New South Wales Supreme Court CITATION : DeGraeve v Bondi Diggers Memorial & Sporting Club Ltd [2005] NSWSC 1289 HEARING DATE(S) : 4 November 2005 JUDGMENT DATE : 4 November 2005 JUDGMENT OF : Brereton J CATCHWORDS : CORPORATIONS – external administration – liquidators – application for directions – whether liquidator justified in relinquishing misconceived claim to bank accounts when it suspects that contents of accounts may be proceeds of crime - PROCEEDS OF CRIME - whether liquidator entitled to refuse to release funds to beneficial owner by reason of concern that they might be proceeds of crime. Associations Incorporations Act 1984 (NSW) Corporations Act 2001 (Cth), s 511 LEGISLATION CITED : Crimes Act 1914 (Cth), ss 29B, 29D Criminal Code Act 1995 (Cth), ss 407, 409 Social Security Act 1991 (Cth), s 1334 Philippe DeGraeve (plaintiff) PARTIES : Bondi Diggers Memorail & Sporting Club Limited (defendant) FILE NUMBER(S) : SC 2412/05 E White (plaintiff) COUNSEL : C D Wood (defendant) George Angelinas (plaintiff) SOLICITORS : Pigott Stinson Ratner Thom (defendant) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Friday 4 November 2005 2412/05 Philippe DeGraeve v Bondi Diggers Memorial & Sporting Club Limited (in liq) JUDGMENT (ex tempore – revised 20 December 2005) 1 HIS HONOUR: At the centre of these proceedings is a dispute between the plaintiff, Philippe Degraeve, and the defendant, Bondi Diggers Memorial & Sporting Club Limited, now in liquidation, as to their respective entitlement to five accounts with the St George Bank in the name of Bondi Diggers Social Swimming Club. 2 By summons filed on 12 April 2005 Mr Degraeve claims declarations that he is entitled to accounts in the name of Bondi Diggers Social Swimming Club numbered 144 640 007 (the 007 account) and 014 635 605 (the 605 account) and three interest bearing deposits numbered 393 031 261, 333 481 594 and 339 534 061, and declarations that amounts of $7,650 withdrawn from the 007 account and $750 from the 605 account on 21 March 2003 should be reimbursed to those accounts by the defendant. 3 By cross-claim filed on 14 June 2005, the defendant claimed a direction, pursuant to Corporations Act 2001 (Cth), s 511, that the liquidator would be justified in informing the St George Bank that he had no claim in respect of the moneys in the 007 and 605 accounts, and ceasing to be a signatory to those accounts. The proceedings were set down for hearing today, only in respect of the relief claimed in the cross-claim, and I have this morning made an order that the proceedings on the cross-claim be determined separately to and before the other questions arising in the proceedings. Mr Degraeve, as cross-defendant, unsurprisingly does not oppose the relief sought by the club in the cross-claim, which will effectively give him the result he seeks in his summons. 4 The 007 account was opened on 7 March 1991 by Mr Degraeve using the proceeds of an earlier account numbered 117 454 891, which had also been in the name of Bondi Diggers Social Swimming Club, and which had itself been opened on 8 October 1982. The balance currently standing to the credit of the 007 account is $11,577.57. 5 The 605 account was opened on 24 April 1996 by Mr Degraeve in the name of Redleaf Social Swimming Club. On 20 February 1995 the name of the account was changed to Bondi Diggers Social Swimming Club. The current balance is $13,678.26. 6 The other three accounts in issue are interest bearing deposits. The 1261 IBD was opened in August 1999, and currently has a balance of $62,076.81. The 4061 IBD was also opened, so far as I can tell, in August 1999, and has a current balance of $73,185. The 1594 IBD was apparently opened in January 1993, and has a current balance of $119,001.20. There is a little confusion as to this, because the numbers of the IBDs referred to in paragraph 9 of Mr Brennan's affidavit, which sets out the current balances, do not appear to coincide with the numbers attributed to them in Annexure E to that affidavit, from which the respective dates of opening and the various dealings on them appear. 7 What can plainly be said, in every case, is that the accounts appear to have been opened, so far as the bank was concerned, by Mr Degraeve alone, and in each case Mr Degraeve was the sole authorised signatory. 8 Until 5 March 2003, Mr Degraeve operated and treated the accounts as his own. He had income tax returns lodged in respect of the interest they generated, and paid the tax assessed, albeit separately from his own personal income tax returns. The tax returns showed the address of the Bondi Diggers Social Swimming Club as an address at Bondi which was in fact occupied by the defendant's registered club, named 232 Campbell Parade, Bondi Beach, and described the business of the Bondi Diggers Social Swimming Club as "promotion of swimming, sport and social activities". 9 Mr Degraeve says that this all came about as the result of his participation, in years gone by, in the affairs of a social club called the Redleaf Social Swimming Club in the 1950s, and a successor club called Bondi Diggers Social Swimming Club in the 1960s. Although using the name "Bondi Diggers", and although having some common members with the registered club, this social swimming club, Mr Degraeve says, had no formal affiliation or connection with the registered club. There is other evidence, albeit of a hearsay nature, of the history of the Redleaf Social Swimming Club, and of a swimming club which formed part of the registered club. Not all of this evidence is consistent with Mr Degraeve's version, but for the reasons which follow it is unnecessary to resolve the inconsistencies. 10 Mr Degraeve says that in about 1972 the membership of the Bondi Diggers Social Swimming Club had fallen to about ten, that it was agreed by all members that the club should be disbanded and voluntarily wound up, and that after he attended to paying out the debts, there remained a surplus of about $2,000 in the club account, which amount he paid out to the members from his personal funds, retaining the account for his own use thereafter. Mr Degraeve says that what is now to be found in the accounts are the proceeds of his savings and inheritances over the following 30 years or so. 11 Inquiries have been made, by the liquidator, of persons identified by Mr Degraeve as having been connected with the former Redleaf Social Swimming Club and the Bondi Diggers Social Swimming Club and, in particular, a Mr Irons and a Mr Tunstall. As I have said, their recollection does not accord precisely with that of Mr Degraeve, but nothing that they say suggests that there would have been any substantial funds of either of those clubs at the time of their dissolution. 12 The liquidator concedes that at least $83,000 of the total of almost $280,000 in the various accounts can be directly traced to Mr Degraeve's personal resources. There is no evidence to contradict Mr Degraeve's assertion that all of the contents of the accounts have been contributed by him from his own earnings and inheritances. 13 While there is evidence that there was in existence, through the 1970s and into the 1980s, a swimming club associated with the defendant's registered club, which was referred to each year in the registered club's annual report, and which appears to have existed from 1935 until at least 1984, there is nothing to suggest that the funds in the disputed accounts had their source with that club or sub-club, and there is nothing to show that any part of the disputed accounts is derived from it. 14 There is now in existence a club incorporated under the Associations Incorporations Act 1984 (NSW) called Bondi Diggers Swimming Club Inc, which, in an unincorporated form, was in existence at least during the 1990s. However, there is nothing in the evidence to suggest that it was the source of any of the funds in the disputed accounts. 15 The liquidator has caused notice to be given of the present hearing to the Secretary of the Bondi Diggers Swimming Club Inc, who has not appeared and to Mr Tunstall and Mr Irons, neither of whom have appeared. Mr Irons has indicated, through a letter from his wife, that he is not involved in any of the matters of which notice was given, namely, a dispute over the subject funds. 16 In short, there is evidence from Mr Degraeve which enables a significant part of the accounts to be directly sourced to him, in a manner which the liquidator has conceded, to the extent of about $83,000. There is evidence from him, which is not incredible, which explains that the balance of the funds in those accounts are derived from his contributions, and there is absolutely no evidence that anyone else has any sort of claim whatsoever to the funds in these accounts. In those circumstances, as I have said, I do not think it necessary to resolve such inconsistencies as there are about the history of the various social swimming clubs, their dissolution and membership: the essential fact is that on the available evidence, the only conclusion open is that Mr Degraeve was the sole source of the funds in the disputed accounts. 17 In November 2002, Allan Peter was appointed Secretary/Manager of the registered club, a position which he continued to hold until 1 February 2004. Shortly after commencing duties at the club, he changed the signatories to the club's accounts, which were also with the St George Bank. He says that there was one trading account only, and that he also opened a TAB account, a Keno account and an ATM account, as three separate accounts with the Bank. He says that on 2 December 2002, to open those additional accounts, he attended at the Bondi branch of the Bank, and in the course of a conversation with a bank officer, who was also a member of the registered club, the question of other accounts in the name of Bondi Diggers was raised. As a result of this, Mr Peter became aware of at least some of the disputed accounts. He was given a print out which listed the customer as "Bondi Diggers", and then a number of named accounts, including "Bondi Diggers Dart Club", "Bondi Diggers Social Swimming Club", "Bondi Diggers Tennis Club", the registered club itself, a second account in the name of the Social Swimming Club, and one in the name of a Women's Auxiliary. 18 Over some months, Mr Peter pursued the bank for further information concerning these accounts, to ascertain who were the signatories and what was the balance of each account. He says that he arranged for the Ladies Auxiliary account and the Darts Club account to be transferred to the club's main trading account, and that he requested that when the two interest bearing deposits fell due, the club transfer the deposits and accumulated interest to the club's main trading account. 19 However, I do not take the Social Swimming Club accounts referred to in the computer print out to be the interest bearing deposits at all. I understand them rather to be the 007 and 605 accounts. The IBD would be lodged separately, and probably what happened is that Mr Peter was told that, in addition to those two accounts in the name of Bondi Diggers Social Swimming Club, there were also IBDs. 20 In any event, on 25 March, $7,650 was transferred to the registered club's account from the 007 account, which immediately prior to that transaction had a credit balance of $7,661.95, thus reducing the balance to $11.95. On the same day, it would seem that $750 was transferred to the registered club's account out of the 605 account; which immediately prior to that transfer had a credit balance of $752.07. The balances in the disputed accounts have increased since that date, as I understand it, by the deposit to them of interest from the IBDs. 21 Following discovery of these withdrawals, Mr Degraeve contacted first the bank, and subsequently Mr Peter, with whom he had an interview. Nothing was, at that stage, resolved. 22 The two accounts in the name of the Bondi Diggers Social Swimming Club have recorded with the bank the address 221 Nuwarra Road, Moorebank. Anyone with much knowledge of the geography of Sydney would recognise that Moorebank is in the south western suburbs, between Holsworthy and Liverpool, whereas Bondi, is a well known eastern suburb. One might have thought that would cause someone making an inquiry about the accounts to doubt, or at least wonder, whether there was in truth any connection. On the other hand, one can understand a new secretary/manager, putting the housekeeping in order, and finding a number of accounts apparently associated with the club, taking steps to have them put into the name of current signatories - although it is very difficult to understand why a bank would join in that exercise without obtaining the authority of the existing signatories. 23 On 1 February 2004, Mr Brennan was appointed liquidator of the registered club for the purposes of its amalgamation with the Bondi Golf Club Ltd, the amalgamated club now being known as Bondi Golf and Diggers Club Ltd. Since then, there has been correspondence between the parties, the detail of which it is not necessary at this stage to recite, in which Mr Degraeve has sought to persuade the liquidator of his entitlement to the accounts, and the liquidator, except as to an amount of about $83,000 which he was prepared to concede, has declined to be so persuaded. 24 It was in that context that Mr Degraeve commenced these proceedings by filing his summons. 25 The cross-claim is brought under Corporations Act, s 511, which authorises a liquidator, a contributory or a creditor to apply to the Court to determine any question arising in the winding up of a company, and provides that the Court, if satisfied that the determination of the question or the exercise the power will be just and beneficial, may accede wholly or partially to any such application on such terms or conditions as it thinks fit, or may make such other order on the application as it thinks just. 26 Although no point is taken about it in these proceedings, and it could easily be cured if it were, it is worth pointing out that the proper applicant under Corporations Act, s 511 is not the company in liquidation, but the liquidator personally, as it is the liquidator, and not the company in liquidation, who seeks the determination of a question under that section. Although the cross-claim is brought in the name of the company in liquidation, I propose to treat the cross-claim as an application by the liquidator for such a direction. 27 As I am hearing only the cross-claim at this stage, all I need resolve is whether I should, in effect, direct the liquidator, that he would be justified in informing the bank that he has no claim in respect of the accounts, and ceasing to be a signatory to the accounts. 28 It will be apparent from the evidence to which I have referred that there is no evidentiary support whatsoever for any claim by the registered club to any beneficial interest in the funds in any of the disputed accounts. The evidence is that it was Mr Degraeve who opened the accounts, that Mr Degraeve was the only person referred to in the applications for the accounts and account mandates so far as they are in evidence, that Mr Degraeve was the only authorised signatory and had the sole power of disposition over the moneys standing to the credit of the accounts, and that Mr Degraeve was demonstrably the source of $83,000, and on his uncontradicted evidence the source of the rest of the funds, in those accounts. That the liquidator has any involvement at all, and any ability at all to exercise control over the funds in the accounts, is, it seems to me, due solely to the bank's mistake in allowing additional signatories to be added to accounts other than in accordance with the account mandate. 29 It is plain that Mr Degraeve has a right to the accounts superior to that of the registered club. There is no basis apparent from the evidence on which the registered club, or its liquidator, can assert a claim superior to his. Even if Mr Degraeve had obligations to others - for example, former members of the Bondi Diggers Social Swimming Club - arising out of his custodianship of the accounts, that is a matter between him and them, and not between him and the liquidator of the registered club. Any superior right of third parties to the funds does not give the liquidator a superior claim to that of Mr Degraeve. 30 Accordingly, subject to what follows, it is entirely clear that the registered club (and its liquidator) has no claim to the disputed accounts, and should cease to be a signatory to the accounts. 31 But the liquidator says, by his counsel, that he is concerned that by ceasing to be a signatory to the accounts, he may be committing a contravention of the Criminal Code Act 1995 (Cth), s 407 and/or s 409, by dealing with proceeds of crime, or funds reasonably suspected of being the proceeds of crime. It is said that an inference is to be drawn that Mr Degraeve has committed offences contrary to Crimes Act 1914 (Cth), ss 29B, 29D, and/or Social Security Act 1991 (Cth), s 1334, by obtaining a pension (and, so it is said, presumably making a false statement to do so) in circumstances in which he was not entitled to a pension by reason of his assets and income, once the disputed accounts are brought to account; then it is said that the contents of the disputed accounts may, therefore, be proceeds of that crime; and then it is said that by foregoing a claim to the contents of those accounts or the rights of a signatory to them, that may be a disposition of money or property in those accounts. 32 As to the first of these propositions, whether there have been offences of the type referred to is at this stage more a matter of speculation than of inference. No statement made by Mr Degraeve to the Department of Social Security or otherwise to the Commonwealth which might form the basis of such an offence has been identified or put in evidence. Mr Degraeve was conducting these accounts, or at least their predecessors, as his own, a decade or so before he first apparently applied for a pension. There may, therefore, be other explanations for his conducting these accounts in the names in which they were than an intention to defraud the Commonwealth - although I accept that, prima facie, it is difficult to see how he was entitled to a pension, or at least a full one, if the amounts standing to the credit of these accounts were included in his assets. 33 As to the second proposition, there is no evidence that the accounts in question are proceeds of crime. Even if Mr Degraeve's assets were not fully disclosed to the relevant authorities, that does not make the contents of these accounts themselves the proceeds of any crime. There is nothing to suggest, let alone prove, that any pension which he received was deposited, or is traceable, into the disputed accounts. For a while, I thought that some of the material suggested that some pension in the early 1990s might be traceable into one of the accounts, but Mr White has pointed to a sequence of transactions which shows that that is not the case, and that to the extent that there were transfers from an account in Mr Degraeve's name to the 007 account in 1991, one was before he commenced receiving a pension at all, and the other was from funds received from a source other than the pension. Accordingly, there is nothing to give rise to a suspicion that the contents of the accounts in question are proceeds of crime. 34 For that reason, it is not necessary to resolve decisively the third question. But to my mind, in order to dispose of something, one has to have it in the first place; and in order to dispose of money or property, one ordinarily has to have an interest, legal or beneficial, in that money or property. In my opinion, giving up a misconceived claim to something to which one is not entitled is not a disposition of the subject matter of that claim. 35 For those reasons, I do not consider that any concern about possible dealings with proceeds of crime provides any objection to the liquidator taking the course proposed. 36 Accordingly, I propose to make an order in accordance with paragraph 1 of the cross-claim. I order that the plaintiff's costs in the cross-claim be the plaintiff's costs in the proceedings on the summons. I adjourn the summons to Monday 14 November at 9.30am before me. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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