[2014] NSWCA 462
The Ophelia [1916] 2 AC 206
Turner v O'Bryan-Turner (2022) 107 NSWLR 171
Judgment (23 paragraphs)
[1]
JUDGMENT
These proceedings arise from a fraud that was perpetrated on each of the Plaintiffs. In short, the Plaintiffs were deceived, by persons who claimed to represent "AMP", into depositing funds into a bank account which they believed had been set up in their own name, for the purpose of investing in a term deposit. In fact, the Plaintiffs transferred their funds into a bank account which the First Defendant, Supercheap Security Pty Ltd, held with the Third Defendant, National Australia Bank Limited (NAB) (the Supercheap Account). Shortly after being deposited into the Supercheap Account, the funds were transferred out of that account to third parties located overseas.
The Second Defendant, Mr Mehdi, established Supercheap Security and was its sole director and shareholder. He applied for, and was the sole signatory on, the Supercheap Account.
On 7 July 2023, the Court made orders, by consent, that the claim against NAB be dismissed with no order as to costs.
On 2 February 2024, the Court ordered that default judgment be entered against Supercheap Security.
Accordingly, the issues for determination solely concern the claims against Mr Mehdi.
The Plaintiffs contend that Mr Mehdi is liable to them pursuant to the principles in Barnes v Addy (1874) LR 9 Ch App 244. The Plaintiffs seek to recover the amounts deposited by each of them into the Supercheap Account, plus interest and costs.
Mr Mehdi represented himself at the hearing before me. He did not dispute that the fraud occurred, and that the Plaintiffs' money was transferred into and out of the Supercheap Account pursuant to the fraud, and has been lost. However, he claimed that he had handed over control of Supercheap Security and the Supercheap Account to a third party, Mr Ali Waheed, prior to the fraud being perpetrated on the Plaintiffs, and that he was unaware that the Supercheap Account was to be, or was being, used for the purposes of the fraud until after all of the relevant transactions had occurred.
[2]
First Plaintiff
On 22 May 2022, the First Plaintiff, Ms Joanne O'Brien, accessed a website with the domain name www.moneysmartinvestmentsau.com for the purpose of finding the best available interest rates at that time.
Between 24 May 2022 and 10 June 2022, Ms O'Brien received seven emails and a number of calls from persons purporting to be "Peter Clarke", "Craig Miners" and "Thomas Bridges" of "AMP".
These persons offered Ms O'Brien a term deposit account with an interest rate of 3.65% per annum. They told Ms O'Brien that, in order to take up this opportunity, she should transfer the amount that she wished to invest with "AMP" into a bank account which had been set up in the name "JOBRIEN", and they provided her with the BSB and account number for this account. In fact, the BSB and account number provided to Ms O'Brien related to the Supercheap Account.
Between 9 June 2022 and 17 June 2022, Ms O'Brien transferred a total of $500,000 to the Supercheap Account, by way of five transfers of $100,000 each.
[3]
Second Plaintiff
In around late May or early June 2022, the Second Plaintiff, Ms Kerrin Uytendaal, accessed various websites on the internet and made enquiries to determine the best available interest rates.
Shortly after making those enquiries, Ms Uytendaal received a number of emails, as well as a telephone call, from a person purporting to be "Craig Miners" of "AMP". Again, she was offered a term deposit and was told to transfer any funds which she wished to invest into an account which had been established with the name "K UYTENDAAL".
Between 9 June 2022 and 14 June 2022, Ms Uytendaal made two transfers, totalling $100,000, using the BSB and account number which had been provided to her. These moneys were in fact deposited into the Supercheap Account.
[4]
Third Plaintiff
In early June 2022, Ms Uytendaal told the Third Plaintiff, Mr Mark Uytendaal, about her decision to invest money into what she believed to be an "AMP" term deposit. Mr Uytendaal contacted one of the persons with whom Ms Uytendaal had been dealing. Following this, he received various emails from persons purporting to be from "AMP".
Again, he was told that he could invest in a term deposit by transferring money into an account which had been set up in the name "M UYTENDAAL", but he was in fact given the BSB and the account number relating to the Supercheap Account.
On 15 June 2022, Mr Uytendaal transferred $100,000 to the Supercheap Account.
[5]
Fourth Plaintiff
The Fourth Plaintiff, Ms Judy Fleiter, and Mr Warren Hann are the trustees of a family trust called "The Purple Road Trust".
In around April 2022, Mr Hann accessed various websites and made enquiries to determine the best interest rates for term deposits. Shortly after making these enquiries, Ms Fleiter and Mr Hann received emails and telephone calls from persons purporting to represent "AMP".
Ms Fleiter and Mr Hann were told that they could invest in a term deposit by transferring funds into a bank account which had been set up in the name "The Purple Road Trust". In fact, the BSB and the account number were those of the Supercheap Account.
On 6 June 2022, Ms Fleiter transferred $175,000 to the Supercheap Account.
[6]
Dissipation of the Funds
The bank statement for the Supercheap Account shows that, shortly after funds were deposited by the Plaintiffs into the account, sums of a similar size were transferred out of the account. For example, on 9 June 2022, Ms O'Brien deposited $100,000 and Ms Uytendaal deposited $20,000 into the Supercheap Account. On the following day, the sum of $119,832.90 was transferred out of the account by two separate payments, with the descriptions "Invoice 1007" and "Invoice 1008".
[7]
Mr Mehdi's role in the relevant events
Mr Mehdi's position was, in substance, that he himself was a victim of the fraud perpetrated by Mr Waheed. He submitted that: "I am treated as second defendant, even though I was also deceived by a close friend whom I have helped since he arrived in Australia".
In short, Mr Mehdi gave evidence in his five affidavits that:
1. he established Supercheap Security in June 2021 with the aim of using this company to run a business selling security equipment online;
2. in August 2021, Mr Waheed asked Mr Mehdi how he could purchase his own company, explaining that he wanted "to start his own business for importation of goods from Dubai" and a "Crypto and Forex Trading Business". Mr Waheed was a close friend, and previous co-worker and housemate of Mr Mehdi. Mr Mehdi described Mr Waheed as "like a brother";
3. in early 2022, because the online security system business was not successful, Mr Mehdi decided "to pass the company on to [Mr Waheed]";
4. some time before 18 May 2022, Mr Waheed asked Mr Mehdi to "increase the limit on the Supercheap Account as he intended to use it for Crypto and Forex Trading", and Mr Mehdi called NAB, who increased the limit on the Supercheap Account from $10,000 to $100,000;
5. on around 18 May 2022, Mr Mehdi resigned from Supercheap Security and Mr Waheed became its director;
6. on handing over control of Supercheap Security to Mr Waheed, Mr Mehdi gave Mr Waheed access to the Supercheap Account, by providing him with the OTP (one-time password) App and the login details and password for the NAB Netbanking Application. Mr Mehdi also gave Mr Waheed various other materials relating to the business of Supercheap Security, including the login details for the company website and email account, and the login details for the company's accounts with Shopify and eBay;
7. after providing these passwords and login details to Mr Waheed, Mr Mehdi did not thereafter use, or access, the Supercheap Account or the company's email or its other online accounts;
8. on 21 May 2022, Mr Mehdi left for Pakistan. He understood at the time that Mr Waheed would lodge documents with the Australian Securities and Investments Commission (ASIC) to change the director of Supercheap Security, and that the Supercheap Account with NAB "would automatically transfer to [Mr Waheed] when he took over the directorship of Supercheap Security";
9. Mr Mehdi was overseas when the relevant transactions were made on the Supercheap Account. He did not authorise, and was not aware of, any of those transactions at the time; and
10. Mr Mehdi remained unaware of the matters alleged in this proceeding until he was served with the Summons and Commercial List Statement on 25 August 2022.
[8]
Establishment of Supercheap Security
On 22 June 2021, Supercheap Security was incorporated, with Mr Mehdi as sole director and shareholder.
In his affidavit of 7 March 2024, Mr Mehdi deposed that Supercheap Security was established as a vehicle to conduct an online business selling security equipment.
Following service of Mr Mehdi's affidavit, the Plaintiffs issued a Notice to Produce for Inspection dated 11 March 2024 (the March Notice to Produce) which sought, among other things, "a copy of all documents relating to or evidencing business plans or preparatory documents in relation to the setting up of the business Supercheap Security". The solicitors acting for Mr Mehdi at that time produced only one document, being a notice appointing Lawpath Operations Pty Ltd as a registered agent of the company, which was signed by Mr Mehdi and dated 22 June 2021 (being the date of Supercheap Security's incorporation).
There was limited evidence of any trading conducted by Supercheap Security. On Mr Mehdi's own account, Supercheap Security only "sold 2 or 3 items". The March Notice to Produce sought all records of any receipts of sales by the company. A single document was produced, which appears to be a document from Shopify referring to a transaction in the amount of $152.96, dated 5 May 2022.
In his affidavit of 7 March 2024, Mr Mehdi deposed that he decided "to pass the company on" to Mr Waheed because the "time and costs to run the company were too much". However, the evidence does not establish that any significant time or costs were expended on running the business of Supercheap Security.
[9]
No evidence of any agreement to transfer Supercheap Security
Mr Waheed was a close friend of Mr Mehdi. Although Mr Waheed had previously resided in Victoria, he had, by mid-2022, been living outside Australia for around two years, moving between Dubai and Pakistan.
On Mr Mehdi's account, Mr Waheed told Mr Mehdi that he wanted a company to use for his own business, trading in crypto currency and foreign exchange; Mr Mehdi offered Supercheap Security, because he no longer needed it; and Mr Mehdi handed over control of the Supercheap Account along with all other things needed to run the business.
However, there is not a single contemporaneous document in which Mr Waheed indicates any intention to take over control of Supercheap Security, or in which Mr Mehdi indicates any intention to sell the shares in the company to Mr Waheed (or anyone else). Mr Mehdi claimed in a police interview that he had a sale document on his laptop, but no such document was produced.
Mr Mehdi was asked "what possible legitimate interest" he thought, at the time, Mr Waheed had in Supercheap Security. In response, he acknowledged that Mr Waheed had no particular interest in Mr Mehdi's company: "He was not particularly interested in my company, he wanted any business". According to Mr Mehdi, Mr Waheed "was just looking for a company and I [told] him that you can take this one".
There are no contemporaneous documents that record, or refer to, Mr Mehdi handing over to Mr Waheed any accounts, materials or resources relating to Supercheap Security (other than the Supercheap Account). Mr Mehdi stated in his March 2024 affidavit that he provided the login details and passwords for Supercheap Security's website, email and the eBay and Shopify accounts to Mr Waheed by way of WhatsApp messages. However, as explained below, Mr Mehdi has deleted the entirety of his WhatsApp conversation with Mr Waheed and therefore no such messages were in evidence. Further, if (as Mr Mehdi deposed) Mr Waheed had told Mr Mehdi that he wanted Supercheap Security as a vehicle to conduct trading in crypto currency and foreign exchange, it is difficult to see why Mr Waheed would have had any interest in the company's website, which had been set up by Mr Mehdi for the business of selling security equipment, or any interest in its Shopify or eBay accounts.
On Mr Mehdi's account, he did not agree to transfer the shares in Supercheap Security to Mr Waheed, but only the directorship of the company. (The company remains wholly owned by Mr Mehdi.) There is no apparent reason why, if Mr Waheed wanted to use Supercheap Security as an entity through which to run his own business, he would have requested only to be a director of that entity, and would not have requested to buy the shares in that entity.
[10]
Supercheap Account was set up at Mr Waheed's request
Whether or not Supercheap Security was used by Mr Mehdi at any time for the purposes of the online security business which he describes, it is plain that the Supercheap Account was not set up for the purpose of any such business.
This account was not opened until 27 April 2022. There were no transactions on the account until 20 May 2022, when the first deposits into and withdrawals from the account were made in furtherance of the fraud.
Mr Mehdi accepted in the course of his cross-examination that the Supercheap Account was set up solely for the purpose of being handed over to Mr Waheed. This concession was given when he was taken to WhatsApp messages which Mr Waheed had exchanged with another person called "Usman" in April 2022. These messages had been obtained by a journalist at the Australian Broadcasting Corporation (ABC) and were produced on subpoena in these proceedings. In these messages, Mr Waheed was passing on to "Usman" updates which he had received from Mr Mehdi on the steps taken to set up the account in the days before it opened.
For example, on 22 April 2022, "Usman" asked Mr Waheed "when you can give me all accounts" and Mr Waheed responded:
"Sir its not from our side we have pushing bank to do asap but we can't have authority my guy is on call them bank from last 30 minutes".
The use of the first person plural ("we") suggests that the person ("my guy") who has been following up with "the bank" was working with Mr Waheed to ensure that the account was opened as soon as possible ("pushing to do … asap"). Mr Mehdi accepted in cross-examination that he was the person referred to as "my guy" by Mr Waheed, and that he had sent Mr Waheed a screenshot from his phone (which Mr Waheed forwarded to "Usman") showing that he had been on hold with NAB for 30 minutes, shortly before this message was sent to Usman.
On being taken in cross-examination to a sample of the messages between "Usman" and Mr Waheed, which were included in an article published by the ABC and which were annexed to an affidavit of the Plaintiffs' solicitor (Mr Carmody), Mr Mehdi gave the following evidence:
"Q. So you knew from this message, from seeing this message in this [ABC] article and in Mr Carmody's affidavit that it could now be proven that you actually applied for this bank account in collaboration with Mr Ali Waheed.
A. WITNESS: Yeah, that's what I'm--
A. INTERPRETER: I have been saying that from the very start, that I opened up this account on his saying. He asked me to get the account as well. And I opened it for him."
[11]
Application for Supercheap Account
Mr Mehdi completed an online application for the Supercheap Account. NAB produced a copy of the information provided by Mr Mehdi when making this application.
In applying for the account, Mr Mehdi named himself as the sole signatory. He also identified himself as the sole beneficial owner of the shares in Supercheap Security. He did so despite the fact that, on his own evidence, he intended that, as soon as the account was opened, he would hand over control of both the account and the company to Mr Waheed.
When applying for the account, Mr Mehdi provided details of his passport, his Medicare card and his driver's licence. Mr Mehdi acknowledged in cross-examination that he had previously provided identification like this when he had opened other bank accounts, and that he knew the importance of these kinds of verifications was to "allow the bank to make sure that it's actually you using the account".
In cross-examination, Mr Mehdi also agreed that he knew, at the time of filling in this form, that the purpose of these identification checks was that, unless such checks were undertaken, "it could be anyone using the account"; money could be very easily transferred outside Australian without being able to be traced; various breaches of laws might occur; and, in particular, the account could be used to "move" money which had been fraudulently obtained.
When applying for the account, Mr Mehdi indicated, in response to questions asked by NAB, that Supercheap Security was operating in the industry of "Security Systems, Installation"; that the account was expected to be used for "Business Transactions"; and that the expected total transaction amount per month was "50,001 to 250,000".
These responses conveyed to NAB that Mr Mehdi expected to use the Supercheap Account for transactions relating to his security systems business, in an amount up to $250,000 per month. However, Mr Mehdi had, on his own evidence, decided to cease operating the business of Supercheap Security, which had only ever sold two or three items. When he applied for the account, he had no intention of using the account to make any transactions for his business.
When applying for the account, Mr Mehdi also indicated, in response to questions from NAB, that he expected to use the account to make international transactions in Asia and the Middle East.
[12]
Updates to Mr Waheed
In cross-examination, Mr Mehdi acknowledged that Mr Waheed was, in April 2022, repeatedly seeking updates from Mr Mehdi regarding the account:
"Q. And he was asking you on numerous occasions how you were tracking with opening it, correct?
A. WITNESS: Yes.
Q. He expressed his desire for you to do so quickly, didn't he?
A. WITNESS: Yes, kind of.
Q. And that he needed it urgently.
A. WITNESS: Yes.
Q. He was continuing to ask you again and again, 'How are you going with it?'.
A. WITNESS: Yes.
Q. And those kinds of questions.
A. WITNESS: Yes.
Q. Continually seeking updates.
A. WITNESS: Yes.
Q. Stressing the importance of opening the account.
A. WITNESS: Yes.
Q. Stressing the need for him to get the account so he can give it to his colleagues, correct?
A. INTERPRETER: Until that time, I didn't know what his colleagues were intending to do or whatever their intention was."
Mr Mehdi also accepted that he chased up NAB multiple times by phone, enquiring as to the status of his application. However, Mr Mehdi claimed not to have known what the urgency was, or how the account was to be used, being content to take these steps for Mr Waheed and his associates "whatever they were doing":
"Q. … Mr Mehdi, you understood that it was urgent because you knew that they wanted to use the account as soon as possible, didn't you?
A. WITNESS: Yeah.
Q. They wanted to use the account to receive funds, correct?
A. WITNESS: Yeah, and whatever they were doing.
Q. And to transfer them out of Australia, correct?
A. WITNESS: No, not out of Australia, whatever they were doing.
Q. I suggest that's false, Mr Mehdi.
A. WITNESS: Okay, up to you.
Q. Is there any further explanation you can give, Mr Mehdi, as to why the obvious inference to be drawn is not that they immediately needed to use the account to receive funds and transfer them out of Australia?
A. INTERPRETER: That is the real dispute in all this case. In my defence, I'm - I'm saying that they have used me and trapped me and made a fool of me."
[13]
WhatsApp messages destroyed by Mr Mehdi after proceedings commenced
The reason why the only WhatsApp messages from Mr Mehdi to Mr Waheed are those which were forwarded by Mr Waheed to "Usman" (and were subsequently obtained by the ABC) is because Mr Mehdi destroyed copies of all his WhatsApp communications with Mr Waheed. He did so after he was released from custody in December 2022, when criminal charges against him relating to the fraud were dropped.
These messages were destroyed by Mr Mehdi at a time when the current proceedings were already on foot, with the Summons and the Commercial List Statement having been served on Mr Mehdi in August 2022.
Mr Mehdi gave the following evidence in cross-examination about the destruction of these messages:
"Q. So you accept, don't you, that at the time of this interview there was, on your mobile phone, communications between you and Mr Ali Waheed about these matters, don't you?
A. INTERPRETER: Yep.
Q. You accept also that you were served with a notice to produce for all communications that you had with Mr Ali Waheed during the relevant period, correct?
A. INTERPRETER: Yep.
Q. And you know as well, don't you, that no communications whatsoever have been produced between you and Mr Ali Waheed pursuant to that notice to produce, don't you?
A. INTERPRETER: As soon as I came out of the police station I deleted everything and I blocked his number because I didn't want to have anything to do with it.
Q. You deleted evidence that you knew were relevant to ongoing civil proceedings, didn't you?
A. INTERPRETER: I had no knowledge about the civil proceedings. I thought everything is finished.
Q. Again, Mr Mehdi, is that serious evidence?
A. WITNESS: Yes.
Q. You were being interviewed by police on 4 November 2022, correct?
A. WITNESS: Yes.
Q. You had been notified in August that these proceedings have been commenced, correct?
A. WITNESS: Yes.
Q. So, what made you think between August, when you received a commercial list statement and summons, and November, when you were being interviewed by police, that the civil proceedings had stopped?
A. INTERPRETER: … I'm saying that I had no knowledge about the difference between civil and the criminal procedure. As soon as they came out of the gaol, I thought it's all finished. I didn't know that it will be continued further on."
Where particular evidence (or types of evidence) can be identified as having been deliberately or recklessly lost, or destroyed, or not disclosed, this gives rise to a presumption at least that the contents of that evidence would have been entirely against the defaulting party: Rosebanner Pty Ltd v EnergyAustralia [2009] NSWSC 43 at [454] per Ward J.
[14]
Increase in Credit Limit on Individual Transactions
In May 2022, Mr Mehdi took steps to increase the limit on individual transactions on the Supercheap Account from $10,000 to $100,000.
Mr Mehdi was taken in cross-examination to messages between Mr Waheed and "Usman" dated 12 May 2022, in which Usman asked the following questions:
"How much is the limit for sun corp?"
"And nab?"
"100k? Or less"
Mr Mehdi accepted that he had discussions with Mr Waheed, on around the date of these messages, about increasing the limit on individual transactions on the Supercheap Account, and that this was done in order "to allow them to transfer a larger amount of funds".
Mr Mehdi was asked why he did not leave it to Mr Waheed to increase the limit on the account which had been handed over to him. Mr Mehdi responded: "he cheated me, and this is the main point, actually, he cheated me on this". Mr Mehdi accepted that he was not aware of any legitimate reason to increase the limit at that stage.
On 18 May 2022 at 4.01pm, Mr Mehdi received an email from a representative of NAB working in the "Business Direct & Small Business" division. The subject line of the email referred to "Supercheap Security Pty Ltd", and the body of the email stated as follows:
"Hi Hasaan,
It was lovely speaking to you today
Please feel free to email me if you require any further assistance as discussed.
Have a great time ahead!!!"
According to Mr Mehdi's account, he handed over the Supercheap Account to Mr Waheed on 18 May 2022 and resigned as a director of Supercheap Security at around the same time. It is apparent from the terms of the NAB email, which refers in its subject line to Supercheap Security and which asks Mr Mehdi to email NAB if he required any further assistance, that Mr Mehdi had not informed the NAB representative, in the course of their conversation on 18 May 2022, that he had handed over control of the Supercheap Account to someone else and would, from that point forward, have nothing further to do either with that account or with Supercheap Security. The conclusion that no such statement was made is confirmed by the fact that, as outlined below, NAB subsequently continued to address messages to Mr Mehdi in relation to the Supercheap Account.
Mr Mehdi did not provide any explanation as to why (assuming that, as Mr Mehdi deposed, Supercheap Security and the Supercheap Account were handed over to a third party on around the same day as this conversation with the NAB representative) he did not inform the NAB representative that this was the case, and let them know that any future communications regarding the account should be directed to Mr Waheed.
[15]
Departure Overseas
After Mr Mehdi set up the Supercheap Account and (on his evidence) handed it over to Mr Waheed, he flew to Pakistan. Mr Mehdi gave the following evidence about these matters and his state of knowledge at the time he departed (emphasis added):
"Q. So you book a trip on 13 May to leave Sydney and travel to Pakistan on the 21st.
A. WITNESS: No, Melbourne. Leave Melbourne.
Q. Leave Melbourne, thank you. And then between booking that flight and departing the country, you say you hand over everything to Mr Ali Waheed.
A. WITNESS: Yeah.
Q. Knowing that hundreds of thousands of dollars was going to be transacted on that account.
A. WITNESS: Yeah.
Q. And that it was likely to be fraudulent if he did not take you off the account.
A. WITNESS.
Q. Correct?
A. WITNESS: Yeah.
Q. And yet you did nothing about it.
A. WITNESS: Yeah, well, that's what happened.
Q. You accept, Mr Mehdi, in hindsight, that there is no explanation for that, is there?
A. INTERPRETER: The scams are done like that, you know, targeting somebody or somebody having in the middle. Nobody tells you that they are going to do any scams.
Q. You - that's the extent of your answer, Mr Mehdi, on that question.
A. WITNESS: Yeah."
The first deposit into the Supercheap Account pursuant to the fraud occurred on 20 May 2022. Mr Mehdi departed Australia later that evening, flying out of Melbourne at 1.15am on 21 May 2022. He remained overseas until 24 August 2022.
According to Mr Mehdi, he did not subsequently have any discussion with Mr Waheed regarding Supercheap Security or the Supercheap Account until after the fraud came to light:
"Q. Did you meet up with him again in May 2022 when you travelled?
A. INTERPRETER: He was in Dubai that time.
Q. I see. You didn't think to have a conversation with him in May 2022 about how things were going with the Supercheap Security account?
A. WITNESS: No. No.
Q. Didn't think it was relevant?
A. WITNESS: No, no, I didn't talk.
Q. Didn't think it was interesting to you?
A. WITNESS: That's what happened.
Q. You weren't curious about what he was doing?
A. WITNESS: No, not really.
Q. Curious about how his forex trading was going?
A. WITNESS: No.
Q. How his cryptocurrency was going?
A. WITNESS: No.
Q. How his various other businesses were going?
A. WITNESS: No.
Q. Is that because you knew how they were going?
A. WITNESS: No.
Q. Is it because you didn't want to know how it was going?
A. INTERPRETER: Whatever has happened, has happened. What sort of answer you're expecting from me?
Q. Hopefully a truthful one, Mr Mehdi.
A. WITNESS: Yeah, that's what I'm doing."
[16]
Communications with NAB
In his affidavit of 11 October 2023, Mr Mehdi deposed that he ceased being a signatory on the Supercheap Account on 19 May 2022. That is not correct. At all times, Mr Mehdi remained the sole signatory on the Supercheap Account. Accordingly, he was the only person (so far as NAB was concerned) with the authority to approve the large withdrawals which were made following the deposit of the Plaintiffs' money into the Supercheap Account pursuant to the fraud.
Transactions on an account with NAB are able to be authorised using a "one-time password" (OTP). The one-time password can be received by installing an App called "NAB Connect" on a mobile phone. Mr Mehdi gave evidence that he downloaded and installed this App on his phone; that he created login details for the App; that he gave those details to Mr Waheed; and then deleted the App from his phone (without ever using it to review the account or authorise any transaction).
At all relevant times, the contact details which NAB held for the Supercheap Account were the number of Mr Mehdi's mobile telephone and an email address for Supercheap Security.
Mr Mehdi appears to have received text messages from NAB on his mobile phone which related to transactions on the Supercheap Account. The Plaintiffs tendered a transcript of Mr Mehdi's police interview on 4 November 2022, conducted by two Senior Constables. In that interview, one of the Senior Constables stated that: "we have located multiple text messages from the bank saying that a couple of transactions had been made from your accounts". When asked what he had to say about these messages, Mr Mehdi responded: "No comment. I didn't see that."
A subpoena was issued to NAB during the course of the hearing seeking, among other things, any text messages sent by NAB to Mr Mehdi. Production occurred in response to the subpoena some weeks after the conclusion of the hearing. Mr Mehdi was given, by consent, leave to reopen his case to tender the material produced on subpoena by NAB. In its response to the subpoena, NAB stated that it had conducted a search and had been "unable to locate sms data", adding: "NAB do not have a logging system for text/sms data".
Mr Mehdi gave the following evidence:
"Q. You say that the police are lying, are you, when they say, 'We also located multiple text messages from the bank saying a couple of transactions have been made', from your account?
A. WITNESS: Yeah.
Q. You say they're lying?
A. WITNESS: Yeah. There was nothing.
Q. You say that despite being the registered contact number--
A. WITNESS: Yeah.
Q. --for the NAB account--
A. WITNESS: Yeah.
Q. --not a single text message was ever sent by the NAB to your phone?
A. WITNESS: No. On the start, two. Sending me the client number, that's it. No OTP.
Q. So, now your evidence is that there was messages?
A. WITNESS: Just two, Just two. Not number of messages, nothing OTP."
[17]
Events following Mr Mehdi's return
Mr Mehdi returned to Australia on 24 August 2022. On his return, he received the Summons and Commercial List in these proceedings.
The WhatsApp messages which were obtained by the ABC from Mr Waheed show that, immediately upon receipt of those documents, Mr Mehdi sent messages to Mr Waheed attaching the Summons and Commercial List Statement, which included the following statements:
"Salam
Just reached Melbourne
I have received letter from lawyer to appear on court for 1.3million claim"
Significantly, although these messages appear (from their terms) to have been the first communication which Mr Mehdi sent to Mr Waheed after receiving and reading these court documents, Mr Mehdi did not, in these messages, express any surprise or anger about the contents of those documents. He did not, for example, ask what had happened while he was in Pakistan, what Mr Waheed had been using the Supercheap Account for, what the transactions mentioned in the pleading involved, or whether Mr Waheed knew anything about them or could explain what had occurred. Those are matters which any honest and reasonable person, who was being sued for $1.3m for fraudulent transactions on an account which had been left in the control of a close friend, would have wanted to know. If Mr Mehdi understood or suspected, on reading the Summons and Commercial List Statement, that he had been deceived by Mr Waheed, it is difficult to see why he would have forwarded the documents to Mr Waheed accompanied by messages in a friendly tone.
When asked why he did not raise any issue with Mr Waheed about the content of the pleadings, Mr Mehdi's only explanation was that there were more messages where he did ask questions about what had occurred, but that these had (along with the entirety of his WhatsApp conversation with Mr Waheed) been deleted:
"Q. So, you didn't message him at all saying, 'What's going on? Ali, Mohammed, what's going on'?
A. INTERPRETER: I did ask him what's going on. There should be more messages under this.
Q. These are the messages that you destroyed, or deleted, is that right?
A. WITNESS: Yeah.
Q. See, what we do have, Mr Mehdi, is you simply notifying Mr Ali Waheed of the court case.
A. WITNESS: Yeah.
Q. Because what you're doing, aren't you, is saying, this is a problem, we're going to have to deal with this. Correct?
A. INTERPRETER: I forwarded him this letter and asking him what is this legal thing going on. This doesn't have the complete conversation, there's only half of it. I did ask him what's going on."
[18]
Liability of Supercheap Security
Where money has been stolen, it is trust money in the hands of the thief, and the thief cannot divest it of that character: Black v S Freedman & Co (1910) 12 CLR 105 at 110 per O'Connor J; [1910] HCA 58.
Money or property which has been obtained by fraud is treated in the same way: Hraiki v Hraiki [2011] NSWSC 656 at [39]. White J there said that:
"A person who obtains property by fraud holds it on trust for the true owner. Whether the trust is characterised as a constructive trust (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716) or as a presumed resulting trust (Robb Evans of Robb Evans & Associates v The European Bank Ltd [2004] NSWCA 82; (2004) 61 NSWLR 75 at 100 [112]), it arises at the time the fraudster obtains the property (Black v S Freedman & Co (1910) 12 CLR 105 at 110; Robb Evans & Associates v European Bank Ltd at 100 [113]-[115]; Westdeutsche Landesbank Girozentrale v Islington London Borough Council at 714-715)."
Such a trust arises by operation of law from the time that the property is received, and thus is distinct from a remedial constructive trust which arises only upon the making of a court order: Turner v O'Bryan-Turner (2022) 107 NSWLR 171; [2022] NSWCA 23 at [70] per White JA (Meagher and McCallum JJA agreeing).
Similarly, a volunteer who receives money obtained by fraud, with notice of the fraud, holds it on trust: Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [141]-[150] per Gleeson JA (with whom Meagher and Barrett JJA agreed). At the time of the relevant receipts and transfers, Mr Waheed had been given control of the Supercheap Account (whether because, as Mr Mehdi contends, Mr Waheed had become the director of Supercheap Security, or because Mr Mehdi, as the director of Supercheap Security, had given him the authority to operate that account). Mr Waheed's knowledge concerning the transactions on the Supercheap Account can therefore be attributed to Supercheap Security at the time of those transactions. It is common ground between the Plaintiffs and Mr Mehdi that Mr Waheed was involved in, and had knowledge of, the fraud being perpetrated using that account.
Accordingly, from the time when the Plaintiffs' money was deposited into the Supercheap Account as a result of the fraud perpetrated on the Plaintiffs, and was thereby received by Supercheap Security, Supercheap Security held that money on trust for the Plaintiffs; and, when Supercheap Security transferred those moneys out of the account to persons unknown, it did so in breach of trust.
[19]
Claim advanced against Mr Mehdi
The Plaintiffs' claim against Mr Mehdi was put on two alternative bases in their closing written submissions.
First, the Plaintiffs contended that Supercheap Security was in fact a sham company and therefore "it may be correct in equity to treat the funds as having been received by Mr [Mehdi] personally". The Plaintiffs relied on Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55, where it was said (at [46]) that:
"'Sham' is an expression which has a well-understood legal meaning. It refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences."
Secondly, the Plaintiffs contended that Mr Mehdi assisted in the breach of trust by Supercheap Security with knowledge of the dishonest and fraudulent design, and was therefore liable under the second limb of Barnes v Addy.
The difficulty with the first way in which the claim is put is that, if the fraudulently obtained funds were in fact received by Mr Mehdi "personally" with knowledge of the fraud, then he himself would have held those funds on trust, pursuant to the principles outlined above. However, there was no pleading that Mr Mehdi was a trustee or that he had acted in breach of trust. Further, a claim that Supercheap Security was set up for the purpose only of opening the account in order to perpetrate the fraud is a claim, in effect, that Mr Mehdi knowingly assisted in the fraudulent misappropriation of funds. Counsel for the Plaintiffs acknowledged in closing submissions that, although the case was put on the two alternative bases outlined above, "knowing assistance is the most sensible and straightforward way to apply the case". Accordingly, I have focussed on this claim below.
Mr Mehdi assisted in the breach of trust by establishing the bank account for Mr Waheed's use, by increasing the credit limit on individual transactions to $100,000, by handing over control of the Supercheap Account to Mr Waheed and, in particular, by providing Mr Waheed with the login and password details for the NAB Connect application which was used to approve transactions on the Supercheap Account. The critical issue is whether Mr Mehdi took those steps in circumstances where he had knowledge of a type and extent sufficient to give rise to liability under the second limb of Barnes v Addy.
[20]
Knowledge - Principles
I have recently considered in Plutus Payroll Australia Pty Ltd (in liq) v Saikali [2024] NSWSC 1093 at [453]-[461] the principles concerning the type and extent of knowledge required in order to establish liability under the second limb of Barnes v Addy. I have drawn the summary set out below principally from that decision.
Liability under the second limb of Barnes v Addy is a personal or in personam liability. The remedies do not depend on the accessory having retained any part of the property obtained or received as a result of the dishonest and fraudulent design, or its traceable proceeds: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [253].
There are four categories of knowledge sufficient to impose liability on a third party: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [174]-[177], referring to Baden v Societe Generale pour Favoriser le development du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 at 575-576 and 582. Those categories 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 person would make; and
4. knowledge of circumstances that would indicate the facts to an honest and reasonable person.
As regards the first category, actual knowledge need not be established by direct evidence of a person's state of mind, but may be inferred. In particular, a combination of suspicious circumstances and the failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter: Pereira v Director of Public Prosecutions (DPP) (1988) 82 ALR 217 at 220 (per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ); [1988] HCA 57; Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248 at [356] (per Besanko J, not relevantly overturned on appeal); and Fair Work Ombudsman v South Jin Pty Ltd [2015] FCA 1456 at [231] (per White J).
The second category, wilful blindness, is treated as equivalent to actual knowledge; neither negligence nor recklessness is sufficient: Giorgianni v The Queen (1985) 156 CLR 473 at 482 per Gibbs CJ; [1985] HCA 29.
The third category involves "such a calculated abstention from inquiry as would disentitle the third party to rely upon lack of actual knowledge of the trustee's or fiduciary's wrongdoing": Grimaldi at [261].
[21]
Knowledge - Findings
The Plaintiffs submitted that the evidence established either that:
1. Mr Mehdi knew that the Supercheap Account was being used in furtherance of a fraud, and set up the account and authorised the transfers out of the account for that purpose; or
2. (if the Supercheap Account was in fact operated by Mr Waheed) Mr Mehdi wilfully and recklessly failed to ask questions regarding how Mr Waheed intended to use the Supercheap Account "because he did not want to know the answer".
I am not satisfied that Mr Mehdi had actual knowledge that the Supercheap Account was going to be used in furtherance of a fraud, or to transfer overseas moneys which had been obtained by fraud.
However, the evidence does establish that Mr Mehdi was aware of various matters which would have indicated to an honest and reasonable person in Mr Mehdi's circumstances that Mr Waheed intended to use the account for dishonest purposes.
I do not accept Mr Mehdi's evidence that Mr Waheed wanted to take control of Supercheap Security and that the Supercheap Account was transferred to him along with the company. The contemporaneous evidence overwhelmingly supports the conclusion that Mr Waheed's interest was not in Supercheap Security, but in the Supercheap Account, which was set up at his request.
Mr Mehdi was aware that Mr Waheed wanted a bank account in the name of Supercheap Security. Mr Mehdi was aware that the identification processes which had to be followed when setting up an account were important in order to ensure that the account did not become a vehicle for persons, who were unable to be identified, to transfer large amounts of money overseas. Nonetheless, he proceeded, with urgency, to set up an account for Mr Waheed's use, which was in no way linked to Mr Waheed, and which he knew would be used to send hundreds of thousands of dollars from Australia to Asia and the Middle East.
Mr Mehdi could identify no legitimate reason for Mr Waheed to proceed in this way, rather than by opening an account in his own name (or in the name of a company which he himself had set up). He was aware that if Mr Waheed used an account in another person's name to send hundreds of thousands of dollars overseas, he was likely to be acting dishonestly (see paragraphs [60] and [82] above).
The evidence which I have addressed above supports a finding that Mr Mehdi turned a blind eye to how the Supercheap Account was being used in June 2022. He may well have done so because he thought that if he did not actually know how the account was being used by Mr Waheed, he could not himself be responsible for Mr Waheed's actions. Mr Mehdi emphasised, in response to a number of questions in cross-examination, that he did not know how Mr Waheed and his business partners wanted to use the Supercheap Account. For example:
1. Mr Mehdi agreed that he understood that Mr Waheed was stressing the importance of obtaining the Supercheap Account for himself and his colleagues, but Mr Mehdi added: "I didn't know what his colleagues were intending to do or whatever their intention was";
2. Mr Mehdi said, when asked why he had indicated to NAB that the Supercheap Account would be used for transactions in Asia and the Middle East: "he had told me that whatever the business is, they would be doing their transactions from Middle East";
3. Mr Mehdi agreed that the Supercheap Account was to be used by Mr Waheed and his associates as a conduit to send money offshore "whatever they were doing":
"Q. They wanted to use the account to receive funds, correct?
A. WITNESS: Yeah, and whatever they were doing.
Q. And to transfer them out of Australia, correct?
A. WITNESS: No, not out of Australia, whatever they were doing."
[22]
Conclusion and orders
The issues of causation and loss are straightforward. Mr Mehdi's conduct in handing over control of the Supercheap Account to Mr Waheed had the result that all of the funds deposited by the Plaintiffs into the Supercheap Account were transferred outside Australia to third parties, and have been lost.
The Plaintiffs are entitled to equitable compensation from Mr Mehdi for the amount deposited by each of them into the Supercheap Account, together with interest.
The Plaintiffs are also entitled to their costs.
The Plaintiffs should provide proposed short minutes to my Associate and to Mr Mehdi to give effect to these reasons for judgment, including dealing with interest and costs. If Mr Mehdi raises any dispute about the form of those orders, including the calculation of interest, I will relist the matter to determine that issue. Otherwise, I will make final orders in chambers.
Accordingly, I make the following orders. The Court:
1. Directs the Plaintiffs to provide to the Second Defendant and to the Associate to Nixon J, by 5pm on 11 September 2024, proposed short minutes of order to give effect to these reasons for judgment, including orders that deal with interest and costs.
2. Directs the Second Defendant to notify the Plaintiffs and the Associate to Nixon J, by 5pm on 18 September 2024, whether he agrees with the Plaintiffs' proposed form of the orders to give effect to these reasons for judgment, including as to interests and costs.
[23]
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: 04 September 2024
Mr Mehdi was extensively cross-examined in relation to this evidence. Mr Mehdi is a native Urdu speaker. Although he has a reasonable command of English, and swore his affidavits in English and provided written submissions in English, he requested to give evidence with the assistance of an interpreter. I indicated to Mr Mehdi that he could use the interpreter to the extent he felt necessary in order to answer the questions put to him in cross-examination or to make submissions. Mr Mehdi did so, answering some questions in English and others in Urdu.
I have assessed Mr Mehdi's account of events in light of the available contemporaneous documents. I deal below with the key elements of his account.
Mr Mehdi could give no explanation as to why Mr Waheed wanted control of an existing company, of which another person was sole director and shareholder, rather than simply registering a new company. However, Mr Mehdi later accepted in cross-examination that the value for Mr Waheed in taking control of a company which was set up in someone else's name, rather than setting up his own company, was that it was in someone else's name.
There is no contemporaneous evidence to support Mr Mehdi's account that Mr Waheed wanted to become, or did become, a director of Supercheap Security in May 2022. There is a letter which is dated "18 May 2022" and signed by Mr Mehdi, recording his resignation as a director of Supercheap Security. However, for reasons given below, I find that this letter was likely created on or around 25 August 2022, shortly after Mr Mehdi had been served with the Summons and Commercial List Statement in these proceedings. On that day, Mr Mehdi lodged a form with ASIC for himself to be removed as the sole director of Supercheap Security, and replaced by Mr Waheed. In this form, Mr Mehdi indicated that this change of director had taken effect on 18 May 2022 (shortly before the first deposit was received into the Supercheap Account pursuant to the fraud).
On the basis, which seems to be common ground, that Mr Waheed's intention in acquiring control of the Supercheap Account was in fact to use it for the purposes of the fraud, it is difficult to see why Mr Waheed would have had any interest in becoming a director of Supercheap Security. It is much more likely, given Mr Waheed's dishonest intent, that he wanted there to be no recorded connection between himself and the company through which the fraud was to be effected.
Having regard to those matters, I do not accept Mr Mehdi's account that he agreed to hand over Supercheap Security to Mr Waheed, or that Mr Waheed had expressed any interest in acquiring Supercheap Security or in becoming a director of Supercheap Security, or that the Supercheap Account was handed over as a result of, and incidental to, any such transaction. Instead, as outlined below, the evidence supports a conclusion that Mr Waheed's interest was not in Supercheap Security, but in the Supercheap Account, and that this account was set up at his request and for his benefit.
Mr Mehdi accepted in cross-examination that the Supercheap Account was not set up for the purposes of the business of Supercheap Security, but only because Mr Waheed requested that the account be set up and handed over to him:
"Q. …. Setting up the account was not to pursue a business in providing security services, correct?
A. INTERPRETER: Yes.
Q. It was to provide an account that Mr Ali Waheed could use, correct?
A. INTERPRETER: With the company.
Q. With the company, but - yes. But the only purpose that you set up the account was because Mr Ali Waheed wanted it, correct?
A. INTERPRETER: Yes, they want - they said they wanted him with the company as well.
Q. So the time you accessed the account, you knew that it's only purpose was to help Mr Ali Waheed, correct?
A. INTERPRETER: It wasn't any help. He wanted an account with the company as well. So what is help to do with that?
Q. All right, but you're accepting to his Honour that it wasn't for you to use, correct?
A. INTERPRETER: Yeah."
The first time that Mr Mehdi, who had sworn several affidavits in the proceeding, acknowledged that he had set up the Supercheap Account for Mr Waheed was in the course of cross-examination, when confronted with contemporaneous WhatsApp messages indicating that this was the case. That is a matter which significantly undermines his credit. Further, the fact that the Supercheap Account was set up at Mr Waheed's request undermines Mr Mehdi's account in his affidavits that Mr Waheed's interest was in taking control of Supercheap Security, and that the Supercheap Account was transferred to Mr Waheed (along with the company's email, Shopify and eBay accounts) incidental to that transaction. The true position, as Mr Mehdi belatedly acknowledged, is that the Supercheap Account was only established at Mr Waheed's request, and in order that it could immediately be handed over to him.
It should also be noted that there was evidence that Mr Mehdi had previously assisted Mr Waheed by sending thousands of dollars overseas via Mr Mehdi's personal bank account. Bank statements for Mr Mehdi's account with the Commonwealth Bank going back to early 2021 showed multiple deposits from "Ali" (which Mr Mehdi agreed to be a reference to Mr Waheed), followed by withdrawals in similar amounts to "Aussie Forex" (which Mr Mehdi agreed to be a business which was used to send money to overseas accounts).
Mr Mehdi said in cross-examination that he gave this answer because Mr Waheed "had told me that whatever the business is, they would be doing their transactions from Middle East". He then accepted the following proposition:
"Q. So, you knew that this account was going to be used, didn't you, to transfer hundreds of thousands of dollars outside Australia into jurisdictions in Asia and the Middle East, correct?
A. WITNESS: Yes.
Q. You knew that, because that is exactly why you set the account up, correct?
A. INTERPRETER: They - they asked for it so I made it for them."
He clarified that by "they", he was referring to Mr Waheed, but accepted that he knew that Mr Waheed had "business partners".
Mr Mehdi agreed that it was open to Mr Waheed to open a bank account in his own name, but that this would have required identification checks. This led to the following exchange:
"Q. So, Mr Ali Waheed could easily have set up his own bank account, couldn't he?
A. WITNESS: Yes.
Q. You can give his Honour no legitimate reason why he would want someone else to do it other than fraud, correct?
A. WITNESS: Yes.
Q. And that's because, isn't it, talking plainly, the reason to use someone else's account is because you're doing something nefarious with it, correct?
A. INTERPRETER: Can you please repeat it?
Q. The reason to use someone else's someone else's account is that you want to do something deceptive with it, correct?
A. WITNESS: Yeah.
…
Q. You want to hide your identity, correct?
A. WITNESS: Yes.
Q. Distance yourself from the account.
A. WITNESS: Yes."
Despite being aware of those matters, Mr Mehdi, on his own evidence, asked no questions as to why Mr Waheed or his "business partners" did not simply open their own account. Instead, Mr Mehdi proceeded to apply for an account in Supercheap Security's name, which he knew Mr Waheed and his associates intended to use to send hundreds of thousands of dollars overseas.
On 18 April 2022, Mr Mehdi received an email from NAB at the address nominated on his application for a bank account (accounts@supercheapsecurity.com.au) thanking him for his application, informing him that NAB had started working on it, and indicating that NAB would be in touch "within 3-5 business days to give you your new account details and to discuss your business banking needs further".
On 27 April 2022, NAB sent a further email to Mr Mehdi at the same email address, stating that before the Supercheap Account could be activated, NAB would "need to verify your business details". It must have been apparent to Mr Mehdi that NAB believed that the Supercheap Account would be used for the purposes of his business, and in particular for the purposes described by him when applying for the account (namely, "Business Transactions" in the "Security Systems, Installation" industry). Mr Mehdi knew at the time that the Supercheap Account would not, in fact, be used for any such purpose.
In Allen v Tobias (1958) 98 CLR 367 at 375; [1958] HCA 13, the High Court adopted the following statement of principle from The Ophelia [1916] 2 AC 206:
"If any one by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case."
In Rosebanner at [457]-[458], Ward J made the following observations:
"There is also some historic divergence as to the amount (if any) of 'wrongdoing' or fault required to enliven the maxim; ie whether the blameworthiness requires malus animus or mala fides, (Delany v Tenison (1758) 3 Bro PC 659; 1 ER 1559) or whether it is sufficient for the presumption to be available that it cannot be shown that the destruction of evidence was proper or justifiable (Gray v Haig (1854-1855) 20 Beav 219; 52 ER 587).
The passage of The Ophelia approved by the High Court would seem to suggest that even bona fide destruction can nevertheless have negative consequences, by stating that even where 'the intention to destroy evidence may fairly be considered rebutted, still [the destroyer of evidence] has to suffer. He is in the position that he is without the corroboration which might have been expected in his case.'"
Mr Mehdi said that when he was released from custody in December 2022, he thought "it's all finished" and did not understand the difference between criminal and civil proceedings. I do not consider that evidence to be plausible. Mr Mehdi is someone who has been operating businesses in Australia with substantial turnover for a number of years. He likely, despite his denials, knew the difference between a civil claim and a criminal prosecution.
Further, I do not consider it likely that a person who had been charged with a criminal offence relating to the Supercheap Account, who had been served with a claim for fraud relating to the use of that account, and who had WhatsApp messages which (as Mr Mehdi claims) showed that Mr Waheed had taken control of the account and had deceived Mr Mehdi as to how it would be used, would take steps to delete all those messages. It is more likely that a person in such circumstances would take all necessary steps to preserve those messages.
For those reasons, it can be inferred that the destroyed messages would not have assisted Mr Mehdi to make out his defence. In any event, even if the destruction of the messages was done without any thought for either their content or their relevance to these proceedings, Mr Mehdi is now in the position, as a result, where there is no corroboration from any such messages for his account of his dealings with Mr Waheed.
Immediately after Mr Mehdi left for Pakistan, there were two cash deposits into his personal account.
On 25 May 2022, a cash deposit of $5,800 was made into his personal bank account in Australia, via an ATM. He could not identify the reason for the deposit, simply stating, without elaboration, that it was made "because he had to pay me".
In addition, on 16 June 2022, Mr Waheed made a deposit of $800 into Mr Mehdi's personal account, with the description "Gift". When Mr Mehdi was asked about this in cross-examination, he responded as follows:
"Q. Then 16 June, there's a transfer from Mr Ali Waheed again as a gift for $800, correct?
A. WITNESS: Yeah, that's just a stupid description he wrote.
Q. A stupid description, is it?
A. WITNESS: Yeah.
Q. From the man who you've just provided a very valuable company account to.
A. WITNESS: Yeah."
Mr Mehdi did not, however, give any explanation as to why the payment was made.
NAB had Mr Mehdi's mobile phone as the contact number for the Supercheap Account. He retained the same mobile phone number at all relevant times. In an affidavit of 1 July 2024, Mr Mehdi deposed that his "laptop and iPhone underwent forensic examination by Police". At the commencement of the police interview on 4 November 2022, the officers obtained confirmation from Mr Mehdi that he only used one mobile phone, and referred to having "gone through [his] mobile phone". It is likely that the police had in fact seen "multiple text messages" from NAB on Mr Mehdi's phone before they put this proposition to him. The failure by NAB to produce any such messages is explained by the fact that NAB does not have a logging system for text or SMS data. The inference that arises is that, like the WhatsApp messages with Mr Waheed, Mr Mehdi deleted these communications from NAB at a later point in time. However, in the absence of any texts being retained and produced by NAB, I am unable to make a finding as to the contents of any such message.
Mr Mehdi produced, on the second day of the hearing, an email exchange with NAB dated 7 July 2022, which had not been referred to in any of his previous affidavits.
The email exchange was in the following terms (omitting formal parts of the emails):
[Ms Alison Nguyen of NAB]: "We are just needing to confirm if you had recently made a payment to the UK for $94,100.00 was genuine."
[Mr Mehdi]: "Please suspend the internet banking as well as NAB CONNECT immediately. Please reverse the transaction for $94100. Please do not share any information over the phone with anyone until [I] visit the local branch what so ever."
[Ms Nguyen]: "We have suspended your internet and NABconnect as requested."
In his application to reopen his case to lead further evidence of his communications with NAB, Mr Mehdi contended that this email exchange of 7 July 2022 was significant "because it clearly indicates no involvement of myself in the matter and I clearly tried the best of myself to stop the SCAM as soon as I had a bit of doubt of the act happened".
However, this email is at odds with Mr Mehdi's account.
First, the email exchange of 7 July 2022 shows that Mr Mehdi had access to, and was sending messages from, the Supercheap Security email account. Mr Mehdi had, prior to his email being produced, given evidence that after he resigned as a director on 18 May 2022, "I did not access [this email account] at all", and that he could not have accessed it, because "I didn't have any login details". Having regard to the email chain of 7 July 2022, that evidence cannot be accepted. When this discrepancy was pointed out to him, Mr Mehdi gave evidence that he had received the email of 7 July 2022 before the login details were changed and that: "once they find out that I received this email on my mobile phone, they change it then". He had not previously given evidence to this effect. Nor is such evidence plausible. It is difficult to see what interest the fraudsters would have in changing the login details for the Supercheap email account at a point in time after the funds had been transferred out of the Supercheap Account and after the Supercheap Account had been suspended by NAB.
Further, if it were the case that the password for the Supercheap email account was changed shortly after Mr Mehdi sent his email of 7 July 2022, he would not have been able to access the email account in order to obtain a copy of this exchange for his lawyer (who appears, as outlined below, to have been retained in around September 2022).
Secondly, Mr Mehdi said in cross-examination that he had asked NAB to suspend the Supercheap Account on 7 July 2022 because he regarded a transaction involving $94,100 being sent overseas as suspicious:
"Q. You say, 'Please suspend the internet banking as well as NAB Connect immediately', correct?
A. WITNESS: Yes.
Q. Because you knew it was fraudulent, correct?
A. WITNESS: Yes, kind of.
Q. You didn't just have doubt. You knew, didn't you, Mr Mehdi?
A. INTERPRETER: But that doesn't mean that I have done this or I'm involved in this.
Q. Mr Mehdi, I'll try it again. Because you knew, at least at that date that it was fraudulent, what was happening on that account, correct?
A. INTERPRETER: I - if looking at such a big transaction, you, of course, become a bit doubtful."
If (on Mr Mehdi's own account) he thought that Mr Waheed was planning to use the Supercheap Account for a legitimate business such as trading in crypto currency and foreign exchange, with transfers in amounts of up to $100,000 being made to Asia and the Middle East, it is not apparent why a $94,100 transaction would have raised an immediate red flag.
If Mr Mehdi's account of his dealings with Mr Waheed were true, it would be expected that Mr Mehdi would have responded to NAB's query of 7 July 2022 by explaining that he was no longer operating the account; that Mr Waheed was now the sole director of the company that held the account; that Mr Mehdi no longer had any involvement with the company or the account; and that Mr Mehdi had handed over control of the company and the account to Mr Waheed before going overseas, so that any queries about a transaction should be directed to Mr Waheed. However, he did not say any such thing.
Mr Mehdi contended in submissions that, when he was contacted about a suspicious transaction on the Supercheap Account, his conduct was "prompt and responsible", adding that: "The moment I became aware of suspicious activity, I took immediate steps to halt the transactions, showing due diligence and a proactive approach to prevent further loss."
As regards Mr Mehdi's submission that his response to an issue being raised was "prompt" and "immediate", the evidence discloses that Ms Alison Nguyen of NAB had in the ten days prior to receiving Mr Mehdi's response (on 7 July 2022) sent a number of emails, which were addressed to Mr Mehdi and which raised queries about transactions on the account, but which went unanswered. In particular:
1. on 28 June 2022, Ms Nguyen sent an email addressed to Mr Mehdi, seeking details on a payment which was made from the Supercheap Account on 22 June 2022 in AED (Emirati Dirhams, the currency of the United Arab Emirates). Ms Nguyen noted that her email was sent "as part of NAB's enhanced due diligence procedures". She sought information regarding the purpose of the payment, and the country of origin, the destination and end-use of any goods or services involved in the payment. She also sought copies of any supporting documentation, and the corporate website of the beneficiary of the payment ("UTAB Information Technologies");
2. on 30 June 2022, Ms Nguyen sent a further email to Mr Mehdi, asking for a response to the queries that she had raised on 28 June 2022, and reiterating that this information was necessary in order for NAB to process the payment (indicating that no response had yet been received);
3. on 1 July 2022, an email was sent by NAB to the same email address, attaching a link to the bank statement for the Supercheap Account;
4. on 4 July 2022, a further email was sent by Ms Nguyen, which was addressed to Mr Mehdi, referring to her previous emails regarding the "UTAB" transaction and indicating that if no response was received by 7 July 2022, NAB would "close off this case ID"; and
5. on 7 July 2022, Ms Nguyen sent the email to Mr Mehdi regarding the $94,100 transaction, to which he then responded.
The transaction in AED on 22 June 2022, which was the subject of various queries by Ms Nguyen, was the last transaction recorded on the Supercheap Account, other than a bank fee. Mr Mehdi did not give any evidence to explain why he did not answer any of the queries by Ms Nguyen in relation to this transaction (such as, for example, by directing her to Mr Waheed for a response). Mr Mehdi only wrote to Ms Nguyen some 10 days after she first raised an issue with him about a transaction on the account, and some 15 days after the fraudsters had ceased transactions on the account. This was not a "prompt" and "immediate" response to issues being raised by NAB.
On 8 July 2022, Mr Mehdi sent a further email to Ms Nguyen, asking her: "How about funds [the sum of $94,100] to be reversed back to my account?" (emphasis added). He sent a further email to Ms Nguyen on 13 July 2022, chasing her up for a response to this request.
If Mr Mehdi's account of events is correct, he was not acting "responsibly" in sending those emails. Instead, he was continuing to represent to NAB that the Supercheap Account was his account, instead of disclosing that it had been set up for, had been handed over to, and was being operated by, a third party, and providing the third party's name and contact details. Further, by these emails, Mr Mehdi was asking for his account to be credited with a payment of $94,100 in circumstances where he knew that he personally had no claim to any such money. He did not tell NAB that, wherever the money had come from, it was not his, but must belong to someone else.
There is no documentary evidence to corroborate Mr Mehdi's claim that he raised any concern with Mr Waheed, or asked any question, about the contents of the Summons or the Commercial List Statement.
On 25 August 2022, being the day after Mr Mehdi had forwarded the Summons and Commercial List Statement to Mr Waheed, Mr Mehdi lodged a Form 484 with ASIC, "Change to company details". This form stated that Mr Waheed had been appointed as director and secretary of Supercheap Security on 18 May 2022. The form also stated that Mr Waheed's residential address was in Victoria. This was false. Mr Waheed was resided overseas and had not lived in Australia for around two years at the time the form was lodged.
In his affidavit sworn 7 March 2024, Mr Mehdi deposed that he had resigned from Supercheap Security on 18 May 2022. He attached a handwritten letter of resignation bearing this date, which he claimed to have sent to Mr Waheed by means of a WhatsApp message (presumably said to form part of the WhatsApp conversation with Mr Waheed that Mr Mehdi deleted in around December 2022). Mr Mehdi also deposed that following the provision of these documents to Mr Waheed, Mr Waheed promised that he would lodge the necessary documents with ASIC to effect the change in directorship.
The handwritten letter is in the following terms:
"18.05.2022
To,
THE DIRECTORS,
SUPERCHEAP SECURITY PTY LTD
9 DARTER COURT, LARA VIC 3212
SUB: RESIGNATION FROM THE DIRECTORSHIP
DEAR SIR,
Due to my personal circumstances, I would like to resign as DIRECTOR/SECRETARY of Supercheap Security PTY LTD.
As of 18/05/22 I would not be liable for anything to do with this company.
THANK YOU.
Yours faithfully,
HASSAN MEHDI
DOB: 01.02.1991"
I do not accept this to be a genuine document created on or around 18 May 2022.
First, it purports to be a letter dated 18 May 2022 which is addressed to "The Directors" of Supercheap Security. However, as at that date, Mr Mehdi was sole director and secretary of that company. There were no other directors to whom he could tender a resignation.
Secondly, it is difficult to see why someone resigning as a director of a company on 18 May 2022 would add: "As of 18/5/22 I would not be liable for anything to do with this company." It would sound remarkably defensive (and might suggest that the company was about to do something with which the director did not want to be associated). On the other hand, it is easy to see why Mr Mehdi would have written that statement on 25 August 2022 (being the day when the form to change the director of the company was lodged with ASIC), since he had been served, on the previous day, with a Summons and Statement of Claim which alleged that the Supercheap Account had been used to commit a fraud from 20 May 2022 onwards and named him as a Defendant.
Thirdly, according to the Senior Constables who conducted the interview of Mr Mehdi after examining his mobile phone, this handwritten letter to "the Directors" of Supercheap Security which is dated "18.05.2022" was found stored in a digital note on his phone which was created in August 2022.
The above matters support a conclusion that the handwritten note was in fact created in August 2022, after Mr Mehdi was served with the Summons and Commercial List in this proceeding; and that Mr Mehdi created and backdated this document because he was seeking to create a paper trail showing that he had ceased to have anything to do with Supercheap Security immediately before the Supercheap Account was used in furtherance of the fraud perpetrated against the Plaintiffs.
Even if the letter were genuine, it does not support Mr Mehdi's account. The letter does not record that (as Mr Mehdi claims) he ceased to be a director of Supercheap Security because control of the company was transferred to Mr Waheed pursuant to an arrangement between them. Instead, Mr Mehdi states that he "would like to resign" as director "[d]ue to my personal circumstances".
At the time the form was lodged with ASIC to change the director of Supercheap Security, Mr Mehdi was keen to take steps to ensure that he was not associated with the actions of Supercheap Security during the period when the fraud occurred. According to the Senior Constables who conducted the interview of Mr Mehdi and who examined the contents of his mobile phone, Mr Mehdi had sent a number of messages to Mr Waheed, after he had been served with documents in the proceedings, "trying to push Ali [Waheed] to put his name to the company" and telling him "to get the bloody lawyer". Mr Mehdi accepted in cross-examination that, at the time of his police interview, there were communications on his mobile phone with Mr Waheed about these matters.
On 7 September 2022, Mr Waheed deposited $4,000 into Mr Mehdi's personal bank account, with the narrative "Lawyer consultation fee". Mr Mehdi was asked about this transaction in cross-examination:
"Q. Page 263, Mr Mehdi. 7 September, Mr Ali Waheed transfers you $4,000 for your lawyers, correct?
A. WITNESS: Yeah.
Q. This is after you've confronted him about the fraud that's gone on at a time that you well know that a fraud has happened, and he's paying for your lawyers.
A. WITNESS: Yeah.
A. INTERPRETER: Because I contacted him, and he said to have a lawyer and I said, 'I can't afford to have a lawyer', and he said, 'Don't worry, I'll pay for it'.
Q. Because you're working together, correct?
A. WITNESS: No."
On Mr Mehdi's own evidence, he had reached the view by this time that he was a victim of the fraud perpetrated by Mr Waheed. If this is correct, it is difficult to see why Mr Waheed would be making a payment into Mr Mehdi's account so that Mr Mehdi could defend the proceedings (and thereby advance the contention that Mr Waheed was the fraudster). Fraudsters do not usually fund the legal expenses either of their victims or of those who accuse them of fraud. Instead, the payment could more readily be explained as Mr Waheed helping out the person who had helped him.
This breach of trust was committed in furtherance of a dishonest and fraudulent design, which involved at least two components: first, persons claiming to be from "AMP" deceived the Plaintiffs into depositing money into the Supercheap Account in the belief that they were transferring money into an account in their own names which was to be invested in a term deposit; and secondly, those moneys were transferred from the Supercheap Account to persons unknown who were located overseas.
The fourth category "is, in essence, an understandable, objective, default rule designed to prevent a third party setting up his or her own 'moral obtuseness' as the reason for not recognising an impropriety that would have been apparent to an ordinary person": ibid.
These categories of knowledge are neither exclusive nor rigid: Grimaldi at [260].
It is not necessary that an accessory know every aspect of the dishonest and fraudulent scheme in order for liability to arise. In Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [136], Leeming JA (with whom Barrett and Gleeson JJA agreed) referred to liability arising where "the third party has a sufficient level of knowledge of those facts so that he or she has, or ought to have, an understanding that there is a dishonest and fraudulent design".
The requisite knowledge must be satisfied having regard to the seriousness of the finding of an allegation of knowing participation in a dishonest breach of fiduciary duty, in accordance with s 140 of the Evidence Act: Farah v Say-Dee at [170]; Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294 at [209]-[210].
The repeated references to "whatever they were doing" are telling. If, as Mr Mehdi contends, he did not know what Mr Waheed and his colleagues were doing, it was because he did not want to know. He wilfully and recklessly refrained from asking questions about these matters. Instead of seeking to understand why Mr Waheed wanted to use an account in another person's name as a conduit to send large sums of money overseas, Mr Mehdi handed over control of the account to Mr Waheed and flew to Pakistan, thereby seeking to put distance, both literally and figuratively, between himself and the use which was subsequently made of that account.
Mr Mehdi contended, in supplementary written submissions that were provided to the Court with leave (and by consent) after the conclusion of the hearing, that he was an "unwitting victim" who "trusted a close friend", and who "was deceived, just as the plaintiffs were". However, the conduct of Mr Mehdi after the fraud came to light is not consistent with Mr Mehdi being a person who found out at this point that he had been seriously deceived by Mr Waheed. In particular, as outlined above:
1. in early July 2022, when Mr Mehdi received a query from NAB about a $94,100 withdrawal, he did not respond by saying that he knew nothing about any transactions on the account, that he had ceased to have any connection with Supercheap Security or the Supercheap Account, that a third party had been operating the account, or that NAB should direct any enquiries about the account to Mr Waheed. Instead, he did not even mention Mr Waheed's name (see paragraphs [96]-[109] above);
2. in August 2022, when Mr Mehdi was served with the Summons and Commercial List Statement in these proceedings, he forwarded Mr Waheed a copy of the pleadings, without expressing any shock or anger about their contents, and without asking any questions about the allegations made in them about the use of the Supercheap Account (see paragraphs [110]-[114] above);
3. after being served with the Summons and Commercial List Statement, Mr Mehdi sent messages to Mr Waheed, asking him to "put his name" to Supercheap Security, and Mr Mehdi created a backdated document suggesting, falsely, that he had resigned as a director on 18 May 2022 and lodged with ASIC a document claiming, falsely, that Mr Waheed had become the sole director at that time (see paragraphs [115]-[124] above);
4. in around September 2022, Mr Mehdi asked Mr Waheed "to get the bloody lawyer" and received from Mr Waheed substantial moneys to pay for his legal fees (see paragraphs [124]-[126] above); and
5. in around December 2022, Mr Mehdi deleted, while these proceedings were on foot, all of the messages which he had exchanged with Mr Waheed about the Supercheap Account (see paragraphs [66]-[74] above).
Having regard to those matters, I am satisfied that Mr Mehdi had knowledge of the type described in the third or fourth of the Baden categories, namely that he:
1. wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, in particular, inquiries regarding why Mr Waheed was urgently seeking an account be set up in the name of a company which was not trading, in order for hundreds of thousands of dollars to be sent overseas; or
2. had knowledge of circumstances that would indicate the facts to an honest and reasonable person, including that Mr Waheed wanted to use the account to transfer moneys overseas for dishonest purposes.
It is not necessary to decide between those categories, since those categories are not exclusive and rigid (Grimaldi at [260]) and either type of knowledge is sufficient to give rise to accessorial liability under the second limb of Barnes v Addy.
When the moneys which were obtained by fraud were received into the Supercheap Account, Supercheap Security held those funds on trust. When Supercheap Security transferred those moneys overseas, Supercheap Security breached that trust, and did so in furtherance of the dishonest and fraudulent design of Mr Waheed and his associates. By setting up and handing over the Supercheap Account to Mr Waheed, and thereby allowing him to effect those transfers in the name of Supercheap Security, in circumstances where Mr Mehdi had knowledge of the type outlined above, Mr Mehdi knowingly assisted in Supercheap Security's breach of its duties as trustee, in furtherance of that dishonest and fraudulent design. He is accordingly liable to the Plaintiffs under the second limb of Barnes v Addy.