New South Wales Supreme Court CITATION : Commonwealth Bank of Australia v Saleh & 8 Ors [2005] NSWSC 681 HEARING DATE(S) : 30/06/05, 01/07/05 JUDGMENT DATE : 1 July 2005 JUDGMENT OF : White J DECISION : See para 55 of judgment. CATCHWORDS : PRACTICE AND PROCEDURE - Interlocutory injunction to restrain dealings with a bank account - Account contained proceeds from an alleged fraud practised on plaintiff - Strength of prima facie case that defendant implicated in the fraud - Strength of prima facie case that plaintiff relied on alleged misrepresentations - Balance of convenience - Plaintiff's negligence - Injunction not continued. CASES CITED : Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 399 Commonwealth Bank of Australia PARTIES : v Mohamed Saleh & 8 Ors FILE NUMBER(S) : SC 3643/05 Plaintiff: A Henskens COUNSEL : 3rd Defendant: In Person Plaintiff: J K O'Sullivan SOLICITORS : Defendant: N/A LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST WHITE J Friday, 1 July 2005 3643/05 Commonwealth Bank of Australia v Mohamed Saleh & 8 Ors JUDGMENT 1 HIS HONOUR: This is an application to extend an injunction granted ex parte on 24 June 2005, to restrain dealings with bank accounts to which the plaintiff claimed the proceeds of a fraud practised on it, could be traced. The injunction against the third defendant has been extended from time to time until today, and he opposes its continuance. 2 The plaintiff's claim, in short, is that it was induced to lend $7 million to a person representing himself to be a Mr Edge. The loan was made to enable this person to purchase the shares of the first defendant, a Mr Saleh, in a company called TDM Australia Pty Ltd. 3 The sum of $7 million was paid by the plaintiff to the first defendant on 3 June 2005. Since then Mr Edge has apparently disappeared, if he ever appeared. So, it seems, has the first defendant. 4 The plaintiff claims that the company does not have the assets which it was represented to have or that the assets may be worthless. In particular, it was represented to the plaintiff that the company had debtors totally $8,427,540.76. Subsequent inquiries have revealed that this representation was probably false. Enquiries of the debtors in question disclose that they either deny owing any money at all to the company TDM Australia Pty Ltd, or, if they do, they say that they owe a few hundred dollars and not a few hundred thousand dollars, as represented on a list of the company's debtors. 5 The third defendant is sued because he was the accountant for the company. 6 The plaintiff, I apprehend, will say that it relied upon certain correspondence written by the third defendant, as director of the company called Qureshi & Associates Pty Ltd which carries on business as an accountant under the business name of Mascot Taxation & Accounting Services. Mr Qureshi owns the shares in that company. 7 There are two relevant items of correspondence from Mr Qureshi. One is a letter written by him dated 20 May 2005, and the other is a letter dated 3 June 2005 to which I will refer later in these reasons. The plaintiff says that the third defendant represented that the company's debtors listing was correct. 8 On 24 June, the plaintiff obtained an order freezing the third defendant's account with the ANZ Bank, which is the fourth defendant. The order was obtained on the basis of evidence given by an officer of the plaintiff on information and belief that $315,015 of the $7 million had been disbursed by the first defendant by being paid to the third defendant. 9 Subsequent inquiries, or production of documents on subpoena, revealed that on 7 June 2005 the first defendant transferred $125,000 to the third defendant's account with the ANZ Bank. Of that sum $55,168, was drawn on 10 June. Further withdrawals totalling $24,500 were made between 14 June and 20 June. When the order was made, the account had a credit balance of $45,337. It is that sum which the plaintiff seeks to restrain the third defendant from dealing with. 10 In essence, the plaintiff makes two claims against the third defendant: one is that there is a serious question to be tried that the third defendant was a participant in the fraud and it claims to trace the moneys against him as a constructive trustee. Alternatively, it will say that there is a serious question that it has a claim against him on the basis of misrepresentations contained in the correspondence of which he was the author, upon which it relied, and that there is reason to apprehend that if the injunction is not continued the moneys are likely to be dissipated with the intention of frustrating any judgment. 11 The plaintiff relies upon the correspondence written by the third defendant which it says assisted the fraud. Secondly, it relies upon the circumstances of the payment made to Mr Qureshi on 7 June. The third defendant says that that payment was for outstanding accounts for accountancy or consultancy services which he provided to the company. The plaintiff says that that explanation is false, or there is at least a serious question to be tried that it is false, and it relies upon the alleged apparent falsity of the explanation as corroborative of its charge that the third defendant participated in the fraud. It also relies on the failure of the third defendant to produce any of the company's records when a representative of the receiver, which the plaintiff has appointed to the company, sought their production. 12 The plaintiff submits that there would be no real prejudice to the third defendant if the injunction is continued. This is because, on the third defendant's own evidence, a substantial part of the debt of $125,137 had been outstanding for a considerable time and the money which was used to discharge it, assuming the debt existed, belongs beneficially to the plaintiff. Hence, the plaintiff says the third defendant would be really no worse off if he is not entitled to make use of the rest of the plaintiff's money than he would have been if the debt had not been discharged in the first place. 13 The plaintiff also says the third defendant ought never to have received the whole of the $125,000 that was paid to him, assuming that it was paid for accountancy services as he claims. That is so because if the accounts which he says were sent to the company were genuine, the company ought to have withheld 47½% of the remittance, owing to the fact that the accounts did not include on them a statement that they were tax invoices and did not contain an Australian Business Number for the company Qureshi & Associates Pty Ltd, which supplied the relevant services. Hence it is said, the third defendant cannot complain if he is restrained from dealing with a sum which is less than that which, in any event, should not have been paid to him. 14 The plaintiff also says that the third defendant claims to have no assets except his interest in the company which conducts the accountancy practice and that if he is allowed to deal with the sum of $45,337, it is likely that no moneys will be available to satisfy any judgment. 15 It is convenient to turn first to the correspondence written by the third defendant to which the plaintiff has referred. The letter of 20 May 2005 is addressed to the director, TDM Australia Pty Ltd and it is headed "Re: 2004 Accounts and 2004 and 2005 Receivables". It refers to a query regarding the 2004/5 debtors for TDM and continues as follows: " From the information available to us we confirm: · That the 2004 accounts are correct, · That the debtors as at the 30th June 2004 and for the 10 months to 30th April 2005, as per the attached debtors listing is correct." 16 Then it deals with credit provided to TDM's customers for more than 30 days. The letter also stated that if the addressee had any further queries he should not hesitate to contact Mr Qureshi on a given telephone number. That letter was attached to an affidavit from Mr Lynch, who is an officer of the plaintiff, who seems to have been, or is, carrying out investigations for the plaintiff. 17 There is no express reference in the plaintiff's evidence that the letter was seen or relied upon by anyone from the plaintiff. The document which Mr Lynch attached to his affidavit as annexure B does not include what was described in Mr Qureshi's letter as the attached debtors listing. 18 An officer of a partnership called PPB Chartered Accountants & Business Reconstruction Accountants Limited ("PPB"), being a firm of whom Mr Parbury, I assume, is a partner, (he being a receiver appointed by the plaintiff to TDM Australia Pty Limited), has annexed to his affidavit the two page facsimile which he says was apparently transmitted on 19 May 2005 from Mr Qureshi to an unknown recipient. The second page of that facsimile listed debtors, showing collections and end month debtors. The document showed that outstanding debtors as at the end of April amounted to $8,427,540, either current or outstanding for between thirty and sixty days. Mr Qureshi says, correctly, that the statement in his letter as to the correctness of the debtors' listing, which he attached to the letter, was stated to be based on the information available to him. He says that the letter does not purport to be a statement verifying the fact that the debts stated were, in fact, owing, but rather that the listing correctly summarised the information available to him from which the listing was compiled. 19 The other document from Mr Qureshi, to which the plaintiff has referred, is a letter dated 3 June 2005 addressed from him to the company, which has been attached to an affidavit of Mr Placek. Mr Placek holds a position in risk management in the Receivables Finance Division of the plaintiff. The letter in question was addressed to TDM Australia Pty Limited. It is a reasonable inference that Mr Qureshi would have realised that it was proposed by the company that the letter be shown to third parties, as the letter commenced by confirming that Qureshi & Associates Pty Limited acted as the accountants for TDM Australia Pty Limited, a fact which would be well-known to the company. Included in that letter was a statement that: "In terms of the difference between the July and October debtors, I confirm that the details in TDM's debtors' ledger are correct. However, since the accounts that were not prepared by our firm were interim accounts and not final accounts, we will reconcile the year end account with your ledger detail to ensure that the accounts for the 2005 financial year properly reflect the details in TDM's ledgers." 20 This letter was apparently written to explain a discrepancy between debtors' listings for July and October 2004. Those listings were not before me, but it does seem, on the present evidence, that the letter addressed a discrepancy between two sets of figures, both of which, on the plaintiff's case, were based on false information. 21 Again, the third defendant said that his job was to prepare the accounts in the company's records and not to verify those records. The statement that the "details in TDM's debtors' ledger are correct" may or may not be construed as going beyond what the third defendant says he intended to convey. But in the context in which the letter is written, I would not infer that the third defendant wrote the letter in order to present, to a prospective purchaser of the company's business or lender, information about the company's debtors which he knew to be false. 22 Again, the evidence about the reliance upon such correspondence from the plaintiff is sparse. Mr Placek annexed a file note which set out the results of a visit he and others made to the company's premises on Friday 3 June 2005. He did not meet with the third defendant, but he did have discussions with the first defendant, Mr Saleh, and Mr Saleh's brother. I infer from the file note that Mr Saleh told him that differences in old debtors' balances were due to original data having been prepared by the external accountant being incorrect. His file note refers to those differences being explained by the production of the external accountant's letter which, Mr Placek summarised as basically stating that the original data prepared by the accountant was incorrect. The file note continued: "While it was evident that the internal records were very sparse, the debtors' records were comprehensive and the general ledger was said to be maintained by the external accountant who had provided financial data, several supporting letters and appeared to have a close involvement with the company." 23 Again, this appears to record what Mr Placek was told by Mr Saleh. No contact was made by the bank with Mr Qureshi. 24 It does seem remarkable that if the plaintiff was proposing to lend $7 million on the faith of a statement about the outstanding debtors of the company and was to rely, for the authenticity of that statement, on the suggestion that the external accountant had maintained the relevant data and was closely involved with the company, that no contact should have been made with that accountant. 25 I do not consider that I can infer from either letter that the third defendant was implicated in the alleged fraud. 26 I turn then to the circumstances of the payment of the $125,000. The third defendant says in his affidavit that since February 2003, he and his staff have provided accounting, taxation and business services to the company. He said that the company appeared to him to have been growing, mainly due to having contracts with Chinese manufacturers and exporters, who were prepared to provide stock to the company very cheaply. 27 He says that by May 2005, his accounts were unpaid. He annexes to his affidavit a letter addressed to the company dated 4 May 2005, which demands payment of outstanding fees of $80,450. In the letter, Mr Qureshi states that he had not received any payment for professional services rendered for the last two financial years. He says that it had been agreed in February 2003 that his services would be provided on a basis which included the payment of a $25,000 per year base fee for providing ongoing advice, and then an hourly fee, which would vary according to the amount of the company's turnover. 28 Mr Qureshi annexed to his affidavit a copy of an account to the company dated 1 November 2003 for $32,875, being the base fee of $25,000 for the 2003 financial year and a fee of $7,875, based on time spent for the period from 1 August to 31 October 2003. He annexed a further account dated 14 May 2004 for $36,987, being a base fee of $25,000 for the 2004 financial year and $11,987 as fees for time spent and a further account dated 7 October 2004 for $8,225 for "advice to date" on a time charged basis. 29 It is the third defendant's evidence that he was visited on 9 May 2005 by Mr Saleh and a Mr M Saleh, who told him that the company had been sold and that they needed the company's documentation brought up-to-date. He said that he would only do so with an iron-clad commitment that his fees, both past and present, would be paid. He accepted an assurance that they would be paid, and continued to do further work in the preparation of financial records and statements of the company. 30 That work, he said, had been completed by 3 June 2005. On that date he told the directors that before he would release the company's documents to them, he wanted to be paid for his services in cleared funds. He says that the directors wanted the company's documents handed over. He says that on 6 June 2005 he produced an account of that date, charging $25,000 as a base fee for the 2005 financial year and $22,050 for further work done up to 3 June. The total of the company's outstanding fees was shown on that document as amounting to $125,137. 31 On 7 June, Mr Saleh said that he would deposit $125,000 in cleared funds. The third defendant asked for the funds to be put into "my National Bank cheque account" which I infer was a cheque account for Qureshi & Associates Pty Limited, although that is not made expressly clear. Mr Saleh said that it would be easier to transfer the funds to an ANZ Bank account. In his submissions before me the third defendant, who was self-represented, said that he was told by Mr Saleh that on that basis the funds could be cleared immediately, whereas it would take a day for the funds to be cleared if they were transferred to an account with a different bank. 32 The third defendant had an account with the ANZ. I will turn to the circumstances of its opening in a moment but, in short, the sum of $125,000 was transferred to Mr Qureshi's personal account with the ANZ. 33 He says that on 7 June, he returned all of the documentation relating to the company to its directors, who demanded the return of the records. 34 Initially, the plaintiff said that there was reason to doubt the truth of this evidence principally for the following reasons: first, the money was paid into the third defendant's personal account, whereas the services were provided by his company; and secondly, suspicion attends the opening of the third defendant's account with the ANZ. It was opened on 10 May 2005 with a minimum deposit of $10. That was the balance when the sum of $125,000 was paid into it on 7 June. Next, it is said that the accounts rendered were suspicious. They were not called a tax invoice and they did not contain an Australian Business Number. 35 Dealing with the last of those matters, I accept that they are puzzling features of the documents which were allegedly sent to the first defendant, but I do not think that that is, itself, indicative that the documents were false and were produced to disguise the true nature of the payment. Whether the documents are genuine or false, they appear to have been created on old stationery that did not have an ABN or a tax invoice stamp. But I think that is equally consistent with the third defendant's version of events and the plaintiff's submission that it can be inferred that the documents had been falsely created to disguise the true nature of the moneys received by the third defendant. 36 As to the fact that the money was paid to an account in the third defendant's own name, the explanation for the opening of that account was not entirely clear. It was said to have something to do with matrimonial relations of the third defendant and his wife. It is a circumstance to be given due weight in considering the plaintiff's contention but by itself was not entitled, I think, to a great weight. 37 The proceedings were heard yesterday and were stood over to this morning for the purpose of giving judgment, but this morning I granted leave to the plaintiff to re-open the evidence and reply to the defendants' evidence. The plaintiff read an affidavit to which were attached financial statements apparently prepared by Qureshi & Associates Pty Limited for the company as of 30 June 2004 and 31 March 2005. The plaintiff submits that it can be seen from those financial statements that the third defendant's assertions as to the money which he was owed are false. For the financial year ended 30 June 2003, the accounts show that the company incurred accountancy expenses of $12,320. In the twelve months to 30 June 2004, the accounts show that it incurred accountancy expenses of $14,650. For the nine months to 31 March 2005, the accounts show that it incurred accountancy expenses of $7,800. 38 The only relevant description of creditors as at any of the balance dates is that moneys were owed either for GST, in other words owed to the Commissioner, or that there were outstanding trade creditors. If the accounts were prepared on an accruals basis so that reference to expenses incurred for accountancy reflected moneys owing for services provided for the relevant years, the figures do not support the contention that as at 30 June 2004 sums totalling $69,862 were owed to Qureshi & Associates. That sum is the total of the two accounts which Mr Qureshi says were unpaid. On the other hand, if the statement of accountancy expenses incurred represents accounts paid, that would be inconsistent with Mr Qureshi's assertion in his correspondence and his affidavit that none of his accounts had been paid. 39 That evidence does give rise to serious question as to the authenticity of the documents which the third defendant annexed to his affidavit and, hence, his contention that the payment which he received was for outstanding fees. 40 I permitted the third defendant to deal with this evidence from the Bar table. He said, essentially, that when his services were engaged, the directors of the company asked him what would be a fair figure to reflect for accountancy services, and was also told that the directors wanted the financial statements to be prepared to show the accounts in their best light. He subsequently incorporated in the accounts expenses for accountancy fees which reflected what he advised was a realistic sum of about $12,000 to $15,000 per annum, but this did not reflect the other consultancy services which he also provided. He said that the figures for creditors in the balance sheets reflected the amount of the accountancy expense but not the consultancy expenses, which was the balance of the sums which were due to him. 41 It seems to me that if his evidence as to the debts which were owed to Qureshi & Associates by the company is correct, the accounts cannot have truly represented the company's financial position and performance. It was suggested at one stage that the full amount of the debts were not recorded in the accounts because it was uncertain whether or not the moneys would be paid. However, the accounts in question were not the accounts of Qureshi & Associates, where provision might perhaps be made for doubtful debts, but the company's accounts where the liability, if it existed, ought to have been disclosed. 42 Nonetheless, I think that the explanation that the full expense would only be reflected in the accounts in the financial year when it was paid is plausible, even though this would involve the preparation of financial statements that did not truly represent the company's true financial position and performance. I think this provides a more likely explanation than that the third defendant created false documents to hide a participation in a fraud perpetrated on a lender. 43 Two things in particular make me think that that is inherently unlikely. The first is that the defendant unquestionably provided accounting services to the company. I think the payment of $125,000 is inherently a very small amount to be paid to participate in a fraud of this magnitude. Of more importance, perhaps, is that after the moneys were received in the third defendant's account with the ANZ, they were not immediately disbursed. As late as ten days after the deposit was made there still remained $45,000 in the account, which sum remained in the account for a further four or seven days until dealings with the account were frozen. That is difficult to reconcile with the notion that the third defendant knowingly persisted in a fraud of $7 million and received the sum of $125,000 as the price of his assistance. 44 Mr Ayres, who is employed by the receiver, deposes to a conversation with the third defendant in the afternoon of 27 June, which, I infer, was after the third defendant had been served with the process. Mr Ayres deposes that the third defendant told him that "TDM owes me money. I am not sure of the amount until I look into my records." I do not conclude from that evidence that the third defendant, at some time after his conversation with Mr Ayres, made up the story about the payment being received in payment of his accounts. 45 On the next day, he sent a fax to Mr Ayres which, in context, shows that he was saying that he had received $125,000 from the company or the first defendant. This fax, together with the third defendant's own affidavit, is the only evidence linking the payment of $125,000 to the third defendant, with the $7 million transferred to the first defendant. His volunteering of this detail is, I think, inconsistent with his attempt to hide an involvement in fraud. Moreover, on the third defendant's account, the statement which he made to Mr Ayres is in any event correct, in that there is still a small sum of money which is owed. 46 I turn, then, to the third matter upon which the plaintiff relied, namely, the non-production of documents by the third defendant. According to Mr Ayres' affidavit, when he spoke with the third defendant, the third defendant told him that he did not have hard copies of the company's books and records in his possession, but that he kept soft copies on his computer. On the next day he sent the fax to Mr Ayres stating that Mr Saleh had requested all details, files and either disks or documents relating to the company. 47 The third defendant says he has no records of the company, only his own computer records of his time sheets and his accounts to the clients. I think there is some discrepancy between what the third defendant now says, and what Mr Ayres says he was told. But the third defendant has not really had a proper opportunity to respond to Mr Ayres' affidavit which was sworn on 29 June 2005, the day before the matter came on for further hearing. I do not understand why the third defendant would represent that he held soft copies of the company's records if he had destroyed or intended to destroy the records. Suffice it to say that that evidence has not yet been tested, and I do not infer from it that there are any strong grounds to conclude that the third defendant participated in the fraud. 48 My conclusion, then, is that while there is a serious question to be tried as to whether the third defendant did so participate, the evidence that he did so is not strong. Moreover, there is only slight evidence that the plaintiff relied upon the representations contained in the correspondence from the third defendant. Thus, while there is a serious question to be tried on both of the causes of action which the plaintiff has foreshadowed, on the present material, I would not characterise the plaintiff's case as a strong one. 49 Turning to the balance of convenience and the two matters to which I referred to earlier in these reasons, if the payment of $125,000 was for work done and if the third defendant did not know or have notice of the fraud perpetrated on the plaintiff, he would be entitled to keep the money free of the plaintiff's claim. His right to keep the money as payment for work done would prevail over the plaintiff's claim for its return, as he would be in the position of a bona fide purchaser for value without notice. The fact that he was paid with money which I assume the plaintiff beneficially owned, it having been held by the first defendant on constructive trust for the plaintiff, raises an issue for decision, but it does not itself show that the balance of convenience favours the plaintiff. 50 As to the claim that the money ought to have been remitted to the Commissioner that, I think, is a matter between the third defendant and the Commissioner, not the plaintiff. 51 There would be some hardship to the third defendant if the account remains frozen, although it is fair to say that nothing specific is identified by him. In his affidavit he says that the freezing of his account has caused him and his practice considerable embarrassment and financial inconvenience, but no further details are given. One specific matter that I can take into account is that his company will have a liability to the Commissioner to pay GST and income tax on the money received. 52 As to the plaintiff, there is no evidence that if it is unable to recover the amount of $45,337 that will have any effect on its operations or on its financial position, beyond the loss of the money itself. However, a Mareva injunction is not granted in order to provide security to a plaintiff, but to prevent a defendant from abusing the court's processes by taking steps which would render any final relief ineffective. The jurisdiction is to be exercised with caution and only in a clear case. If at final hearing the defendant succeeds, it may be impossible for him to prove any loss suffered by reason of the injunction if he later seeks to enforce the undertaking as to damages (see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 399 to 483). 53 There certainly are some suspicious circumstances and while this matter has been argued I have regarded the factors as being quite closely balanced. Ultimately, when considering where the lower risk of injustice lies, I take into account that if the plaintiff cannot recover the sum of $45,337 it has itself to blame. As I have said, it appears that the plaintiff was unable to establish the identity of its customer as it has not joined the person holding himself out as Mr Edge as a defendant. It apparently received and relied on an explanation about the company's debtors on the basis of what it was told by the first defendant and his brother, and from what it might have inferred from the letter produced by Mr Saleh from the third defendant, but without making any contact with the third defendant to ascertain what he meant by the letter, or what he had done to verify the correctness of the debtor listing. It appears, from the same file note to which I referred previously, that in having obtained an explanation from Mr Saleh, the bank decided that: "In view of the reasonable explanation received and the urgency to settle that same day, we decided to proceed with the transaction subject to establishing contact with Edge." 54 Contact was apparently made with the customer later that afternoon, and on the basis of that, the bank paid $7 million to the first defendant. I consider that if the plaintiff is unable to recover the money from the third defendant, it only has itself to blame. 55 For these reasons I do not consider that the injunction against the third defendant should be continued until further order. Subject to any other application which the plaintiff might make, the injunction will expire of its own force at 5 o'clock this afternoon. 56 I direct that when these reasons have been transcribed and corrected, a copy of them be provided to the Commissioner of Taxation. 57 The costs of the plaintiff's application to extend the injunction will be costs in the proceedings. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.