2 The fraud perpetrated by Telford was discovered shortly after the payment was made and a warrant was issued under the Criminal Assets Confiscation Act 1996. This led to the seizure of the monies. Orders made by this Court on 9 May 2002 resulted in the payment of the sum of $320,000 to K & S Corporation and the payment of the sum of $2,680,000 to an account with the Bendigo Bank under the control of the solicitors for K & S Corporation and the solicitors for Sportingbet. This action concerns the entitlement to the sum of $2,680,000 ("the disputed monies").

3 There were two other parties to the action, namely, the Director of Public Prosecutions and Telford. In the course of the trial, I made an order by consent dismissing the plaintiff's action against the Director of Public Prosecutions, who is the Administrator under the Criminal Assets Confiscation Act. The Administrator is the person nominated by the Attorney-General to administer property forfeited or subject to restraining orders under the Act. I made no order as to costs. The third defendant, Telford, took no part in the action and the plaintiffs do not seek any orders against him.

4 At the start of the trial I made an order giving K & S Corporation leave to join K & S Group Pty Limited ("K & S Group") as a plaintiff. The action proceeded as an action by K & S Corporation and K & S Group against Sportingbet for the recovery of the disputed monies. The principal basis of the plaintiffs' claim is an assertion that there is a constructive trust over the disputed monies in their favour. The plaintiffs assert that Sportingbet had the required level of knowledge or notice as to the source of the monies and the circumstances under which they were paid to make Sportingbet a constructive trustee of the monies. Sportingbet denies that it had the required level of knowledge or notice. In addition, it raises various defences including change of position, the provision of good consideration for the payment, estoppel and election.

5 I think that it is convenient in this case to start with an examination of the relevant legal principles in relation to the plaintiffs' claim that there is a constructive trust in their favour.

6 The plaintiffs' claim is that there is a constructive trust in their favour over the disputed monies.

7 The plaintiffs did not put their claim on the basis that they had a beneficial interest in the monies under a primary trust which was enforceable against Sportingbet because it could not set up a title as bona fide purchaser of the legal title without notice. Nor did I understand the plaintiffs to base their claim on the common law action for money had and received to the plaintiffs' use (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548).

8 The difference between tracing and enforcing the beneficial interest in property under a primary trust and asserting a constructive trust on the basis of the knowing receipt of trust property was discussed by Sir Robert Megarry V-C in In re Montagu's Settlement Trusts [1987] 1 Ch. 264. The Vice-Chancellor said (at 278):

"Third, there seems to me to be a fundamental difference between the questions that arise in respect of the doctrine of purchaser without notice and constructive trusts. As I said in my previous judgment, ante, pp. 272H‑273B:

'The former is concerned with the question whether a person takes property subject to or free from some equity. The latter is concerned with whether or not a person is to have imposed upon him the personal burdens and obligations of trusteeship. I do not see why one of the touchstones for determining the burdens on property should be the same as that for deciding whether to impose a personal obligation on a man. The cold calculus of constructive and imputed notice does not seem to me to be an appropriate instrument for deciding whether a man's conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trust.'"

"(1) The equitable doctrine of tracing and the imposition of a constructive trust by reason of the knowing receipt of trust property are governed by different rules and must be kept distinct. Tracing is primarily a means of determining the rights of property, whereas the imposition of a constructive trust creates personal obligations that go beyond mere property rights."

10 I refer also to the discussion by Millett J (as he then was) in Agip (Africa) Ltd v Jackson [1990] 1 Ch 265 at 289 - 291 and the discussion in Jacobs' Law of Trusts in Australia, Meagher & Gummow, 6th ed, para [1304].

11 To support their claim for a constructive trust the plaintiffs rely on the well known principles set out in the reasons for judgment of Lord Selborne LC in Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244. Lord Selborne LC said (at 251):

"Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."

12 It is well established that this statement contains two principles of liability. A person may be liable as a constructive trustee if he knowingly receives and deals in trust property ("knowing receipt") or if he knowingly assists the trustee in a breach of trust ("knowing assistance"). Sportingbet did not dispute the legal conclusion that the monies were trust monies when Telford arranged for the monies to be paid into the Westpac account. That concession is a correct one. In Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105, O'Connor J said (at 110):

"Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that other person's hands."

13 In terms of legal principle, the real dispute between the plaintiffs and Sportingbet concerned the degree of knowledge the plaintiff must show Sportingbet had before it can be said that Sportingbet is a constructive trustee of the disputed monies. The knowledge that is being referred to in this context is knowledge that the monies are trust monies, and that they have been paid in breach of trust. In the circumstances of this case the relevant knowledge is that the monies belong to another and that Telford had no authority to cause them to be paid over.

14 The most recent decision of the High Court on liability under the Barnes v Addy principles is Consul Development Pty Limited v DPC Estates Pty Limited [1975] HCA 8; (1975) 132 CLR 373. That case concerned the knowing assistance limb of the Barnes v Addy principles. I note that Stephen J (with whom Barwick CJ agreed) questioned the suggestion that there should be a difference in the required level of knowledge between the two limbs. He said (at 410 - 411):

"It is not clear to me why there should exist this distinction between the case where trust property is received and dealt with by the defendant and where it is not; perhaps its origin lies in equitable doctrines of tracing, perhaps in equity's concern for the protection of equitable estates and interests in property which comes into the hands of purchasers for value. Maitland has traced the gradual extension of the protection which equity has afforded these, culminating in its development of the doctrine of constructive notice - Maitland's Equity, 2nd ed (1949) pp 117 - 121. Certainly neither in Selangor nor in Karak is the distinction expressly adverted to, but it is noteworthy that in both cases the defendants had dealt with trust property."

15 On the level of knowledge required in order to constitute a person a constructive trustee, Gibbs J (as he then was) said (at 398):

"It may be that it is going too far to say that a stranger will be liable if the circumstances would have put an honest and reasonable man on inquiry, when the stranger's failure to inquire has been innocent and he has not wilfully shut his eyes to the obvious. On the other hand, it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man. However, for reasons that will appear, it is unnecessary for me to express any concluded view on these questions and I assume for the purposes of this case, but without finally deciding, that the formulation of principle on this point in the Selangor Case was correct."

"In my view the state of the authorities as they existed before Selangor did not go so far, at least in cases where the defendant had neither received nor dealt in property impressed with any trust, as to apply to them that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry. If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from inquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant."

17 There is a detailed discussion of the Barnes v Addy principles by Hansen J in Koorootang Nominees Pty Ltd v ANZ Banking Group [1998] 3 VR 16. He concluded that there were strong grounds supporting the existence of a rational and principled distinction between the two limbs in Barnes v Addy. The knowing receipt, or as Hanson J referred to it, recipient liability, is restitution-based. Hansen J concluded that the level of knowledge required for recipient liability, was any one of the first four categories of knowledge identified by Peter Gibson J in Baden, Delvaux & Lecuit v Societe General pour Favoriser le Developpement du Commerce et de L'Industrie en France SA [1993] 1 WLR 509. Peter Gibson J identified five categories of knowledge and said that any one of them was sufficient to constitute a person a constructive trustee. The five categories of knowledge are as follows:

(1) actual knowledge;

(2) wilfully shutting one's eyes to the obvious;

(3) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make;

(4) knowledge of circumstances which would indicate the facts to an honest and reasonable man;

(5) knowledge of circumstances which would put an honest and reasonable man on inquiry.

I will refer to these categories of knowledge as the "Baden categories".

18 Peter Gibson J did not think there should be any difference in the level of knowledge required between liability based on knowing receipt and liability based on knowing assistance.

19 There is also a useful discussion of the level of knowledge required to constitute a person a constructive trustee and of the Baden categories by Foster AJ in Gertsch v Atsas & Ors [1999] NSWSC 898; (1999) 10 BPR 18, 431. After referring to relevant Australian and English authority, Foster AJ expressed his conclusions as follows:

"Accordingly, formulations on this topic in Australian decisions do not refer directly to concepts such as 'impropriety' or 'want of probity'. Nor do they select out as the governing concept, the notion of 'dishonesty' which was the subject of exposition in the Brunei case. After considering the material which I have set out and a great deal more which I have not set out, I have come to the conclusion that the acceptance of the first four Baden categories, even though they now have no prominence in England, amounts really to no more than accepting a standard of honesty appropriate in the circumstances. The reference in category (iv) to 'the facts' sufficiently indicates, in my view, that a person receiving, for his own use, trust property, whilst in the state of knowledge posited, would not, relevantly, be acting honestly. Translated into terms of the present case, if either of the defendants, at the time when they took the legacies, knew of circumstances which would reasonably indicate to them that the will was invalid, that would be sufficient for the imposition of a constructive trust."

20 In Equiticorp Finance Ltd v Bank of NZ (1993) 32 NSWLR 50, Kirby P (as he then was) expressed the view (at 103) that in Consul Development Pty Ltd v DPC Estates Pty Ltd Stephen J had concluded that knowledge of the kind mentioned in category (4) was sufficient and that Gibbs J appeared to be of the same view.

21 In England it seems that the Baden categories have been abandoned. In Royal Brunei Airlines v Tan [1995] UKPC 4; [1995] 2 AC 378, a knowing assistance or accessory liability case, Lord Nicholls said that the scale of knowledge identified by Peter Gibson J is best forgotten. Lord Nicholls said that it was not necessary in that case to consider the essential ingredients of recipient liability. He said that different considerations apply to the two heads of liability in that recipient liability (knowing receipt) was restitution-based whereas accessory liablity (knowing assistance) is not. On the question of the degree of knowledge required for accessory liability, Lord Nicholls said (at 389):

"Whatever may be the position in some criminal or other contexts (see, for instance, Reg v Ghosh [1982] EWCA Crim 2; [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour."

22 This approach was followed in Twinsectra Ltd v Yardley & Ors [2002] UKHL 12; [2002] 2 AC 164. In fact, on one view of the speeches in Twinsectra Ltd v Yardley and Ors, the House of Lords required an even higher level of knowledge in a knowing assistance or accessory liability case than had been identified in Royal Brunei Airlines v Tan.

23 I was referred to decisions in Canada and New Zealand. In Citadel General Assurance Co v Lloyds Bank Canada [1997] 3 SCR 805, the Supreme Court of Canada said that a lower level of knowledge would suffice in a knowing receipt case. La Forest J said (at 434) that in a knowing receipt case a constructive trust would be imposed on a person if that person had knowledge of facts sufficient to put a reasonable person on notice or inquiry. He said that that conclusion followed from the fact that such a person had been necessarily enriched at the plaintiff's expense.

24 In Westpac Banking Corporation v Savin [1985] 2 NZLR 41, Richardson J said (at 53):

"As will shortly become apparent, it is not necessary for the purpose of this case to express a final view as to the ambit of constructive knowledge in this class of case. In principle I cannot see any adequate justification for excluding categories (4) and (5) at least in the 'knowing receipt' class of case and I tend to favour for that class of case the comprehensive approach adopted by Peter Gibson J which now has the endorsement of Halsbury (vol 48, para 592). Clearly Courts would not readily import a duty to inquire in the case of commercial transactions where they must be conscious of the seriously inhibiting effects of a wide application of the doctrine."

25 The plaintiffs submit that the law in Australia is that the first four Baden categories are sufficient in a knowing receipt case to constitute a person a constructive trustee. The level of knowledge identified in the fifth category may be sufficient, but the plaintiffs submit that it is unnecessary on the facts in this case for me to so hold. The plaintiffs submit that on the facts Sportingbet clearly had knowledge within one of the first four Baden categories. On the other hand, Sportingbet submits that to be liable as a constructive trustee the plaintiffs must show that Sportingbet had the knowledge identified in one of the first three Baden categories.

26 The Baden categories are helpful in identifying potentially different states or levels of knowledge. However, it must be remembered that the categories overlap and that a too rigid application could lead to artificial results. I respectfully agree with Millett J in Agip (Africa) Ltd v Jackson (at 293) that one must be careful of over-refinement or a too ready assumption that categories (4) or (5) are necessarily cases of constructive notice only. I have no doubt that the first three categories are sufficient in a knowing receipt case. Sportingbet did not argue the contrary. In my opinion the fourth category of knowledge is also sufficient. In terms of "blameworthiness" or, put another way, in terms of the extent to which the defendant ought in conscience to be bound to recognise the plaintiffs' interest, there is little difference between the third and fourth categories. Furthermore, such an approach is consistent with the approach taken by Hansen J in Koorootang Nominees Pty Ltd v ANZ Bank Group and Foster AJ in Gertsch v Atsas & Ors. I will proceed on the basis that in a knowing receipt case the first four Baden categories are sufficient to constitute a recipient of trust monies a constructive trustee of the monies.

27 In the end, I did not understand the plaintiffs to pursue their case on the knowing assistance limb. The plaintiffs certainly argued that Sportingbet must have known that Telford was passing monies through his account with Sportingbet and that this constituted money laundering by Telford, but I did not understand the plaintiffs to argue that Sportingbet knowingly assisted Telford to act in breach of trust. Therefore it is unnecessary for me to consider the knowing assistance limb any further. I would say that I reject Sportingbet's submission that the reference to Royal Brunei Airlines v Tan by a majority of the High Court in Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 (at 112) amounts to an adoption by the High Court of the test formulated in that case for the level of knowledge required in a case of knowing assistance or accessory liability.

28 Before leaving this discussion of the level of knowledge required to constitute a person a constructive trustee in a knowing receipt case, I refer to two further cases, one relied upon by the plaintiffs, and the other relied on by Sportingbet. Neither case was relied on because it contained an important statement of principle, but rather because of the way in which the principle was applied to the facts.

29 The plaintiffs relied on the decision of the House of Lords in Reckitt v Barnett, Pembroke & Slater Ltd [1929] AC 176. In that case, the appellant gave Lord Terrington a power of attorney. Lord Terrington drew a cheque on the appellant's bank in favour of the respondents in payment of the purchase by Lord Terrington of a Rolls-Royce motor vehicle. It was held that the appellant was entitled to recover the monies paid to the respondent. The cheque was made payable to the respondents or order and was signed "Sir Harold J Reckitt Bart., by Terrington his Attorney". Lord Hailsham LC said (at 181 - 182):

"It is common ground also that the fact that the respondents made no inquiries as to Lord Terrington's authority and that they overlooked the form of the signature makes no difference in their position; they had on the cheque plain notice that they were receiving the appellant's money, and they can be in no better position than if they had then asked to see and had been shown the authority under which Lord Terrington was acting. Nor is there in this case any question of ostensible authority or any holding out by the appellant of Lord Terrington, since the respondents do not profess to have acted upon any such holding out. It is a simple case of receipt by the respondents of the appellant's money with the knowledge that it was the appellant's money in payment of Lord Terrington's debt. In order to succeed the respondents must show that Lord Terrington had in fact authority to use the appellant's money in payment of his, Lord Terrington's, private debts."

30 The plaintiffs submit that this case is similar because Sportingbet knew that the payer of the monies to it was K & S Group, and that the monies were not Telford's monies. (For another example of a similar application of the relevant principles see Nelson v Larholt [1948] 1 KB 339.)

31 Sportingbet relied on the decision of the House of Lords in Thomson v Clydesdale Bank Ltd [1893] UKLawRpAC 30; [1893] AC 282. In that case, the appellants were trustees who had instructed a broker to sell shares which they held on trust. The broker was instructed to deposit the proceeds in certain colonial banks in the names of the appellants. The broker sold the shares but deposited the proceeds of sale in an overdrawn account in his name with the respondent. The appellants sought to recover the proceeds from the respondent. They were unsuccessful. Sportingbet relied in particular on certain observations of Lord Watson (at 289). It seems to me that the case is distinguishable on the facts from the present case. An important matter in Thomson v Clydesdale Bank Ltd was the fact that there was nothing to put the Bank on notice that the broker might be misappropriating the monies placed in his account. Even if the Bank knew that the monies were the proceeds of the sale of shares owned by the broker's clients, that did not put the Bank on notice that the broker was misapplying the monies. It was not uncommon for a broker to pay his client in advance, and then to recoup his outgoing upon the sale of the shares. Nor was it uncommon for a broker to deposit the proceeds of the sale of shares in his own account and retain the proceeds in that account for an interval of more or less time for the purpose of reinvestment or otherwise. In other words, there were facts which put the Bank on notice that the monies paid into the broker's account were monies resulting from the sale of shares owned by the broker's clients, but there was nothing to put the Bank on notice that by paying the monies into his account, the broker was misapplying the funds. The position in this case is different. If there were facts putting Sportingbet on notice that the monies were not Telford's monies, then on the facts in this case it must follow that there were facts putting Sportingbet on notice that the monies had been or were being misappropriated.

32 There were two issues which arose in the course of the trial which it is convenient to mention at this stage. First, the plaintiffs sought to argue that Sportingbet had acted in breach of condition 22 of its licence as a sports bookmaker under the Racing and Betting Act 1983 (NT). That condition provides as follows:

"The Sports Bookmaker or any other Associates shall not appoint, employ or engage in any capacity (whether as director, employee, consultant, adviser, or any other capacity), or be otherwise involved, with former Number One Betting Shop owner, Mr Alan Tripp or any (sic) his Associates. Furthermore, the Sports Bookmaker will not allow Mr Tripp's involvement or his Associates as a Material Shareholder of, or supplier to, the Sports Bookmaker or any of its associated entities.

'Material Shareholder' means a person owning or controlling (whether directly or indirectly) at least 5% of the issued shares of company with an entitlement to vote.

'Associate' has the same meaning as the Income Tax Assessment Act, but will specifically exclude his son, Mr Matthew Tripp."

33 The plaintiffs submitted that the evidence clearly showed that Mr Alan Tripp continued to be involved in the business of Sportingbet after it commenced operating under its licence (ie after 20 February 2002). They argued that if that proposition was made good, it reflected adversely on the credit of Sportingbet and on the witnesses to be called by Sportingbet. Sportingbet submitted that the evidence was irrelevant because the issue was irrelevant. I allowed questions on the topic because I considered the evidence might be relevant to the credit of witnesses to be called by Sportingbet, and possibly, to how Sportingbet conducted its business.

34 Secondly, the plaintiff sought to lead evidence of allegations that another client of NOBS and then Sportingbet who I will call "G" had stolen significant sums of money and gambled with Sportingbet in a similar way to Telford. I allowed questions on this topic because it might have shed light on the extent of Sportingbet's inquiries in an (arguably) similar situation and because the events in relation to G may have been relevant to Sportingbet's knowledge in relation to Telford. Witnesses called on behalf of Sportingbet were cross-examined on this topic, and the plaintiffs tendered in evidence pleadings in an action in the Supreme Court of New South Wales (Equity Division) whereby G's employer and a related company are seeking to recover from Sportingbet, NOBS and others, monies stolen from them.

35 The plaintiffs submit that I should draw certain inferences adverse to NOBS and Sportingbet having regard to Sportingbet's failure to call Mr Kevin Crowe and Mr Alan Tripp. I find that both Mr Crowe and Mr Tripp are persons one would expect Sportingbet, rather than the plaintiff, to call as witnesses. They were both involved in NOBS and then Sportingbet in the manner I will set out. I also find that Sportingbet provided no explanation for the failure to call Mr Crowe or Mr Tripp as witnesses. I take the liberty of repeating what I said in Polyaire Pty Ltd v K-Aire Pty Ltd & Ors [2003] SASC 41 at paras 61-62:

"In those circumstances, I am entitled, but not obliged, to infer that the evidence of those witnesses would not have assisted the respective cases of the defendants.

I am entitled to take the failure to call evidence from those persons into account in deciding whether to accept any particular evidence which relates to a matter upon which they could have spoken, and to more readily draw any inference fairly to be drawn from the other evidence by reason of the fact that the defendants could have proved the contrary, had they chosen to call those witnesses or, as the case may be, give evidence themselves. However, it is not permissible for me to infer that the untendered evidence would have been damaging to the party not tendering it. Nor can I use the principle to fill gaps in the evidence, or to convert conjecture and suspicion into inference (Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 per Kitto J at 308, Menzies J at 302 and Windeyer J at 320-321)."

36 I turn now to an examination of the facts of the case.

37 The plaintiffs and Sportingbet agreed a number of facts, and other facts were established by uncontested evidence.

38 K & S Corporation is the holding company of a large group of companies based in Mount Gambier in the State of South Australia. K & S Corporation was previously known as Scott Corporation Limited. The group of companies operate a range of businesses in the transport industry and allied industries throughout Australia. K & S Corporation owns all the shares in K & S Group and Reid Bros Pty Ltd and those companies in turn own all the shares in a number of companies. K & S Corporation does not operate a bank account. K & S Group operates a bank account on behalf of the companies in the group. At all the relevant times, K & S Group owned and operated the ANZ account which was and is an account at the branch of that bank in Mount Gambier, South Australia. The Bank provided a facility to K & S Group enabling it to transfer funds electronically. It is agreed between the parties that K & S Group operated the ANZ account for the benefit of, and at the direction of, K & S Corporation.

39 Telford became an employee of the K & S group of companies in about the middle of 1999. On 9 August 1999 Telford was appointed the chief financial officer of K & S Corporation and on 31 August 1999 he was appointed secretary of the company and K & S Group. He ceased to hold these three positions on 22 April 2002. He was one of seven employees with the authority to authorise the electronic transfer of funds from the ANZ account.

40 Sportingbet is a subsidiary of Sportingbet PLC ("Sportingbet PLC") a publicly listed company incorporated in the United Kingdom. Sportingbet has been a subsidiary of Sportingbet PLC since about April 2000. It was incorporated in the State of New South Wales and carries on business as a sports bookmaker under s 90 of the Racing and Betting Act 1983 (NT) pursuant to a licence issued by the Racing Commission of the Northern Territory of Australia. That licence was obtained on 8 January 2002 and as I understand it, Sportingbet carried on no business until it commenced operating as a sports bookmaker on or about 20 February 2002.

41 In March 2001 Sportingbet PLC acquired the shares in NOBS, a company incorporated in Vanuatu. The purchase contract was tendered in evidence. It consists of a series of quite complex commercial documents. Many of the details of the transaction are not relevant to the issues in this action. It is sufficient to say that the vendor of the shares is Vanuatu International Trust Company Limited ("VITCO") and that that company is a company substantially owned and controlled by Mr Alan Tripp or interests associated with him. Mr Tripp was the chief executive officer and driving force behind NOBS before the sale. He retained an important managerial role after the sale of the shares in March 2001. The consideration for the sale was to be paid over 2 years and was referred to in the evidence as an "earn out". The consideration involved cash and shares in Sportingbet PLC. The cash payable was calculated by reference to turnover of the NOBS business minus payments for winning wagers and a provision for bad debts. The shares are shares in Sportingbet PLC. The purchase price is payable in instalments, the last of which was payable in March 2003.

42 Most of NOBS and then Sportingbet's business involved the taking of wagers on horse races. Mr Waller estimated that 95% of the business involved taking wagers on horse races and 5% on other events. Mr Waller estimated that about 99% of the business involved credit betting, that is betting on credit provided by NOBS or Sportingbet.

43 From 4 July 1999 to 20 February 2002 Telford had a running account with NOBS and after 20 February 2002 Telford had a running account with Sportingbet. Both accounts were operated under the name "Craig Teller". This was done at Telford's request and was agreed to by NOBS. NOBS knew that the real name of the client was Craig Telford. It appears the account was opened in the name of Craig Telford but at a stage not clearly identified in the evidence it was changed to Craig Teller.

44 The manner in which the NOBS account operated was that from time to time Telford would place wagers with NOBS and with respect to Telford's wagering on any one day, NOBS would credit or debit, as the case might be, the net result of the wagering on that day to the NOBS account. It was agreed between the parties that the course of the NOBS account between 4 July 1999 and 20 February 2002 included the following:

45 The word "sent" indicates a payment of monies by NOBS to or at the direction of Telford and deducted from Telford's account and the word "received" indicates a receipt by NOBS for credit to the account.

46 On 20 February 2002 the balance of the NOBS account was $160,000 to the credit of Telford. On or about 21 February 2002 Sportingbet opened its own account with Telford under the name of "Craig Teller". Telford's account with Sportingbet was placed in credit in the sum of $160,000. NOBS owed Sportingbet that sum as an inter-company loan.

47 Telford's account with Sportingbet was operated in the same manner as his account with NOBS had been. It was agreed between the parties that the course of the Sportingbet account between 20 February 2002 and 15 April 2002 was as follows:

(1) Betting refers to the net result of Telford's wagering activities on the day indicated in the "Date" column;

(2) "Sent" refers to the payment of money to or at the direction of Telford; and

(3) "Received" refers to the receipt by Sportingbet for credit of the account.

(1) in the "Amount" column indicates the amount deducted from Telford's account either by betting or by being sent to Telford; and

(2) in the "Balance" column indicates that the balance was in favour of Sportingbet in the sum indicated save that the balance was $160,000 on 21 February 2002.

49 Telford's account with Sportingbet was credited with the sum of $3,000,000 on 15 April 2002.

50 NOBS owned and operated the Westpac account which was an account at the branch of that bank at Petrie Plaza, Australian Capital Territory. Between 15 July 2001 and 20 February 2002 the bank account was maintained by NOBS under the name, "Number One Betting Shop Limited". From 21 February 2002 onwards, the bank account was maintained by Sportingbet under the name, "Sportingbet Australia Pty Ltd".

51 Telford arranged for payments to be made from the plaintiffs' ANZ account to the Westpac account. I find that payments to the Westpac account in August ($1.4 million), September ($2.1 million), October ($800,000), December ($1.5 million) 2001 and January ($2.7 million) and April ($3 million) 2002 (a total of $11.5 million) were from the plaintiffs' ANZ account. I will refer to these six payments as "the unlawful payments". The payment of $585,000 to the Westpac account on 15 February 2002 was a payment by another bookmaker, Mr Emanuel Seal, to the credit of Telford. The plaintiffs allege that Telford was also misappropriating monies from their ANZ account and arranging for payments to Mr Seal and that Telford was placing large wagers with Mr Seal. The plaintiffs allege that the $585,000 was part of a sum of money misappropriated by Telford and paid to Mr Seal.

52 With respect to the unlawful payments made to the Westpac account and the payment on 15 February 2002, it was agreed that NOBS received confirmation of the payments to the Westpac bank account from Westpac in the manner and on the dates specified:

1. 24 August 2001: NOBS received confirmation by facsimile on 27 August 2001.

2. 25 September 2001: NOBS received confirmation by facsimile on 26 September 2001.

3. 9 October 2001: NOBS received confirmation via facsimile on 10 October 2001.

4. 18 December 2001: NOBS received confirmation via an Internet download on 19 December 2001.

5. 17 January 2002: NOBS received confirmation via an Internet download on 18 January 2002.

6. 15 February 2002: NOBS received confirmation via an Internet download on 19 February 2002.

53 On 16 April 2002, Sportingbet received information from Westpac to the effect that $3,000,000 had been received by Westpac to the Sportingbet account.

54 The plaintiffs called three witnesses. The first witness was Mr Graham John Allen. Mr Allen is an employee of K & S Corporation. For approximately seven years he has held the position of general manager of administration. After Telford ceased to hold the position of secretary of K & S Corporation on 22 April 2002, Mr Allen was given the task of investigating the circumstances in which Telford had apparently misappropriated funds from the company. Mr Allen was an honest witness and I accept his evidence.

55 The plaintiffs also called Mr Paul Morrisy. Mr Morrisy was secretary of the Bookmakers Licensing Board of South Australia from March 1979 to 1994. He retired in 1994. Mr Morrisy became familiar, during his period as secretary to the Board, with betting patterns, turnover, size of bets and the average bets played in relation to bookmaking in South Australia. Mr Morissy was an honest witness and I accept his evidence.

56 The plaintiffs also called Mr Malcolm Richardson who is an employee of the Racing Commission established under the Racing and Betting Act. He has been an employee of the Commission for approximately 17 years. He currently holds the position of Manager of Racing, and as such is responsible for ensuring, inter alia, that bookmakers comply with the Act and Regulations. Mr Richardson was an honest witness and I accept his evidence.

57 Sportingbet called four witnesses, Mr Anthony Waller, Mr Michael Sullivan, Mrs Janette Burkett and Ms Lynette Hicks.

58 Mr Anthony Waller is employed by Sportingbet as financial controller and legal counsel. He is also the secretary of Sportingbet. He is a solicitor with a current practising certificate. Mr Waller was the financial controller of NOBS until late February 2002. In the early part of his cross-examination, Mr Waller was inclined to try to outwit the cross-examiner and as a result I thought he was inclined to adopt a cavalier approach to the task of giving evidence. Having said that, he was in the witness box for a long time and he was prepared to make frank concessions when pressed. I accept the substance of his evidence.

59 Mr Michael Sullivan is the director of bookmaking operations for Sportingbet. He is Sportingbet's nominated person for the purposes of the licence under the Racing and Betting Act 1983 (NT) (see s 90 (5A)). Mr Sullivan was appointed a director of NOBS in March 2001, and a director of Sportingbet in June 2001. Although sometimes defensive, Mr Sullivan was an honest witness and I accept the substance of his evidence.

60 Mrs Burkett is employed by Sportingbet as administrative manager. She has five staff members under her supervision and direction. Mrs Burkett has worked for NOBS for many years. After the takeover of NOBS by Sportingbet PLC and until June 2001, NOBS conducted all of its operations, other than the taking of bets, from premises in Yarrawonga in Victoria. Thereafter, Mrs Burkett moved to Vanuatu with other members of the administrative staff and stayed there until she moved to Darwin in January 2002 to be part of Sportingbet's operations in Darwin. Mrs Burkett's role in the relevant events was limited and her recollection was not particularly good. Nevertheless, she was an honest witness and I accept her evidence.

61 Ms Hicks is employed by Sportingbet as an administrative assistant. She is subject to the supervision and direction of Mrs Burkett. She was previously employed by NOBS as an administrative assistant. Since January 2002 she has worked in Darwin. Her role in the relevant events was also limited and her recollection was not particularly good. Nevertheless, she was an honest witness and I accept her evidence.

62 In addition to the oral evidence both parties tendered a number of documents.

63 I turn now to consider the circumstances surrounding the transfer of funds from the plaintiffs' ANZ account to the Westpac account.

64 Based on Mr Allen's evidence and the documents, I find that the plaintiff had in place a system for the electronic transfer of funds from the ANZ account. I find that the person within the plaintiffs' organization seeking a transfer of funds would complete or arrange for the completion of a form known as an Electronic Funds Transfer Authorisation Form. This form contains provision for details to be inserted in the form as to the payee including account number, bank, the reason for the payment so that if it was a payment to a creditor for example, there was provision for the invoice to be attached to the form, general ledger details and the provision for two "cheque signatories" who would sign the form. Under the protocol or system, the person requesting the transfer should not be one of the persons involved with the authorisation of the transmission of the funds. I find that there were seven "cheque signatories" within the plaintiffs' organization who did not literally sign a cheque but rather keyed in an individual identification number and approved the transaction. Telford was a "cheque signatory" as were other employees who reported to him. The other "cheque signatories" consisted of people who were both senior and junior to Telford in the plaintiffs' organization.

65 The plaintiffs' business generated large amounts of cash. I find that as chief financial controller it was within Telford's role to develop strategies for the use of this cash at least on a short term basis. Without objection, Mr Allen gave evidence that his inquiries after Telford's fraud was discovered revealed (and I find) that Telford had explained the payments out of the ANZ account to the other members of the plaintiffs' accounting staff on the basis that monies were being placed with the National Australia Bank Limited in an investment account. The National Australia Bank provided finance to the group in connection with the purchasing and leasing of vehicles and Telford told members of the plaintiffs' accounting staff that the Bank required the lodgment of funds with it as part of those arrangements.

66 It appears that Telford went so far as to forge a letter from the National Australia Bank dated 12 February 2002 confirming the deposit with the Bank (as at 31 December 2001) of $6,300,000 and that that was done in case the plaintiffs' auditor asked questions about the destination of the funds which he had misappropriated.

67 I find that no bank statements from the National Australia Bank were ever found within the plaintiffs' records. Telford was able to effect the misappropriation of funds by stating in the Electronic Funds Transfer Authorisation Forms that the money was being sent to the National Australia Bank. However, the critical information in the forms in terms of where the funds were actually sent was the account number and the BSB number. The account number and BSB number used in the forms and entered in the computer were in fact those of Westpac account. I find that the unlawful payments were misappropriations by Telford because he had no authority to cause the plaintiffs to make payments to the Westpac account of NOBS/Sportingbet. In other words, none of the unlawful payments were authorised. The plaintiffs had no commercial or contractual relationship with NOBS or Sportingbet.

68 I find that each of the unlawful payments was effected by this means.

69 Therefore, over a period of approximately eight months a total of $11,500,000 was misappropriated by Telford from the plaintiffs and paid into the Westpac account.

70 I find that the plaintiffs' books were reconciled by double entry bookkeeping. No request for a bank statement from the National Australia Bank was ever made by anyone within the plaintiffs' organization. An auditor external to the plaintiffs carried out a six month statutory audit for the period 1 July to 31 December 2001, but that did not involve the auditor calling for bank statements.

71 I should mention at this point that during the trial I understood that both parties accepted that the knowledge NOBS had concerning Telford and his account was knowledge to be attributed to Sportingbet. However, in written submissions lodged after the trial, Sportingbet submitted that all that it conceded was that Sportingbet carried on its operations in a similar manner to NOBS.

72 I will consider the issue of whether the knowledge of NOBS can be attributed to Sportingbet on the basis that it is an issue in dispute.

73 In April 2000, Sportingbet PLC caused Sportingbet to be incorporated with a view to obtaining a betting licence in Australia. As I have said, that licence was obtained by Sportingbet on 8 January 2002. In March 2001 Sportingbet PLC acquired all the shares in NOBS. NOBS had offices in Vanuatu, and bets from Australia were taken by telephone in Vanuatu. NOBS also had offices in Yarrawonga in Victoria and it appears that all administrative functions were carried out in Yarrawonga. That arrangement continued between March and June 2001. It seems that in June 2001 the administrative functions were moved from Yarrawonga to Vanuatu. It should be remembered that throughout this period NOBS maintained a bank account in Australia, namely the Westpac account.

74 From March 2001 NOBS and Sportingbet were wholly owned subsidiaries of Sportingbet PLC.

75 On 21 February 2002 Sportingbet commenced operations in Darwin in the Northern Territory as a sports bookmaker operating under the licence it had obtained on 8 January 2002. It took over the clients of NOBS and the bookmaking operations previously conducted by NOBS were moved from Vanuatu to Darwin. It became the owner of the Westpac bank account. Client balances as at the changeover date were transferred from NOBS to Sportingbet. There was an accounting as between NOBS and Sportingbet but the precise details were not the subject of evidence. If NOBS owed money to the client then Sportingbet extended an equivalent credit to the client and collected the amount from NOBS. The evidence was that NOBS still currently exists but in fact it does not carry on an active business as a bookmaker. It seems that NOBS is involved in the collection of debts owed to it.

76 On or about 20 February 2002 Mr Tripp on behalf of NOBS sent a letter to all clients of NOBS advising them of the changeover to Sportingbet. The letter includes the following passage:

"The good things won't be changing - Sportingbet Australia has the same friendly Number One Team and continues to offer you the same great betting products and the high level of service that you've come to expect from Number One over the past 10 years."

77 At about the same time, Mr Sullivan on behalf of Sportingbet sent a letter to the NOBS clients advising of the services offered by Sportingbet.

78 In general terms, the Sportingbet management team on 21 February 2002 was the same as the NOBS management team on 20 February 2002. Mr Tripp was involved in the business conducted by Sportingbet after 21 February 2002, although I will need to discuss his precise involvement in more detail later.

79 The other important member of the NOBS management team was Mr Crowe. He was referred to in the evidence as a "consultant", but his role was much more extensive than what might be suggested by that word. Mr Crowe had been employed or engaged by NOBS for some years prior to the purchase of shares in NOBS by Sportingbet PLC in March 2001. He continued in the same role after the purchase. He was a very important member of the management team. I think the effect of Mrs Burkett's evidence was that Mr Tripp was the key figure in the NOBS organization in Vanuatu and Mr Crowe, who was involved (inter alia) in the recruitment of clients, was the key figure in the NOBS organization in Australia. Mr Waller said that Mr Crowe was, with Mr Tripp, responsible for building up the business of NOBS. All the other consultants reported to Mr Crowe. He recruited clients, set their credit limits, was an ongoing contact point with the clients, monitored the betting patterns of clients and received the list of those who were not settling their debts. Mr Crowe's tasks included assessing a client on introduction to determine the basis upon which that person would become a client.

80 Mr Crowe's role with Sportingbet has been similar. There is no written contract between Sportingbet and Mr Crowe. He is paid a fixed consultancy fee per annum. He is not paid commissions. Mr Crowe played a key role in the recruitment of Telford in June 2001 and thereafter as the contact point with Telford on behalf of NOBS and then Sportingbet. He fixed the credit limits for Telford and was in fairly regular contact with Telford as to payments into and out of Telford's account with NOBS and then Sportingbet. Mr Crowe's area of responsibility was large and significant and did not change when he moved from NOBS to Sportingbet. I have no doubt that as far as Telford and the operation of his account is concerned Mr Crowe was part of the directing mind and will of NOBS and then of Sportingbet.

81 It was not strongly argued that Mr Alan Tripp was not part of the directing mind and will of NOBS. I think he clearly was part of the directing mind and will of NOBS. I also think that his knowledge of Telford and the operation of his account should be attributed to Sportingbet at least up to and including the time at which the $3 million was paid into the Westpac account. It is plain from the electronic mail messages summarised below that he was involved in making decisions about Telford and his account, and indeed, liaising with Telford in the period immediately preceding the payment of $3 million.

82 Sportingbet, as far as the clients were concerned, wanted to make the transition from NOBS to Sportingbet as "seamless" as possible and that included the use of the same bank account and telephone numbers. In terms of the administration of the business, the evidence of Mrs Burkett (which I accept) was that "nothing really changed" when Sportingbet took over the operations from NOBS.

83 I find that the knowledge of NOBS about Telford and the operation of his account should be attributed to Sportingbet.

Telford's Account with NOBS and then Sportingbet

84 I have set out above two schedules showing details of Telford's account with NOBS and Sportingbet which were agreed between the parties. At trial the plaintiffs tendered a more detailed statement of Telford's account which was produced from Sportingbet's records. I now set out the statement.

85 This statement is accurate subject to two matters. First, the betting results are the weekly results of Telford's betting which in fact included betting on particular days during the week. Secondly, the statement is not strictly accurate in relation to a handful of entries identified by Mrs Burkett during her evidence. Those inaccuracies arose due to the manual nature of the recording system used by NOBS and then Sportingbet. As it happens, they are not material to the conclusions which I have reached.

86 Telford was one of NOBS' clients in July 1999. He had a couple of bets at that time, was successful and took his winnings of $15,752.00. Thereafter his account lay dormant until he commenced betting again in June 2001.

87 On the evidence it is difficult to be certain what information NOBS had about Telford in its records in July 1999. On the evidence I find that in July 1999 and thereafter NOBS and then Sportingbet had no more information in their written records than Telford's name, a post office box number in Mount Gambier, various telephone numbers and a facsimile number and details (BSB and Account numbers) of a bank account Telford held at the ANZ Bank. There are no written records held by NOBS and then Sportingbet containing details of Telford's occupation and employer, his assets and liabilities or his general financial position.

A Summary of the Plaintiffs' Submissions on the Facts

88 This action concerns the payment of $3 million to the Westpac account on 15 April 2002. The plaintiffs need only prove that Sportingbet had the required level of knowledge shortly prior to that payment. However, the plaintiffs put their case on the basis that Sportingbet had the required level of knowledge shortly after the payment of $1.4 million to the Westpac account on 24 August 2001. They submitted that NOBS had actual knowledge that the monies paid to the Westpac account on 24 August 2001 were trust monies. Alternatively, they submitted that shortly after the payment on 24 August 2001, NOBS had knowledge falling within one of the other three Baden categories. In the further alternative, they submitted that the events that occurred between August 2001 and early April 2002 were such that I should infer that Sportingbet had the required level of knowledge prior to the payment in early April 2002.

The Reactivation of Telford's Account in June 2001

89 Mr Sullivan gave evidence as to how it was that Telford resumed betting with NOBS in June 2001. Mr Sullivan has many years' experience in the racing industry. It is not necessary to set out the details. In 1998 he obtained a bookmaker's licence in New South Wales and he conducted a bookmaker's business in Sydney until February 2002. At that time he sold the business to Sportingbet. He was the largest "rails bookmaker" in Sydney at the time he sold the business. For the period from March 2001 to the time he sold his business to Sportingbet he provided consultancy services to Sportingbet PLC in relation to the operations of NOBS and in relation to the acquisition of a sports bookmaker's licence by Sportingbet. In June 2001 he was a director of NOBS. Mr Sullivan gave evidence about how a bookmaker's business is conducted. The evidence was of a general nature. I accept it as far as it goes. He said bookmakers were often proactive in terms of finding clients. He also said it was not unusual for clients to settle with third party cheques; some clients owned private companies or operated through family trusts. Mr Sullivan said that it was not unusual for bookmakers with common clients to settle a client's account as between each other by a payment or by a receipt.

90 In June 2001, Telford was placing large bets with Mr Seal, who Mr Sullivan knew was a bookmaker operating in Adelaide. Mr Seal was "laying off" the bets with bookmakers in Sydney because they were very large bets. One of the bookmakers in Sydney told Mr Sullivan of a person in Adelaide who was placing very large bets. The person was a very big client. The expression used in the evidence was a "big hitter in Adelaide". Mr Sullivan was interested in securing Telford's business but he could not provide the service Telford required so he passed on the information about the big hitter in Adelaide to NOBS, who arranged for Mr Crowe to ascertain the identity of Mr Seal's very big client. Mr Crowe made certain inquiries.

91 It is important to note that it was not Mr Sullivan who made the inquiries about Telford. Nor did he speak to Mr Crowe about the inquiries that Mr Crowe made. Mr Sullivan's understanding of the inquiries Mr Crowe made was based on discussions he had with Mr Tripp.

92 Mr Sullivan's understanding was that either Mr Crowe or Mr Tripp contacted a bookmaker in South Australia. For confidentiality reasons the bookmaker was not named in Court but rather his name was written on a piece of paper. The bookmaker told Mr Crowe or Mr Tripp that Mr Seal's big client was Mr Craig Telford who was betting and who was settling his debts. NOBS discovered that Telford had previously gambled with it in July 1999. NOBS knew Telford was from Mount Gambier. Mr Tripp or a Mr Rick Cummins (another employee of NOBS) contacted one of NOBS' clients in Mount Gambier, a Mr Alan Humphries. At that time Mr Humphries was a bookmaker operating in South Australia. Mr Humphries told either Mr Tripp or Mr Cummins that Telford was from the Mount Gambier area and that he was a "high flyer". I find that from NOBS' point of view the most critical piece of information in terms of whether it accepted Telford as a client was that Telford was laying very large bets and was settling his debts. NOBS considered that by providing the information he had, Mr Humphries had provided a reference for Telford and that fact is shown in NOBS' written records. Mr Seal is also shown in NOBS' written records as having provided a reference for Telford. It is clear that no officer or employee of NOBS spoke to Mr Seal. Rather, the fact that Telford was gambling on a large scale with Mr Seal and settling his debts was, in effect, treated as a reference by NOBS.

93 What I have set out above is Mr Sullivan's understanding of the inquiries made by NOBS in June 2001. As I have already said, none of the representatives of NOBS who were actually involved in making the inquiries (Mr Crowe, Mr Tripp and possibly Mr Cummins) were called as witnesses by Sportingbet.

94 What did NOBS know about Telford after the inquiries it made in June 2001? It may already have had information as to Telford's telephone numbers and a post office box number in Mount Gambier, and the details of a bank account Telford had with the ANZ Bank but if not, it ascertained that information in June 2001. Mr Crowe fixed a credit limit of $250,000, and Telford was immediately classified as a very important client. I find that NOBS ascertained that Telford had been laying large bets with Mr Seal, and that he was settling his debts with Mr Seal. I find that through Mr Humphries, NOBS ascertained that Telford was from the Mount Gambier area and that he was a "high flyer". I find that NOBS ascertained that Telford had previously laid bets with NOBS in July 1999. I find that in June 2001 NOBS had very few requirements in terms of the information a new client had to provide to it. I find that inquiries were made about Telford by Mr Crowe, Mr Tripp and, possibly, Mr Cummins. As none of these men were called as witnesses there is no direct evidence of the full extent of the inquiries which they made. I think that I can infer that Mr Crowe made some inquiries about Telford in terms of who he was and where he came from. I am prepared to infer that Mr Crowe would have discovered that Telford lived and worked in the Mount Gambier area and that he worked for a large business in the area. I am prepared to infer that Mr Crowe ascertained the name of Telford's employer as "K & S". Mr Waller admitted in cross-examination that it was his expectation that Mr Crowe would have ascertained this fact. I think that that is the proper inference to draw bearing in mind that Mr Crowe set out to make inquiries, that it is a natural inquiry to make in the circumstances of NOBS seeking to recruit a very large client and that representatives from NOBS were able to speak to a bookmaker in South Australia (Mr Humphries) who obviously knew something about Telford. I can more confidently draw the inference in view of Mr Crowe's absence from the witness box. For similar reasons, I am prepared to infer that Mr Crowe ascertained that Telford was employed as a financial controller.

95 As I have said, Telford arranged for payments to be made from the plaintiffs' ANZ account to the Westpac account commencing with the payment of $1.4 million on 24 August 2001 and ending with the payment of $3 million on 15 April 2002. NOBS and then Sportingbet received information about the payments into the Westpac account from the bank either via bank statements or an Internet download of the bank statements. Those bank statements described the transaction resulting in each of the payments as "Deposit K & S Group Creditor Payment". There is nothing on the bank statements indicating that the payments were to be to the credit of Telford's account. It was the task of the administrative staff of NOBS and Sportingbet to examine the bank statements when they came in and to identify to which account the payments related. When that was done a note of the person's identity was made on the bank statements and the transaction then entered in the company's records. The two staff members who identified the six payments made between August 2001 and April 2002 were Mrs Janette Ann Burkett and Ms Lynette Fay Hicks.

96 It seems that Mrs Burkett identified the payment of $1.4 million on 24 August 2001 as relating to Telford and that Ms Hicks identified the later payments (or most of them) including the payment of $3 million on 15 April 2002. Neither had a clear recollection as to how they identified the payments as payments to be credited to Telford's account. One method generally used was a diary in which they recorded that the payment of a certain sum was expected from a particular client. That diary was tendered in evidence. There are no notes in the diary relevant to the payments on 24 August 2001, 18 December 2001 and 15 April 2002. There are notes about the time of the payments on 25 September 2001 and 4 October 2001 but they refer to different amounts than the amounts Telford ultimately arranged to be paid in. There is a note relevant to the amount paid in on 17 January 2002. On the evidence, I think the most likely source of information for Mrs Burkett and Ms Hicks is Mr Crowe. It is likely that Mr Crowe was advised by Telford that a payment was about to be made or had been made and that he in turn passed this information on to Mrs Burkett or Ms Hicks either by electronic mail message or telephone. The electronic mail messages to which I will refer in more detail later were probably the source of information in relation to the payments on 24 August 2001, 25 September 2001, 18 December 2001 and 17 January 2002. For the other payments Mrs Burkett or Ms Hicks were probably advised by Mr Crowe over the telephone that a payment of a particular amount was due from Telford. In other words, I think that Mrs Burkett and Ms Hicks identified the payments from Telford by reference to an understanding that Telford was to pay in a certain amount at a particular time rather than by reference to the fact that the bank statements read "K & S Group Creditor Payment". I think Mrs Burkett and Ms Hicks noticed the reference to the description of the transaction, but it is clear from their evidence that they paid no particular attention to it.

97 It was not part of Mrs Burkett's role to vet or query the precise source of the payments. It was not part of her role to raise any queries she had about the source of a payment with the management team. She did neither of those things. Nor was she ever directed by the management team that she ought to do either of those things. Neither Mrs Burkett nor Ms Hicks ever raised with their superiors the fact that the amounts credited to Telford's account were shown on the bank statements as "K & S Group Creditor Payment". The task undertaken by Mrs Burkett and Ms Hicks was essentially an administrative one. Their task was simply to ensure that the company's records were accurate in terms of linking a payment into the Westpac account to a particular client. NOBS had no system in place which would have brought to the attention of its management team the entries on the bank statements and, in particular, the entries showing the description of the transaction.

98 On 24 August 2001 Telford's account with NOBS was in debit in the sum of approximately $220,000. The payment of $1.4 million placed the account in credit to the extent of over $1 million. An electronic mail message from Mr Crowe to other members of the NOBS management team shows that Telford advised Mr Crowe on 24 August 2001 that the sum of $1.4 million had been paid in by mistake and he wanted $900,000 to be paid out to Mr Seal. The balance of $500,000 was to remain in the account.

99 Having made these findings it is necessary to consider the plaintiffs' submission that shortly after the payment of $1.4 million to the Westpac account on 24 August 2001 NOBS had actual knowledge that the monies were not Telford's monies and that he had no authority to cause them to be paid. The plaintiffs submit that NOBS knew that Telford's employer was "K & S" and it knew that the payment had come from K & S Group and was described in the bank statements as "K & S Group Creditor Payment". The plaintiffs submit that NOBS was in a similar position to the respondents in Reckitt v Barrett, Pembroke and Slater Ltd in that it knew that the monies were not Telford's monies.

100 This submission necessitates an examination of the legal principles concerning the attribution of knowledge to a company. This particular issue arises not only in relation to the information surrounding the payment made on 24 August 2001, but also in relation to later payments and I will deal with the issue now as a whole. Mr Crowe knew that Telford was employed as a financial controller by a business in Mount Gambier called "K & S". He was part of the directing mind and will of NOBS and his knowledge may be attributed to NOBS. There is no evidence that the bank statements were seen by Mr Crowe or any other member of the management team of NOBS. I am not prepared to infer that they were. Two members of the administrative staff did see the bank statements and although they paid no particular attention to the entry, they are taken to have seen the reference to the description of the transactions relevant to Telford as "K & S Group Creditor Payment". Is the knowledge of Mrs Burkett and Ms Hicks to be attributed to NOBS in such a way that it can be aggregated with Mr Crowe's knowledge?

101 Sportingbet submits that the only knowledge to be attributed to NOBS are matters known to those representing the directing mind and will of NOBS (Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153; Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121 at 127).

102 As I understand it, the plaintiffs submit that because the information was part of the company's records, knowledge of it was to be attributed to the company. The plaintiffs referred to the decision in Tubby Trout Pty Ltd v Sailbay Pty Ltd (1992) 42 FCR 595. That case is not authority for the proposition put forward by the plaintiffs. I am not aware of any authority for the proposition that a company is taken to have knowledge of every matter stated in its records. That is not to say that the fact that information appears in a company's records is not relevant to whether the company has shut its eyes to the obvious or wilfully and recklessly failed to make proper inquiries.

103 It seems that the correct approach is that the knowledge of Mrs Burkett and Ms Hicks may be attributed to Sportingbet only if they were relevantly the directing mind and will of Sportingbet, or they were relevantly agents of Sportingbet in relation to the information.

104 There is authority that different persons may for different purposes satisfy the requirements of being the company's directing mind and will (El Ajou v Dollar Land Holdings PLC [1993] EWCA Civ 4; [1994] 2 All ER 685 per Hoffman LJ at 706). As I understand it, the plaintiffs submit that the fact that Mrs Burkett and Ms Hicks were not required to pass on the information contained in the entries or raise queries meant that they were the directing mind and will of Sportingbet for the purpose of receiving the information contained in the entries. Neither Mrs Burkett nor Ms Hicks would ordinarily be considered part of the directing mind and will of NOBS and, in my opinion, it would be artificial to hold that they were, even for the limited purpose of receiving the information (see the discussion in Bowstead and Reynolds on Agency, 17th ed, paras [8 - 214], [1 - 024], [8 - 184]).

105 The other approach is that knowledge may be attributed to the company under ordinary principles of principal and agent. In El Ajou v Dollar Land Holdings Hoffman LJ (at 702 - 703) identified three relevant categories in which an agent's knowledge would be attributed to the company. First, there are cases in which an agent is authorised to enter into a transaction where his own knowledge is material. Secondly, there are cases in which a principal has a duty to investigate or to make disclosure. If the principal employs an agent to discharge such a duty, the knowledge of the agent will be imputed to him. Thirdly, there are cases in which the agent has actual or ostensible authority to receive communications. It is this last category which is relevant in this case.

106 Mrs Burkett and Ms Hicks were agents of Sportingbet at least for some purposes. They had authority to receive the information but they had no duty to communicate the information to others within the company. They had acquired the information in the course of their employment and the disclosure of the information would not disclose a fraud committed by them of which Sportingbet is the victim (Ford's Principles of Corporations Law, Ford Austin and Ramsay 9th ed para [16.210]). It seems that the conditions for imputing their knowledge to the company are made out.

107 However, that is not an end of the matter. There is still an issue as to whether the information known by Mr Crowe as to the identity of Telford's employer and the information known to Mrs Burkett and Ms Hicks as to the source of the payments can be aggregated and attributed to NOBS. The legal position is not clear. If both parties were part of the directing mind and will of the company then it would seem that the knowledge could be aggregated and attributed to the company (Entwells Pty Ltd v National and General Insurance Co Ltd [1991] WASC 286; (1991) 6 WAR 68; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563). However in this case I find that although Mr Crowe was part of the directing mind and will of NOBS, Mrs Burkett and Ms Hicks were not.

108 The knowledge may be aggregated if the person who knows one piece of information is under a duty to ascertain the other piece of information known by another officer of the company. In Brambles Holdings Ltd v Carey (1976) 15 SASR 270 Bray CJ said (at 275 - 276):

"Of course, if mental states like knowledge or belief are to be attributed to a notional and metaphysical entity like a corporation, this can only be done by attributing to it the knowledge or belief actually possessed by some one or more of its officers: Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd; Tesco Supermarkets Ltd v Nattrass. Very difficult questions can arise in this connection. I do not think, however, that it is necessary to enter into them now. It is enough to say that, in my view, it is a fallacy to say that any state of mind to be attributed to a corporation must always be the state of mind of one particular officer alone and that the corporation can never know or believe more than that one man knows or believes. This cannot be so when it is a case of successive holders of the office in question or of the holder of the office and his deputy or substitute during his absence. Let us suppose that a piece of information, x, is conveyed to one officer of the company, A. Then A goes on holidays and B takes his place and a further piece of information, y, is communicated to him. It is a fallacy to say that the company does not know both x and y because A only knows x and B only knows y. As a matter of fact, it may well be B's duty when he is told about y to find out about x."

109 However, that principle does not assist in this case because neither Mr Crowe on the one hand, nor Mrs Burkett or Ms Hicks on the other, had a duty to convey the relevant information to the other or to obtain the relevant information from the other.

110 To aggregate the information in this case would be to extend the principle significantly. It is not a step which I think I should take. I do not think that I should find that something is known to a company when part of the information is not known to anyone forming part of the directing mind and will of the company and is known only to an agent who was under no duty to communicate the information to those persons forming part of the directing mind and will. One might criticise the company for not having a proper system in place, but that is a different issue from knowledge.

111 I therefore reject the plaintiffs' submission that shortly after 24 August 2001 NOBS was aware that the payment of $1.4 million belonged to Telford's employer. However, I must also consider whether at that time NOBS had knowledge within one of the other three Baden categories. In my opinion it did have the required level of knowledge and in particular, I find that NOBS wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made. Mr Crowe knew that Telford had been placing large wagers with another bookmaker. He knew Telford was employed as a financial controller of a business in Mount Gambier known as "K & S". Very few people in the community would be in a position to make a legitimate payment of $1.4 million and even fewer are likely to do so when the existing debt was approximately $220,000. It is true that Telford told Mr Crowe that the payment was a mistake, but I do not think that that would deflect an honest and reasonable man from making inquiries. I have no doubt that an honest and reasonable man would have made inquiries. A starting point would have been the company's own records, that is, the bank statements. NOBS made no inquiries because it had no system in place for ascertaining the source of payments. It had no system in place because the source of the monies was of no concern to it; the only relevant fact to NOBS was that Telford was making large bets and was settling his debts.

Events Between Late August 2001 and Early April 2002

112 If I am right in concluding that NOBS had the required knowledge shortly after the payment on 24 August 2001, that knowledge continued up to the time of the payment of $3 million on 15 April 2002 and was part of the knowledge of Sportingbet prior to that payment. Nothing occurred in that period which would have suggested to NOBS or subsequently Sportingbet that Telford was using his own monies. It is true that at some stage NOBS became aware that Telford had paid a significant sum of money to purchase a racehorse, but that in itself is not sufficient to negate the knowledge previously acquired. It is also true that Mr Sullivan became aware late in 2001 (around September or October) that Telford worked as a financial controller for a business called Scott's Transport. That might have raised a query in his mind about what conclusions should be drawn from the entries in the bank statements if he had seen them. However, in my opinion that would have simply emphasised the need to inquire. I conclude that, rather than negate knowledge, the events between late August 2001 and early April 2002 which I outline below, confirm that NOBS and then Sportingbet had the required degree of knowledge.

113 Alternatively, if I am wrong and NOBS did not have the required degree of knowledge in August 2001 I would find that by reason of events between that date and early April 2002 Sportingbet had the required level of knowledge immediately prior to the payment of $3 million on 15 April 2002. I turn now to consider the events between those two dates. I have identified five broad matters relevant to the knowledge Sportingbet had immediately prior to the payment of $3 million on 15 April 2002.

114 The first relevant matter is the nature of the unlawful payments made by Telford to the Westpac account. If I put to one side the payment of $3,000,000 on 15 April 2002, the other unlawful payments total $8,500,000 paid over a period of approximately five months. By any standard, each payment is a very large sum of money and the total of the payments over such a short period is, in my opinion, extraordinary. There would be very few people in the community who would have this amount of money to pay to a sports bookmaker. It is not the sort of money you would ordinarily expect a person employed as a financial controller of a business to have in his own right.

115 The second relevant matter is the magnitude of Telford's gambling. There is no doubt that Telford was an extraordinary client. The account entries set out above give some indication of the size of Telford's gambling between June 2001 and April 2002. However, the most accurate picture is given by the daily betting statements and weekly account statements which were tendered in evidence. I do not propose to go through them all as they are substantial in number and they relate to a lengthy period ie., July 1999 - April 2002. It will suffice if I take a representative sample of his betting over the period. I will summarise the results for two weeks in August 2001, two weeks in December 2001 and three weeks in March/April 2002.

116 For the week ending 23 August 2001, Telford lost $290,000 and won $70,400. In relation to the loss of $290,000, this was the result of losses on six horse races on four different days with the lowest amount lost on one race being $30,000 and the highest amount lost on one race being $80,000. The winnings of $70,400 resulted from gambling on 11 races around Australia on 22 August 2001 when Telford lost $270,000 and won $340,400 (net figure: $70,400). For the week ending 30 August 2001, Telford lost $50,000 and won $165,250. The loss resulted from betting on one race on 23 August 2001. The winnings of $165,250 was the net amount of winnings on 4 races ($290,250) on 25 August 2001 and losses on five races ($125,000) on the same day. For the week ending 30 August 2001 the largest win on one race was $125,000 and the largest loss on one race was $50,000.

117 For the week ending 20 December 2001, Telford lost $992,500. This was the net amount of losses on a single day, 15 December 2001. Telford lost the sum of $1,920,000 on 23 races around Australia and won the sum of $927,500 on five races. The losses included losses on a single race of $100,000 on seven occasions, a loss on a single race of $200,000 on one occasion and a loss on a single race of $300,000 on one occasion. For the week ending 27 December 2001, Telford lost $176,000. This was the net amount of losses on one day, 26 December 2001. Telford lost the total sum of $400,000 on four races ($100,000, $200,000, $50,000 and $50,000, respectively) and won the sum of $224,000 on one race.

118 For the week ending 28 March 2002 Telford lost $1,750,000 and won $270,000. The losses included net losses of $1,350,000 on 23 March 2002. The total losses on 23 March 2002 were $2,200,000 being losses on 20 races including losses on a single race of $100,000 on five occasions and losses on a single race of $200,000 on six occasions and winnings of $850,000 on 3 races. The losses included a loss of $100,000 on a single race on 25 March 2002 and losses totalling $300,000 on two races on 26 March 2002. The winnings consisted of a win of $200,000 on a single race on 21 March 2002 and net winnings of $70,000 (winnings of $450,000 minus losses of $390,000) on 10 races on 24 March 2002.

119 For the week ending 4 April 2002, Telford lost $320,000 being net losses ($500,000 losses - $180,000 winnings) on six races on 30 March 2002.

120 For the week ending 11 April 2002, Telford lost $1,145,000 and won $465,000. The losses were net losses from gambling on one day, namely, 7 April, 2002. On that day he lost $2,120,000 on 17 races around Australia ranging from two bets of $60,000, ten bets of $100,000, one bet of $150,000, three bets of $200,000, and one bet of $250,000. On the same day he won $975,000 on four races. The winnings of $465,000 were net winnings from gambling on 6 April 2002, being winnings of $875,000 on four races and losses of $380,000 on three races.

121 The betting statements and weekly account statements show that Telford gambled on a very large scale. As I have said, he was an extraordinary client. Bets on a single race of $100,000 were common and bets of $200,000 plus occurred on some occasions. The level of gambling on single days particularly in March and April 2002 was extraordinary.

122 No witness from NOBS or Sportingbet contradicted the statement made by Mr Tripp in his electronic mail message dated 22 March 2002 to other members of Sportingbet's management team that Telford had "done is (sic) $4 million quicker than any client in history".

123 The plaintiffs tendered a schedule showing the top 15 clients of NOBS and Sportingbet between 15 March 2001 to 9 September 2002. The highest turnover was G and the next highest was Telford. Both sustained losses over the relevant period (more precisely, in the case of Telford, between June 2001 and April 2002) of a figure between $6 - $6.5 million. Such a figure was six times greater than the losses suffered by the person who was third on the list. Telford had the single largest win of $400,000. The next highest was $200,000.

124 Two of the witnesses called by the plaintiffs gave evidence relevant to the question of the scale of Telford's betting. They also referred briefly to certain practices in the industry and it is convenient if I deal with all of the evidence given by the particular witness at the same time.

125 Mr Morissy said that in his experience an on-course bet of $2,000 to $3,000 was a large on-course bet. Mr Morissy said that the bets placed by Telford are "some two to three noughts bigger than those that I observed."

126 Mr Morissy said that the proposed change of name from Craig Teller to "Terry Jay" and the knowledge that Telford was the financial controller of a transport company should have led Sportingbet to make an inquiry as to the source of the money Telford was paying.

127 Mr Morissy said that he was not aware of a bookmaker allowing credit of $250,000 let alone $2.5 million. Mr Morissy also said that it was unusual and suspicious for money to be paid into an account thereby creating a credit balance and then paid out almost immediately.

128 Mr Morissy agreed that bookmakers spoke among themselves about a person's creditworthiness and that it depended on whether they were settling their debts. He agreed that that was a main source of information.

129 Mr Morissy retired in 1994 and he had little experience of telephone betting, as it was only introduced in 1993. Nor did he have experience of an organization of the size of Sportingbet. Although he was an honest witness I do not gain much assistance from Mr Morissy's evidence for these reasons. In any event, by the conclusion of the evidence it was not disputed by Sportingbet that Telford gambled on a very large scale, was a "bit hitter" and an extraordinary client.

130 Mr Richardson gave some evidence about the history leading up to the issuing of the sports bookmaker's licence to Sportingbet which it is unnecessary for me to set out. Mr Richardson said that a licensed sports bookmaker must lodge with the Racing Commission weekly returns identifying the total of bets held and turnover tax applicable in respect of those bets and copies of ledger sheets about race meetings in respect of which bets were taken. Sportingbet started lodging returns in early March 2002. Mr Richardson did not review the returns personally. That was done under his supervision by two racing officers and is done (inter alia) to ensure that the correct amount of turnover tax is paid. Mr Richardson said that the betting activities of Telford were extraordinary. He said:

"Although I have seen 'one off' bets that were more significant than the single bets placed by 'Craig Teller' I have never seen any individual who consistently placed significant betting wagers like 'Craig Teller'."

131 Mr Richardson said that in his experience the use of aliases was not usual in the betting industry, although there were attempts to protect the identity of high profile clients by, for example, the use of initials. Mr Richardson also said that in his experience, bookmakers in the Northern Territory are not usually paid significant amounts of money in advance of taking bets from clients. Mr Richardson described Telford as unique.

132 In August 2002, the Racing Commission sought an explanation from Sportingbet PLC as to whether Mr Alan Tripp had been involved in the business of Sportingbet contrary to condition 22. Sportingbet PLC responded to the letter and said (inter alia) Mr Tripp was not involved in the day to day running of Sportingbet.

133 Mr Richardson agreed that Sportingbet is one of, if not the largest bookmakers in Australia. NOBS/Sportingbet had a turnover for the last financial year of a figure in the order of $660 million. The next biggest operator would have had a turnover in the order of $150 million. Mr Richardson agreed that credit facilities for telephone betting was not uncommon.

134 The third relevant matter is the way in which Telford operated the account he had with NOBS and then Sportingbet. There are some notable features in this regard. First, a number of the unlawful payments into the account from the plaintiffs' ANZ account often put the account substantially in credit. In other words, it was not simply a matter of paying money in to discharge an existing liability. In this regard I refer to the unlawful payments in August, September and December 2001 and January 2002. Secondly, large sums of money were paid out of the account which were not winnings and which must have been part of the monies paid in. I accept the plaintiffs' analysis of Telford's account with NOBS and then Sportingbet to the effect that between July 1999 and April 2002 approximately $12.5 million was paid into the account. During this period Telford won approximately $3.7 million. The total of these figures is $16.2 million. During the same period Telford lost approximately $9.4 million. This analysis leads to the conclusion that approximately $6.4 million paid out of the account to Telford's benefit were not winnings. The plaintiffs submitted that a figure of this order simply passed through the account and that Telford was laundering the money through the account. Sportingbet said that the plaintiffs' calculation was wrong and that the figure for monies paid out of the Westpac account to Telford or at his direction which were not winnings was in the order of $2.7 million. I think the plaintiffs' calculation is correct but even on Sportingbet's figures a large amount of money paid into Telford's account was not used for betting and was simply thereafter paid out to Telford or at his direction.

135 The fourth relevant matter is the knowledge obtained by NOBS and then Sportingbet between August 2001 and April 2002 in relation to Telford and his account. I do not think that there can be any doubt that Mr Crowe and Mr Sullivan were part of the directing mind and will of NOBS and then of Sportingbet and that their knowledge can be attributed to those companies.

136 Mr Sullivan said that in September or October 2001 he became aware after making some inquiries that Telford was the financial controller of a business called Scott's Transport. Mr Sullivan had not heard of Scott's Transport and it meant nothing to him. He did not know of the K & S Group until after Telford's fraudulent activities came to light. That first came to his attention on 17 April 2002 when he received a telephone call from Mr Gavin Andrews of the ANZ Bank fraud division. Prior to that he had heard nothing to suggest Telford might be using stolen monies.

137 Mr Sullivan also said that in February 2002 there was discussion within NOBS or Sportingbet as to whether Telford was acting as a "bowler" or "front" for Mr Alan Scott of Scott's Transport. This is of significance because it reveals that there was speculation within NOBS or Sportingbet that Telford may not be betting on his own behalf and settling his debts with his own monies.

138 In addition to these matters, Mr Crowe and other members of the management team of NOBS were aware that some substantial payments were made out of the account to satisfy Telford's liabilities to Mr Seal ($900,000 on 27 August 2001, $700,000 on 18 January 2002) and a substantial payment was made by Mr Seal into the account to satisfy Telford's liability to NOBS ($587,000 on 18 February 2002). Those payments put NOBS and then Sportingbet on notice that in addition to his extraordinary gambling with NOBS and then Sportingbet, Telford was gambling on a large scale with another bookmaker.

139 The electronic mail messages distributed within the management team of NOBS and then Sportingbet between 24 August 2001 and 9 April 2002 give an insight into the knowledge of the management team about Telford and his account. The electronic mail messages are evidence of the ongoing discussions between Mr Crowe and Telford and of the information and advice Mr Crowe was passing on to other members of the management team. I have already mentioned Mr Crowe's message dated 24 August 2001.

140 In early September 2001, NOBS on instructions from Telford arranged for the sum of $64,150 to be paid from Telford's account with NOBS to Telford's personal bank account with the ANZ Bank. At about that time Telford's account with NOBS was in credit in a substantial sum.

141 On 28 September 2001, Mr Crowe on behalf of NOBS noted the payment in by Telford of the sum of $2,100,000. The sum of $700,000 was "to go back" to Telford's account. NOBS through Mr Crowe authorised credit of $1,500,000 for weekend gambling. It seems that although the credit limit in June 2001 was $250,000 it was increased to $1.5 million by Mr Crowe at some stage between June and September 2001.

142 On or about 5 October 2001, Telford told Mr Crowe that he was going to pay $717,000 that day. That did not occur. The sum of $800,000 was paid in on 9 October 2001. On 26 October 2001, Telford told Mr Crowe that he was going to pay $370,000 that day. That did not occur. On 30 October 2001, Telford had a lengthy discussion with Mr Crowe and told him that he was going to pay $1,000,000 that day. That did not occur. On 2 November 2001, Telford told Mr Crowe that he was going to pay $352,000 that day. That did not occur. On 7 December 2001, Telford told Mr Crowe that he would bet under the name, "Terry Jay". He told Mr Crowe he would pay $290,000 that day and that he was away in Melbourne that day. The payment in did not occur. On 11 December 2001, Mr Crowe advised Mrs Burkett and Mr Tripp that Craig Teller (Telford) would bet under the name of "Terry Jay" of Melbourne and that an account under that name would be opened. That in fact never happened. Mr Crowe further advised that Telford had paid into the Westpac account the sum of $279,000. That created a nil balance in Telford's account. Mr Crowe further advised that Telford did not want any settling sheets sent to him.

143 On 19 December 2001, Mr Crowe advised Mr Tripp (with copies to other members of NOBS management team) that Telford had paid in $1,500,000 that day. That placed Telford's account in credit in the sum of $507,500. On 16 January 2002, Mr Crowe advised other members of the management team of NOBS that Telford's account was in debit in the sum of $1,421,591 and that he and others may have concerns about that. Mr Crowe had spoken to Telford about those concerns. Mr Crowe sent another message to members of the NOBS management team on 17 January 2002. He advised that he had spoken to Telford. He noted the significant debit position. Telford told Mr Crowe that he had just come back from holidays and that he was in his office with a large amount of paperwork to attend to. On 18 January 2002, Mr Crowe advised other members of the management team of NOBS that Telford had paid in $2,700,000. The sum of $700,000 was to be paid to Mr Seal. This was done immediately. Again, I make the point that it must have been clear to NOBS that Telford was gambling on a large scale with Mr Seal.

144 On 8 February 2002, Mr Crowe advised other members of the management team of NOBS that Telford was going to pay $455,000 that day. That did not occur.

145 By 12 February 2002, it is clear NOBS was becoming concerned with Telford's account. On 15 February 2002, Mr Crowe noted that Mr Seal was going to pay into Telford's account with NOBS the sum of $585,000 to discharge the existing liability. That money was paid in on or about 18 February 2002.

146 The electronic mail messages immediately after Sportingbet had taken over Telford's account show that Mr Tripp was kept informed of Telford's gambling and the operation of his account.

147 In early March 2002 and apparently as a public relations exercise, Telford was offered the accommodation of any form of offshore settlement, namely, a payment of monies to a destination outside Australia.

148 In March 2002, Sportingbet was concerned that Telford was winning and then betting no further. Mr Tripp reminded members of Sportingbet's management team, "Remember he has done is (sic) $4M quicker than any client in history".

149 On 28 March 2002 Mr Crowe sent a message by electronic mail to Mr Tripp with copies to Mrs Burkett, Mr Moran, Mr Walker, Mr Sullivan and Mr Griffiths. Mr Crowe said that he had spoken to Telford who had told him that he was in Sydney. Mr Crowe had spoken to Telford's secretary in Mount Gambier who had said that Telford was in a meeting. Mr Crowe said he was confused. Mr Crowe noted Telford had his own horse which was running and that he wanted to bet on his horse. Mr Crowe noted that Mr Tripp would have to approve this. Mr Crowe said he was nervous about Telford's position, but that Telford had said there was no problem. Mr Crowe said that Telford had told him that he could not settle because he was not in his office but that Telford's secretary contradicted the assertion that he was not in his office. The message indicates that Mr Tripp was going to speak to Telford and ask him some "hard" questions.

150 It is clear from the electronic mail messages dated 29 March and 30 March 2002 respectively, that Mr Tripp was taking a lead role within the management team in discussions with Telford and in determining Sportingbet's approach to Telford's account and that all members of Sportingbet's management team were concerned with Telford's ability to settle, particularly in light of the problems with G which had by that time come to light. Subsequent messages reveal that Mr Tripp continued to discuss the account with Telford.

151 The electronic mail messages highlight the fact that the two men who were in regular contact with Telford were Mr Crowe (throughout the relevant period) and Mr Tripp (in the latter stages). Mr Crowe was contacting Telford at his place of employment. The electronic mail messages highlight the fact that Telford was a very important client who paid NOBS very large sums of money from time to time. In late March and early April 2002 Telford was gambling large sums of money and losing large sums of money. Sportingbet was clearly becoming very anxious about whether Telford could settle his debts.

152 The fifth relevant matter is the fact that NOBS and then Sportingbet had no effective system for obtaining and recording information. Neither NOBS nor Sportingbet had a written record of Telford's occupation, employer or financial position. In relation to clients of NOBS who became clients of Sportingbet, there was no system in place to obtain and record such information subject to one matter I will mention in a moment. NOBS and then Sportingbet were quite happy to accommodate requests for anonymity by the use of aliases. NOBS and then Sportingbet had no system in place to check the source of payments into the Westpac account or the destination of payments out. The principal and probably only check of a client's ability to pay was that inquiries were made as to whether the client had settled debts in the past with NOBS or with other bookmakers.

153 Having regard to the five matters which I have identified I think that NOBS and then Sportingbet wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made. Sportingbet refrained from making any inquiries. The source of the monies was of no concern to it. Sportingbet was only interested in the fact that Telford had settled his debts in the past. Even making allowances for the nature of the industry in which Sportingbet operates, the circumstances surrounding Telford and his account were such that its failure to make inquiries was both wilful and reckless. In reaching this conclusion I have placed no weight on the alleged illegal involvement of Mr Tripp in Sportingbet's business after 20 February 2002. It is unnecessary to do so, and in any event, I do not think the evidence is sufficiently clear to enable me to make such an important finding with such potentially serious consequences. Nor have I placed any weight on the evidence relating to G's activities. I do not know all of the circumstances surrounding the relationship between NOBS/Sportingbet and G and in the absence of such evidence I would be reluctant to make any firm findings. At best, the evidence establishes that NOBS and then Sportingbet did not have in place at the relevant times a system which would reveal the fact that one of their clients was settling with monies to which they were not entitled. That is a fact which I think is established on the evidence leaving aside evidence of the relationship between NOBS/Sportingbet and G.

154 I am satisfied that shortly after the payment on 24 August 2001 NOBS had the required level of knowledge, namely, it wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made and that subsequent events up to early April 2002 reinforce that conclusion. If I am wrong and NOBS did not have the required level of knowledge in August 2001, I am nevertheless satisfied that events between August 2001 and early April 2002 were such that immediately prior to the payment on 15 April 2002 Sportingbet had the required level of knowledge in that it had wilfully and recklessly failed to make the inquiries an honest and reasonable man would have made. I reject Sportingbet's submission that inquiries are unlikely to have revealed the true position. If a member of the management team had only looked at the bank statements the position would have become fairly clear that Telford was not making payments with his own monies and a general inquiry about K & S Group would have revealed that he was not entitled to use that company's monies.

155 Sportingbet raised a number of defences, namely, change of position, the provision of good consideration for the payment, estoppel and election.

Change of Position and the Provision of Good Consideration for the Payment

156 The plaintiffs seem to accept that change of position was a defence. In Koorootang v ANZ Banking Group, Hansen J expressed the view that the liability of a recipient of trust property is restitution-based and there is a strong argument that liability should be strict, subject to defences of bona fide purchase and change of position. However, in view of the way that case was conducted, it was unnecessary for his Honour to decide the point.

157 In Gertsch v Atsas & ors, Foster AJ said that as the imposition of a constructive trust was based on some degree of "blameworthiness" on the part of the defendant, and the defence of change of position was based on the innocence of the defendant, it was clear that the defence was not available to resist a claim for a constructive trust. I am inclined to agree with this view. I note also that in a claim asserting a trust over property which has passed from a trustee to a third party, the third party would ordinarily only have a defence if he could prove that he was a bona fide purchaser for value without notice. If that was the relevant defence in this case it could not be established because of the findings as to knowledge.

158 As I have said, the plaintiff proceeded on the basis that the defence of change of position was available to Sportingbet. As it happens, I do not think that the defence can be made out on the facts and in those circumstances it is not strictly necessary for me to decide the point.

159 In the ordinary case, a change of position must be an innocent change of position made on the faith of the receipt of the monies. The change of position asserted here cannot be considered innocent because of the findings I have made about knowledge. However, it is appropriate that I proceed to consider whether the three matters raised by Sportingbet could constitute a change of position.

160 First, Sportingbet points to the fact that it has paid turnover tax. This submission fails. The turnover tax is paid on the wagers made not on whether they are ultimately paid (s 106 Racing and Betting Act). The liability to pay turnover tax was incurred when the wagers were accepted and they were accepted by Sportingbet in the belief that Telford would pay, not that he had paid. Secondly, Sportingbet points to the fact that it has paid the Goods and Services Tax on the receipt of the disputed monies. This submission fails. It is not entirely clear whether the tax is payable on the wager or on the payment. If it is the former (which it would seem to be) then the submission fails for the same reason as the submission in relation to turnover tax fails. Even if it is the latter there is no evidence excluding the possibility that the payment of tax may be recovered if it is found that Sportingbet has no entitlement to the disputed monies. Thirdly, there seemed to be an argument put that but for the seizure of the disputed monies they would have been remitted to the parent company in the United Kingdom. I cannot see how that constitutes a relevant change of position. Nor can I see how the mere fact that the funds remained in the Westpac account for a few days and normal trading continued can constitute a relevant change of position.

161 Sportingbet submits that it provided good consideration for the payment of the disputed monies namely, the cancellation of Telford's existing debt. I reject this submission for a number of reasons. First, it seems to me that consideration by itself is not a defence to a claim based on knowing receipt especially if such a claim is based on restitution (The Law of Restitution, Goff and Jones, 6th ed Chapter 41; Restitution Law in Australia, Mason & Carter, para [2519]). It would seem that the car dealers in Reckitt v Barnett, Pembroke and Slater Ltd provided consideration in relation to the receipt of the monies but that of itself was not a defence. Otherwise, it would have been the short answer to the plaintiff's claim in that case. As far as I can see the same may be said of Nelson v Larholt. Sportingbet relied on the decision of the High Court in Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 166 CLR 662 but I do not think that case helps it because on the facts of the case the issues related to the period before Westpac had notice of ANZ's claim. Secondly, insofar as the provision of consideration is an aspect of the doctrine of change of position, I do not think Sportingbet has changed its position on the faith of the receipt of the disputed monies. It was owed the money; it was paid the money. All Sportingbet has done on the faith of the receipt is to make a book entry which is reversible in that if it is found that Sportingbet has no entitlement to the disputed monies it will have a right of recovery against Telford.

162 The defences of change of position and the provision of good consideration for the payment fail.

163 Sportingbet submits that relief should be denied to the plaintiffs because the plaintiffs' imprudence gives rise to an estoppel which precludes the plaintiffs from denying the assumption made by Sportingbet that Telford was acting lawfully when he arranged for monies to be paid into its Westpac account. Alternatively, Sportingbet submits that the imprudence of the plaintiffs is a reason to deny equitable relief to the plaintiffs.

164 At the outset, Sportingbet would need to establish that it made an assumption. Precisely what assumption Sportingbet says it made is unclear. Presumably it says that it assumed that Telford was entitled to the monies he was paying to Sportingbet.

165 There are two answers to both propositions (if in fact they are separate propositions). The first lies in a consideration of the true nature of the plaintiffs' claim. There is no doubt that equitable rights and remedies may be defeated, in the sense of being withheld, by defences such as estoppel (Warman International Ltd v Dwyer (1995) 182 CLR 554 at 559). However, there will be cases where it is difficult to see how a particular equitable right or remedy can co-exist with the particular defence asserted. This is such a case. I have found that on receipt of the disputed monies Sportingbet had the knowledge required for the imposition of a constructive trust. That conclusion is inconsistent with the basis of a defence of estoppel ie., the conduct of the plaintiff led the defendant to make a particular assumption. It is not asserted in this case that the plaintiffs led Sportingbet to believe that Telford had authority to deal with monies Sportingbet knew to be the plaintiffs' monies.

166 The matter may be put in another way with the same result. The conduct of the plaintiff must be the proximate cause in the relevant sense of the assumption made by Sportingbet (Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 per Dixon J at 547; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 per Gaudron J at 461 - 462). In view of my findings in relation to knowledge, I do not see how it can be said that any conduct of the plaintiffs contributed to Sportingbet's assumption. It was Sportingbet's wilful and reckless failure to inquire which led it to make an assumption which was incorrect.

167 The second answer to Sportingbet's two submissions is that they fail on the facts. I do not think the plaintiffs acted imprudently. Sportingbet submits that viewed together the following acts constitute imprudence. First, there was no limit on the amount Telford could arrange to be transferred electronically and there was no requirement that he obtain approval from any person in the plaintiffs' organization superior to him or that he report to such a person. It is true that the sums of money are large, but Telford held a senior position in the organization and to all intents and purposes the money was being paid into an investment account at another bank. Secondly, Sportingbet submits that there is no evidence of the person keying in the transaction or from the second signatory to the effect that they asked any questions or carried out any inquiries. It does seem to be a fault in the system that the only person in the company who could have "got away" with the misappropriation was Telford as the chief financial controller. Nevertheless, I accept Mr Allen's evidence as to what he was told by the accounting staff and I do not think the plaintiffs' conduct rises to the level of imprudence. Thirdly, Sportingbet submits that there was no check carried out by the plaintiffs either by their own officers or by external officers. No one took the obvious step of calling for bank statements. Such a request would have disclosed the fraud because of course bank statements did not exist. Even putting hindsight to one side, criticisms can be made of the plaintiffs' system. Presumably a proper annual audit would have revealed the misappropriations and there is force in the submission that there should have been a review or check by reference to bank statements within a shorter period than 12 months. Perhaps that was not done because Telford was the person responsible for implementing this type of review or check. Whatever criticisms can be levelled at the plaintiffs' system it does not to my mind amount to imprudence. Fourthly, Sportingbet submits that the plaintiffs acted in breach of their own policy in that Telford both requested the transfer and was one of the persons who authorised it. I do not think there is anything in this point. It does not indicate imprudence and in any event the strong inference is that a different first signatory would have followed Telford's instructions in the same way as the second signatory in fact did. Fifthly, Sportingbet submits that in fact it was another employee (Mr Richards) who authorised the transfer of the $3,000,000. It is not clear to me what point Sportingbet is making. It seems that there was a problem with the transfer of $3,000,000 because the plaintiffs had exceeded their credit limit and that a Mr Richards telephoned the ANZ Bank and authorised the transaction. Mr Richards was the chief accountant in the group. Telford was his superior. I do not think the point goes anywhere because I accept that Telford was directing the staff below him and in fact had lied to them.

168 For these reasons Sportingbet's defence based on estoppel or discretionary considerations fails.

169 As I have said, the plaintiffs do not seek any orders against Telford in this action. The plaintiff K & S Corporation has entered judgment against Telford in another action in this Court (Action No 547 of 2002). The judgment was entered by consent. The judgment is for the sum of $20,053,523.06 (inclusive of interest) and is expressed to be in full satisfaction of the claim of K & S Corporation against Telford in paragraphs A(i) and (v) of the Statement of Claim. Those paragraphs provide:

"(i) An order that Telford pay damages to K & S Corporation in the amount of $19,102,229.

(v) An order that Telford pay K & S Corporation interest at the rate set out in the Third Schedule of the Supreme Court Rules on the following sums from the following dates until judgment ..."

170 The basis of the claim against Telford in Action No 547 or 2002 was that he was guilty of fraudulent misappropriation, breach of trust and breach of fiduciary duty. Part of the funds misappropriated by Telford in that Action is the sum of $3,000,000 paid to Sportingbet in April 2002.

171 Sportingbet submitted that the plaintiffs had elected to pursue Telford in relation to the sum of $3,000,000 and therefore could not pursue Sportingbet in this action for that sum. Sportingbet referred to the decision of the High Court in Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91. I think that case is distinguishable from the present case. Petersen v Moloney was clearly a case of alternative liability. The vendor either had to affirm the receipt of the purchase monies by its agent and then pursue the agent for that sum or disavow the receipt of the purchase monies by the agent and pursue the purchaser for the purchase monies. In a case of alternative liability judgment against one defendant means the plaintiff cannot seek judgment against the other defendant. The rule applies so that a plaintiff cannot sue an agent to judgment and then sue the principal. It applies to a case of co-contractors so that there shall not be more than one judgment on one entire contract. The reasons for the rule are set out in the speech of Earl Cairns LC in Kendall v Hamilton [1879] 4 AC 504 at 514 - 515. The rule applies outside the case of principal and agent and co-contractors. The rule means that there must not be more than one judgment on one antecedent obligation (Petersen v Moloney at 103). This case is not a case of principal and agent, co-contractors, alternative liability or only one antecedent obligation.

172 Sportingbet cited the decision of the House of Lords in Scarf v Jardine [1882] 7 AC 345. I do not think that case advances Sportingbet's submission. The plaintiff had to elect between proceeding against an old partnership or a new partnership; he could not sue all the members of both partnerships. The two bases of liability could not be brought into play together; the plaintiff could not rely upon estoppel (ie., that he assumed he was dealing with the old partnership) while at the same time allege he was dealing with the new partnership.

173 In this case, the plaintiffs submit that in equity they are entitled to the monies received by Sportingbet. By contrast, in the other action the plaintiff, K & S Corporation, asserted a right to claim damages against Telford and those damages were quantified by reference to monies lost. It seems to me that it is not a case of alternative liability or only one antecedent liability. Of course, the plaintiffs cannot recover twice (Nelson v Larholt per Denning J at 343). Insofar as monies are recovered by the plaintiffs by tracing assets into the hands of third parties or as having been received at some stage by third parties then the actual damages recovered from Telford will be reduced. On the other hand, if the plaintiffs' claim in this action against Sportingbet is successful then Sportingbet will presumably have a right of recovery from Telford.

174 The plaintiffs point out that the judgment the plaintiff K & S Corporation obtained in Action No 547 of 2002 did not include judgment for declarations or for the delivery up of funds or property. The other claims for relief in Action No 547 of 2002 for which judgment was not obtained were:

"(ii) a declaration that Telford holds any funds received by way of payment out of the Sportingbet account styled 'Craig Teller' on constructive trust for K & S Corporation;

(iii) a declaration that Telford holds those of the Telford Assets in his own right or jointly with Mrs Telford on constructive trust for K & S Corporation;

(iv) an order for delivery up to K & S Corporation of the funds and Telford Assets being the subject of an order made by the Court pursuant to paragraphs (iii) and (iv) above;

175 I agree with the plaintiffs' submission that the particular relief upon which the judgment obtained in Action No 547 of 2002 is based means that no question of election arises. Furthermore, I also agree with the submission this is not a case where there is only one cause of action and it is inconsistent to obtain judgment on that cause of action against two different persons. Finally, I agree with the plaintiffs' submission that entry of judgment in favour of K & S Corporation against Telford in Action No 547 of 2002 does not mean it would be inconsistent for a judgment to be entered in this action in favour of K & S Group, the "owner" of the bank account, based on a claim for the remedy of a constructive trust.

176 For these reasons, I reject Sportingbet's submission that the plaintiffs are precluded from obtaining relief in this action by reason of an election.

177 The plaintiffs have established an entitlement to the disputed monies. I will hear counsel as to the precise orders which should be made in light of these reasons.