Commonwealth of Australia v Davis Samuel Pty Ltd [1999] ACTSC 133 (14 December 1999)

Last Updated: 12 May 2005

THE COMMONWEALTH OF AUSTRALIA v DAVIS SAMUEL PTY LTD (ACN 083 081 985) AND OTHERS [1999] ACTSC 133 (14 December 1999)

CATCHWORDS

PRACTICE AND PROCEDURE - pleading - whether facts alleged in Statement of Claim raise arguable case of breach of fiduciary duty by third defendant.

PRACTICE AND PROCEDURE - pleading - whether facts pleaded against fourteenth defendant sufficiently clear - whether sufficient compliance with Order 23 rule 15 of the Supreme Court rules.

PRACTICE AND PROCEDURE - pleading - whether claim against fourteenth defendant should be struck out as insufficiently clear - whether claim manifestly hopeless.

EQUITY - constructive trust - whether created as consequence of theft or embezzlement.

EQUITY - unjust enrichment - whether monies paid under mistake may be recovered from person other than initial recipient.

ACT Supreme Court Rules, O 23 r 15

Davy v Garrett (1878) 7 Ch D 473 at 486

Bruce v Odhams Press Ltd (1936) 1 KB 697

Coe v Commonwealth of Australia [1978] HCA 41; (1979) 24 ALR 118

Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 92 ALR 395

Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd (SC (Vic) No 9643/1992, 16 September 1994 unreported)

TPC v Pioneer Concrete (1994) 124 ALR 685

Breen v Williams (1996) 186 CLR 711

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105

re Hallett's Estate 13 Ch D 696 at 708

Australian Postal Corporation v Lutak & Ors (1991) 21 NSWLR 584

Davids Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353

"Law of Fiduciaries" 1981 Toronto, Canada, Carswell Co Ltd

"Fiduciary Obligations" 1977 Law Book Co, Australia

No. SC 75 of 1999

Judge: Crispin J

Supreme Court of the ACT

Date: 14 December 1999

IN THE SUPREME COURT OF THE )

) No. SC 75 of 1999

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: THE COMMONWEALTH OF AUSTRALIA

Plaintiff

AND: DAVIS SAMUEL PTY LTD

ACN 083 081 985 AND OTHERS

Defendant

ORDER

Judge: Crispin J

Date: 14 December 1999

Place: Canberra

THE COURT ORDERS THAT:

1. The motion by the fourteenth defendant for an order striking out the allegations pleaded against him in the Third Further Amended Statement of Claim be dismissed.

2. The parties have leave to bring in short minutes of orders granting leave for the Third Further Amended Statement of Claim and/or particulars to be amended in the manner referred to in the reasons for judgment.

1. This is a motion by the fourteenth defendant to have all of the allegations pleaded against him in the Third Further Amended Statement of Claim struck out on the basis that no cause of action is thereby disclosed.

2. The proceedings reflect an attempt by the plaintiff to recover funds of which it is said to have been deprived by the fraudulent acts of the second defendant, Mr Muir.

3. Mr Muir is currently facing criminal charges in relation to those acts and has been relieved of any obligation to file a defence at this stage. Whilst the Statement of Claim is a public document there is an obvious need for circumspection in order to avoid the risk of unfairly prejudicing his prospects of obtaining a fair trial. Accordingly, any discussion of the allegations against him will be limited to that strictly relevant to the issues raised on this application.

4. It is alleged that on or about 8 October 1997 a consultancy agreement was concluded pursuant to which the third defendant, Callform Pty Ltd, was to provide accounting services to the plaintiff. Mr Muir was a director of the second defendant and he provided the consultancy services on its behalf. In the course of providing those services he obtained access to a Department of Finance and Administration computer program by the unauthorised use of a confidential access code and on 17 April 1998 transferred the sum of $6,000,000 ("the April funds") from the plaintiff's account with the Reserve Bank to a bank account in the name of the sixth defendant, CTC Resources NL. A further consultancy agreement was concluded on or about 25 August 1998 for the provision of financial and management accounting services by the third defendant to the plaintiff and Mr Muir again provided those services on its behalf. On 21 September 1998 he again obtained access to a Department of Finance and Administration computer program by the unauthorised use of an access code and transferred the sum of $2,725,000 ("the September funds") from the plaintiff's account to a bank account of the tenth defendant, Kamanga Holdings Pty Ltd, and the seventeenth defendant, Quancorp Pty Ltd, then trading as "Davis Samuel".

5. It is these funds which the plaintiff seeks to recover. However, it is alleged that both the April funds and the September funds were subsequently dispersed in various transactions. Consequently the plaintiff has now instituted proceedings claiming relief against twenty-nine defendants said to have been immediate or subsequent recipients of some portion of such funds or to have otherwise have been involved in such transactions.

6. The Statement of Claim alleges that the plaintiff permitted or made the transfer of the April funds by mistake ("the April mistake") and that the September funds were similarly transferred by mistake ("the September mistake"). It also alleges, inter alia, that Mr Muir acted without authority, acted fraudulently, wrongfully converted the plaintiff's right of action to the April and September funds, acted dishonestly in breach of his duties of confidence and fiduciary duties and, by his actions, became a constructive trustee of the April and September funds.

7. Upon the hearing of the motion Mr Crowe, who appeared for the plaintiff, sought leave to further amend the Statement of Claim so that the allegations specifically pleaded against the fourteenth defendant would read as follows:

D14 Mark Endrez - the fourteenth defendant

A Subsequent Recipient of April Funds

Alternatively: A Volunteer (Non Accessory) Subsequent Recipient of April Funds

The April Funds

Unjust enrichment in Relation to the April Funds

D14.1 On divers occasions and in divers transactions occurring after 16 April 1998 Mark Endresz received parts of the April Funds. By reason of the April Mistake which occasioned the payment of the April Funds to CTC and the lack of any consideration given by Mark Endresz for the April Funds so received by him the same were money had and received by him to the use of the Commonwealth and Mark Endresz was unjustly enriched at the expense of the Commonwealth to the extent of the April Funds so received by him.

Particulars

Particulars of each of the occasions, the transactions, the parts of the April Funds involved and the lack of consideration provided for the same are described in the Book of Particulars with respect to each of the transactions the subject of these proceedings.

D14.2 Further by reason of the lack of consideration provided by Mark Endresz for his receipt of the April Funds which were at all material times the trust property of the Commonwealth Mark Endresz is liable to repay to the Commonwealth the April Funds so received by Mark Endresz pursuant to the Commonwealth's right to trace its trust funds.

The April Funds

Participating in the Breach of Fiduciary Duty by David Muir and Callform in Relation to the April Funds.

D 14.3 On the divers occasions and in the divers transactions occurring on and after 17 April 1998 Mark Endresz participated with divers others in dealing with parts of the April Funds.

Particulars

Particulars of each of the occasions, the transactions, the other participating parties and the parts of April Funds involved are described in the Book of Particulars.

D14.4 At all material times after 21 September 1998 Mark Endresz is and was aware or had reason to know that David Muir and Callform were guilty of dishonest breaches of fiduciary duty to the Commonwealth.

Particulars

In respect of any particular day during the period Mark Endresz knew or had reason to know of the said dishonest breaches of fiduciary duty because of the various matters occurring prior to that particular day which Mark Endresz knew through his involvement in each of the transactions in the Book of Particulars.

D14.5 On divers occasions after 21 September 1998 and on each such occasion with the knowledge described above Mark Endresz:

D14.5.1 received and used parts of the April Funds; and/or

D14.5.2 otherwise participated with other persons in the dishonest breaches of fiduciary duty by David Muir and Callform.

Particulars

Particulars of each of the diverse occasions after 21 September 1998 the transactions by which Mark Endresz received or used the April Funds, or the amounts of which funds and any other person with whom Mark Endresz participated in any dishonest breaches of fiduciary duty are described in the Book of Particulars.

D14.6 In respect of the parts of the April Funds so received or used Mark Endresz holds the same on constructive trust for the Commonwealth.

Particulars

Particulars of the parts of the April Funds so received or used are described in the Book of Particulars.

D14.7 Mark Endresz is liable to pay the Commonwealth equitable compensation for his participation in the said dishonest breaches of fiduciary duty.

8. Mr Sheils QC who appeared for the fourteenth defendant maintained that the amendments would not provide an adequate answer to his objections to the manner in which the plaintiff's claim had been pleaded against his client but did not otherwise oppose the amendments being made.

9. Mr Crowe also indicated that it was intended to amend the particulars of the allegations made against the fourteenth defendant. The particulars of those allegations, if amended as proposed, would read as follows:

Transaction Number 13 - An April Funds Transaction

T13.1 Date and Nature of Transaction

20 April 1998 and subsequently. Various payments to Mark Endresz by Kamanga and the Davis Samuel Partnership.

Various other payments by Kamanga for the benefit of Mark Endresz

Date Amount Payment Details

T13.1.1 20.04.98 $300,000.00 From Kamanga To Mark Endresz For Unknown

T13.1.2 19.05.98 $12,000.00 From Kamanga To Mark Endresz For Unknown

T13.1.3 28.10.98 $75,000.00 From Davis Samuel Partnership

To Mark Endresz

For "Putting the deal together"

T13.1.4 28.01.99 $20,000.00 From Kamanga To Mark Endresz For Unknown

T13.2 Persons Participating

T13.2.1 Kamanga as an accessory to subsequent receipt of April Funds.

T13.2.2 Jozsef Endresz and Allan Endresz as accessories to subsequent receipt of April Funds being directors of Kamanga knowingly involved in the transaction.

T13.2.3 Mark Endresz as a subsequent recipient of April Funds or, in the alternative, a volunteer (non-accessory) to a subsequent receipt of April Funds.

T13.2.4 The Davis Samuel Partnership as an accessory to subsequent receipt of April Funds.

T13.2.5 Quancorp as an accessory to subsequent receipt of April Funds.

T13.2.6 Peter Cain as an accessory to subsequent receipt of April Funds being the director of Quancorp knowingly involved in the transaction.

T13.3 This Transaction as a Link in the Flow of April Funds

T13.3.1 The payments of $300,000.00, $12,000.00 and $20,000.00 by Kamanga to Mark Endresz in this transaction are uses by Kamanga of parts of the April Funds.

T13.3.2 The payment of $75,000.00 by the Davis Samuel Partnership to Mark Endresz in this transaction is a use by the Davis Samuel Partnership of part of the April Funds.

T13.3.3 Further particulars as to the balances of Mark Endresz's bank accounts immediately prior to the making of these payments to him will be provided after discovery.

T13.4 Knowledge of the Participants in this Transaction

T13.4.1 As against Kamanga, the Davis Samuel Partnership, Allan Endresz, Jozsef Endresz and Peter Cain, the circumstances of this transaction are:

T13.4.1.1 not consistent with it being a genuine commercial transaction;

T13.4.1.2 such that the participants in it could not have believed at the time of their participation in it, that it was a genuine commercial transaction; and

T13.4.1.3 the participants within it could not have believed that the April Funds the subject of this transaction were as a result of prior genuine commercial transactions, including a genuine commercial transaction of which the April Funds Transfer was a part.

T13.4.2 As against Mark Endresz, the circumstances of this transaction are such that he could not have believed at the time of his participation in it, that it was a genuine commercial transaction.

T13.4.3 The transaction is not consistent with a genuine commercial transaction, in that:

T13.4.3.1 there is no commercial record of any genuine pre-existing legal or equitable obligation owed by Kamanga or the Davis Samuel Partnership in this transaction to Mark Endresz;

T13.4.3.2 there is no commercial record of the provision of any valuable consideration or the making of any promise of valuable consideration by mark Endresz in exchange for the transfer of April Funds involved in this transaction;

T13.4.3.3 there is no commercial record of any negotiations for or other circumstances of these payments marking them as consistent with the ordinary business of Kamanga or the Davis Samuel Partnership; and

T13.4.3.4 there is no commercial record of this transaction serving any commercial purpose of Kamanga or the Davis Samuel Partnership.

T13.4.4 The speed after the receipt by Kamanga of $2,445,000.00 from CTC on 20 April 1998 of the disbursing of part of that sum by Kamanga to Mark Endresz of $300,000.00 indicates that Kamanga had no pre-existing planned commercial use for those funds and that the participants in this transaction made and were prepared to make arbitrary payments of a kind not consistent with a belief that the funds being handled were the product of genuine commercial transactions.

T13.4.5 On 18 October 1998 Mark Endresz was paid $75,000.00 by the Davis Samuel Partnership for arranging David Muir and Callform to provide the September Funds transfer and was to be paid a further $75,000.00 on undefined criteria as to the "success" of the Davis Samuel investment in Hallmark Gold. The concept of the making of such payments by the Davis Samuel Partnership to Mark Endresz for his role in the investment of Commonwealth Funds is not consistent with a perception on the part of Peter Cain, Jozsef Endresz and Allan Endresz, that the September Funds transfer was a genuine rollover investment by the Commonwealth in the Davis Samuel Partnership and is not consistent with a perception on the part of Peter Cain, Jozsef Endrez and Allan Endrez that there was a genuine obligation on the Davis Samuel Partnership to repay to the Commonwealth on the terms allegedly provided to the Commonwealth.

T13.4.6 The payment to Mark Endresz by the Davis Samuel Partnership of $75,000.00 was not consistent with any genuine commercial transaction between Mark Endresz and the Davis Samuel Partnership in that;

T13.4.6.1 there are no ordinary commercial records, fixing the terms on which any commission was payable to Mark Endresz, settling the arrangements between the Davis Samuel Partnership and Mark Endresz, or in the nature of any invoice or receipt for the payment made by the Davis Samuel Partnership to Mark Endresz;

T13.4.6.2 the funds received by Mark Endresz were not quantified by the Board of Kamanga against any identifiable or recorded commercial criteria;

T13.4.6.3 the request for payment of $150,000.00 made by Mark Endresz to the Davis Samuel Partnership was made after the September Funds had been deposited in the Davis Samuel Partnership CBA account.

T13.4.7 The payment of $75,000.00 by the Davis Samuel Partnership to Mark Endresz for "putting the deal together" (affidavit PM Cain sworn 11 February 1999) is a payment which the participants in this transaction knew was a matter in which genuine lender/investor in the position of the Commonwealth was likely to have been interested had it known of the payment.

T13.4.8 The payment of $75,000 by the Davis Samuel Partnership is a payment for which there was no genuine commercial consideration supplied by Mark Endresz.

T13.4.9 The payments of $300,000.00, $12,000.00 and $20,000.00 by Kamanga to Mark Endresz are not consistent with any genuine commercial transaction for which Mark Endresz provided any valuable consideration.

"T13.4.10 By the time of the receipt by Mark Endresz of the $75,000 the following was the case:

T13.4.10.1 Mark Endresz had a long and close association with Alan Endresz, Joszef Endresz, Peter Cain and William Forge by reason of family and/or business relationships.

T13.4.10.2 Mark Endresz and David Muir were well known to one another for over 10 years.

T13.4.10.3 David Muir had to the knowledge of Mark Endresz been a consultant employed via Callform within the Department of Finance and Administration during the period April 1998 to October 1998 to perform accounting work.

T13.4.10.4 It was common knowledge within the business and financial community in Australia that the Commonwealth did not invest money other than by regulated and prudential means.

T13.4.10.5 To a person of the business experience of Mark Endresz it would appear unlikely that David Muir or Callform would have been authorised to invest or use Commonwealth monies.

T13.4.10.6 David Muir/Callform had obtained access to $6 million in Commonwealth funds which had been paid to CTC in April 1998 in circumstances where it was most unlikely that any money would be repaid to the Commonwealth because -

T13.4.10.6.1 CTC was, apart from a speculative legal action against the Australian Stock Exchange, insolvent or without any obvious means of financial support to avoid its insolvency prior to the receipt of the April Funds;

T13.4.10.6.2 Immediately upon receipt of the April Funds about $3.5 million was paid to companies controlled by Alan Endresz, Jozsef Endresz, Peter Cain and William Forge and/or their associates in the circumstances described in these particulars in relation to those persons;

T13.4.10.6.3 During the period April 1998 to August 1998 the remaining $2.5 million was paid to companies controlled by Alan Endresz, Jozsef Endrez, Peter Cain and William Forge and/or their associates in the circumstances described in these particulars in relation to those persons.

T13.4.10.7 The payment of the April Funds to CTC was objectively unlikely to have been a genuine investment of Commonwealth funds because of the matters referred to in T1.

T13.4.10.8 Mark Endresz received $300,000 without the provision of considerate and otherwise without any apparent commercial reasons from the April Funds on the same day the money was received by CTC.

T13.4.10.9 Shortly after 21 September 1998 Mark Endresz requested from Davis Samuel payment from the September funds of $150,000 for "putting the deal together".

T13.4.11 In the circumstances listed above the plaintiff says that:

T13.4.11.1 It may reasonably be inferred that Mark Endresz knew that in paying the September funds and the April Funds, David Muir/Callform was acting without authority and in breach of his/its fiduciary obligations to the Commonwealth; and/or

T13.4.11.1 a reasonable person in the position of Mark Endresz would have been put on inquiry as to the propriety of the transactions leading to the payment of the $75,000."

10. Mr Sheils challenged the adequacy of the case pleaded against his client on a number of bases.

11. First, he contended that the allegations that Mr Muir and the third defendant were guilty of dishonest breaches of fiduciary duty could not be sustained because the Third Further Amended Statement of Claim does not allege facts capable of giving rise to the fiduciary duty said to have been so breached. Hence, the allegations that the fourteenth defendant participated in such breaches cannot be sustained. Secondly, he submitted that, in any event, theft or embezzlement of funds could not, of itself, create a constructive trust. Thirdly, he contended that the pleadings are unclear and fail to comply with the requirements of O 23 r 15 of the Supreme Court Rules which, as he pointed out, requires the plaintiff to raise by its pleading "all matters which . . . would raise issues of fact not arising out of the preceding pleading as, for instance fraud . . . (and) facts showing illegality". Fourthly, he submitted that the scope of the remedies provided by the concepts of unjust enrichment or "money it had received" could not extend to the provision of a cause of action by the plaintiff against his client.

12. The rules of pleading are designed to ensure that a party is not placed in a position of not knowing what is alleged against it because the pleading is unintelligible, ambiguous, vague or too general. It has been said that a party is entitled ex debito justitiae to have the case against him presented in an intelligible form: Davy v Garrett (1878) 7 Ch D 473 at 486. Where the relevant portion of the pleading is to be vague, unclear or confusing and there is no reason to suppose that it could not be re-pleaded in a manner that would give the opposing party clear notice of the case it has to meet, an order should be made that the then relevant portion of the pleading should be struck out or, in an appropriate case, amended. A pleading which does not allege all the material facts on which the relevant party relies for the claim or defence may be struck out. See Bruce v Odhams Press Ltd (1936) 1 KB 697. Furthermore, when objectionable matter is so closely intertwined with other allegations that the pleading as a whole may tend to embarrass the fair trial of the proceeding the court may order that it be struck out in its entirety: see Coe v Commonwealth of Australia [1978] HCA 41; (1979) 24 ALR 118 at 132; Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 92 ALR 395. On the other hand, there will be cases in which the plaintiff is unable to plead the relevant claim with greater clarity or particularity and an order striking it out will effectively prevent it from being litigated. In cases of that kind it is important to bear in mind the limited nature of the exercise being undertaken. Burn J provided a succinct statement of relevant principles in Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd (SC (Vic) No 9643/1992, 16 September 1994 unreported):

"I am permitted to look at the terms of the pleading only. This includes requests for particulars and the particulars provided by the plaintiff in response to those requests. The power is, of course, subject to my overriding discretion to refuse to strike out an offending part, a discretion which has as its starting point the requirement that pleadings and particulars be sufficient to enable the defendants to know what it is they have to meet and the trial judge to conduct the trial which is fair to all parties. In so far as it is contended that a particular paragraph or paragraphs does not disclose causes of action I am not determining a demurrer. A plaintiff will be stopped from putting a claim forward only where, assuming the facts pleaded have been established, the claim is so manifestly hopeless that a trial would be a futility. In case of doubt I should refuse to exercise the power."

The Federal Court has also cautioned that "a court asked to strike out all or part of a pleading needs to be careful to ensure that giving effect to the application does not prevent a party from making a case which it is entitled to make. One has to err on the side of caution lest one deprive of a case which in justice it ought to be able to bring": see TPC v Pioneer Concrete (1994) 124 ALR 685 per Sheppard J at 695.

13. The causes of action pleaded against the fourteenth defendant are necessarily dependent upon the more generalised allegations as to the relationship between Mr Muir and third defendants and the plaintiff, the nature of the obligations thereby undertaken by those defendants and the allegations specifically pleaded against them. In support of his submission that the Third Further Amended Statement of Claim does not allege facts capable of supporting the existence of a fiduciary duty said to have been breached by Mr Muir, Mr Sheils embarked upon a careful analysis of the allegations contained in section B of the Statement of Claim. He pointed out that it was not alleged that Mr Muir was a servant or an employee of the plaintiff nor that he had any contractual relationship with the plaintiff. Both the first and second consultancy agreements were between the plaintiff and the third defendant and Mr Muir was merely an employee of the third defendant. Consequently, it could not be said that the Third further Amended Statement of Claim alleged any relationship of the kind which by its very nature could be presumed to give rise to fiduciary obligations.

14. Whilst the obligation of confidentiality pleaded in par B 1.2.4 is said to extend to the employees and agents of the third defendant it is not suggested that Mr Muir was a party to the first consultancy agreement or that this provision could have been enforced against him other than, perhaps, by proceedings against the third defendant for the purpose of requiring it to exercise control over him in its capacity as his employer. Furthermore, the allegation related only to information or material acquired or produced in connection with the performance of the consultancy services. The corresponding provision of the second consultancy agreement pleaded in par B 2.4.4 is not said to contain any explicit reference to employees or agents and is alleged to relate only to material provided by Department of Finance and Administration ("DOFA") in relation to the provision of the consultancy services.

15. Section B of the Statement of Claim pleads various allegations as to the first and second consultancy agreements and their respective terms. Subsection B(3) states the following:

"B3 Confidential information

B3.1 In the course of performing services pursuant to the consultancy agreement and the second consultancy agreement David Muir and Callform through David Muir gained information as to the means of access to and the controls which existed over funds held in various accounts to the credit of the Commonwealth with the Reserve Bank of Australia and by reason of the nature of that information and the circumstances in which it was imparted to David Muir and Callform, that information was information that was confidential to the Commonwealth ("the confidential information").

B3.2 By reason of the matters pleaded above in respect of the confidential information, each of David Muir and Callform owed the Commonwealth a duty to keep in confidence and not to misuse the confidential information.

B3.3 By reason of the matters pleaded above in and about the provision of consultancy services under the consultancy agreement and the second consultancy agreement and in dealing with the confidential information of the Commonwealth each of David Muir and Callform owed the following fiduciary duties to the Commonwealth;

B3.3.1 a duty to preserve and keep secure the Commonwealth's funds in any accounts to which David Muir and Callform had access ("the security principle");

B3.3.2 a duty to keep separate and not to mix the Commonwealth's funds in the said accounts with any other non-Commonwealth funds unless instructed to do so ("the no-mixing principle");

B3.3.3 a duty not to permit a conflict or the significant possibility of a conflict to occur between David Muir and Callform's personal interests and the duty of each of them to perform the consultancy agreement and the second consultancy agreement and to manage the confidential information of the Commonwealth ("the no-conflict principle");

B3.3.4 a duty to account to the Commonwealth for any benefit or gain obtained or received by David Muir or Callform by reason of or by use of their fiduciary positions ("the no-gain principle");

B3.3.5 a duty when David Muir or Callform were holding any money or piece of property or had the means of control over any money or piece of property on behalf of the Commonwealth to distinguish that property from other similar things which David Muir and Callform may acquire or hold for themselves or in which they may be interested and to give that money or piece of property to the Commonwealth when requested together with an account thereof ("the accounting principle");

B3.3.6 a duty when dealing as an interested party with the Commonwealth in respect of any transaction with the Commonwealth where their task as fiduciaries includes the giving of advice or information to disclose and furnish to the Commonwealth all the relevant knowledge which David Muir and Callform possessed and to conceal nothing from the Commonwealth that might reasonably be regarded as relevant to the decision being made by the Commonwealth to engage in the dealing with David Muir and Callform ("the self dealing principle")."

16. It may be noted that paragraph B 3.1 contains allegations that Mr Muir gained information as to the means of access to and controls of funds held in various accounts to the credit of the plaintiff and that he did so in the course of performing services pursuant to the consultancy agreements. It is alleged that, by reason of the nature of the information and the circumstances in which it was "imparted" to Mr Muir and the third defendant, it was information that was confidential to the plaintiff. Paragraph B 3.2 adds the allegation that by reason of those matters both Mr Muir and the third defendant owed the plaintiff a duty to keep that confidential information in confidence and not to misuse it. The fiduciary duty allegedly breached by Mr Muir is said to have arisen as a result of these facts.

17. However, as Mr Sheils pointed out, whilst it is alleged that the third defendant was in contractual relationship with the plaintiff and that Mr Muir was going about his duties as an employee of that defendant when he gained the relevant information concerning the plaintiff's bank accounts, it is not alleged that he was entrusted with the information or that he gained access to it by virtue of a relationship of trust. Nor is it suggested that he gained the information as a result of a trick or deception. The pleading does allege that the information was confidential to the plaintiff by reason of the nature of the information and the circumstances in which it was imparted to Mr Muir but Mr Sheils maintained that the facts alleged do not support such a conclusion.

18. Mr Sheils submitted that the essential principle is as stated by Shepherd JC in "Law of Fiduciaries" 1981 Toronto, Canada, Carswell Co Ltd, at 35 in the following terms:

"A fiduciary relationship exists whenever any person acquires a power of any type on condition that he also receive with it a duty to utilise that power in the best interests of another, and the recipient of the power uses that power. The essence of that theory of fiduciary relationships is that powers are a species of property, which can be beneficially owned by one person while being exercised by another person who may be referred to as the legal owner of the power."

19. The authors of that textbook proposed a methodology for determining whether a fiduciary duty had been breached. That methodology involved a seven step procedure the first three of which involved investigation of the following questions:

"(i) Did the defendant receive any powers properly encumbered by a duty of loyalty?

(ii) What are those powers, both legal and practical?

(iii) In what ways could the transfer of powers so found have been misused by the fiduciary?"

20. These formulations provide some support for Mr Sheils proposition that a fiduciary relationship is dependent upon the acquisition of power on the condition that it be exercised in the best interests of another. In the present case he submitted that the allegations contained in the Third Further Amended Statement of Claim do not suggest the acquisition of any power on such a condition. Alternatively, if Mr Muir did acquire a power on such a condition he acquired it from the third defendant and any duty of loyalty by which it was encumbered was owed to that defendant rather than the plaintiff.

21. Mr Sheils also submitted that a person who is a fiduciary in relation to an obligation of one kind is not, ipso facto, a fiduciary for the purposes of all obligations: see Finn P D "Fiduciary Obligations" 1977 Law Book Co, Australia at par 4. Hence, even if Mr Muir owed a fiduciary obligation to the third defendant and if, by the application of some principle not adverted to in the pleading, that obligation could be regarded as having been extended to the plaintiff then that would not establish, ipso facto, that Mr Muir was a fiduciary for the purpose pleaded. Nor could such a proposition be established merely by reference to the terms of the agreements between the third defendant and the plaintiff.

22. In these circumstances he submitted that the allegation of a fiduciary obligation should be struck out, though he conceded that it would be appropriate for the plaintiff to have leave to re-plead the allegation if there were facts and circumstances capable of supporting it which could properly be alleged in an amended pleading.

23. All this was cogently argued but after carefully considering the terms of the pleading and the relevant legal principles I have concluded that the allegation should not be struck out.

24. The law relating to fiduciary obligation has developed as the demands of a society characterised by increasing social and commercial complexity have given rise to new demands. As Finn points out in "Fiduciary Obligations" (at 4) relatively new rules recognise a fiduciary obligation to safeguard the interest of persons who communicate secrets to others in the confidence that those secrets will be kept. Fiduciary duty will not permit a person to use or disclose information imparted to him or her in confidence without the consent of the person who disclosed it. Furthermore, it is not necessary that a contractual relationship exist between the person said to bear the fiduciary duty and the person to whom the duty is owed.

25. In Breen v Williams (1996) 186 CLR 711 Brennan CJ observed (at 82) that fiduciary duties may arise from "a relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other" and cited with approval the statement of Mason J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 102 to the effect that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case. Dawson and Toohey JJ also referred (at 92) to the remarks of Mason J in Hospital Products Ltd v United States Surgical Corporation where his Honour had expressed the view that the critical feature of the relationships was that the fiduciary had undertaken or agreed to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which would affect the interests of that other person in a legal or practical sense. Similarly, Gaudron and McHugh JJ said (at 106) that Australian Courts had consciously refrained from attempting to provide a general test for determining when persons or a class of persons stand in a fiduciary relationship with another because the term "fiduciary relationship" defies definition. After observing that a doctor is not generally or even primarily a representative of his patient their Honours continued (at 107):

"However the categories of fiduciary relationship are not closed, and the courts have identified various circumstances that, if present, point towards, but do not determine, the existence of a fiduciary relationship. These circumstances, which are not exhaustive and may overlap, had included: the existence of a relationship of confidence; any quality of bargaining power; an undertaking by one party to perform a task or fulfil a duty in the interests of another party; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interest of another; and a dependency or vulnerability on the part of one party that causes that party to rely on another."

In the same case, Gummow J observed (at 137) that fiduciary obligations rise in various situations in which one person is under an obligation to act in the interests of another. Equitable remedies are available where the fiduciary places interest in conflict with duty or derides an unauthorised profit from abuse of duty.

26. The Third Further Amended Statement of Claim alleges that the relevant information was gained by Mr Muir in the course of performing services for the plaintiff as an employee of the third defendant pursuant to the first and second consultancy agreements. Those agreements provided for the provision of accounting services for the plaintiff and whilst Mr Muir was not a party to those agreements the fact that he was providing them on behalf of the third defendant necessarily meant that he would be given access to at least some information relating to the plaintiff's financial dealings and accounts. The crucial information related to the means of access to and the controls over funds held in various accounts to the credit of the plaintiff with the Reserve Bank of Australia. The nature of that information and the fact that it was gained in the course of providing accounting services might in my view provide an arguable basis for contending that it had been provided as an incident of a relationship of confidence. Any defendant to whom this allegation might be relevant might well be entitled to seek further and better particulars of the circumstances in which Mr Muir gained the information if the plaintiff is able to provide them. However, I am not satisfied that the contention that a fiduciary obligation arose in the circumstances pleaded could be dismissed as "so manifestly hopeless that a trial would be a futility". On the contrary, it seems to me to be the type of issue which should properly be resolved only after a proper consideration of all of the evidence in the case and full argument on the point.

27. The contention that the theft or embezzlement of funds cannot of itself create constructive trusts is contrary to authority. In Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 the High Court upheld the right of the owner of stolen money to recover it from the wife of the thief who had paid it into her bank account. Griffith CJ referred to the modern doctrine of equity relating to property disposed of by persons in a fiduciary position as stated in the case of in re Hallett's Estate 13 Ch D 696 at 708. His Honour observed that the proceeds often cannot be identified and that they could not be recovered if received by the other party bona fide for valuable consideration. However he observed that it had long been established by previous authorities that "if the alienee is a volunteer the estate may be followed into his hands whether he had notice of the trust or not". His Honour also said that it had been pointed out by Sir George Jessel in a well known case "that a man may at a certain stage be innocent, but that, if he knows that he has got the advantage of a fraud to which he was no party and says he will keep it, then he becomes himself a party to the fraud and is liable to the jurisdiction of the Court of Equity". Justice Barton indicated that he was of the same opinion and tersely added that "I do not wish to waste words on this endeavour to retain the fruits of a crime". Justice O'Connor also expressed his agreement, summarising the relevant legal principles in the following passage at 110:

"Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that other person's hands. If, of course, that other person shows that it has come to him bona fide for valuable consideration, and without notice, it then may loose its character as trust money and cannot be recovered. But if it is handed over merely as a gift, it does not matter whether there is notice or not."

28. In the more recent case of Australian Postal Corporation v Lutak & Ors (1991) 21 NSWLR 584, Bryson J accepted that money obtained by selling stolen stamps was impressed with a constructive trust and that the plaintiff was entitled to trace those trust monies into real estate bought in part from such monies.

29. It is true, as Mr Sheils points out, that in Black v S Freedman & Co the High Court was concerned with the gift of the money to an immediate transferee without consideration. However, there is no reason to suppose that trust monies may not be recovered from successive recipients unless, of course, a recipient is able to demonstrate that he or she has received the money for valuable consideration and without notice of any breach of trust or that the money is no longer impressed with the trust because a predecessor in the chain of possession had so received it. The onus rests upon the fourteenth defendant to raise any issue of that kind and the possibility that he may be able to do so cannot, of course, provide any grounds for striking out the plaintiff's claim.

30. The contention that the plaintiff had failed to comply with the requirements of O 23 r 15 was substantially based upon an argument that the Statement of Claim did not set out any factual allegations sufficient to support the contention that the fourteenth defendant had participated in the breach of fiduciary duty by Mr Muir and the third defendant.

31. The case against Mr Muir is pleaded in subs D(2) of the Statement of Claim which is as follows:

"D2 David Muir - the second defendant

David Muir as an Instigator of the Misappropriation of the April and September funds

The April Funds

D2.1 David Muir at all material times in relation to the April Funds:

D2.1.1 knew that he had no authority to effect any investment of Commonwealth monies;

D2.1.2 knew, or was recklessly indifferent to the fact, that CTC was not an authorised investment vehicle under section 39 of the FMA;

D2.1.3 knew, or was recklessly indifferent to the fact, that CTC was nearly if not insolvent and would be unable to repay the $6m;

D2.1.4 obtained a benefit from the payment of the April Funds namely the sum of $1.0m; and

D2.1.5 intended to deprive the Commonwealth of the April Funds.

D2.2 David Muir fraudulently represented to the Commonwealth through its agent the Reserve Bank of Australia that he had authority to deal with Commonwealth monies and thereby induced the Bank to transfer the April Funds to the account of CTC thereby causing the Commonwealth loss and damage.

D2.3 David Muir by his unlawful act namely the fraud committed upon the Commonwealth and the Reserve Bank of Australia in relation to the April Funds has interfered with the business of the Commonwealth and caused it loss and damage.

D2.4 David Muir has wrongfully converted the Commonwealth's right of action to the April Funds thereby causing the Commonwealth loss and damage.

D2.5 By reason of the matters pleaded above in causing the transfer of the April Funds David Muir acted dishonestly in breach of:

D2.5.1 his duties of confidence pleaded in Section B above; and

D2.5.2 his fiduciary duties pleaded in Section B above.

D2.6 By fraudulently converting, receiving, dealing with and taking control of the April Funds David Muir became the constructive trustee of the April Funds for the Commonwealth.

Particulars

Particulars of David Muir's dealings with and participation in the dealings of others with the April Funds are set out in the Book of Particulars.

The September Funds

D2.7 David Muir at all material times in relation to the September Funds:

D2.7.1 knew that he had no authority to effect any investment of Commonwealth monies;

D2.7.2 knew, or was recklessly indifferent to the fact, that the Davis Samuel partnership was not an authorised investment vehicle under section 39 of the FMA;

D2.7.3 knew, or was recklessly indifferent to the fact, that the Davis Samuel Partnership might well be unable to repay the September Funds;

D2.7.4 obtained a benefit from the payment of the September Funds namely the sum of $200,000; and

D2.7.5 intended to deprive the Commonwealth of the September Funds.

D2.8 David Muir and Callform by David Muir fraudulently represented to the Commonwealth through its agent the Reserve Bank of Australia that he had authority to deal with Commonwealth monies and thereby induced the Bank to transfer the September Funds to the account of the Davis Samuel Partnership thereby causing the Commonwealth loss and damage.

D2.9 David Muir by his unlawful act namely the fraud committed upon the Commonwealth and the Reserve Bank of Australia in relation to the September Funds has interfered with the business of the Commonwealth and caused it loss and damage.

D2.10 David Muir has wrongfully converted the Commonwealth's right of action to the September Funds causing the Commonwealth loss and damage.

D2.11 By reason of the matters pleaded above in causing the transfer of the September Funds David Muir acted dishonestly in breach of:

D2.11.1 his duties of confidence pleaded in Section B above; and

D2.11.2 his fiduciary duties pleaded in Section B above.

D2.12 Further by fraudulently, converting, dealing with, receiving and taking control of the September Funds David Muir became a constructive trustee of the September Funds for the Commonwealth.

Particulars

Particulars of David Muir's dealings with and participation in the dealings of others with the September Funds are set out in the Book of Particulars.

32. The claim against the third defendant depends upon the allegations pleaded against Mr Muir who is said to have acted at all material times as its agent and whose knowledge is said to have been the knowledge of that defendant. The plaintiff alleges that the third defendant is vicariously liable for Mr Muir's actions and independently liable for breach of the first and second consultancy agreements.

33. As Mr Crowe made clear during the course of his submissions the plaintiff does not allege that the fourteenth defendant had been guilty of any complicity in the acts which gave rise to the misappropriation of the April or September funds. Nor is it alleged that the fourteenth defendant had any actual knowledge of the fraudulent nature of those transactions prior to 21 September 1998. It is alleged rather that the fourteenth defendant had participated in the breach of fiduciary duty by Mr Muir and the third defendant by subsequently becoming aware that he had received a financial advantage from that breach and deciding to retain it. It was in that sense that Griffiths CJ said that such a person "becomes himself a party to the fraud".

34. It was also submitted that the references to "divers occasions" and "divers transactions" was so imprecise as to leave the fourteenth defendant in the position of not knowing what claims might be made against him. This problem was not cured by the particulars which contained equally vague phrases such as "various payments" and "various other payments". During the course of argument, however, Mr Crowe made it clear that the plaintiff relied only upon the four transactions particularised in paragraph T13.1 of the Draft Amended Particulars. The case that the plaintiff sought to make against the fourteenth defendant in relation to the first two of those payments made, respectively, on 20 April 1998 and 19 May 1998 was that he received the money as a volunteer and that the plaintiff was therefore entitled to recover its money on the same basis as the plaintiff in Black v S Freedman & Co. In relation to the subsequent payments made on 28 October 1998 and 28 January 1999 the plaintiff again relies upon the contention that the fourteenth defendant had received the funds as a volunteer but, in addition, alleges that he had done so with notice of Mr Muir's breach of fiduciary duty.

35. The Statement of Claim and/or the particulars should be amended to narrow the scope of the claim against the fourteenth defendant to that which Mr Crowe explained had been intended. Subject to such amendments, however, I am not satisfied that the claim against the fourteenth defendant should be struck out due to any perceived lack of clarity or failure to comply with the requirements of O 23 r 15 of the Supreme Court Rules.

36. Finally, I am unable to accept that the claim based upon unjust enrichment is "so manifestly hopeless that a trial would be a futility". It is clear that such a claim may be based upon either a mistake of law or a mistake of fact: see Davids Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 375 and 393. It is true that the High Court added a note of caution (at 379) that: "it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable". However if money is paid as the result of a mistake then a plaintiff has a prima facie right to recover it without the need to prove independently that the recipient has been unjustly enriched at the expense of the plaintiff. It is open to the defendant to demonstrate that he or she has not been unjustly enriched because, for example, of a subsequent change of position without notice of the relevant mistake but the onus rests upon the defendant in relation to any such issue.

37. Mr Sheils submitted that whilst the concept of unjust enrichment might have given rise to a viable claim against the initial recipients of the April and September funds it did not authorise "tracing down the line". Whilst counsel was unable to refer me to any authority on this point, I am unable to see any reason in principle for the remedy to be confined in the manner suggested. It cannot be doubted that if a bank mistakenly pays a large sum of money into the wrong account it may recover that sum from the customer in question. If that customer were to withdraw the funds so obtained and pay them into his wife's account with a different bank then it is difficult to see why the bank should thereby be precluded from recovering the funds from her. Unlike the position in Black v S Friedman & Co the monies would not have been obtained dishonestly by the customer but the bank would be entitled to maintain that his wife had been unjustly enriched in a manner which was otherwise identical. Of course, the passage of funds through a series of transactions may give rise to many circumstances in which a defendant would be entitled to claim that there had been a relevant change of circumstances or that the monies were otherwise irrecoverable on the basis of unjust enrichment. Again, however, the onus of raising any such issue would lie on the defendant and the possibility that such circumstances may exist again offers no justification for striking out the claim. In any event, it is unnecessary to finally decide this point at this stage of the proceedings. The only issue is whether the claim is demurrable. I am not satisfied that it is.

38. For these reasons the motion must be dismissed.

39. I will hear counsel as to costs.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.

Associate:

Date: 14 December 1999

Counsel for the plaintiff: Mr R Crowe

Solicitor for the plaintiff: The Australian Government Solicitor

Counsel for the defendant: Mr P Sheils QC

Solicitor for the defendant: Gillespie-Jones & Co

Date of hearing: 19 October 1999

Date of judgment: 14 December 1999