Westpac Banking Corporation v John Palasty

Judgment 1The plaintiff claims damages or restitution in respect of a sum of $750,000 which the defendant caused to be drawn from an account with the plaintiff on 10 February 2011. The plaintiff also claims a declaration establishing that the plaintiff has a charge over a house property in Smithfield which the defendant acquired using the greater part of the sums so drawn when he settled its purchase on 11 February 2011. A number of different grounds of suit are put forward in the statement of claim, but the one upon which I act is a claim for damages for fraud and deceit. 2The defendant filed a defence with many general denials and allegations of some matters of defence which are not altogether clearly stated. However he did not, although several times directed to do so, file any affidavit supporting his defence. 3At the hearing today counsel appeared for the defendant, but took no active part in the proceedings except to tell me that he declined to consent to any orders; and he obtained my leave to withdraw, and the hearing proceeded ex parte. 4The affidavits I have read are those of Shawn Goder 24 March 2011, Vicki Singh 24 March 2011, Ebtesam Hanosh 24 March 2011, Manu Puri 24 March 2011, Vince Damiano 25 March 2011 and the same witness 17 June 2011. I have admitted into evidence the plaintiff's tender bundle which becomes exhibit A. I have admitted into evidence as exhibit B documents produced by Bendigo Adelaide Bank Limited upon subpoena. 5The evidence of Mr Goder, which I treat as undisputed, shows that Mr Goder is employed by the plaintiff as a relationship manager and came to know the defendant as a customer. By the time of the significant events he had known the defendant for well over a year. 6On 10 February 2010 the defendant spoke to Mr Goder and asked, in effect, to have a cheque which he wished to deposit for $750,000 cleared forthwith for the settlement of a purchase on the same day. Mr Goder did not agree to this and the defendant then said to him, "I have funds in the amount of $750,000 with Bendigo Bank that I could offer to the bank as security". There is some discussion about whether the proceeds could be obtained from Bendigo Bank itself and the defendant told Mr Goder, "I will email you my bank statement from Bendigo Bank now". 7Within half an hour he sent a document to Mr Goder which is an account history originating from Bendigo Bank, but it is, as later events proved, significantly incomplete in that it does not show the customer's name (and in fact the defendant was not the customer) and it does not show the credit as of 10 February 2011 because its last entry was dated 24 January 2011. 8The records of the Bendigo Bank in evidence show that the amount in credit had fallen by 10 February and $750,000 was no longer available. 9Acting on what Mr Palasty had told him Mr Goder decided to treat as cleared the cheque which Mr Palasty proposed to deposit, and gave authority to other bank officers to act accordingly, that is as if the bank was appropriately protected by the deposit of $750,000. Officers at the Merrylands branch did so and $750,000 in total was drawn by a series of bank cheques. 10Four bank cheques for various amounts required by the vendor totalled $458,671.55 and were, as I find, used at the settlement on the following day 11 February of the defendant's purchase of the house property in Smithfield. A further cheque was also drawn against that $750,000 in favour of the Office of State Revenue for $17,110, and I find on the probabilities that it was used to pay stamp duty in respect of that purchase. The funds drawn also included a bank cheque in favour of Robert Doubler for $19,000. The balance of the $750,000 was $255, 218.45 and it was drawn as a bank cheque in favour of the defendant himself, and on 11 February 2011 he deposited it in an account which he maintained at the National Australia Bank. 11Within a few days the cheque of $750,000 against which Mr Goder had authorised these drawings was dishonoured. That cheque was drawn on an account at the Commonwealth Bank Petersham which had been conducted by The Tsai Trust Foundation. The cheque bears date 9 February 2011. However material in evidence emanating from the Commonwealth Bank shows that that account had existed only for a short time and had been closed on 28 September 2006. Further, the signature which appears on that cheque in no way resembles either of the authorised signatures which had operated on that account when it could be operated. 12A few days later Mr Palasty caused to be deposited a further cheque also drawn on The Tsai Trust Foundation with the same apparently unauthorised signature and in favour of Goulburn Mycorp Constructions dated 14 February 2011 for $750,000. That too of course was dishonoured. The plaintiff was of course unable to get any satisfaction in respect of the credit in the Bendigo Bank. That account did not contain $750,000, it was not conducted by Mr Palasty and his verbal assurances about access to it had no substance. 13On completing his purchase of the house property in Smithfield the defendant was in a position to become registered proprietor of that property unencumbered. Later in February 2011 he mortgaged that property by a first mortgage to George Stamatkis and two others to secure a loan advance of $312,000 and related obligations. In connection with that transaction the defendant made a statutory declaration which the lenders required dealing with obligations relating to the security property. Among other things he said at paragraph 8 that he was not aware of any pending lawsuit in respect of the property or his right as the proprietor and at paragraph 9 that he had not created any unregistered or equitable interest in the property in any manner. 14In view of his then current dealings with the Bank and of the manner in which he had dealt with the Bank, including that by that time he had deposited a further valueless cheque, these statements have the substance of misrepresentations. They went far beyond gross failure to deal frankly with those lenders. 15Many things were wrong about these transactions. When I consider the dealings between the defendant and Mr Goder on 10 February in which he induced Mr Goder to allow large credit on a statement about the availability of funds in the Bendigo Bank, which as it is now known was clearly false at that time and could then have been known to the defendant to have been false by means of knowledge readily available to him, and set them in context with his later conduct involving further use of false documents, and his extreme lack of frankness, it must in my opinion be inferred that the statements to Mr Goder about funds at the Bendigo Bank were consciously false, and were part of a connected array of intentionally fraudulent conduct in which the defendant was engaged with a view to obtaining title to the Smithfield house and other money by whatever means, honest or dishonest, were necessary, and turning about to face the consequences later. The circumstances I have mentioned show that this is so when all taken together and applied in making findings as a matter of probability. This conclusion is supported by the short interval which passed between obtaining unencumbered title to the house property and raising a further significant sum by mortgaging it. 16I make these findings in the absence of any answering evidence by the defendant or any endeavour by him to defend the claim at this hearing although he has had full opportunity to do so. 17For these reasons I find that the bank is entitled to recover damages for the tort of deceit in respect of advances totalling $750,000 by the series of cheques I have mentioned. Credit should be allowed of $147,449.08 which the plaintiff was paid by the National Australia Bank out of the account into which the defendant deposited the cheque in his own favour for $255,218.45. 18The plaintiff should also be awarded interest at the rate allowed on judgments from 10 February 2011 until today; that amounts to $43,601. 81. The net damages and the interest together amount to $643,231.73. The plaintiff is entitled to judgment for that amount. 19The plaintiff also claims that the house property at Smithfield is held by the defendant subject to a charge in favour of the plaintiff for the parts of the monies obtained by fraud which have been shown to have been applied towards obtaining title to that property. Those monies were the cheques used on settlement which total $458,673.55 and the cheque used to pay stamp duty, $17,110: total of $475,783.55. 20It is altogether clear that this part of the monies obtained by fraud can be traced directly into the acquisition of the property at Smithfield. Where such tracing is available a person in the position of the defendant is, in my opinion, subject to equitable remedies including a charge over the property into which the money so obtained can be traced. Although the present is a stronger case than Black v S Freedman & Co (1910) 12 CLR 105, that case is clear authority for the existence of such a charge. There is no exposition in the judgments in the High Court of what is there referred to as "stolen money" but I have no doubt that it extends to money obtained by fraudulent misrepresentations. 21In this case the process by which tracing can be seen are altogether clear and direct; so that the plaintiff is entitled to a charge over that property for the sum of $475,781.55. Of course that charge cannot have priority over a registered mortgage such as has probably been obtained by the lenders with whom the defendant dealt later in February 2011. They are not parties to this litigation and there has been no attempt to deal with priorities as between the plaintiff and them or to establish whether the plaintiff has any priority. I have not dealt with that subject. 22The plaintiff asks that costs be assessed on the indemnity basis. The claim arises out of marked delinquency on the part of the defendant and he has had full opportunities throughout the preparation of the litigation to admit the claim or to put forward any substantial matter in defence. When the matter came to the hearing no defence was offered. I regard this as an appropriate case for indemnity costs and I will so order. I make the orders in the document marked "minutes of orders".