Westpac Banking Corporation v Victor Warren Ollis & Ors

Westpac Banking Corporation v Victor Warren Ollis & Ors - [2007] NSWSC 956 - NSWSC 2007 case summary — Zoe

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Addstead Pty Ltd (in liq) v Liddan Pty Ltd (1997) 70 SASR 21 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Anscor Pty Ltd v Clout (Trustee) (2004) 135 FCR 469 ASX Operations Pty Limited v Pont Data Australia Pty Limited (No 1) (1990) 27 FCR 460 Baden Delvaux & Lecuit v Societe Generale Pour Favoriser le Developpement du Commerce et de L'Industrie en France SA [1992] 4 All ER 161 Banque Belge pour L'Etranger v Hambrouck (1921) 1 KB 321 Barnes v Addy (1874) LR9ChApp 244 Barrett & Sinclair v McCormack [1999] VUCA 11 Beatty v Guggenheim Exploration Co (1919) 122 NE 378 Black v S Freedman & Co (1910) 12 CLR 105 Briginshaw v Briginshaw (1938) 60 CLR 336 Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 All ER 367 Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corporation [1999] NSWSC 671 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1979] 3 All ER 1025 Clarke v Shee (1774) 1 Cowp 197 Creak v James Moore & Sons Proprietary Ltd (1912) 15 CLR 426 Cox v Smail [1912] VLR 274 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt1) (NSW) 557 Dover Pty Ltd & the Companies Act 1961, Re (1981) 6 ACLR 307 Eldan Services Ltd v Chandag Motors Ltd [1990] 3 All ER 459 Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804 Espin v Pemberton (1859) 44 ER 1380 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 French Caledonia Travel Service Pty Ltd (in liq), Re (2003) 59 NSWLR 361 Goode, Re; Ex parte Mount (1974) 24 FLR 61 Halletts Estate, In re (1880) 13 Ch D 696 CASES CITED : Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Ilich v R [1987] 162 CLR 110 Jones v Dunkel (1959) 101 CLR 298 Jones v Southall & Bourke Pty Ltd [2004] FCA 539 Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191 K & S Corp Ltd v Sportingbet Australia Pty Ltd (2003) 86 SASR 312; [2003] SASC 96 Magafas v Carantinos [2007] NSWSC 917 Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14 Miller v Race (1758) 1 Burr 452 Montagu's Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd & Ors; Re [1987] Ch 264 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 Nocton v Lord Ashburton [1914] AC 932 Norwich Union Fire Insurance Society Ltd v William H Price Ltd [1934] AC 455 Oatway; In re [1903] 2 Ch 356 Official Receiver for and on behalf of the Official Trustee in Bankruptcy v Klau & Ors [1987] FCA 242 Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALJR 402 Pedler v Richardson (unreported, Supreme Court of NSW, Young J, 16 October 1997, BY CONSENT 9705263) Porter v Latec Finance (Qld) Pty Ltd [1964] HCA 49; (1964) 111 CLR 177 Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Sinclair v Brougham [1914] AC 398 Strang v Owens (1925) 42 WN (NSW) 183 Wambo Coal Pty Ltd v Stuart Karim Ariff [2007] NSWSC 589 Watson v Foxman (1995) 49 NSWLR 315 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 Wookey v Pole (1820) 4 B & Ald 1

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iii. the third concerns the documentary evidence which demonstrates that Ms Shields was intimately involved in Mr Ollis' financial affairs, which involvement included preparation of records for Mr Ollis' tax returns, communications with Mr Ollis' accountant and the Australian Taxation Office, dealing with the demands of Mr Ollis' many creditors, the preparation of bank statement reconciliations, and similar. Hence the general evidence before the Court permits a finding that it is inconceivable that Mr Ollis did not share with Ms Shields the source of his new-found fortune. The resultant finding is that the overwhelming probabilities are that Mr Ollis told Ms Shields exactly from where and how where he was obtaining the funds. 23 There is little doubt but that the retention of moneys after a recipient has learned of a mistake made by the payer may in particular circumstances, be a matter of signal significance. 24 Differing views have been expressed in relation to this matter. Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1979] 3 All ER 1025 concerned an attempt by Goulding J to fit a case of mistaken overpayment by one banker to another as a result of clerical error into the category concerning pre-existing fiduciary obligations. As observed by RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed, Butterworths, 2002, at [14,010], Goulding J held that the conscience of the insolvent recipient became subjected to a fiduciary duty to respect a proprietary interest in the money which was "retained" by the mistaken payer. In Westdeutsche, Lord Browne-Wilkinson [who did not accept the reasoning of Goulding J in Chase Manhattan] expressed the view that Chase Manhattan may nonetheless have been rightly decided. His Lordship [albeit obiter] observed at 714-715 that although the mere receipt of the moneys in ignorance of a mistake gave rise to no trust, the retention of the moneys after the recipient had learned of the mistake may well have given rise to a constructive trust: in turn citing Snell's Equity (29th ed, 1991) p193, Pettit Equity and the Law of Trusts (7th ed, 1993) p168 and Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14 at 52-53. The appropriate question was said to be whether the payee had such knowledge of the material mistake as to affect his conscience. 25 The authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed) have commented that this reasoning is unconvincing. In Cashflow Finance (at [478]) I observed that the decision in Chase Manhattan had in effect been overruled by the House of Lords in Westdeutsche and that Lord Browne-Wilkinson had authoritatively rejected the proposition that, without more, receipt of money paid under mistake, renders the recipient a trustee and leaves the payee holding an equitable proprietary right in the money [emphasis added]. This is also the view of the leading Australian texts Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed) and JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (7th ed, 2006) at [2703]. However the present is a case in which the phrase 'without more' becomes of particular significance. 26 In truth it is trite that a bank is usually free to treat a cheque presentation as an implied request for an overdraft so that, if accepted by the bank upon honouring the cheque, the amount will be recoverable from the customer. This proposition generally holds true even where the cheque has been honoured by the bank albeit that it suffered under a relevant mistake in that regard. In the usual commercial circumstance which would there obtain, the proceeds of the cheque is the property of the customer. As will be seen from the reasons which follow, the present case falls well outside any semblance of a 'usual commercial circumstance', presenting as it does the undeniable face of the commission of a clear fraud. Dealing with the issue 27 It is of signal importance to note that the essential banker-customer relationship set up as between the Bank and Mr Ollis involved the setting up initially of the Personal Account and subsequently of the Business Account to be operated [by later arrangement] with the ATR facility. There were no overdraft facilities sought. There was no security sought by the Bank nor offered by the customer. Mr Ollis well knew that the Bank was only prepared to contract with him on the basis that the two accounts would be regulated by the ATR facility. These parameters fairly describe what may be termed as 'the essence' of the contractual arrangement entered into by the parties. 28 The significance of whether the mistake is fundamental was pointed up by Brennan J [as his Honour then was] in Ilich v R (1987) 162 CLR 110 at 138-139:

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The prima facie conclusion that ownership of money in the form of currency passes when the person in possession hands it to another intending him to be the owner may be displaced in some cases where the intention is formed by mistake. In such cases the payer is entitled to recover it in specie before it is disbursed: Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177, at p 183. But it is not every mistake which precludes the formation of the intention essential to the transfer of ownership of notes or coins. The mistake must be fundamental to the transaction . In Norwich Union Fire Insurance Society v Wm. H. Price Ltd [1934] AC 455, Lord Wright said (at p 463): "It is true that in general the test of intention in the formation of contracts and the transfer of property is objective; that is, intention is to be ascertained from what the parties said or did. But proof of mistake affirmatively excludes intention. It is, however, essential that the mistake relied on should be of such a nature that it can be properly described as a mistake in respect of the underlying assumption of the contract or transaction or as being fundamental or basic ." To determine whether a mistake is fundamental, one must properly identify the transaction and the relationship of the mistake to it: Porter v Latec Finance (Qld) Pty Ltd , at p 187." [Emphasis added.] 29 The undeniable fact is that Mr Ollis at all material times from the occasion when he first learned of what he correctly surmised was a computer glitch, knew that the Bank never intended him to draw credit from the Business Account. That represents the Court's finding. Mr Ollis knew that he did not have permission from the Bank to draw credit from the Business Account. The finding is that once he was informed by the Bank's Collections Area in March 2004 that the Personal Account was overdrawn and that no further withdrawals would be permitted, he knew that the replenishment transfers being made to the Business Account were not coming from funds from the Personal Account. The significance of the defendant being on notice of the mistake was pointed up by Millett J in Eldan Services Ltd v Chandag Motors Ltd [1990] 3 All ER 459 at 462 [albeit curiously apparently denied by Goulding J in Chase Manhattan [1981] Ch 105 at 114]. 30 The finding is that the continual reversals of the replenishment transfers to the Business Account in the period March 2004 to December 2005 were not the product of any conscious willingness on the part of the Bank to allow Mr Ollis to have access to the money. Rather, the finding is that the officers of the Corrections Area simply did not know that the ATR facility was allowing the transactions on the Business Account to be debited to the Bank's suspense account. 31 Further in the particular circumstances thrown up by this case any analysis suggesting that the moneys which he obtained were his property is plainly flawed. As already observed his conduct, in the circumstances of the knowledge which he is inferred to have had, proves that his conduct was no more and no less than fraudulent. Clearly that conduct was of the requisite character to bind his conscience. Knowing of the Bank's mistake, he was simply defrauding the Bank. What he was doing was drawing money from the Business Account dishonestly, knowing that he was not entitled to do so. In Black v S Freedman & Co (1910) 12 CLR 105 the High Court held that money stolen by a thief was trust money in the hands of the thief. In Creak v James Moore & Sons Proprietary Ltd (1912) 15 CLR 426 the High Court held that the same equitable response applied to stolen goods as well as to stolen money: cf J Tarrant, 'Theft Principle in Private Law' (2006) 80(8) ALJ 531 at 531-535. The very same analysis may be presently applied. In all of the circumstances Mr Ollis is in the eyes of the law to be regarded as having 'stolen' the Bank's money. 32 The matter inheres in his becoming aware of the Bank's mistake and proceeding by drawing an avalanche of cheques, to take the fullest advantage of that mistake over an extended time where he not only:

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49 Ms Shields had the onus of proving that she was the bona fide purchaser of the legal estate for value without notice of the Bank's equitable interest. The evidence overwhelmingly demonstrates that she must have had actual notice of the Bank's interests. However even constructive notice of the Bank's interests would have sufficed to permit the relief sought against her and Koala. 50 The documentary evidence demonstrates that Ms Shields was intimately involved in Mr Ollis' financial affairs. As earlier pointed out, the evidence establishes that her involvement included preparation of records for Mr Ollis' tax returns, communications with Mr Ollis' accountant and the Australian Taxation Office, dealing with the demands of Mr Ollis' many creditors, the preparation of bank statement reconciliations and similar. The Bank furnished a useful summary of the evidence of the involvement of Ms Shields in the financial and business affairs of Mr Ollis [MFI P15]. It is unnecessary to set out the whole of that summary which does serve the purpose of identifying the description of the relevant document, the evidence of the involvement of Ms Shields, the relevant date as well as Court Book page references in terms of the evidence. 51 Ms Shields' close involvement with Mr Ollis' financial affairs allowed her to know that up until about June 2005 [being the time from which Mr Ollis started to make substantial withdrawals from the Business Account] he was in desperate financial straits. The evidence clearly shows that in the relevant period, he was constantly subjected to statements of liquidated claim and bankruptcy notices. Mr Ollis' bank statements, [to which Ms Shields had access for the purpose of preparing reconciliations], revealed that Mr Ollis did not have substantial holdings of cash. The finding is that she must have known that the funds were not coming from any facility knowingly granted to Mr Ollis by either of the banks with whom they banked. Here again a convenient schedule [MFI P18] was furnished to the Court detailing the precise evidence as to the financial circumstances of Mr Ollis and/or Country House and Land Sales identifying the document in evidence, identifying the indicia that Ms Shields was aware of the document and giving the Court Book page references to the evidence. 52 As the Bank has submitted, the most striking evidence is Ms Shields' involvement, throughout 2005 and, in particular, during the latter half of 2005 when she was receiving vast sums from Mr Ollis, in the drawing and signing of cheques to pay off Mr Ollis' Personal Account debt [See Ex PX A Vol 6 pp 2210-2225 esp 2213, 2221, 2222 - the last reference being to a cheque signed by Ms Shields in favour of Collection House for $2,000 on 14 October 2005: the same day she received a cheque for $200,000 from Mr Ollis]. 53 Yet, in the period June to December 2005, Mr Ollis was suddenly able to transfer to Ms Shields over $4.8 million in cash. As earlier observed, Mr Ollis and Ms Shields have been in a de facto relationship since 1993. Their statements of affairs for their bankruptcy in 1998 show that aside from some trivial amounts, they held their assets jointly. The documents show that Ms Shields was closely involved in Mr Ollis' business. Against that background, it is inconceivable that Mr Ollis did not share with Ms Shields what the source of his being able to provide these vast sums of money was. Mr Ollis' open and unashamed attitude about the matter is revealed by the way he spoke about it to the officers of the Bank at the meeting on 17 January 2006. 54 Ultimately I am satisfied that the overwhelming probabilities support the finding now made, namely that Mr Ollis told Ms Shields exactly from where and how he was getting the money. The defence of bona fide purchaser without notice was not made out. 55 The finding is that that Ms Shields received trust property from Mr Ollis for no consideration and with notice of the breach of trust. The acceptance of this proposition makes good her liability for equitable compensation to the extent that full restitution of the trust property is not made to the Bank.

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Remedies 57 Where a trustee acquires property using exclusively trust money, the beneficiary has a proprietary interest in the property acquired. However, where a trustee acquires property using trust money mixed with his own, the beneficial owner does not have a proprietary interest in the property because it was not acquired only with trust money. Instead, the beneficiary is entitled to a charge over the property purchased to secure the amount of the fiduciary's liability: Re Hallett's Estate (1880) 13 Ch D 696 at 708-709. The charge gives rise to an entitlement to have the property restored to the beneficiary by restitution, and arises as soon as the wrongful conversion or mixing occurs: Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 at 386 [83]. The difference in the remedy has significance should the trustee be made bankrupt. Trust property does not vest in a trustee in bankruptcy: s 116 of the Bankruptcy Act 1966 (Cth). However, property the subject of a charge in the sense described above passes to the trustee in bankruptcy who would take it subject to the beneficiary's equity: Re Goode; Ex parte Mount (1974) 24 FLR 61 at 79-80 per White J; Official Receiver v Klau and Ors [1987] FCA 242 (Unreported, Federal Court, Fisher J, 16 April 1987); Anscor Pty Ltd v Clout (as trustee) (2004) 135 FCR 469 at [42] per Lindgren J; Jones v Southall & Bourke Pty Ltd [2004] FCA 539 at [62]-[63] per Crennan J. 58 Where a fund mixed with trust money is used to acquire other property, the beneficiary is entitled to charge both the fund and any property acquired from that fund: Re Oatway [1903] 2 Ch 356 at 361; Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 at 386 [83] - [84]. The charge may be asserted over both the fund and the property to its full value, in the sense that the beneficiary may exhaust either first before recouping the full balance out of the other: see JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (7th ed) at pp 675-677. The rationale for this is that until the trustee has fulfilled his fiduciary duty to restore the trust property, he will not be heard to claim his own interest in the acquired property. The other remedies sought against Mr Ollis 59 Clearly the Bank has also made good its claim that Mr Ollis is also indebted to it pursuant to the terms of the contract governing his account. Mr William's expert evidence 60 Mr John Williams is a chartered accountant and partner of the accounting firm, PPB. Mr Williams provided detailed expert evidence in his report dated 12 July 2007 [annexed to his affidavit sworn on 13 July 2007] as to the quantification of the total amount of Westpac money received by Mr Ollis, as well as the amounts of Westpac money transferred by Mr Ollis to Ms Shields and Koala. Mr Williams also provided an analysis of where these moneys have been applied, including various real property assets and third party payments. His detailed report is carefully reasoned and accepted as informing the nature of the relief to which the Bank is entitled. None of the cross-examination faulted the opinions expressed in the report or the logic of the methodology by reference to which the report was prepared. The orders to be made 61 There are some complexities which require to be taken into account in the circumstances where the New South Wales Crime Commission apparently obtained various orders against Mr Ollis and Ms Shields. In those circumstances the plaintiff presently confines its claims to relief to a number of declarations, together with the Court standing the proceedings over to a further date for the making of such further orders as may later be seen as appropriate. 62 The appropriate course is to announce in general terms the declarations and orders presently to be made and to require that the Bank bring in short minutes of order accordingly. The interest calculations will require to be updated to the date of the making of the actual orders. Hence the terms of the following orders are to be taken as reflective only of the position as it would have been had the interest calculations been as at 24 August 2007. 63 Subject to those reservations and qualifications the plaintiff has made good an entitlement to the following relief: The Court declares that:

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