhat argumentative witness. I address other events to which he refers in setting out my factual findings below. JA's cross-examination was undermined by the approach taken by Mr Butt (who appeared for the Defendants other than the Australian Securities and Investments Commission ("ASIC") and the Cross-Claimants) of putting to JA that "you" took a particular step, where the reference to "you" was not a reference to JA, but a reference to DCA or sometimes to DA rather than JA, and there was no basis to suggest that JA had himself undertaken that step. Mr Butt continued that approach after JA had rightly pointed to the confusion which it was causing him, and after I had requested that he refer to "the company" rather than to "you" when he intended to refer to DCA rather than to JA (see, for example, T347, 355, 358). JA's evidence in cross-examination was that he understood the underlying arrangement between the parties to be an investment by DG in DCA, involving the acquisition of DCA by DG, presumably by the issue of a majority of its shares or the acquisition of a majority of its shares from existing shareholders, and that DCA was then free to apply the monies received to its ordinary expenditures (T352-353). I will note the uncertainty as to the substance of that arrangement below. JA's evidence in cross-examination was also that he had no knowledge of a purported Services Agreement ("Purported AHA Agreement") between DCA and the Australian Hotels Association (NSW) ("AHA (NSW)") which purported to provide that AHA (NSW) would pay $30m to DCA (Ex J1, 1733, 1746), although he added the comment that AHA (NSW) would not pay DCA (T362) and he maintained his denial of having seen that agreement (T365). JA's evidence in cross-examination was initially that he had also not seen financial projections provided by DA to DC and BM, then that "[t]here's been so many documents but I can't recall" and then, equivocally, that he had "seen it probably" (T366-367).

BM was cross-examined at some length. He was plainly experienced and knowledgeable in respect of issues as to sports broadcasting. In cross-examination, BM denied that DA had proposed that $9m be paid for the shares in DCA, provided DCA had secured the RLWC rights (T544) and contended DG was paying that $9m for the rights fee and would expect to have a majority shareholding in DCA (T545). That evidence highlighted the uncertainty as to the underlying arrangement, where the parties do not seem to have determined how any amount paid by DG to DCA to fund the acquisition of the rights fee would be treated in respect of the issue or acquisition of shares in DCA so as to create that majority shareholding. BM was cross-examined to seek to establish that he could have made further inquiries with AHA (NSW) and to develop a suggestion that DA was relying on information provided to him by AHA (NSW) in respect of the AHA (NSW) arrangement (T547ff). The former would not be answer to a misleading and deceptive conduct case and the latter does not establish reasonable grounds for the representation by DA concerning AHA (NSW), absent evidence of the truth of the proposition that anyone in the AHA adopted the position which DA attributed to it. The proposition that DA's "guy" in AHA (NSW) had conveyed that AHA (NSW) would pay subscription fees in respect of the RWLC was part of DA's misleading and deceptive conduct, rather than providing any reasonable basis for that conduct. BM was also cross-examined as to the fact that he had not consented to his appointment as a director of DCA from 4 July 2021, but little turns on that matter where he had not been validly appointed as a director by any effective corporate step in any case. He was also cross-examined as to the steps taken by KH and him to change the signatories to DCA's bank account, but the Plaintiffs did not plead any case as to that matter and I need not address it further. BM was also cross-examined as to the circumstances in which he became aware, through CK, of the issues the led to the meeting with DA on 3 July 2021 (T579) and as to the events which occurred at that meeting (T579ff). It seemed to me that BM was generally a credible witness, doing his best to answer the questions asked, when dealing with the circumstances of DG's and his dealings with DCA and DA, but was less open and his evidence was less convincing in relation to the events that occurred at the 3 July 2021 meeting which I address below.

The Cross-Claimants in turn plead (ASCC [13]) that these matters constituted conduct in trade or commerce that it was misleading and deceptive or likely to mislead or deceive contrary to s 18 of the Australian Consumer Law. I outlined the applicable legal principles in Changizi v Rizaie [2021] NSWSC 613 at [93]-[94] as follows: "The approach to be adopted in assessing whether conduct is misleading or deceptive was summarised by Gordon J in Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) 244 ALR 470; [2007] FCA 1904 at [14] -[15], in a passage which Griffiths J followed in Forty Two International Pty Ltd v Barnes (2014) 97 ACSR 450; [2014] FCA 85 at [446] and which I followed in Re Colorado Products Pty Ltd (in prov liq) [(2014) 101 ACSR 233; [2014] NSWSC 789] at [86], as follows: "The relevant legal principles have been well traversed by Australian courts. A two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of … Second, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a 'quintessential question of fact'… [citations omitted]" Conduct is misleading or deceptive or likely to mislead or deceive if it is capable of inducing error: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 . It is not necessary for [the plaintiff] to establish that [the defendant] intended to mislead or deceive and the relevant question is whether, viewed objectively, the relevant conduct was misleading or deceptive or likely to mislead or deceive: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197 per Gibbs CJ, 216 per Brennan J; [1982] HCA 44; Australian Competition and Consumer Commission v Jewellery Group Pty Ltd (2012) 293 ALR 335; [2012] FCA 848 at [66]. Conduct is likely to mislead or deceive if there is a real and not remote chance or possibility that a person is likely to be misled or deceived, and this is so even though the possibility of that occurring is less than 50 per cent: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [112] per McHugh J; Colorado Products above at [87]; Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796 at [49] ff."

Mr Butt also made submissions concerning an unpleaded indirect causation case, which appeared to develop a claim that the Cross-Claimants had suffered loss caused by representations made by DA or KP to RDA or to CK. In this context, Mr Butt addressed correspondence from DA and KP to RDA and communications with CK to which I referred above. Mr Butt also addressed, at some length, the circumstances in which an indirect causation case may be brought, referring to earlier decisions involving such a case, Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526; (1992) 109 ALR 638; and Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522; [2003] FCAFC 313. There are, of course, many subsequent decisions which address the question of "indirect causation", and Rees J summarised the applicable principles in Modron at [104] as follows: "Loss may be recovered where misleading representations were not made directly to the person who ultimately suffered loss, sometimes referred to as indirect causation: [Re] HIH Insurance [Ltd (2016) 335 ALR 320 [2016] NSWSC 482] at [71] citing Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184; [2004] NSWCA 58 at [155] and Ingot Capital Investment Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206; ABN AMRO at [1374]-[1377]; McBride v Christies Australia Pty Ltd [2014] NSWSC 1729 at [265]-[266] (Bergin CJ in Eq). In TPT Patrol Pty Ltd (as trustee for Amies Superannuation Fund) v Myer Holdings [2019] FCA 1747; (2019) 140 ACSR 38, Beach J considered that cases of indirect causation may fall into two categories, of which the following is apposite here, at [1659]: "The first subcategory is active indirect causation. This is the scenario where a respondent's misleading conduct induces some reaction in X, and the applicant would have acted differently but for that reaction by X. There is no additional requirement that the applicant was aware of or relied on the respondent's conduct. It is enough that X relied, and that the applicant would have acted differently but for that reliance by X Or in other words, it is enough that the applicant relied on X." Beach J's observations were recently cited, with apparent approval, by the Court of Appeal in Braham v ACN 101 482 580 Pty Ltd [2020] VSCA 108 at [155]-[156]."

Mr McQuillen responds, by reference to Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 at [114], [117], that the elements of the tort of deceit are the making of a false representation; with the knowledge that it was false, or careless or recklessness and with the intention that the representee would rely on it; that the representee acted in reliance upon the falsity of the representation; and the representee suffered damage which was caused by reliance on the false representation. In Stuart v Rabobank Australia Ltd [2021] FCA 1388 at [500]ff, Halley J referred to that decision and observed that: "The five elements that need to be established by a plaintiff for the modern tort of deceit were outlined by the High Court of Australia in Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 (Magill) at [114] (Gummow, Kirby and Crennan JJ) as follows. First, the plaintiff needs to show that a defendant made a false representation. A false representation has been described as a "misstatement of an existing fact": Edgington v Fitzmaurice [1881-5] All ER Rep 856; (1885) 29 Ch D 459 (Edgington) at 483 (Bowen LJ). The representation may be made by words or conduct: Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 (Bradford) at 211 (Viscount Maugham). Second, the defendant needs to have made the false representation either knowingly or without belief in its truth, including being reckless or careless as to the falsity of the representation: Derry v Peek [1886-90] All ER Rep 1; (1889) 14 App Cas 337 at 374 (Lord Herschell) affirmed by a majority of the High Court of Australia in Banditt v The Queen (2005) 224 CLR 262; [2005] HCA 80 at [2] (Gummow, Hayne and Heydon JJ). Third, the defendant needs to have made the representation with the intention that it be relied upon by the plaintiff. The representation must be made with the intention that either it is acted upon by the plaintiff or by a class of persons that includes the plaintiff in the manner which resulted in the damage: Bradford at 211 (Viscount Maugham). Fourth, the plaintiff must have acted in reliance on the false representation. If it is a material representation that was calculated to induce another person to enter into a contract and that person does enter into the contract, then the Court can infer that the person was induced by the representation to enter into that contract. Such an inference may be rebutted if it is shown that the plaintiff either had knowledge of the facts contrary to the representation or they stated in terms or showed clearly by their conduct that they did not rely on the representation: Redgrave v Hurd [1881-5] All ER Rep 77; (1881) 20 Ch D 1 at 21 (Jessel MR); see also Edgington at 483-4 (Bowen LJ). Fifth, the plaintiff needs to show that they suffered damage which was caused by reliance on the false representation. As stated by Buller J in Pasley v Freeman [1775-1802] All ER Rep 31; (1789) 100 ER 450 at 453: "Fraud without damage, or damage without fraud, gives no cause of action; but where these two concur, an action lies". See also: Smith v Chadwick [1881-5] All ER Rep 242; (1884) 9 App Cas 187 at 195-6 (Lord Blackburn); Bradford at 211 (Viscount Maugham). The need to satisfy each of five elements of the modern tort of deceit has always been strictly enforced, due to the serious nature of an allegation of fraud: Magill at [114] (Gummow, Kirby and Crennan JJ).

The Cross-Claimants also claim exemplary damages in respect of their claim in deceit, particularised by reference to the falsified documents to which In have referred above. Exemplary damages are intended to punish a defendant for the behaviour that gave rise to a tort: Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 at 149. Mr Butt submits that the tort of deceit is a "paradigm case" for an order for exemplary damages: Musca v Astie Corporation Pty Ltd (1988) 80 ALR 251 at 269; Hill v James [2004] NSWSC 55 at [280], where Bergin J (as her Honour then was) observed that: "Essential elements of the tort of deceit include the falsity of the representation, the defendant's knowledge that the representation is false and the defendant's intention that the plaintiff will rely upon or be induced to act upon the false representation. This kind of conduct, essential for the proof of the tort, may fit within the descriptions of the type of conduct that has been found to warrant the award of exemplary damages - "contumelious disregard for the plaintiff's rights", "conscious wrongdoing", "high-handed" and "reprehensible": Gray v Motor Accident Commission (1998) 196 CLR 1; Lamb v Cotogno (1987) 164 CLR 1." Her Honour there ordered exemplary damages against two defendants in the amounts of $75,000 and $125,000 respectively (the higher amount being awarded against a defendant who was a solicitor) where she had found that their conduct in deceiving and changing the terms of certain contracts was "quite appalling", that they were "obviously intent upon trickery" and their conduct "both high handed and reprehensible such that an award of exemplary damages is warranted against both defendants." An appeal from this decision was the subject of an appeal (James v Hill [2004] NSWCA 301), but the exemplary damages ground of appeal was dismissed; and that decision was approved by Ward CJ in Eq (as the President then was) in Galati v Deans [2021] NSWSC 1094 ("Galati v Deans") at [880]-[881].

The relevant principles were again summarised in Sze Tu v Lowe above at [141]-[152] by Gleeson JA (with whom Meagher and Barrett JJA agreed) as follows: "Black v Freedman is authority for the proposition that "where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character" (O'Connor J at 110). See also Griffith CJ at 108-109 (Barton J agreeing at 110). Where the thief makes a gift of the funds to a third party, the volunteer recipient is amenable to equitable jurisdiction. In Black v Freedman the volunteer recipient had no notice of the theft at the time of the receipt but discovered it while the funds were still in her hands. In such a case the equitable obligation arises when this knowledge is acquired: Black v Freedman at 109 (Griffith CJ); Agip (Africa) Ltd v Jackson [1990] Ch 265 at 291 (Millett J); Port of Brisbane Corporation v ANZ Securities Ltd [2002] QCA 158 at [33] (McPherson JA; Davies JA and Mullins J agreeing); Lurgi (Australia) Pty Ltd v Gratz at [74]-[75] (Byrne J). As Millett J explained in Agip (Africa) Ltd v Jackson at 291, when describing the liability of a person who receives for his own benefit trust property transferred to him in breach of trust: He is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust; or if he received it without such notice but subsequently discovered the facts. In either case he is liable to account for the property, in the first case as from the time he received the property, and in the second as from the time he acquired notice. In Heperu Pty Ltd v Belle (Heperu) [2009] NSWCA 252; 76 NSWLR 230, Allsop P, at [92] summarised the effect of the principle in Black v Freedman with respect to a volunteer recipient as follows: A person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not a party, cannot knowingly seek to retain those proceeds or that advantage, without, in effect, becoming a party to that fraud and liable accordingly. Later, at [154]-[155], Allsop P emphasised that the claim in Black v Freedman was a claim against the assets in the volunteer's hands or so much as was still remaining (whether in original form or traceable product). His Honour continued: To call the volunteer recipient a constructive trustee and to call upon him or her to account as a constructive trustee (because he or she upon discovery of the fund or asset belonging to another has become one) does not mean the volunteer comes under personal liabilities, independently of, or beyond, the obligation to restore the fund or asset and any attendant obligation. He or she does not, for instance, become liable to pay damages for the moneys received that led to the fund or asset being created, as if he or she were a knowing participant in the fraud. It is also important to recognise that the trust rests on the existence of property rights and in that sense is not purely remedial. The court declares that a trust exists and existed (though the innocent volunteer did not know it)… Tracing can be used to follow the proceeds of fraudulently obtained property or funds: Heperu at [93] citing as examples Black v Freedman itself and Creak v James Moore & Sons Pty Ltd [1912] HCA 67; 15 CLR 426 at 432. The use of tracing as a process of demonstration or proof of what has happened to property is well recognised … Whether the trust based on a Black v Freedman claim is more properly characterised as a resulting trust: (Robb Evans at [112]-[117]); or a constructive trust: (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] NLJR 877; AC 669 at 716 (Lord Browne-Wilkinson)), the trust is properly viewed as being of an institutional rather than simply a remedial character. It arises because the conscience of the thief is bound: Heperu at [154]-[155]; Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; 63 ACSR 429 at [40] (White J). In Robb Evans, Spigelman CJ said (at [113]) that the thief holds any property into which the stolen property has been converted on trust in a manner which should be seen as automatic. That is, a trust arises immediately upon the acquisition of the property, not when recognised by a court. He continued (at [115]): If appropriately characterised as "constructive", the trust that arises upon receipt of stolen funds by an active participant in the theft is of an institutional rather than remedial character… The authors of Jacob's Law of Trusts in Australia (7th ed, LexisNexis Butterworths) observe (at [1310]) that there is a remedial flavour about various constructive trusts, including that in Black v Freedman. Nonetheless they state (at [1311]) that "it does not follow that the constructive trust in such cases is 'remedial' in the sense that it first has existence and effect only upon the Court making its decree". The authors point out that in Black v Freedman, O'Connor J meant (at 110) that the thief became a trustee forthwith. The institutional character of such a constructive trust may be seen as "connoting a relationship which arises and exists under the law independently of any order of the Court": Muschinski v Dodds [1985] HCA 78; 160 CLR 583 at 614 (Deane J), although his Honour doubted (at 613) that there was any perceived dichotomy between institutional and remedial constructive trusts, preferring to view a constructive trust both as an institution and a remedy. In Grimaldi v Chameleon Mining NL (No 2) (Grimaldi) [2012] FCAFC 6 ; 200 FCR 296 the Full Federal Court (Finn, Stone and Perram JJ) at [504]-[505] distinguished the remedial use of the constructive trust from those cases where, on proof of particular facts in a given context, the circumstances are "construed" as giving rise to a constructive trust. Earlier, at [256], the Court noted the distinction between those cases "where a constructive trust is sought to be imposed by way of remedy on extant property which a delinquent fiduciary or a third party participant in fiduciary or trust wrongdoing has derived on their own account as a result of their wrongdoing" and those cases "where the property or interest sought to be recovered (or its traceable proceeds) is, or had been, the property of the claimant". The Court continued (at [256]) by observing that in the former cases, the constructive trust is used as a remedy in addition, or as an alternative, to the well accepted personal remedies available against fiduciaries and knowing participants in fiduciary wrongdoing. In the latter cases, proprietary relief by way of imposition of a constructive trust should be granted "if appropriate": Grimaldi at [255]. The latter category may be taken to include cases based on the Black v Freedman claim."

In the matter of DCA Enterprises Pty Ltd [2023] NSWSC 11

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