Samuel John Malouf v MBF Australia Limited

[58]

Although I have no specific recollection of going through the process described in paragraphs 5 and 6, above, in relation to SRL's premises in late 2000, I have no reason to think that I departed from the process described in those paragraphs on this occasion. 20 Close attention was given during submissions as to whether or not MBF had given consideration for the cheque which it had received. It is important to be clear on one finding: there was no explicit contractual arrangement covering any obligations of SRL in respect of the period of time during which it would be in possession prior to MBF signing the formal lease. The proper inference is that MBF anticipated that the provision by SRL of the bank guarantee was but a formality, to take place fairly shortly, and that having received such a large amount in terms of the bank cheque, MBF gave little or no thought to the possibility that the informal arrangements permitting SRL into possession would require to be documented or would cause difficulties of any kind. The draft lease signed by SRL was dated 5 December 2000. However as the subsequent events unfolded it became clear to MBF that the tenant was having considerable difficulty obtaining a bank guarantee. 21 Although there are cases where consideration other than 'on the face' of a particular agreement [usually called "additional consideration"], has been found to exist, this is not such a case [cf Yaroomba Beach Development Co v Coeur De Lion Investments (1989) 18 NSWLR 398 per Giles at 407-408]. That is because the terms of the above letter of 6 December 2000 do not embrace any suggestion that the cheque or the deposit moneys could be used to cover any occupation fee incurred by reason of the informal license or tenancy arrangement by which SRL had been allowed into occupation pending execution of the Lease by MBF. Further the clear evidence given by Mr Hartley was that he had become aware that SRL had provided a bank cheque on account of the monies 'that would become payable under the lease when the lease was put in place' [T 44.1]. 22 The short point is that there was a complete 'disconnect' between the purpose for which the Cheque was proffered [namely to be held in escrow pending the execution by MBF of a lease] and the decision by MBF to permit SRL into possession. The evidence falls well short of establishing that MBF delivered up possession because it received the funds. To the contrary, SRL intended that the funds be used to meet its obligations under the Lease if and when executed [Exhibit PX 11-12]; and MBF received the money on the basis that it could be used only in satisfaction of SRL's obligations if and when they arose under the proposed lease [T 68.7].

[80]

iv. of course, no loan funds came from Saudi Arabia and no insurance policy was issued. Mr Hill himself later confirmed that insurance could not be obtained from Lloyd's of London for the sum of $165,000. 29 Hence it is apparent that Mr Hill's fraud was equivalent to theft: Menzies v Perkins [2000] NSWSC 40 at [9]; Orix Australia Corporation Limited v Moody Kiddell & Partners Pty Limited [2005] NSWSC 1209 at [156]. It follows that the funds represented by the NAB bank cheque for $165,000, borrowed by the Maloufs from Jarong Pty Limited, were impressed with a trust which prevailed against a recipient of the funds, unless that recipient was a bona fide purchaser for valuable consideration without notice: Black v S Freedman & Company (1910) 12 CLR 105 at 109-110. 30 Clause 7 of the contract for loan cannot be relied upon by MBF in support of the proposition that the time for performance by Mr Hill of the Loan Contract had not arrived at the time when he relinquished custody of the cheque. This is because the entirety of the contract is shown to have been nothing more than a fraud. The very exercise involved in entry into the instrument masquerading as a contract was infected by the fraud and was an integral part of it. The very close examination of timing is simply misconceived in these circumstances. Mr Hill never intended to carry out any part of the purported transaction. 31 Mr Malouf entrusted Mr Hill with the funds to be applied by Mr Hill in furtherance of what is now proven to have been Mr Hill's fraudulent scheme. The plaintiff's knowledge and approval of the Cheque being made payable to MBF was elicited in ignorance of the fraud being perpetrated. Once Mr Malouf entrusted Mr Hill with his money, Mr Hill held the funds on trust, and absent the defence of bona fide purchaser for valuable consideration without notice, those funds became traceable in the hands of the ultimate recipient. Payment on the Cheque by the collecting bank was in the circumstances, a disposition of the plaintiff's property [or equitable interest in such property] and not of the property of either Jarong or NAB.

[111]

xi. instead, Mr Hartley treated matters between MBF and Mr Hill as none of Mr Malouf's business, and treated matters between Mr Hill and Mr Malouf as none of MBF's business [T 53.49-54.7; T 56.5-6]. 41 In the fraud context, it will be sufficient for notice "if the circumstances were such as to put a reasonable man on enquiry, and he made none, or if he was put off by an answer that would not have satisfied a reasonable man": Nelson v Larholt [1948] 1 KB 339 at 343. This is such a case. Mr Hill's attempts to treat with the subject when he later approached Mr Hartley were not such as would have satisfied a reasonable man in these circumstances where such a large discordant sum had been received: an out of the ordinary position. On this occasion, Mr Hill asked Mr Hartley if he had been harassed by Mr Malouf to which Mr Hartley replied that Mr Malouf had come to see him but did not harass him. Mr Hill told Mr Hartley that Mr Malouf had no right talking to him, that "it had nothing to do with you or MBF" and that he would sort it out. The Court's finding is that to absolve MBF from any requirement to further investigate the matters upon which it had been given notice, at the least it would have been necessary for Mr Hartley to far more closely test Mr Hill on what the problems or issues were, so as to satisfy himself that Mr Hill's word could be accepted, in a situation where Mr Hartley had been given such a vivid, focussed and impassioned account of the fraud by Mr Malouf approximately a week prior. 42 It is also necessary to recall that Mr Hartley accepted that Mr Hill's fraud on Mr Malouf, of which Mr Malouf complained, might have explained the "random" sum [T 46.40] received by MBF in the form of the bank cheque [T 54.32-39]. 43 Armed with such notice, MBF nevertheless determined (a) to execute the Lease with SRL which occurred sometime after Mr Hartley's unexpected meeting with Mr Malouf on or about 13 February 2001, but on or before 1 March 2001; (b) to use up the funds provided to apply as against rent after 1 March; and (c) not to evict SRL until after the funds had run out [T 67.50-68.14].

Samuel John Malouf v MBF Australia Limited - [2007] NSWSC 1020 - NSWSC 2007 case summary — Zoe

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Judgment (117 paragraphs)

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Legislation Cited (1)

Cases Cited (10)