Macquarie Bank Ltd v The Two Eagles Pty Ltd

Supreme Court of NSW|2014-03-27|Before: Stevenson J

Introduction and background 1At all relevant times the plaintiff, Macquarie Bank Ltd, maintained 33 cash management accounts ("the Accounts"), one in the name of each of the defendants ("the Account Holders"). 2The relationship between Macquarie and the Account Holders was that of banker and customer. The Account Holders were thus creditors of Macquarie for funds standing to the credit of the Accounts from time to time. 3In July 2012, Macquarie became aware of irregular activities in relation to the Accounts. On 26 July 2012, Macquarie wrote to each of the Account Holders notifying them of "possible inappropriate transactions" and stating that it had decided to "suspend any activity" on the Accounts. 4In August 2012, the Queensland Police laid charges against Mr Sandeep Madhoji in relation to activities associated with the Accounts. 5Mr Madhoji was a financial adviser authorised by each of the Account Holders to operate on the Accounts. It is alleged that Mr Madhoji has misappropriated funds from the Accounts, transferred funds from the Accounts to his company Redwood Capital Group Pty Ltd, and also transferred funds between Accounts (evidently in an attempt to disguise his activities). 6There is no suggestion of any involvement in the alleged fraud by either Macquarie or any of the Account Holders. 7On 26 September 2012, Macquarie wrote to each Account Holder proposing a "voluntary claims resolution scheme" ("the Proposed Scheme") to determine, at Macquarie's cost at that stage, the account between the various Account Holders. Macquarie made it clear in its letter that the Proposed Scheme could only proceed if all Account Holders agreed to participate and that, otherwise, Macquarie would be obliged to commence interpleader proceedings. 8In that regard, Macquarie wrote: "Macquarie is willing to cover the costs of commencing the interpleader proceedings, and will not seek to recover those costs from the monies held in the [Accounts]. Any further costs, including any legal costs, incurred by affected [Account Holders] or any other third party will need to be borne by those parties." 9On 18 October 2012, Macquarie wrote to the Account Holders to say that as all Account Holders had not agreed to the Proposed Scheme, Macquarie would commence interpleader proceedings. 10Such proceedings were commenced on 10 May 2013. 11On 10 May 2013, Windeyer AJ made interpleader orders. 12On 24 and 31 May 2013 Macquarie paid into Court the amounts standing to the credit of each of the Accounts ("the Fund"). The Fund comprised approximately $1.2 million. The total loss to the Account Holders arising from Mr Madhoji's activities is evidently much more than this sum. 13The Fund is a "mixed fund" in a sense described by McLure J, as her Honour then was, in Re Global Finance Group Pty Limited (In liq) [2002] WASC 63; 26 WAR 385 at [97]: "one which contains funds from more than one source". 14On 24 June 2013, the Court appointed Mr John Gibbons as Receiver of the Funds with a view to Mr Gibbons investigating and determining who is beneficially entitled to the Funds and to provide to the Court a report as to those matters. 15Mr Gibbons provided his report on 31 October 2013. In that report he made an assessment of the beneficial entitlement of each Account Holder to the Funds and made a recommendation as to how the funds should be divided between each Account Holder.

The applications 16There are two applications before me. 17First, the Receiver seeks an order that his fees be allowed at a particular figure and that they be paid from the Fund. Based on his investigations and the recommendations in his report, the Receiver also seeks declarations as to the Account Holders' entitlements to the Fund. 18Second, the 10th, 14th and 31st defendants ("the Mathew Defendants") seek leave to use documents produced on subpoena in these proceedings by the Queensland Director of Public Prosecutions. The Mathew Defendants wish to use those documents for the purpose of referral or advice to regulatory agencies and for use in proceedings concerning the misapplication of funds lost from the Accounts. 19I have been greatly assisted by written and oral submissions from counsel; much of what follows is drawn from those submissions.

Service of the Receiver's notice of motion 20I am satisfied that all Account Holders have notice of the Receiver's application. Some Account Holders consent to what the Receiver proposes. Other Account Holders neither consent nor oppose those proposals. Some have not responded at all. 21The Mathew Defendants oppose certain aspects of the Receiver's proposal.

The Receiver's remuneration 22The Receiver was appointed by the Court. Consequently, on the face of it, he is entitled to his remuneration: Uniform Civil Procedure Rules, r 26.1. 23The Receiver seeks payment of that remuneration from the Fund. Macquarie does not oppose that course, indeed supports it. The Mathew Defendants oppose the Receiver's fees being paid from the Fund and contend that Macquarie should pay these fees. 24Turning first to quantum, the Receiver seeks an order that his remuneration be calculated at the rates set out in a letter from Henry Davis York to the Account Holders of 31 May 2013. No suggestion was made that those rates were unreasonable. 25The Receiver has incurred fees of $274,291.34 to 7 March 2013. The Receiver estimates incurring further fees from 7 March 2014 in the range of $42,500 to $52,500. If the upper limit of that range is reached, the Receiver's total fees will be in the order of $327,500, which represents some 20 per cent of the Funds. That is a high percentage. It is, however, clear from the Receiver's report that his task has been complicated, exacting and time consuming. 26No party suggested that the Receiver's fees have been incurred otherwise than reasonably, although Macquarie reserved its position to make submissions on this topic if I were to order that it, rather than the Fund, bear the Receiver's costs. As will emerge presently, such further submissions will not be necessary in view of the conclusions to which I have come. 27The fees do not appear to be unreasonable and I propose to allow the fees incurred, with a cap of $52,500 on fees from 7 March 2014. 28The principal debate before me was as to whether the fees should be paid from the Fund or, as the Mathew Defendants contend, by Macquarie. 29On the face of it, those taking the benefit of an administration such as this should bear the costs of it: see Shirlaw v Taylor [1991] FCA 531; 31 FCR 222 per Shepherd, Burchett and Gummow JJ at 18; 230. 30There is authority of long standing that a Court appointed receiver is entitled to his or her costs and expenses properly incurred and that these costs and expenses should be a first claim on the fund controlled by the receiver in the form of an equitable lien arising by operation of law: Re Central Commodities Services Pty Ltd [1984] 1 NSWLR 25; Shirlaw v Taylor [1991] FCA 415; 31 FCR 222; Re Lawrenson Light Metal Die Casting Pty Ltd [1999] VSC 500; 33 ACSR 288 at [42]; Weston v Carling Constructions Pty Ltd [2000] NSWSC 693; Shawyer v Amberday Pty Ltd (in liq) [2001] NSWSC 399 at [9]; Westpac Banking Corporation v ITS Taxation Services [2004] NSWSC 50 at [17]; Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) [2012] NSWSC 170 at [131] to [134]. 31The Mathew Defendants contend that the Receiver's fees should not be paid from the Fund, but rather be paid by Macquarie for the following reasons. 32First, the Mathew Defendants point out there is no existing order for the payment of the Receiver's costs and that no suggestion was made that the Receiver's fees should be paid from the Fund until the filing of the Receiver's original notice of motion on 10 December 2013. It seems to me that these matters do not comprise a reason not to make an order now. The Receiver was appointed by the Court and it was inevitable that, at some point or other, he would make an application for the payment of his fees. 33Second, the Mathew Defendants point to Macquarie's letter of 26 September 2012, to which I have referred at [7]. In that letter Macquarie advised the Account Holders that if the Proposed Scheme was not accepted by all Account Holders, interpleader proceedings would have to be commenced. Macquarie added that the interpleader proceedings "would be similar to [the Proposed Scheme] and...would take place as part of the court proceedings." 34Mr Le Plastrier, who appeared for the Mathew Defendants, submitted that Macquarie, "having accepted the similarity of the processes and agreeing to pay for the [Proposed Scheme] ought not be able to avoid the costs of the receivership". Notwithstanding what Macquarie said in its letter, I see no relevant similarity between that which has occurred in these proceedings and what would have occurred under the Proposed Scheme. 35Further, and more significantly, Macquarie made clear in the correspondence between it and the Account Holders that if all parties did not agree to participate in the Proposed Scheme it would be obliged to bring interpleader proceedings, in which event costs would ultimately fall for payment by the Account Holders (see [8] above). 36Finally, the Mathew Defendants submit that Macquarie has had the benefit of the interpleader and is now "freed from all claims" against it. However, the Mathew Defendants acknowledge that Macquarie, like them (and indeed all the Account Holders), is entirely innocent. 37In all the circumstances, I see no reason why the usual course should not follow and the Receiver have his fees paid out of the Fund. I propose to so order.

Declaration as to the Account Holders' entitlements 38It is said that Mr Madhoji transferred Funds to Redwood from many of the Accounts, purportedly for fees due. The Receiver has issued subpoenas to Mr Madhoji, his related entities and others seeking documents relevant to these payments. No information of significance has been recovered. The Receiver has not otherwise been provided with any contracts or documents setting out the basis of any entitlement for remuneration between the Account Holders and Redwood. Furthermore, the Receiver has established that many of the charges evidently made by Redwood were inappropriate (for example, purported brokerage charges where no transaction had occurred). 39In those circumstances the Receiver has proposed the Fund be divided between Account Holders on the following basis. 40First, the Receiver has determined which transactions on each of the Accounts were "legitimate" (in the sense of authorised by the relevant Account Holders) and which were not. The Receiver has then notionally reversed all transactions that were not "legitimate". The reversed transactions include transfers from the Accounts to Redwood for purported fees or otherwise, and unauthorised transfers between the Accounts of the Account Holders. 41The Receiver has thus notionally "refunded" these payments to each Account Holder, thereby treating these payments as part of the funds misappropriated from each Account. 42The Receiver has thereby sought to ascertain the "Notional Balance" of each of the Accounts at the time the Funds were paid into Court; that is, what the balance would have been but for the allegedly fraudulent transactions. 43The Receiver has then compared the Notional Balance in each Account to the Actual Balance of the Account (that is, the amount, if any, actually standing to the credit of the Account and paid into Court by Macquarie). 44The Receiver has then proceeded on this basis. 45If the Notional Balance is less than the Actual Balance, (that is, if there is not as much money in the account as there should be) the Receiver has determined that the Account Holder was entitled to obtain all of the Actual Balance, and then to share pro rata any surplus funds. 46Alternatively, if the Actual Balance in the Account is more than the Notional Balance (that is, if there is more in the Account than there should be) the Receiver has determined that the Account Holder is only entitled to retain the Notional Balance (the amount that should have been in the Account). The Receiver has then credited the excess in the Account beyond the Notional Balance to the surplus to be divided pro rata between all Account Holders. 47Next, if the Actual Balance is positive but the Notional Balance of the Accounts is negative (that is, the Account would be overdrawn but for the allegedly fraudulent entries) the Receiver has determined that the Account Holder is entitled to no part of the amount paid into Court by Macquarie in respect of that Account Holder's Account, but that that such Account Holder is entitled to share pro rata in the surplus. 48Otherwise, the Receiver has determined that Account Holders share in the surplus pro rata. 49The Receiver has made roughly corresponding calculations concerning interest. 50The effect of these determinations is that the Receiver has allocated to each Account Holder that part of the Fund as is "truly theirs" (to use the words of Mr Wood, who appeared for the Receiver). Otherwise, in circumstances where there is a common loss said to be the result of the activities of Mr Madhoji, and where each Account Holder appears to have equal merit, the Fund is to be distributed to each Account Holder pro rata according to that Account Holder's deficiency. In effect, as Mr Wood submitted, what is proposed is that each Account Holder will "prove" in the balance of the Fund. 51The Receiver proposes that he adopt that course, rather than conduct a tracing exercise. If a tracing exercise was conducted, each Account Holder would, in effect, have to maintain a cross-claim against each other Account Holder; identifying individual funds and dealing with such questions as notice and change of position. 52No one has suggested to me that the Receiver's proposals were inappropriate (although the Mathew Defendants suggested several, relatively minor, adjustments to which I will refer below). 53I find the Receiver's proposal to be practical in all the circumstances, fair to the Account Holders and consistent with principle. 54As I have said, the matter in question is the mixed fund originally in the possession of Macquarie. Macquarie was a debtor of the Account Holders and was not acting as a fiduciary. That suggests that tracing is not an appropriate remedy: Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; 59 NSWLR 61 per Campbell J at [108]. 55Further, a tracing exercise may well have the effect of allocating loss in accordance with the manner in which Mr Madhoji carried out his allegedly fraudulent activities, rather in accordance with justice of the situation as between the Account Holders. 56That may well have the effect that the adjustments between the Account Holders would depend upon how Mr Madhoji chose to conduct the alleged fraud rather than on the basis of equity between the parties, see: Jacobson J in Georges v Seaborn International Pty Ltd [2012] FCAFC 140; 206 FCR 408 at [70]. 57In my opinion, the Account Holders should be seen as having an equitable charge over the Fund to the extent of their interests (Re Sutherland at [127]) and that the Receiver's proposal will bring about such a result. 58Therefore, subject to minor adjustments that I consider need to be made following acceptance of some of the submissions on behalf of the Mathew Defendants, I propose to make orders and declarations in accordance with the Receiver's amended notice of motion.

Contentions of the Mathew Defendants 59Mr Le Plastrier made submissions concerning four transactions, apparently effected by Mr Madhoji, but not taken into account by the Receiver. 60The first two transactions relate to the Account of the 31st defendant, Dr Mathew. They comprise debits to Dr Mathew's account on 10 February 2011, for $16,547.19 and on 12 April 2011 for $20,987.00. Both those transactions are described as "profit share". 61In one of his affidavits, Dr Mathew gave this evidence: "I agreed with Mr Madhoji at the outset of the investments I made with Redwood that the remuneration for managing those investments would be a profit share arrangement under which Redwood would receive 15% of the profits made through the investments". 62Mr Le Plastrier has pointed out that the debits in Dr Mathew account from its opening in March 2010 to April 2011 exceeded the credits to that account by $466,181. Mr Le Plastrier submitted that what is to be inferred from that fact is that no "profit" arose from the dealings on the account and that, accordingly, the two "profit share" transactions must be unauthorised. 63I am not able to draw that conclusion from the slender evidence before me. Dr Mathew accepts that he had a "profit sharing" arrangement with Mr Madhoji, but has not, in terms, asserted that the two payments in question were not authorised by him. Although the run of the account to which Mr Le Plastrier has drawn attention suggests no profit was made from the transactions on that account, that does not, it seems to me, exclude the possibility that the profit share might otherwise have been due to Mr Madhoji. 64The remaining two transactions to which Mr Le Plastrier referred arise in relation to the Account of the 14th defendant, being two transactions of 14 October 2011 totalling $16,944 in respect of a "USD wire transfer". Dr Mathews, in his affidavit, said he did not authorise these transactions. It is common ground that Dr Mathew's authority was necessary for operations on the 14th defendant's Account. In the face of Dr Mathew's unchallenged evidence, my opinion is that the Receiver should take into account that figure ($16,944.40) by adding it to the deficiency in the 14th defendant's Account.

The Mathew Defendants' Application 65By notice of motion dated 20 December 2013, the Mathew Defendants seek the following orders: "The parties to this litigation have leave to use the material produced by the Director of Public Prosecutions (Qld) in response to the Subpoena to Produce issued on 15 August 2013 for any of the following purposes:- a) In any referral or advice to the Australian Securities and Investments Commission, the Queensland Police Service or any other regulatory agency or authority; b) In commencing or maintaining proceedings against any person concerning the misapplication or loss of any of the funds invested with the Cash Management Accounts opened with the Plaintiff the subject of these proceedings." 66Although that motion seeks an order that "the parties to the litigation" have the leave required, as I understand it, it is only the Mathew Defendants who now seek that leave. 67The Mathew Defendants propose to commence proceedings against the parties who have received funds from the Accounts and against other parties including a financial services company. 68The amount of material produced by the Queensland DPP is said to be voluminous and to consist of such things as spreadsheets of loss, bank statements, emails of a "highly explanatory nature", and witness statements. 69The material is said to provide details about transactions which have led to what is said to be unauthorised reduction of monies held in the Accounts of the Mathew Defendants. The Mathew Defendants submit that the material will enable them to make an informed assessment about the merits of the proposed proceedings and, if necessary, to institute proceedings. 70The Queensland DPP does not object to the orders sought and has stated in correspondence with the Mathew Defendants' legal advisers that it does not "foresee the order affecting any future prosecutions". 71 Neither Macquarie nor the Receiver oppose the orders sought. 72I am satisfied that the public interest would not be adversely affected, and indeed may well be promoted, by the making of the orders sought, and I propose to make orders in accordance with the notice of motion of 20 December 2013.

Conclusion 73I make following orders and declarations: (1)An order that the Receiver's remuneration including for work performed by his staff be calculated at the rates set out in the letter from Henry Davis York to the Defendants dated 31 May 2013 (a copy of which is annexure A to the amended notice of motion). (2)An order pursuant to r 26.4 of the Uniform Civil Procedure Rules 2005 that the remuneration and expenses properly incurred by the Receiver in the discharge of his duties from the date of the Receiver's appointment up to and including 7 March 2014 including in respect of the notices of motion filed on 19 August 2013, 17 September 2013 and 31 October 2013 be allowed in the sum of $274,291.34 inclusive of GST. (3)An order pursuant to UCPR r 26.4 that the remuneration and expenses of the Receiver for the period 8 March 2014 to the date of discharge be prospectively allowed to a maximum of $52,500 inclusive of GST. (4)An order that the Remuneration referred to in orders 3 and 4 be paid from the Funds (as that term is defined in the Orders made on 24 June 2013 ("Funds"). (5)An Order that the Funds and accumulated interest less any applicable fee, commission and charge including amounts payable to the Court and the NSW Trustee and Guardian be paid to the Receiver within 48 hours of the making of these orders. (6)A Declaration that each Defendant is beneficially entitled to that share of the interest earned on the Funds while it was in Court determined by reference to the aggregate of the amounts referable to that Defendant set out in Column C and Column D of Annexure A to these orders ("Schedule") as a proportion of the aggregate of all amounts set out in Column C and Column D of Annexure A, subject to remuneration and expenses. (7)A Declaration that each of the Defendants is beneficially entitled to the share of the Funds set out in Column C of the Schedule, subject to remuneration and expenses. (8)A Declaration that each Defendant is beneficially entitled to a share in part of the Funds remaining after the payment of the amounts set out in Column C of the Schedule in the amounts referrable to each Defendant set out in Column D of the Schedule as a proportion of the aggregate of all amounts set out in Column D of the Schedule, subject to remuneration and expenses. (9)A Declaration that the Fourteenth Defendant be entitled to have his claim for the purposes of order 9 calculated by including the following entries: (a)a withdrawal described as "overseas telegraphic tfr fee A/C: 123037863 BSB: 182222" in the sum of $16,914.40 dated 14 October 2011; (b)a withdrawal described as "USD wire tfr @ 1.0105 A/C: 123037863 BSB: 18222" in the sum of $30 dated 14 October 2011. (10)Order that the Receiver's remuneration pursuant to these Orders be apportioned between each Defendant according to the Defendant's entitlement calculated according to the declarations in Orders 7 to 10 of these orders. (11)Order that after payment from the Funds of all applicable fees and charges and the Receiver's remuneration the Funds be paid in the amounts referrable to each Defendant set out in Column C to the Schedule (as adjusted for remuneration and expenses) and then the balance of the Funds be paid to the Defendants pro-rata according to the amounts referrable to that Defendant set out in Column D of the Schedule (as adjusted for remuneration and expenses). (12)That the Receiver be discharged immediately after payment and clearance of the balance of the Funds according to Order 12 of these orders. (13)The Tenth, Fourteenth and Thirty First Defendants have leave to use the material produced by the Director of Public Prosecutions (Qld) in response to the Subpoena to Produce issued on 15 August 2013 for any of the following purposes: (a)In any referral or advice to the Australian Securities and Investments Commission, the Queensland Police Service or any other regulatory agency or authority; (b)In commencing or maintaining proceedings against any person concerning the misappropriation or loss of any of the funds invested with the Cash Management Accounts opened with the Plaintiff the subject of these proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 March 2014

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