FERGUSON v EAKIN SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, POWELL and COLE JJA 12 August 1997, 27 August 1997 [1997] NSWCA 106 DEBTOR restrained by court order from dealing with monies — monies held by solicitor — solicitor paid monies to third party — creditor sued solicitors in conversion and for monies had and received. HELD each claim failed — nature of claim in conversion discussed — nature and effect of a Mareva order considered. Meagher JA I agree with Cole JA. Powell JA The facts which have given rise to this appeal are set out in the Judgment which is to be delivered by Cole JA, which Judgment I have read in draft, and need not be repeated by me. That statement of facts, in my view, makes it clear that the proceedings were completely misconceived, the reasons for that view - which are basic - being two: 1. even if - contrary to the fact - the moneys standing to the credit of the interest bearing account were to be regarded as being held for the Appellant beneficially, the Respondent's later dealing with those moneys could not, and did not, in law, amount to a conversion of them; 2. as O5 which was made by Herron DCJ on 24 September 1993 - upon which Order the Appellant sough to found his claim that those moneys were, at the relevant time, held for him beneficially - could not, and did not, in law, confer upon the Appellant any beneficial interest in those moneys, it could not be said that those moneys were had and received by the Respondents to the use of the Appellant. So far as the first of these reasons is concerned, it is sufficient to record that the debt which is represented by a credit in a bank account, not being a chattel, but being a chose in action, cannot, in law, be the subject of a claim for conversation. The reliance placed by the Appellant upon the Order made by Herron DCJ - whether alone or in conjunction with the earlier Orders made by Conomos DCJ and Twigg DCJ - is based upon a fundamental misapprehension as to the effect of "Mareva" - type orders, whether made prior to, or on. or after, and in aid of, judgment. Although, in Z Ltd v A-Z and AA-LL!, Lord Denning MR said (at 573): "\.. a Mareva injunction is a method of attaching the asset itself. It operates in rem... It operates just as the process of foreign attachment used to do in the City of London and still does in the United States of America. It operates so as to attach any effects of the defendant, whether money or goods, to be found within the jurisdiction of the court. Under the name 'saisie conversatoire' it is applied 1. Appeal Book, pp182-183. 2 UNREPORTED JUDGMENTS universally on the continent of Europe. It enables the seizure of assets so as to preserve them for the benefit of the creditor: but not to give a charge in favour of any particular creditor." it is, I believe, now clear: 1. that a "Mareva"- type order operates in personam against the relevant defendant, and does not operate in rem against that defendant's assets; 2. that, in consequence. such orders do not confer any, let alone any proprietary, interest in any of relevant defendant's assets (see, for example, Jackson v Sterling Industries Pty Ltd2); 3. that the reason why a bank, or other like institution, which, once given notice of an appropriate ""Mareva - type order, is at risk if, without the authority of the relevant court, it permits the relevant defendant, or, for that matter, anyone else, to deal with the moneys the subject of any account held by, or for the benefit of, the relevant defendant with it is, not that the moneys have been attached, or charged, in favour of the relevant plaintiff by the order in question, but because it is a contempt of court for anyone with notice of an order of a court so to act as to interfere with, or otherwise to obstruct. the course of justice (see, for example, Attorney-General v Times Newspapers Ltd3). But even if, as seems to have been suggested by Lord Denning MR in the passage to which I have referred, a 'Mareva - type order is capable of operating - in the manner of the former garnishee order nisi or of the current day garnishment notice or garnishee order - to attach the amount standing to the credit of any account held by the relevant defendant, the Appellant would still have failed in limine, for service of a garnishee order nisi did not, and service of a garnishment notice or garnishee order does not, operate as an assignment of the relevant debt or any part of it but only created, or creates, a charge over it (see, for example Galbraith v Grimshaw & Baxter'); it was only because the former legislation (see, for example, Common Law Procedure Act 1889 s185; District Courts Act 1912 s122) so provided, and it is only because the current rules of court (SCR Pt46 r11) or the provisions of the current Act (District Court Act 1973 s105) so provide, that payment into court upon service of a garnishee order nisi or of a garnishment notice or garnishee order, or payment in pursuant of an order made in the garnishee proceedings operated, or operates, so as to discharge what would otherwise have been, or would otherwise be, the liability of the garnishee to the judgment debtor, and then only to the extent of the money so paid. In any event, a garnishee order nisi did not operate, and a garnishment notice or garnishee order does not operate, so as to over-ride any prior claim to, or lien over, the debt which may belong to a third party (see, for example, M G Charley Pty Ltd v F R Wells Pty Ltd; Bank of New South Wales GarnisheeS) - a like approach obtains in relation to a "Mareva injunction" which is not regarded as preventing a debtor, such as a bank, recognising, and making payment so as to discharge, pre-existing obligations as, for example, those arising under a Maynegrain Pty Ltd v Compafina Bank (1984) 1 NSWLR 258 at 264. Penfold Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 219. Doodeward v Spence (1908) 6 CLR 406 at 418-419 per Higgins J. The Law of Torts, Professor Fleming, 8th ed, 1992 at p54; The Law of Restitution, Goff & Jones, 4th ed, 1993, at p78; Law of Torts, R P Balkin & J L Davis, 2nd ed, 1996, at p74-75. Compare an action for conversion in respect of an owned instrument: Bavins Jnr & Sims v London & South Western Bank Ltd [1900] 1 QB 270 at 275, 277 at 278. yYewD URJ FERGUSON v EAKIN (Cole JA) 3 guarantee (see Intraco Ltd v Nobis Shipping Corporation®) or under a letter of credit (Power Curber International Ltd v National Bank of Kuwait SAK7). The result thus is that no order for payment which purported to over-ride what were alleged to be pre-existing rights or obligations might properly have been made. or could have had that effect, unless the court had first determined that those rights or obligations did not ante-date the service of the garnishee order nisi, or the garnishment notice (see, for example, M G Charley Pty Ltd v F R Wells Pty Ltd; Bank of New South Wales Garnishee8). I agree with Cole JA that the appeal should be dismissed with costs. Cole JA The appellant. Richard Ferguson, sued the partners of Price Brent, solicitors, upon two bases. The first was conversion of monies and the second was for monies had and received. Sidis DCJ rejected both claims and entered a verdict for the defendants with costs. From that judgment Mr Ferguson has appealed. It is necessary to set out the factual background to the claim in some detail. Mr Ferguson did some building work for a Mr John Somerville on a property at 16 Ferdinand Street, Hunters Hill. He sued Mr Somerville for monies owing to him in respect of such work and on 21 May 1991 judgment was entered in his favour in the sum of $75,058.90. By an amended notice of motion returnable 17 July 1991 Mr Ferguson sought a Mareva injunction to restrain Mr Somerville from disposing of or dealing with his interest in the Ferdinand Street property or alternatively from disposing of $85,000 pending final determination of the plaintiff's claim against the defendant. Although it is not clear it seems that Mr Somerville had either lodged or indicated an intention to lodge an application to set aside the default judgment. A notice of motion seeking to set aside the judgment and seeking a stay of proceedings to enforce the judgment entered on 21 May 1991 was filed returnable on 25 October 1991. Prior to that, on 15 October 1991, in Commercial Division proceedings between the State Bank of New South Wales Ltd, a mortgagee over the Ferdinand Street property, and Mr Somerville consent orders were made which required Mr Somerville to sell the Ferdinand Street property within a specified time. The consent orders included the following term: "3(e) The net proceeds of sale after all usual adjustments shall be applied firstly in payment of the costs of sale being commission and disbursements payable to the auctioneer or agent through whom the sale is effected and solicitor's proper costs and disbursements on such sale and secondly to the debt owed by the defendant to the plaintiff." Up to this time Messrs Price Brent had not acted for Mr Somerville. They commenced so to act on 22 October 1991. At some point after 25 October 1991 Conomos DCJ heard both the application for a Mareva injunction brought by Mr Ferguson, and the application to set aside the default judgment brought by Mr Somerville. His Honour refused the application to set aside the judgment but granted the Mareva injunction. He made orders in the following terms: 6. See by way of analogy the position of a garnishor In re Combined Weighing and Advertising Machine Company [1889] 43 ChD 99 at 103-104 per Cotton LJ, 105 per Bowen LJ, 105-106 Fry LJ; Cairney v Back (1906) 2 KB 746: Rothwells Ltd v Nommack (No 100) Pty Ltd (1990) 2 QDR 85 at 89 per McPherson J; Melson v Vanpress Pty Ltd (1992) ACSR 38 at 40 per Rowland J;(1993) ACSR 109 at 110 per Wallace J, 116 per Kennedy J. 7. See The Law of Restitution, Goff & Jones, 4th ed, 1993, at p79. 8. supra 4 UNREPORTED JUDGMENTS "1. The Defendant Judgment Debtor, John Somerville, upon any sale by him of a property situate at and known as 16 Ferdinand Street, Hunters Hill in the State of New South Wales be restrained from disposing of, or otherwise dealing with that part, if any, of the proceeds of such sale after first allowing for all moneys due to any secured creditors of the property prior in time, being equal to the sum of $75,058.90 being the Judgment obtained by the Judgment Creditor against the said John Somerville in these proceedings on the 21st May 1991 together with any further amount due by way of interest from the aforesaid date of Judgment until date of such sale of the property by the Judgment Debtor, such interest to be at the prescribed rate pursuant to s85 of the District Court Act, from time to time calculated at daily rests, pending further order. 2. That further to O1 upon any such sale of the property situated at and known as 16 Ferdinand Street Hunters Hill taking place, the said John Somerville take all steps, and do all acts and things necessary, (including but not limited to, the signing of all documents and forms necessary) to effect the placement of the full amount due pursuant to Order number | above after first allowing for all moneys due to any secured creditor of the property prior in time in an interest bearing investment account with a financial institution nominated and agreed to by Bruce Lionel Coode and James Tom Johnson, solicitors acting for the Plaintiff and the Defendant respectively or such other solicitors as are then the solicitors on the record of this Court as acting for the parties herein, and in default of any such agreement being reached by the said solicitors a financial institution ordered by this Court upon any party applying on 2 days notice. 3. That upon the sum required pursuant to Order number | above being placed in an interest bearing account with a financial institution in accordance with the proceeding order, the said John Somerville is restrained from dealing with such account, whether by himself or any servant and/or agent pending further order of this Court."9 The form of orders was settled by Price Brent on behalf of Mr Somerville. Those orders were entered on 23 January 1992. Copies of those orders were served on Hunter's Hill Realty, the real estate agents who acted on the sale, the State Bank and Mr Somerville on 28 January 1992. Prior to this on 18 December 1991 Mr Somerville had entered into a contract to sell the Ferdinand Street property. The solicitors for Mr Ferguson communicated to Price Brent the view that, in light of the Mareva injunctions, agent's commission and legal costs on sale of the property could not be paid to the agents or the vendor's solicitors. On 13 February 1992 Price Brent wrote to Mr Ferguson's solicitors advising that unless they altered their stance, a motion would be filed in the District Court "seeking appropriate orders". Mr Ferguson filed a notice of motion returnable on 27 March 1992 seeking various orders including the lifting of a stay of enforcement of the judgment apparently granted on 17 October 1991, and an order that "the balance of the proceeds from the sale of the judgment debtor's property at 16 Ferdinand Street, Hunters Hill be paid to the judgment creditor'. This followed notification from the solicitors for the State Bank to Messrs Price Brent that the Bank declined to accede to Price Brent's request that the Bank receive the total proceeds of sale and from those proceeds pay the agent's commission and the legal costs of sale. To do so, the solicitors contended, would be to seek to avoid the Mareva orders 9. Appeal Book, pp182-183. URJ FERGUSON v EAKIN (Cole JA) 5 made by Conomos DCJ. This led to Price Brent filing a notice of motion on 12 March 1992 seeking a variation of the Mareva orders. On 18 March 1992, prior to settlement of the sale of the property on 19 March 1992, Messrs Price Brent wrote to Hunter's Hill Realty, presumably on the instructions of Mr Somerville, advising that they would hold an amount equivalent to the agent's commission, costs and disbursements on sale in an interest beating deposit "pending resolution of the dispute with Mr Somerville's former builder, Mr Ferguson". They undertook to pay the commission of $27,100 plus accrued interest as soon as they were authorised to do so by Mr Ferguson's solicitors. On settlement of the sale on 19 March 1992, the State Bank received all of the proceeds of sale in partial satisfaction of its indebtedness but excluding the sum of $33,600 being the agent's commission and solicitor's costs. In correspondence between Mr Ferguson's solicitors and Price Brent on 19 March 1992, Mr Ferguson's solicitors nominated Westpac Banking Corporation as the financial institution with which the monies would be lodged in purported compliance with O2 made by Conomos DCJ. Price Brent took the position that such monies were not subject to O2 but were being deposited in that account pursuant to an agreement between the estate agent and Price Brent. On 23 March 1992 Price Brent advised that the funds would be held in that account "pending further order of the court". Price Brent treated the monies so deposited as being controlled monies within the provisions of the Legal Profession Act 1987 and the Legal Profession (Trust Accounts and Controlled Monies) Regulation 1988 and on 25 March issued the appropriate notices which showed the funds as being held by "Price Brent ATF Hunters Hill Realty and Price Brent". It is implicit that each of the steps taken by Price Brent were taken on the instructions of Mr Somerville although they wrote to him on 10 April 1992, after settlement of the sale, stating: "We confirm that pending the resolution of the dispute with Mr Ferguson we have been required to place the sum of $33,600 on deposit as controlled monies. As soon as we are authorised to release such funds we will attend to payment of the commission of $27,100 due to Hunters Hill Realty and our costs and disbursements of acting on the sale in the sum of $6,500 as per the enclosed memorandum." On 16 and 17 June 1992 the Twigg DCJ heard three motions, delivering judgment in respect of them on 2 July 1992. The three motions were Mr Somerville's motion seeking orders that the default judgment of 21 May 1991 be set aside, his motion seeking orders varying the Mareva orders of Conomos DCJ entered 23 January 1992, and Mr Ferguson's motion seeking security for costs and orders regarding the balance of proceeds of sale of the Ferdinand Street property. His Honour set aside the default judgment. As a condition of granting leave to file a defence, Twigg DCJ ordered that the defendant pay the plaintiff $10,619.44 which had been claimed for costs. Further ordering (b) such sum shall be deemed to have been paid if the defendant pays that sum out of the account in the name of Price Brent jointly operated by the solicitor for the defendant and for the State Bank of New South Wales." and further 6 UNREPORTED JUDGMENTS "(d) that the defendant not operate or agree to operate upon the balance of the sum of $33,600 held the jointly operated bank account referred to in para2(b), other than to comply with O2(b) or to arrange for it to be placed in an interest bearing deposit until further order of the Court." Having preserved the fund in this way as a condition of leave to file a statement of defence, the application to vary the terms of the Mareva orders was dismissed. The sum of $10,619.44 was paid to the plaintiff's solicitors on 24 July 1992. On 27 July 1992 Price Brent wrote to Mr Somerville advising that "it may be appropriate to make another application to vary the Mareva injunction restraining you from disposing of the monies in trust. The variation will seek to enable you to use some of that money to pay debts and legal costs of these proceedings". Nothing further appears to have been done prior to Price Brent ceasing to act for Mr Somerville on 24 June 1993. After Mr Somerville had filed his defence to Mr Ferguson's claim, Mr Ferguson by notice of motion filed 5 August 1993 sought that the defence and cross-claim be struck out, that the orders of Twigg DCJ be set aside and the default judgment restored with the stay of enforcement of that judgment granted on 17 October 1991 to be set aside. Prayer 5 of that notice of motion sought orders that: "All monies held by or in the name of Price Brent, solicitors, pursuant to the Mareva injunction granted by his Honour Judge Conomos on 17 July 1991 and entered on 23 January 1992 and confirmed by Judge Twigg on 2 July 1992 be paid to the plaintiff's solicitors Coode, Scott & Corry in aid of the judgment." The orders sought were made by Herron DCJ on 24 September 1993. A copy of the orders was served on Price Brent by Mr Ferguson's solicitors on 18 October 1993 with a request "for the monies the subject of OS". This request resulted in Price Brent advising Mr Ferguson's solicitors on 2 November 1993 that: "Tt is our view that the orders of the District Court dated 24 September 1993 have no application to the monies held by us as trustee for Hunters Hill Realty and ourselves. Accordingly we do not intend to pursue the course suggested by you." This resulted in Mr Ferguson filing yet another notice of motion in the District Court which was returned before Sinclair DCJ on 4 November 1993. That notice of motion sought an injunction restraining Price Brent from paying out the monies held with Westpac Banking Corporation, and further that the matter be referred to the Supreme Court for consideration whether Price Brent were in contempt of court in refusing to pay the monies pursuant to OS made by Herron DCJ on 24 September 1993. Sinclair DCJ declined to make the orders sought. On 5 November 1993 Price Brent paid the balance of the fund of $24,986.24 to Hunters Hill Realty. On 6 July 1994 Mr Ferguson issued the ordinary statement of claim against Price Brent. Having recited certain of the facts which I have set out above, the claim was pleaded as follows: "9. The defendants have refused to deliver up the said monies thereby detaining and converting the said monies to their own use and wrongly depriving the plaintiff of the same. 10. The plaintiff claims the payment of monies as well as damages for conversion." It appears from the judgment of Sidis DCJ that the matter was argued before her upon the basis of a claim in conversion and for monies had and received. URJ FERGUSON v EAKIN (Cole JA) 7 THE CLAIM IN CONVERSION "Conversion consists of a positive wrongful act of dealing with goods in a manner inconsistent with the rights of the owner."!9 As Dixon J said: "The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel."!! Further, there can be no conversion of a chose in action: the subject matter of an action in conversion must be goods or property capable of possession or being subject to a right to possession!2. Monies in a bank account create in the person entitled to those monies a chose in action against the bank to have a sum equivalent to the credit balance in the account paid to him. There is, however, no property in any such sum nor any immediate right to possession of defined monies, in notes or coinage, equivalent to the value of the credit balance. Thus there cannot be a successful claim in conversion in respect of a balance in a bank account.!3 As the action pleaded was conversion of the contents of a bank account, the cause of action in conversion must fail. Further, Mr Ferguson had no right to possession to the monies in the bank account, nor was he the owner of those monies. On sale of the property the balance of proceeds retained by Price Brent after payment of mortgage monies to the State Bank were the property of Mr Somerville. As counsel for Mr Ferguson correctly acknowledged, the only basis upon which he could contend that property or right to possession of the monies in the bank account could be arguably said to have been transferred to Mr Ferguson was in consequence of OS made by Herron DCJ on 24 September 1993. That order was: "All monies held by or in the name of Price Brent, solicitors, pursuant to the Mareva Injunction granted by his Honour Judge Conomos on 17 July 1991 and entered on 23 January 1992 and confirmed by Judge Twigg on 2 July 1992 be paid to the plaintiff's solicitors, Coode, Scott & Corry, in aid of the judgment." However an order to pay money held in a fund to another person does not transfer title in the money to the intended payee, nor does it create in the intended payee an immediate right to possession of those monies. It is simply an order inter-parties operative in personam directing one party to do an act. It does not operate as an assignment in law or in equity of the monies.14 Having no title to the monies in the account, or right to possession of those monies the claim in detinue must fail. 10. Maynegrain Pty Ltd v Compafina Bank (1984) 1 NSWLR 258 at 264. 11. Penfold Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 219. 12. Doodeward v Spence (1908) 6 CLR 406 at 418-419 per Higgins J. 13. The Law of Torts, Professor Fleming, 8th ed, 1992 at p54; The Law of Restitution, Goff & Jones, 4th ed, 1993, at p78; Law of Torts, R P Balkin & J L Davis, 2nd ed, 1996, at p74-75. Compare an action for conversion in respect of an owned instrument: Bavins Jnr & Sims v London & South Western Bank Ltd [1900] 1 QB 270 at 275, 277 at 278. 14. See by way of analogy the position of a garnishor In re Combined Weighing and Advertising Machine Company [1889] 43 ChD 99 at 103-104 per Cotton LJ, 105 per Bowen LJ, 105-106 Fry LJ; Cairney v Back (1906) 2 KB 746: Rothwells Ltd v Nommack (No 100) Pty Ltd (1990) 2 QDR 85 at 89 per McPherson J; Melson v Vanpress Pty Ltd (1992) ACSR 38 at 40 per Rowland J;(1993) ACSR 109 at 110 per Wallace J, 116 per Kennedy J. 8 UNREPORTED JUDGMENTS Aclaim for money had and received is a claim to recover the plaintiff's money. Unless the plaintiff has title to the moneys or a contractual right to the monies against the defendant, the claim must fail.!5 For reasons given Mr Ferguson had no title to the monies in the bank account nor any contractual right as against Price Brent to such monies. Accordingly this claim fails. It follows that, although for reasons different to those given by Sidis DCJ, her Honour was correct. Accordingly the appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for the Appellant: P Saidi Counsel for the Respondent: G Blake Solicitors for the Appellant: Coodes & Corry Solicitors for the Respondent: Eakin McCaffery Cox 15. See The Law of Restitution, Goff & Jones, 4th ed, 1993, at p79.