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[1997] FCA 944
General information, not legal advice.
Federal Court of Australia
1997-06-23
Hodgson J, Beaumont J
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ORDERS: 1. Judgment for the applicant against the first respondent in the sum of $545,000. 2. Order that the first respondent pay interest on the judgment from 18 November 1994 up to today at the rate prescribed by the Supreme Court Act (NSW) 1970 from time to time. 3. The first respondent to pay 70 per cent of the applicant's costs of the proceedings. 4. Pursuant to O 52 r 15(1)(a)(iii) of the Federal Court Rules, fix 15 September 1997 as the date within 21 days from which any notice of appeal is to be filed and served.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
EX PARTE: MAX CHRISTOPHER DONNELLY AS TRUSTEE OF THE BANKRUPT ESTATE OF T C MORRIS
AND: COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED
(Ordered to be struck out by order of the Court on 7 August 1997) CEDRIM PTY LIMITED
(Ordered to be struck out by order of the Court on 7 August 1997) LOUIS CONSTANTINE MORRIS
(Ordered to be struck out by order of the Court on 7 August 1997) ENID ROSLYN SIVELL (WHITBREAD)
(Ordered to be struck out by order of the Court on 7 August 1997) HELEN ANASTOPOULOS (ELLEN MONTZOUROPOULOS)
JUDGE: BEAUMONT J DATE OF JUDGMENT: 15 AUGUST 1997 DATE OF ORDER: 8 SEPTEMBER 1997 PLACE: SYDNEY
REASONS FOR JUDGMENT (No. 3) INTRODUCTION The general background of this litigation is outlined in my reasons for judgment (No. 1) in this matter. Those reasons, given on 7 August 1997, dealt with the first respondent's motion for the summary dismissal of the proceedings, or for orders that the names of the second respondent, Monarth Pty Limited ("Monarth"), and the third respondent, Cedrim Pty Limited ("Cedrim"), be struck from the proceedings. Those reasons should be read in conjunction with these, which deal with Mr Donnelly's claim for final orders against Colonial Mutual Life Assurance Society Limited ("CML"). THE PRIMARY CASE PLEADED AGAINST CML By his statement of claim, filed on 17 November 1995, as subsequently amended, Mr Donnelly, as trustee of the bankrupt estate of the eighth respondent, Theodore Constantine Morris, alleges several causes of action against CML. The causes of action are in relation to the payment to CML of the sum of $545,000 in 1994, which is after the date of the sequestration of Mr Morris' estate on 24 November 1993. This sum is claimed to have been property of the bankrupt, not being after-acquired property, which vested in the trustee pursuant to s 58(1)(a) of the Bankruptcy Act 1966 ("the Act"). Mr Donnelly's primary claim is made in pars 6-36 of his statement of claim, as amended, as follows: "6. The individual respondents are either related to or have had a close personal or occupational relationship with Theodore Morris;- a. The fourth respondent, Louis Morris, is his brother. b. The sixth respondent, Helen Anastopoulos, is his sister. c. The seventh respondent, Yianoula (Jennifer) Morris, is his daughter. d. The fifth respondent, Roslyn Sivell (Whitbread), was, at all relevant times, his secretary and assistant. 7. At all relevant times up until the date of the sequestration order (24 November 1993) Theodore Morris was the registered proprietor of the land on which the Windsor Tavern is located at the corner of Park and Castlereagh Streets, Sydney ('the Windsor Tavern'). 8. On 6 February 1991, Theodore Morris mortgaged the Windsor Tavern to Colonial Mutual to secure the repayment of advances made by Colonial Mutual ('the mortgage').
d. the deposit of 20% payable under the Cedrim contract was then held by Minter Ellison as solicitors for Colonial Mutual in their trust account. 32. In the circumstances, the $545,000, the subject of the three bank cheques, was used by Cedrim as the deposit under the Cedrim contract. 33. Following Cedrim's failure to complete Colonial Mutual has terminated the Cedrim contract and forfeited the deposit, including the $545,000, the subject of the three bank cheques. 34. By virtue of the matters particularised in paragraph 19 to 33 above, Colonial Mutual has no entitlement to retain $545,000 being that part of the deposit paid under the Monarth/Vanfair contract, later applied to the Cedrim contract which was the subject of the three bank cheques. 35. Colonial Mutual has failed and refused to refund the $545,000, the subject of the three bank cheques, to Max Donnelly in his capacity as trustee of the bankrupt estate of Theodore Morris. 36. In the circumstances, Colonial Mutual has unlawfully detained and/or converted the $545,000 to its own use." In his application dated 26 September 1995, Mr Donnelly seeks, relevantly, the following orders: "6. A declaration that the first respondent, ('Colonial Mutual') hold $545,000, being the deposit paid pursuant to;- a. the contract for sale dated 13 May 1994 made between Colonial Mutual as a vendor and Vanfair Pty Limited ('Vanfair') and Monarth pursuant to which Monarth and Vanfair agreed to purchase the Windsor Tavern ('the Monarth/Vanfair contract'); or alternatively pursuant to b. the contract for sale dated 5 June 1995 made between Colonial Mutual as vendor and Cedrim ('the Cedrim contract') pursuant to which Cedrim agreed to purchase the Windsor Tavern ('the deposit money') on trust for the applicant. 7. An order that Colonial Mutual pay the deposit money to the applicant. 8. In the alternative to order 7 above, an order that Colonial Mutual pay to the applicant such part of the deposit money as the Court finds was provided by Theodore Morris."
THE SUBSIDIARY CAUSES OF ACTION PLEADED BY MR DONNELLY As has been seen, in his primary claim, Mr Donnelly relies upon the provisions of s 58(1)(a) of the Act. It relevantly provides as follows: "58(1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee..." However, in his statement of claim, Mr Donnelly has pleaded several other subsidiary causes of action as follows: · A claim under s 120 of the Act that the provision of the three bank cheques by Mr Morris to Monarth, to be used by Monarth as part of the deposit under the Monarth/Vanfair Pty Limited ("Vanfair") contract, was a "transfer of property", within the meaning of s 120. · A claim under s 37A of the Conveyancing Act 1919 (NSW) that the provision of the three bank cheques, by Mr Morris to Monarth, was an alienation of property with the intent to defraud his creditors. As indicated in the course of argument, I am of the view that, were the case sought to be made by Mr Donnelly in his primary claim, that is, that the funds were the property of the bankrupt at the date of a sequestration order (and no alternative view of those facts is sought to be propounded by Mr Donnelly) successful, then the alternative or subsidiary claims would not be appropriate. If the property in question were the bankrupt's when his estate was sequestrated, it will vest in the trustee by virtue of s 58(1)(a). There would be no occasion, or need, to proceed under s 120 of the Act or s 37A of the Conveyancing Act. If the property were after-acquired property (and neither Mr Donnelly nor CML suggests that it was), different provisions, including s 58(1)(b) and s 126, but not s 37A of the Conveyancing Act or s 120, may apply. Put differently, if Mr Donnelly's primary case were to succeed, there would be no need to deal with his other claims. If his primary claim were to fail, there appears to be no scope, in any relevant sense, for either s 120 of the Act, or s 37A of the Conveyancing Act, to operate in the circumstances now postulated. I propose, therefore, to confine attention to Mr Donnelly's primary claim. THE COURSE OF THE PROCEEDINGS In the course of the principal proceedings, it ought to be noted that, in addition to its involvement in reasons (No. 1), dealing with CML's summary judgment motion, and in reasons (No. 2), dealing with the admissibility of certain evidence, CML has been represented at all times during the proceedings. However, apart from the tender of a solicitor's letter, terminating CML's contract with Vanfair and Monarth, CML called no evidence. Essentially, CML put Mr Donnelly to proof of his claim. Some of the other respondents appeared at directions hearings before me, but none of them sought to appear at the final hearing. THE NATURE OF MR DONNELLY'S EVIDENCE Apart from some evidence which he gave in the course of cross-examination, to be mentioned later, Mr Donnelly sought to prove his case by the tender of documentary material, the detail of which will be considered below. In the main, this material consisted of uncontroversial information, for instance, company searches, contractual and conveyancing documents, solicitors' correspondence in that connection, the bankrupt's statement of affairs, the transcripts of examination of Mr Morris and members of his family, under s 81 of the Act, which I considered in reasons (No. 2) in this matter, and affidavit evidence from a bank officer. It should also be noted at this stage that much of the background to the present dispute could not seriously be contested. This background includes: (a) the relationship between Mr Morris and members of his family; (b) the facts that, at the time of his bankruptcy: (i) Mr Morris owed CML at least $9 million; and (ii) Mr Morris' total liabilities then exceeded his assets by about $120 million; and (c) the fact that the conveyancing documents and solicitors' correspondence in evidence, accurately recorded those events. MR DONNELLY'S STANDARD OF PROOF It should further be noted, that it was submitted for CML, that in his present claim, Mr Donnelly was, in effect, alleging that Mr Morris had stolen the trustee's property. Thus, it is said, Mr Donnelly must meet a high standard, beyond the ordinary civil standard, in establishing his case. Reference is made by counsel for CML to the High Court decision in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449. In particular, reliance is placed upon the following passage in the reasoning of the joint judgment of Mason CJ, Brennan, Deane and Gaudron JJ (at 450): "Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'." I have difficulty accepting CML's argument. In my opinion, the standard which Mr Donnelly must meet is proof on the balance of probabilities. That this is the position, is made apparent when the above passage from Neat is viewed in context. What their Honours said in their reasons was as follows (at 449-50): "The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. As Dixon J commented in Briginshaw v Briginshaw: 'The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved...' There are, however, circumstances in which generalisations about the need for clear and cogent evidence to prove matters of the gravity of fraud or crime are, even when understood as not directed to the standard of proof, likely to be unhelpful and even misleading. In our view, it was so in the present case." (Emphasis added). Their Honours went on to say (at 451): "[T]he real issue in the case was not whether there had been deliberate falsification of the takings of the business. It was whether the deliberate falsification of takings figures had been on the part of the respondents or on the part of Neat Holdings. When an issue falls for determination on the balance of probabilities and the determination depends on a choice between competing and mutually inconsistent allegations of fraudulent conduct, generalisations about the need for clear and cogent proof are likely to be at best unhelpful and at worst misleading. If such generalisations were to affect the proof required of the party bearing the onus of proving the issue, the issue would be determined not on the balance of probabilities but by an unbalanced standard. The most that can validly be said in such a case is that the trial judge should be conscious of the gravity of the allegations made on both sides when reaching his or her conclusion. Ultimately, however, it remains incumbent upon the trial judge to determine the issue by reference to the balance of probabilities." (Emphasis added). THE BACKGROUND FACTS It has already been noted that there was little room for serious dispute about the relevant background facts, which I find in their chronological sequence as follows: · On 6 February 1991, Mr Morris, as the registered proprietor of an estate in fee simple, of lands under the Real Property Act 1900 (NSW), Folio Identifier 1/74367, situated at the corner of Park and Castlereagh Streets, Sydney ("the Windsor Tavern property"), mortgaged those lands to CML on an "all moneys" basis. · By a transaction involving the sale of a property, situated at 118-122 Church Street, Parramatta, and in which Mr Morris held an interest as joint proprietor, cash proceeds of sale were generated which resulted in amounts in excess of $500,000 being made available to Mr Morris. Particulars of the transaction are as follows: ŕ The property was sold by Mr Morris and his brother, James Morris, to a party apparently at arm's length, namely, Lucky Team Pty Ltd, in about July 1992. The transaction was completed by conveyance, dated 11 September 1992. The firm Norwoods, solicitors, acted for Messrs Morris on the transaction. Their records in evidence and a reconciliation by the agent, C.S. Moxom & Co., acting on the sale and accounting for the deposit, show the following: (i) On 17 July 1992, Lucky Team Pty Ltd drew a cheque in the amount of $250,000 in favour of Mr Morris. (ii) On 20 July 1992, that amount was deposited by Mr Morris into an account in his name at the 260 Castlereagh Street branch of the State Bank. (iii) On 10 August 1992, Mr Morris withdrew $260,000 from that account. The withdrawal was made in cash. (iv) On settlement of the sale of the Parramatta property, Mr Morris received a further cheque for $292,435. · By instrument of lease, entered into by Mr Morris as lessor and Monarth as lessee, in or about September 1993, Mr Morris leased to Monarth the whole of the basement and part of the ground floor of the Windsor Tavern property. · Mr Morris was a director of Monarth. He and his brother, Louis Morris, the fourth respondent, were the shareholders of Monarth. The inference should, I think, be drawn that Mr Morris, either alone or in conjunction with Mr Louis Morris, controlled Monarth. · On 24 November 1993, as has been noted, a sequestration order was made against Mr Morris' estate. · On 1 December 1993, CML took possession of the Windsor Tavern property. On 13 May 1994, Monarth and Vanfair, a company apparently related to Monarth, but the exact relationship is not clear, entered into a contract to purchase the Windsor Tavern property from CML for $5.3 million. · Under the terms of the contract, provision was made for the payment of a deposit of 20 per cent of the purchase price. By letter dated 13 May 1994, Blake Dawson Waldron, solicitors, wrote to Minter Ellison, solicitors for CML, in respect of the proposed sale as follows: "Property: 48 Park Street, Sydney We act for Vanfair Pty Limited and Monarth Pty Limited, the proposed purchasers of the above property for and on behalf of Votraint No 849 Pty Ltd yet to be formed. We enclose Agreement for Sale duly executed by a director of each of Vanfair Pty Limited and Monarth Pty Limited. Time has not permitted the seal of each company to be affixed nor a counter signatory to be available. We also enclose a Bank cheque for $515,000.00 together with a company cheque for $545,000.00, making up a 20% deposit payable on exchange. If your client desires a Bank cheque for the sum of $545,000.00 or the seal of each company to be affixed with a counter signatory then this can be effected immediately on Monday, contemporaneously with a formal exchange of the contract taking place. Please note that the purchase price of $5,300,000.00 has been inserted." The company cheque said to be enclosed with the letter was a cheque drawn by Monarth on its account with the State Bank at 260 Castlereagh Street, Sydney. The signatory on the cheque, on behalf of Monarth, was Roslyn Whitbread, who was a director of the company but, it appears, who also did secretarial work for Mr Morris. · As has been seen in Blake Dawson Waldron's letter dated 13 May 1994, it was indicated that if CML desired a bank cheque for the sum of $545,000, this could be arranged. This was, in fact, requested by Minter Ellison in their letter dated 16 May 1994. · By letter dated 17 May 1994, Blake Dawson Waldron wrote to Minter Ellison forwarding a bank cheque in the sum of $545,000 "in replacement of the company cheque provided to you on 13 May 1994". In fact, as is alleged in par 22 of the statement of claim, three bank cheques totalling $545,000 were provided in the detail stated in the particulars given to that paragraph. It will be necessary later to consider the circumstances in which those cheques were obtained. · By facsimile to Blake Dawson Waldron, dated 16 November 1994, Minter Ellison served notice of termination of the contract between CML and Vanfair and Monarth on the ground that the purchasers had failed to comply with a notice to complete. The notice purported to terminate the contract and to forfeit the deposit, except so much as exceeded 10 per cent of the purchase price. It further purported to hold any other money, paid by the purchaser under the contract, as security for anything recoverable by the vendor under cl 9 of the contract. · By letter dated 1 December 1994, Minter Ellison wrote to the solicitors for Mr Donnelly confirming that, of the 20 per cent deposit paid by Vanfair and Monarth, $530,000 or one-half, had been forfeited, and that the balance was being held as security. Minter Ellison then undertook that it would only disburse the 20 per cent deposit, paid under the Monarth/Vanfair contract, to CML, and would give Mr Donnelly seven days notice of its intention to disburse any of the security portion to Monarth and Vanfair. · On 18 November and 7 December 1994 Minter Ellison remitted the 20 per cent deposit under the Monarth/Vanfair contract to CML in two transfers, each of $530,000. By facsimile dated 6 January 1995, Minter Ellison wrote to Blake Dawson Waldron: "The Colonial Mutual Life Assurance Society Limited Mortgagee sale to Vanfair Pty Limited and Monarth Pty Limited for and on behalf of Votraint No 849 Pty Limited a company to be formed We refer to your letter of 5 January 1995. As previously advised, the contract for sale has been terminated. The notion of proceeding to completion is therefore inappropriate since the contract is at an end. If those that you represent wish to make an offer to purchase the property, then they should do so in writing and as soon as possible." · In April 1995, some of the parties to the present dispute engaged in litigation in the common law division of the Supreme Court of New South Wales. The proceedings were between Monarth and Helen Anastopoulos, the sixth respondent in the present matter, and CML as defendant. In an affidavit in the Supreme Court proceedings, sworn on 5 April 1995, Mr Morris said that he purchased the land and buildings, being the Windsor Tavern property, in about 1958 and gave evidence of dealings he had had with officers of CML with respect to the occupation of those premises. The proceedings were subsequently settled. · By short minutes of order, dated 10 April 1995, the Supreme Court made orders by consent, inter alia, that there be judgment for possession of the subject premises in favour of the defendant against the plaintiffs. The Court noted the agreement of the parties on a number of matters related to the proposal to settle the purchase, by Monarth and Vanfair, of the Windsor Tavern property, for the sum of $5.3 million. In particular, cl 2 of the agreement so noted, was in these terms: "2. Monarth and the Purchaser on the one hand and CML on the other shall engage in bona fide negotiations with each other to settle the terms of a contract for sale of the land (with a view to the said contract being exchanged within 49 days from today), within the following parameters: (i) the purchase price shall be $5.3m. (ii) there shall be no deposit. (iii) completion of the contract will take place on or before a date 91 days from today. (iv) the sale shall be subject to such tenancies as are notified to CML by Monarth. (v) upon completion the purchase price may be satisfied as to the sum of $1,060,000 by the delivery of a deed executed by Vanfair, Monarth and Votraint No. 849 Pty Limited releasing their respective rights to receive back or make any claim in relation to the deposit of $1,060,000 paid by Vanfair and Monarth under a contract dated 13 May 1994 with CML, make any other claim in relation to that contract. (vi) the vendor will be CML. (vii) the purchaser will be the Purchaser. (viii) the contract shall be entered into in the form of the 1992 edition of the contract for sale of land approved by the Law Society of New South Wales and the Real Estate Institute, with such amendments and alterations: (a) as shall be necessary to give effect to the provisions of this agreement. (b) as place the Purchaser under the contract in a position no less favourable than the purchaser was under the terms and conditions of the contract dated 13 May 1994. (c) as shall otherwise be agreed upon by the Purchaser." · On 1 May 1995, Cedrim, the third respondent, was registered. The shares were allotted on 26 May 1995 to Helen Anastopoulos and Ms Whitbread. · By contract dated 5 June 1995, Cedrim entered into a contract with CML to purchase the Windsor Tavern property for the sum of $5.3 million. No provision was made in the contract for sale for the payment of any deposit. However, by letter dated 26 June 1995, Proctor Phair & Associates, solicitors acting for Cedrim, wrote a letter in these terms: "RE: CEDRIM PTY LIMITED LOAN We act for Cedrim Pty Limited. We refer to the above matter and are instructed that the shareholding of Cedrim Pty Limited and Monarth Pty Limited is identical. As at the 1st June 1995 all the assets of Monarth Pty Limited have been transferred to Cedrim Pty Limited. The directors loan of $503,529 and $197,000 have also been transferred to Cedrim Pty Limited. The deposit of 20% payable under the contract for sale between Cedrim Pty Limited and Colonial Mutual Life Limited for the property at 48 Park Street, Sydney, is presently being held in the trust account of Minter Ellison, solicitors for the vendor Colonial Mutual Life Limited." · On 5 August 1995, Monarth gave up possession of the basement and part of the ground floor of the Windsor Tavern property. It appears that Cedrim was not able to complete the purchase of the property and that, in the exercise of its power of sale under the mortgage granted by Mr Morris, CML, by transfer dated 8 November 1995, it transferred the property to Policy Pty Ltd, a party apparently at arm's length with all the present parties, for a consideration of $5,540,000.
FINDINGS AS TO THE CIRCUMSTANCES IN WHICH MR MORRIS PROCURED THE BANK CHEQUES The circumstances as to the procurement of one of the bank cheques, that is, the cheque for $190,000, were described in the affidavit of Maria Johnson, an officer of the ANZ Banking Group, sworn on 30 July 1997, as follows: "2. On or about 17 May 1994 I was employed as a bank officer at the ANZ Bank branch at 252 Pitt Street Sydney ('the branch'). My responsibility at the time was as customer service supervisor - tellers. 3. Annexed hereto and marked 'A' is a copy of the first two pages of passport number GO53983 dated 13 August 1985 relating to Theo Morris ('Mr Morris'). I recognise Mr Morris. He was formerly a customer of the ANZ Bank. I am informed by Harry Snow, the applicant's solicitor, and verily believe that Mr Morris is the eighth respondent in these proceedings. 4. In 1994 Mr Morris came into the branch from time to time to conduct banking business. I had seen him on about two or three occasions before 17 May 1994. 5. I recall a teller, Wayne McAndrew ('McAndrew'), attending on Mr Morris at the branch on or about 17 May 1994 and then being told by Mr McAndrew, in words to the following effect: 'I have a customer at the counter (indicating to Mr Morris) who has over $10,000 in cash with him. He wants to buy a bank cheque.' 6. I went to the counter and had a conversation with Mr Morris to the following effect: I said: 'We have to complete a significant cash transaction report.' Mr Morris said: 'Why?' I said: 'Because you have brought in over $10,000 in cash. We are required to complete a report for cash transactions of $10,000 or more.'
Mr Morris said: 'Then put the report in my daughter's name, Gona Morris. I'm doing this for my daughter.' When he said the words set out immediately above, his voice and tone changed from the voice and tone he used when he had asked 'Why?' His voice and tone became commanding, stern and unpleasant when he said the words 'Then put the report in my daughter's name, Gona Morris. I'm doing this for my daughter.' That tone and voice continued for the remainder of the conversation. I said: 'But she's not here to sign the form.' Mr Morris said: 'The transaction is for my daughter. Put it in her name. It's not for me.' I said: 'But it's got to be in your name if she's not here to sign the form.' Mr Morris said; 'Put in my daughter's name.' I said: 'In whose favour do you want the bank cheque?' Mr Morris said: 'Minter Ellison Morris Fletcher.' I then completed a significant cash transaction report. Mr Morris and I signed the report and I dated it. 7. Annexed hereto and marked 'B' [is] the significant cash transaction report dated 17 May 1994 which I completed. It is in my handwriting except for the portion marked 'Signature of customer' which is where Mr Morris signed the document. 8. I then wrote out a bank cheque in favour of Minter Ellison Morris Fletcher for $190,000. McAndrew and I then signed it. I countersigned the document then handed it to Mr Morris. Annexed hereto and marked 'C' is a copy of the bank cheque.
Q Do you recall going in and purchasing bank cheques for cash? A I couldn't remember exactly what it was - one - what the $100,000 cheque was. Q. Speak up, sir? A That was $100 cheque - sorry. I have $100 - $100,000 cheque - or was cashed the cheque? Q You purchased two bank cheques. One for $190,000? A Yes. Q For cash. Do you remember purchasing that from the State Bank - I withdraw that. From the ANZ Bank? A I remember it was done something for my daughter but I wouldn't remember exactly the date and what exactly the figure was. Q All right. Will you accept from me it was in May 1994 that you purchased a bank cheque for cash? A That was - must be when they were purchased there - more enough purchased there - - - Q Sir, answer my question? A I remember - I couldn't remember exact the figure, and don't remember exact the date. But I know something was - cash was done because there was been given the cash which we paid, the postal for the Monarth, for the - when we purchased the property in Park Street. That's what - I can remember that. Q I see. Why did you purchase a bank cheque for $190,00 in cash? A Because that was in ANZ Bank? Q That was ANZ Bank sorry? A ANZ Bank? That was the answer. Q Do you recall - - -? A Which bank was it sorry? Q Do you recall purchasing a bank cheque for $190,000 for which you used cash? A 180? Q 90? A 190,000. Q Do you recall it? A 190,000? Q Yes? A Yes. That was my daughter's money which asked me - that was been purchased in bank cheque to pay to Monarth as a - only purchase the property which was cash money and I done it before - behalf of my daughter. Q Mr Morris, you have just finished telling this court that all transactions were run for your wife and yourself, have you not? A Was. Q. Yes? A Before. Q Now, how does your daughter start to be purchasing? A Because my daughter it was a beneficial on a company, Monarth, and he owned the company Monarth. Q So, your daughter is a beneficial owner? A Of a company - - - Q For you? A No for me. Q For who? A She owned the company and because she under age and they have directors, which my brother, my sister and Miss Sivell, which are their own - they are directors of the company. Q But Mr Morris, you have just told us over the 12 companies we have looked at, everything was run by your wife and yourself, have you not? A Before, yes.
Q Yes? A Yes, I did. Q And even now - - -? A No we're not. Q Then, if it is not so now, sir, why are you purchasing a bank cheque for $190,000 in cash? A Because I have the cash, my daughter's money and it was asked me would you be willing to do, buy the deposit for the property which was give her cash money, they want a bank cheque to be paid a deposit, so there it was. It was not control a company, I have nothing to do with the company, I was not a director of a company. Q I see. And is that the reason on the same day or the following day you purchased a further bank cheque for $155,000 in cash? A Was it the same bank? Q Do you recall doing it? A No, is another bank? Q Do you recall doing it? A Yes, I did behalf of my sister and my daughter, because I can't understand because my daughters are young and my sister she never been knowledge, she never been to school and I was asking me to do so. Q And do you recall purchasing a further bank cheque for $200,000 in cash? A That's my sister's money. Q Mr Morris, you have just told us over the entire company structure you and your wife ran everything? A It was never run, somebody else running, I run my own company, it was my company, I can't run somebody else company. Q Exactly? A Right, now, I was only supervising, they only ask me because they don't understand what they doing and I was only helping them to do it. Q Then, Mr Morris, where did your under age daughter get $200,000 in cash to purchase a bank cheque? A My daughter has been only daughter in the whole of my family which is two generations and my mother died two years ago, at 102 years of age, when she come to Australia about 30 years - - - Q Mr Morris, where did your under age daughter get $200,000 in cash? A I'm trying to explain - - - Q To purchase a bank cheque? A I'm trying to explain if you give me time I explain to you, that's what - as you're asking me I'm trying to explain to you. This money was given by my mother and also by the stock of the Monarth which was held by seven, eight years ago, and that was a cash money which my mother has given to my daughter in cash when she was born she had - I don't remember exactly figure and there was money which she hold in case by my daughter, that's why she was hold the cash for. Money came from Monarth profits because there was stock which was given to Monarth, it was years before that Monarth sold and there was a cash money from the Monarth because the Monarth company run the Windsor Tavern, was never paying rent and there was a profit - the money come from stock which my daughter have and she have a cash money and it was given to me to put her to go to make a bank cheque to pay for the deposit, that's where the money came from that part. The other money come from my sister, their own money, she borrowed money and she have own cash plus when my mother died because my sister she look after her for 10 years and I look after my mother for 20 years before that, and there was money come from my mother which was died, she give it to my sister, she didn't have to pay rent to my sister, she was next to my mother, to 102 years of age and my mother never been to convalescent house, she was living with my daughter - my wife - my sister and she was given the money she had all the years and which I was to pay wages to her also the money she was having in cash and give it to my sister, plus that my sister - their own money, they own .....[inaudible].....borrow money and the cash she have, all the saves for the years that she worked, that's all the cash she have and she always kept in cash and I prove to you any day, that was the money she was give it to me together and going cash in the bank cheque to pay for that Monarth because my sister she is a director of the company Monarth, my daughter she is a beneficiary of the company. There was a bank cheque to purchase the Monarth, purchase the property, with another company together, that's where the money come from, it was nothing to do with me, that was anything I just did to help them and supervise to make sure that because she is under age and the other one, she is an old woman. That's where the money come from. Their own money.
Q Your - - -? A Nothing to do with me, it was not a cent of my money. Q You are asking this court to believe, Mr Morris, that your under age daughter came to you at 10 o'clock one morning and said, 'here, daddy, here is $200,000 cash, go away and buy me a bank cheque'? A No, my daughter, she was always with my wife together, daughter, she have the cash and save there for the last 17 - 16 years. Q In cash? A She had - in cash and sick leave. Q What, under the bed? A She always keep it there to the time - no, not all that cash, not all that cash because she sold the stock in the Windsor Tavern for the last 18 months, two years, the money was come from stock and the money was kept at - she took as cash, that's what it was, from the Monarth - - -" Whilst I accept that Mr Morris procured these three cheques, I cannot accept that it is probable that other members of his family provided the substantial amounts of cash needed to do this. Some light is thrown on the latter question by the cross-examination of Mr Donnelly by counsel for CML in this proceeding, much of which now appears, and ought to be, in any event, common ground here. Relevantly, the cross-examination proceeded as follows: "Q The bankruptcy involves a fairly spectacular deficiency of assets over liability, I think you would agree? A Depends what you call spectacular. Q There is a deficiency of some $120-odd million? A That's correct. Q Would this bankruptcy be one of the largest bankruptcy in terms of the actual extent of the deficiency that you have been involved with? A I am also doing Mr Skase's bankruptcy which is a lot bigger. Q One of the biggest? A Certainly, yes, one of the biggest. Q Mr Morris, before his demise, ran a large business empire, that is true, is not it? A Well, he had numerous property holdings, some which required running and some which required holding. Q Either in his own name or through companies which he controlled, Mr Morris had a considerable business empire, correct? A I believe so but you have also got to appreciate most of my duties resolve from the time I am appointed his trustee in bankruptcy which is a far different position that he may have been some time before that. Q I use the term 'empire' advisedly because I think that is a term that Mr Morris has used to describe his business dealings to you, is that right? A I mean I am aware that there is listings of wealth in Who's Who and Business Review Weeklies and things like that prior to his bankruptcy that had him being worth a considerable amount of money." .... Q You have no doubt attempted to investigate his affairs thoroughly? A Yes. Q Get to the bottom of the assets which he held in his own name, correct? A Yes. Q His shareholdings? A Yes. Q Have you seen evidence of the fact that he tended to treat the companies which he controlled as if they were his own alter ego? A That's a reasonable conclusion. Q He did not distinguish greatly between his own personal affairs and the affairs of his companies, correct? A From my observations, he did tend to control assets in a manner that did not really need reference to anyone else. Q Amongst the assets which he controlled, either personally or through companies, was the Chevron Hotel at Surfers Paradise? A Yes. Q Commercial property at Kings Cross? A I'm not sure which property you are referring to there. Q Commercial property at Lane Cove? A Yes, the Lane Cove one I'm aware of. Q The Carrington Hotel at Katoomba? A Yes. Q Commercial property in Oxford Street? A I don't know about that one. Q The old Windsor Hotel? A Yes, we know about that. Q Commercial property in Newcastle? A Yes. Q Could you give his Honour any other examples of commercial property which he held either in his own name or through vehicles of companies? A There was a property at Darling Point that I'm aware of but off the top of my head that's the only other one. I could look in files, of course. Q These business, in the period 1990-1992, were, to your knowledge, generating substantial sums of money, that is correct, is not it? A I'm not aware what they were really generating. I have received some information from the mortgagees, being Wardleys which is now Hong Kong Bank and Macquarie Bank but really the trading results I'm not privy to because they were run by various entities." In all the circumstances disclosed in the evidence, I think that an inference should be drawn, on the balance of probabilities, that Mr Morris, and not members of his family, found the cash necessary to fund the purchase of the three bank cheques. This inference is supported by the circumstances that Mr Morris controlled the financial affairs of his family and that, through various entities, he controlled the disposition of substantial assets. The inference is also supported by Ms Johnson's evidence. I find that Mr Morris bought the three bank cheques from his own funds. In the absence of any suggestion that such a large amount could have been after-acquired property, I find that the funds in question were assets of Mr Morris at the time of the sequestration order. It appears that the probable source of the funds was his share of the proceeds of the Parramatta property. Although that transaction took place in 1992, it did generate substantial liquid funds and, on the evidence, appears to me to be the probable source of the cash that was needed to buy the three bank cheques. THE LEGAL CONSEQUENCES OF THE PURCHASE OF THE THREE BANK CHEQUES BY MR MORRIS FROM HIS OWN FUNDS Although, as has been seen, a claim for conversion of the bank cheque has been made in par 36 of the amended statement of claim, Mr Donnelly's claim is, I think, more appropriately viewed as a claim in restitution or unjust enrichment, being the relevant modern cause of action in this type of case. (See, for example, Australia and New Zealand Banking Group Limited v Westpac Banking Corporation (1988) 164 CLR 662; David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353; Goss v Chilcott [1996] 3 WLR 180 at 188). This is not to say that a claim for conversion of the bank cheques, as chattels, may not have been open. (See Balkin and Davis, The Law of Torts, 2nd ed., at 74). But, for the reasons given by Hodgson J in Thomas v Hatzipetros, Supreme Court of New South Wales, 23 June 1997, unreported, to which I will refer shortly, I think that the more appropriate cause of action is one framed in restitution or unjust enrichment, as the modern doctrine is now described. Subject to the observance of the rules of natural justice and the requirement of the fair conduct of litigation, I see no pleading problem arising in the present connection. As has been noted, the facts relied upon by Mr Donnelly to make out his primary cause of action had been specifically pleaded. There has also been full argument by counsel, appearing for each of the parties represented in the proceedings, on the question of the possible application of the modern doctrine of unjust enrichment. Moreover, under the modern system of pleading, the question is whether it would be open to a plaintiff, upon the pleadings, to prove facts at the trial which would constitute a cause of action. (See Mutual Life and Citizens Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631).
I turn then to consider whether a cause of action in unjust enrichment or restitution is available. In my opinion, this question is to be resolved as a matter of substance rather than form. (See ANZ Banking Group v Westpac Banking Corporation, above, at 674; Re Wagner; Ex parte Stapleton v Bennett (1964) 20 ABC 133 at 140, and cf Caddy v McInnes (1995) 58 FCR 570 at 580-583). A situation not dissimilar from the present, in some respects, arose for consideration recently by Hodgson J in Thomas v Hatziperos, above. The facts were that after the commencement of winding-up proceedings, $20,000 from a company's account was used to purchase a bank cheque with a view to paying out a creditor. The cheque was not accepted. It was returned to the bank but, by the bank's mistake, it was paid into an account in the name of a director. After the winding-up, the director paid the company's debts to the bank of over $350,000 and a personal debt to the bank of over $150,000 from the proceeds of sale of her real estate. The liquidator sought to recover $20,000 from the bank and the director. It was held that: (a) there was a disposition of $20,000 in favour of the bank and the director and that, unless the bank could have relied on a set-off, the company was $20,000 worse off by reason of the disposition; (b) it was not established that the bank would have been entitled to a set-off; (c) it was probably, but not necessarily, the director who gained $20,000 corresponding to the company's loss; and (d) the bank and the director should be ordered to pay the $20,000 plus interest, and that the burden of the order should be borne equally by the bank and the director inter se. In the course of his reasons, Hodgson J (at 5), referred to the submission that since the property, the subject of the disposition, was a chattel, namely, a bank cheque, proceedings might be brought by the liquidator to recover that chattel. (See Tasmanian Primary Distributors v Steinhardt (1994) 13 ACSR 93). However, Hodgson J said (at 6): "In my opinion, both the Dennco case and the Tasmanian Primary Distributors case support the view that the purchase of the bank cheque, considered by itself, did not amount to a disposition of property by the Company. The disposition arose when the bank cheque was dealt with in such a way that it passed from the Company. This occurred on or about 27th February 1990, when the bank cheque was received by the Bank and credited to an account of Mrs. Hatzipetros. In my opinion, this amounted to a disposition in favour of the Bank, because it had the benefit of the proceeds of the cheque; and also in favour of Mrs. Hatzipetros, who became a creditor of the Bank in that amount."
I respectfully agree. Given my finding that the property used to purchase the three bank cheques was the property of the bankrupt at the time of the making of the sequestration order, it must follow that I should be satisfied that, prima facie at least, CML is liable to make good the amount received by it, either in restitution or under the modern doctrine of unjust enrichment. The question then arises whether CML may raise any valid defence to such a claim. In this connection, counsel for CML has raised the defence of "bona fide purchase". (See Goff and Jones, The Law of Restitution, Ch 41. See also the discussion by Mason and Carter in Restitution Law in Australia at 865-7; and see Paul Key, "Bona fide purchase as a defence in the law of restitution" [1994] LMCLQ 421). The defence sought to be relied upon is, as the discussion by the commentators mentioned indicates, by no means free from contention. However, for present purposes, I am prepared to assume in favour of CML that such a defence may be available, either at law or in equity, in answer to a claim made for personal, rather than proprietary, restitution. Even upon that assumption being made, I am not satisfied, on the facts, that CML can establish that it was a bona fide purchaser. On the contrary, it appears to me that CML must be taken to have been aware of the facts entitling the trustee in bankruptcy to restitution. That conclusion follows, I think, from the following circumstances, when considered together. First, CML, as I have said, made no attempt to call evidence to establish its position. Secondly, there is no explanation given of how it could make good its entitlement to the full 20 per cent deposit. There is no suggestion that either Monarth or Vanfair was repaid and, as has been seen, we know that, in November 1995, CML was able to sell the property to another party at an amount greater than that contracted for previously. Thirdly, by May 1994, if not much earlier, CML was well aware of the financial difficulties, indeed, at that stage, impossibilities, of Mr Morris and his former "empire". For those reasons, I conclude that the defence of "bona fide purchase" is not available here.
Another possibility is that, instead of the defence of "bona fide purchase", CML could make out another, perhaps analogous, defence of "change of position". However, in the absence of evidence from CML, it is difficult to see how this defence could be seriously advanced here. It follows, therefore, that CML has failed to establish any reason why its prima facie liability has not accrued. It cannot be said that it is inequitable to require restitution. Put differently, it is, in my view, unconscionable, vis-a-vis the trustee in bankruptcy, for CML to retain the proceeds of the bank cheques. I propose accordingly, in due course, to enter judgment for the applicant against the first respondent in the sum of $545,000. I will reserve all questions of interest, costs, and the question of whether other orders, if any, should be made against any other party. I direct that the applicant file and serve within seven days written submissions to that end and that the first respondent reply by way of written submissions, on those matters, within a further seven days. Therefore, I stand the matter over for the making of formal orders and for hearing argument on the matters reserved. I certify that this and the preceding twenty eight (28) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont
Associate: Dated: 15 August 1997 Counsel for the Applicant: F Lever with J Gooley
Counsel for the Respondent: R Weber with J Hennessy
Date of Hearing: 6, 7, 8, 11 and 15 August 1997
Thomas
Hatzipetros, Supreme Court of New South Wales, Hodgson J, 23 June 1997, unreported - approved
(1988) 164 CLR 662
(1992) 175 CLR 353
(1992) 110 ALR 449
(1970) 122 CLR 628
(1995) 58 FCR 570