Shaw Building Group Pty Ltd v Narayan

The Applicant's Case for Judgment 17 By its Originating Application, the applicant claimed freezing orders and ancillary relief. It did not seek money judgments against any of the respondents. However, in its Statement of Claim which was filed after its Originating Application was filed, the applicant sought orders for payment against each of the respondents. In particular, as against Mr Narayan, it sought an order that he pay to it the sum of $981,005.08 together with interest thereon under s 51A of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). The amount sought was the total of the sums misappropriated by Mr Narayan less the amount of $6,000 which had been repaid by him. Generally, under s 51A, this Court will apply the rates specified for pre-judgment interest in the Supreme Court of the State (or Territory) in which the case was heard (as to which, see GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 at 58 per Finn J and EMCL Pty Ltd v Esanda Finance Corp Ltd [1999] FCA 978 at [62] per Tamberlin, Sundberg and Dowsett JJ). Here, the relevant Supreme Court is the Supreme Court of the Australian Capital Territory. 18 The applicant's pleaded case against Mr Narayan is noteworthy for its brevity. The applicant pleaded against Mr Narayan that he had dishonestly and without the authority of the applicant made payments to himself and to the other respondents thereby unjustly enriching himself and the other respondents. In the introductory paragraphs of its Statement of Claim, the applicant also pleaded that, at all relevant times, Mr Narayan had been the applicant's Financial Controller and had been responsible for supervising the payment of invoices rendered by the applicant's trade creditors to the applicant. 19 As I have already mentioned, Mr Narayan filed a Submitting Notice on 21 January 2013. In that Notice, he unequivocally stated that he submitted to any order that the Court might make in the proceeding and did not wish to be heard on the question of costs. The Notice was filed by a solicitor who had, at that time, been retained by him. That Submitting Notice has remained in force at all times since 21 January 2013. Notwithstanding his later endeavours to file a Defence in the matter, Mr Narayan has never applied to withdraw his Submitting Notice. 20 Despite the fact that his Submitting Notice remained in full force and effect, on three separate occasions (8 August 2014, 3 October 2014 and 21 October 2014), Mr Narayan purported to file a Defence. In those purported Defences, Mr Narayan raised the following points: (a) Judgment ought not to be ordered against him for the full amount misappropriated by him. He argued that the applicant was entitled to judgment only for the net amount of its losses after taking into account all funds received by it from the other respondents; (b) He was entitled to set off against the applicant's claim certain employee entitlements (including unpaid annual leave) totalling $13,260.33; and (c) He was also entitled to have deducted from the total amount misappropriated by him an amount of $130,000 which he intended to ensure was paid to the applicant out of the proceeds of the sale of his former matrimonial home contemplated by orders made in the Family Court of Australia in divorce proceedings instituted by his wife against him in April 2014. Under those orders, Mr Narayan promised to pay $100,000 to the applicant by 9 December 2014 and the balance of $30,000 by 31 December 2015. I have now been informed that the whole of the said amount of $130,000 was in fact paid to the applicant by Mr Narayan or at his direction on 11 November 2014. 21 Mr Narayan made other points in his so-called Defences but none of these other points are of any moment. 22 Mr Narayan also endeavoured to put in issue whether he was, in truth, in a fiduciary relationship with the applicant. 23 At the listing before me on 10 October 2014, at the request of the applicant and with the consent of Mr and Mrs Narayan, I discharged all freezing orders which remained in place at that time. I did so in order to facilitate the completion of the sale of the former matrimonial home of Mr and Mrs Narayan. At that listing, I stressed to Mr Narayan that, given that he had filed a Submitting Notice, he was not permitted to file or to rely upon any Defence for as long as that Submitting Notice remained in place. Notwithstanding that Mr Narayan was not permitted to file or to rely upon any Defence, I nonetheless permitted him to make brief submissions directed to the question of whether the applicant was entitled to judgment for the full amount misappropriated by him less the $6,000 repaid by him or whether it was only entitled to have judgment for its net losses as at 10 October 2014 or 17 October 2014, when judgment was reserved. 24 Mr Harris, who appeared for the applicant on 10 October 2014, submitted that I should enter judgment for the full amount misappropriated by Mr Narayan less the $6,000 repaid by him plus interest. He submitted that such a course reflected the correct principle at common law and was the only way that the respondents could have their rights inter se appropriately protected. Against the possibility that I might decide to enter judgment for only the net amount of the applicant's losses, Mr Harris agreed to provide a table showing all payments made by or on behalf of the respondents to the applicant in discharge of the respondents' liability to the applicant as a result of Mr Narayan's misappropriations. That table was to be based upon the evidence contained in the affidavit of Mr Poels filed on 18 August 2014. Ultimately, a table was provided in which the requested figures were set out (Exhibit 1).

Consideration 25 By filing his Submitting Notice on 21 January 2013, Mr Narayan communicated both to the applicant and to the Court that he did not want to contest the relief sought by the applicant in its Originating Application. That is the effect of r 12.01 FCR. 26 In the present case, however, Mr Narayan went further: He submitted to any order that the Court might make in the proceeding and went on to state specifically that he did not wish to be heard on the question of costs. At the time when he filed his Submitting Notice, Mr Narayan was represented by a solicitor. It was that solicitor who filed the Submitting Notice. The Submitting Notice was filed in response to the service of the applicant's Statement of Claim which had been filed on 23 November 2012 and served soon thereafter. Mr Narayan must be taken to have been aware of the contents of the Statement of Claim and to have understood that, by filing his Submitting Notice, he was communicating to all concerned that he did not intend to defend the applicant's claim. 27 In its Statement of Claim, the applicant claimed against Mr Narayan judgment in the amount of $981,005.08 together with interest thereon under s 51A of the FCA Act, costs and other ancillary relief. The figure of $981,005.08 was obviously arrived at by the applicant by deducting from its gross claim of $987,005.08, the amount of $6,000 which had, by November 2012, been repaid by Mr Narayan to the applicant. 28 In addition, in 2013, Mr Narayan pleaded guilty to obtaining money by deception in respect of the theft of some of the funds from the applicant which are the subject of its present claim in this proceeding. He was convicted and sentenced to serve a full time prison sentence. 29 Mr Narayan has never contested the proposition that he stole $987,005.08 from the applicant by orchestrating the payments listed by the applicant in the schedules to its Statement of Claim and has never contested that judgment should be entered against him for an appropriate amount which he accepts must include an amount for pre-judgment interest. Indeed, as I have been at pains to point out, Mr Narayan has never sought to withdraw his Submitting Notice nor has he endeavoured to file a substantive Defence to the claim made against him. 30 In those circumstances, there is no reasonable prospect that Mr Narayan could successfully defend the applicant's claim. 31 Notwithstanding the above matters, I must nonetheless be satisfied that the applicant is entitled to the judgment which it seeks. 32 In the period between 24 January 2013 and 15 November 2013, the second to eighth respondents made payments to the applicant totalling $504,879.39. Of that amount, $266,897.26 was paid between 12 February 2013 and 18 March 2013 and $237,982.13 was paid in the period between 3 May 2013 and 15 November 2013. All of these payments were made by or on behalf of the second to eighth respondents and were made by several instalments. 33 Further, as I have already mentioned, on 7 May 2012, Mr Narayan repaid $4,000 to the applicant and, on 5 July 2012, Mr Narayan repaid a further $2,000 to the applicant. In addition, as already mentioned, I have been informed that, on 11 November 2014, Mr Narayan arranged for the payment of a further $130,000 to the applicant. $100,000 of that amount was required to be paid by 9 December 2014 by the orders made by the Family Court of Australia on 9 September 2014 in the divorce proceedings instituted by Mr Narayan's former wife. The balance of $30,000 was required to be paid by 31 December 2015. 34 In light of those payments, a question has arisen as to whether judgment should be entered against Mr Narayan for $987,005.08 or $981,005.08 as claimed by the applicant, plus interest and costs, or whether judgment should be entered for a lesser amount being that amount plus interest less the recoupments achieved by the applicant to which I have referred at [32]-[33] above. The total of these amounts is $640,879.39. Mr Narayan has opted for the latter whereas the applicant submitted that the appropriate course was for the Court to enter judgment for the headline amount ($981,005.08) and to leave it to the parties to ensure, in the ordinary way, that the applicant did not actually recover more than it was properly entitled to recover. 35 The starting point for the Court's analysis of the present problem must be the cause or causes of action relied upon by the applicant against Mr Narayan. The applicant's pleaded case against him is not a model of clarity. Nonetheless, I consider that the applicant has fairly raised in its Statement of Claim a cause of action against Mr Narayan for money had and received. The applicant should also be taken to be relying upon a claim for compensation for breach of fiduciary duty in the alternative. Finally, the applicant may also have intended to rely upon the tort of deceit and possibly the tort of conversion. 36 An action for money had and received is a common law in personam restitutionary remedy. It is not a proprietary remedy. In order to succeed in an action for money had and received, the plaintiff must establish that the money which the defendant obtained as a result of the commission of the relevant wrong was "subtracted" from the plaintiff. 37 Money that has been stolen may be recovered from the thief in an action for money had and received. The claim against the thief is an independent restitutionary claim based upon unjust enrichment by subtraction because the defendant's receipt of an obviously unjust enrichment has resulted from the defendant's deception of the plaintiff or commission of a wrong against the plaintiff. In Lipkin Gorman (A Firm) v Karpnale Ltd [1991] 2 AC 548 (Lipkin Gorman) at 559E-G, Lord Templeman said: Conversion does not lie for money, taken and received as currency: see Orton v. Butler (1822) 5 B. & Aid. 652 and Foster v. Green (1862) 7 H. & N. 881. But the law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been "unjustly enriched" at the expense of the true owner. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32, 61, Lord Wright said: "It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep." The conduct of the defendant imposes a primary restitutionary obligation upon him or her to repay the money which he or she has stolen. 38 A victim of theft may also sue for money had and received a third party who has received the stolen money from the thief without giving valuable and adequate consideration therefor. In the academic writings, such a claim is called a dependent claim. It relies upon the wrong to the plaintiff's property done by the thief. 39 Being a restitutionary claim, a successful action for money had and received sounds in an order requiring the defendant to repay the amount received by him or her (that is to say, the amount "subtracted" from the plaintiff). 40 Given that I am of the opinion that the applicant in the present case has brought an action for money had and received against Mr Narayan and is entitled to relief in respect of that action, the appropriate order or judgment which prima facie the Court should grant is an order requiring Mr Narayan to repay the full amount stolen by him. That amount is $987,005.08. In addition, the Court would ordinarily order Mr Narayan to pay pre-judgment interest pursuant to s 51A of the FCA Act. It will be necessary to return to the question of interest later in these Reasons. I also propose to make an order for costs against Mr Narayan. 41 Another way of addressing the present problem is to regard the stolen funds as trust property held in trust for the applicant by Mr Narayan. This was the approach taken by the High Court in Black v S Freedman & Co (1910) 12 CLR 105 at 108.7-109.6 per Griffiths CJ. 42 The alternative analysis relied upon by the applicant is to regard the conduct of Mr Narayan in misappropriating the applicant's funds as a breach of fiduciary duty. In order to make good such a claim, the applicant would need to establish that Mr Narayan owed such a duty to the applicant. Not all employees owe a fiduciary duty to their employer. Whether such a duty exists is a question of degree. As I said in Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341 at [230]-[237]: 230 Employer/employee relationships fall within the category of accepted fiduciary relationships. Courts have repeatedly said that the relationship is "fiduciary" in nature. For example, Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (Hospital Products) at 96-97 said: The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman ([1967] 2 A.C. 46, at p.127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of', and "in the interests of' signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal. 231 However, while it seems generally accepted that senior employees with managerial responsibilities will owe fiduciary duties, it is also generally accepted that the same cannot be said of all employees. 232 In my judgment, the question is one of degree. Matters relevant to determining whether such a duty exists in any given employer/employee relationship include the following: How much latitude is the employee afforded by the employer and how great is the employer's vulnerability to the potential misuse of the position of power granted to the employee? Another way of looking at the matter is to regard a fiduciary duty as being imposed on the employer/employee relationship if the nature of that relationship demands a standard of loyalty exceeding the duty of fidelity prescribed by the relevant employment contract. 233 In Woolworths Ltd v Olson (2004) 184 FLR 121 (Woolworths v Olson) at 185 [212], Einstein J said: Fiduciary duties - when, to what extent and why may an employee owe fiduciary obligations to his/her employer The parties have taken the court to careful analyses of the manner in which the established principles treat with whether, and if so when, and to what extent, and why, an employee may owe fiduciary obligations to his/her employer. That analysis makes the points that: • fiduciary duties arise not as result of the mere fact that there is an employment relationship, but rather from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him/her in a situation where equity imposes fiduciary duties in addition to the contractual obligations • an implied contractual term is not to be equated with a fiduciary obligation, • the critical feature of fiduciary relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect in a legal or practical sense the interests of that other person: [Concut Pty Limited v Worrell (2000) 176 ALR 693 at [17] per Gleeson CJ, Gaudron and Gummow JJ; Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 at [70] per McHugh, Gummow, Hayne and Callinan JJ] • it is necessary to consider with precision the precise activity agreed to be undertaken by a particular employee and to ask if that employee had agreed to perform that activity solely in the interests of the employer to the exclusion of his/her own interests. 234 I find his Honour's exposition of the relevant indicators quite helpful in determining the question raised in this case. 235 To similar effect are the observations of Elias J made at 249 of Nottingham University v Fishel [2000] I.C.R. 1462 at 1493, where his Lordship said: Accordingly, in analysing the employment cases in this field, care must be taken not automatically to equate the duties of good faith and loyalty, or trust and confidence, with fiduciary obligations. Very often in such cases the court has simply been concerned with the question whether the employee's conduct has been such as to justify summary dismissal, and there has been no need to decide whether the duties infringed, properly analysed, are contractual or fiduciary obligations. As a consequence, the two are sometimes wrongly treated as identical: see eg Neary v Dean of Westminster [1999] IRLR 288 at 290, where the mutual duty of trust and confidence was described as constituting a "fiduciary relationship". Accordingly, in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer. It is only once those duties have been identified that it is possible to determine whether any fiduciary duty has been breached, as Lord Upjohn commented in Phipps v Boardman [1967] 2 AC 46 at 127: "Having defined the scope of [the] duties one must see whether he has committed some breach thereof and by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises." It follows that fiduciary duties may be engaged in respect of only part of the employment relationship, as was recognised by Lord Wilberforce, giving judgment for the Privy Council in New Zealand Netherlands Society v Kuys [1973] 1 WLR 1126 at 1130: "A person ... may be in a fiduciary position quoad a part of his activities but not quoad other parts: each transaction, or group of transactions, must be looked at." 236 Of course, the fiduciary relationship must accommodate itself to the terms of the employment contract so that it is consistent with and conforms to those terms. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction (per Mason J in Hospital Products at 96). 237 A finding that a particular relationship is fiduciary in character does not necessarily, set the metes and bounds of the content of the fiduciary obligation. It is always necessary to analyse the circumstances of the particular case in order to arrive at the specific ascertainment of the particular obligations owed and thus what acts or omissions would amount to a breach of those obligations. 43 In the present case, I do not think that the evidence goes so far as to enable me conclusively to find that Mr Narayan owed a fiduciary duty to the applicant. 44 Counsel for the applicant filed a Written Submission in which he contended that Mr Narayan did, in fact, owe such a duty and that he had breached that duty by stealing the applicant's funds. In that Written Submission, Counsel persuasively argued that, in the event that the Court accepted that Mr Narayan owed such a fiduciary duty, the remedy would be to require him to restore the actual money which he had stolen. For this reason, even if I were persuaded that Mr Narayan owed to the applicant a fiduciary duty, the remedy would be the same. 45 I do not consider it necessary to venture into a discussion about the tort of deceit or the tort of conversion although Lord Templeman was clearly of the view in Lipkin Gorman that conversion was not an available cause of action in respect of the theft of money as currency. 46 The claims made by the applicant in its Statement of Claim are not apportionable for the purposes of Ch 7A of the Civil Law (Wrongs) Act 2002 (ACT) (as to which see the definition in s 107B). 47 For the above reasons, I propose to enter judgment against Mr Narayan for the full amount of the funds stolen by him viz $987,005.08 less the amount of $130,000 paid by him on 11 November 2014 plus pre-judgment interest as assessed below. 48 I propose to add a note in the orders which I shall make by which means I shall record with precision the amounts already recouped by the applicant from the other respondents. 49 As is always the case, notwithstanding that the applicant obtains a judgment for the full amount of the moneys stolen from it, the law forbids the applicant to recover more in total from all of the respondents than the amount of its actual loss. 50 In addition to adding the note to which I have referred to the orders which I shall make, I propose to take into account both the fact that payments have been made from time to time by way of recoupment of the applicant's loss and the quantum of those payments when considering whether to award interest pursuant to s 51A of the FCA Act and, if so, the quantum thereof. It seems to me that, by adopting this approach, I will more accurately reflect the financial harm caused to the applicant by the theft and minimise to a large extent the potential for over-compensating the applicant. 51 The approach which I intend to take to the award of interest is as follows: (a) Start with the amount of pre-judgment interest calculated by Mr Harris for the period from 14 November 2008 (the date of the first misappropriation) to 18 June 2014 viz $292,374.25. In making those calculations, Mr Harris used the interest rate applicable from time to time in the Supreme Court of the ACT for pre-judgment interest. (b) Deduct from the amount of $292,374.25 at the outset: (i) The total of the two amounts paid by Mr Narayan to the applicant in 2012 viz $6,000. Those payments were made by Mr Narayan and should be regarded as constituting a direct reduction of liability to the applicant as at May and July 2012. (ii) The amount of $13,260.33, being the total of the unpaid employee entitlements owed to Mr Narayan as at 30 April 2012 when his employment was terminated. These two amounts are to be deducted from the amount of pre-judgment interest accrued as at mid-2012. That amount exceeded the total of these two amounts. These amounts are not to be credited against principal. The deduction of these two amounts from $292,374.25 leaves $273,113.92. (c) Deduct from the amount of $273,113.92 all interest which accrued after 18 March 2013. This was the date by which repayments totalling $266,897.26 had been made by or on behalf of several respondents other than Mr Narayan. For this purpose, I have used the period of one year and 92 days and an interest rate of 6.60% p.a. (as an approximate relevant average of the rates applicable in that period). I have also used the principal sum of $987,005.08. Upon those assumptions, the amount to be deducted is $81,561.77. When $81,561.77 is deducted from $273,113.92, the figure arrived at is $191,552.15. (d) Notionally credit against that amount of accrued interest as at 18 March 2013 the total of the sums paid between 24 January 2013 and 18 March 2013 viz $266,897.26. This results in all accrued interest as at that date being notionally paid and a notional credit against principal for the purposes of calculating interest after 18 March 2013. That notional credit is $75,345.11. The new notional principal sum as at 18 March 2013 is therefore $911,659.97. (e) Accrue pre-judgment interest at the rate of 6.75% p.a. on the new notional principal sum of $911,659.97 for the period from 18 March 2013 to 15 November 2013 by which date the other respondents had paid a further $237,982.13 to the applicants. Interest so calculated comes to $40,799.90. (f) The payment of the total sum of $237,982.13 between March and November 2013 reduced to zero the amount of pre-judgment interest accrued as at 15 November 2013. Notionally, as at that date, the interest ledger was in credit to the extent of the difference between $237,982.13 and $40,799.90 viz $197,182.23. This results in a further notional credit against principal for the purposes of calculating interest after 15 November 2013. That notional credit is $197,182.23. The new notional principal as at 15 November 2013 is therefore $714,477.74. (g) Accrue interest on $714,477.74 for the period from 15 November 2013 up to and including 11 November 2014 at the rate of 6.50% p.a. That is almost one year. It was on 11 November 2014 that Mr Narayan made the payment of $130,000. That figure is $46,441.05 upon the basis that the full year is adopted. (h) Credit the payment of $130,000 made by Mr Narayan on 11 November 2014 against the said amount of interest ($46,441.05). This results in a further notional credit against principal for the purposes of calculating interest. That notional credit is $83,558.95. The new notional principal as at 11 November 2014 is $630,918.79. (i) Accrue interest on $630,918.79 for the period from 11 November 2014 up to and including this day (12 June 2015) (213 days) at the rate of 6.50% p.a. This comes to $23,931.70. 52 The above calculations demonstrate that, when the repayments by all respondents are taken into account for the purposes of calculating interest and upon the assumption that it is appropriate to use the Court-prescribed rates, an amount of $23,931.70 is a fair amount to award to the applicant by way of pre-judgment interest. 53 As foreshadowed at [47] above, I am of the view that Mr Narayan is entitled to have deducted from the principal sum which I propose to award to the applicant the amount of $130,000 paid by him on 11 November 2014. This leaves the figure of $857,005.08 as the quantum of Mr Narayan's obligation to make restitution to the applicant ($987,005.08 - $130,000). 54 For all of the above reasons, there will be judgment for the applicant against Mr Narayan for $880,936.78 being the total of the principal sum of $857,005.08 and the amount of pre-judgment interest assessed at $23,931.70. There will also be an order for costs in favour of the applicant against Mr Narayan. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.