New South Wales Supreme Court CITATION : Seiwa Australia Pty Ltd v Seeto Financial Services Pty Ltd [2008] NSWSC 1260 HEARING DATE(S) : 11 - 14 August 2008 JUDGMENT DATE : 27 November 2008 JURISDICTION : Equity Division JUDGMENT OF : Harrison J DECISION : 1. Proceedings dismissed. 2. Order the plaintiffs to pay the costs of the fourth defenant and the fifth defendant. CATCHWORDS : PARTNERSHIP – accountants – where one partner of a firm promotes investment schemes for clients of the firm – co-partners unaware of single partner's activities – schemes promising returns of 50 per cent per annum – client invests US$4.5M by deposit into a "custodian account" operated by single partner or under his control – loss of all monies – whether in any event single partner resigned from partnership before inducing clients to participate – whether losses recoverable from innocent partners – whether breach of contract or breach of trust by those partners – ss 5 and 11 Partnership Act 1898 LEGISLATION CITED : Limitation Act 1969 Partnership Act 1892 CATEGORY : Principal judgment Aras v Schmutz (Court of Appeal, 9 December, 1997 per Powell JA, unreported) Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375 CASES CITED : Estate Realties Ltd v Wignall [1992] 2 NZLR 615 Mercantile Credit Co Ltd v Garrod and Another [1962] 3 All ER 1103 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Young v Lamb [2001] NSWCA 225 Seiwa Australia Pty Ltd (First Plaintiff) Australia Seiwa Pty Ltd (Second Plaintiff) PARTIES : Shojiro Azuma (Third Plaintiff) Malcolm James Beard (Fourth Defendant) Gregory Charles Ralph (Fifth Defendant) FILE NUMBER(S) : SC 2806 of 2004 COUNSEL : M W Young (Plaintiffs) A Leopold SC with S E Gray (Fourth and Fifth Defendants) SOLICITORS : Dixon Holmes du Pont Lawyers (Plaintiffs) Henry Davis York (Fourth and Fifth Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HARRISON J 27 November 2008 02806 of 2004 Seiwa Australia Pty Limited v Seeto Financial Services Pty Limited JUDGMENT 1 HIS HONOUR: This case is a perfect example of the aphorism that if something appears too good to be true, it probably is. Background 2 Sho Azuma ("Mr Azuma") came to Australia from Japan as a 22 year old in 1988. He had limited English and little business experience. Australia Seiwa Pty Ltd ("the second plaintiff") was incorporated by him that year and Seiwa Australia Pty Ltd ("the first plaintiff") was incorporated in 1990. Together these companies acquired real estate holdings in New South Wales and Queensland. In 1990 Mr Azuma sought help from Stephen Seeto ("Mr Seeto"). 3 Mr Azuma told Mr Seeto that he was new to Australia, was young and inexperienced with poor English and in need of assistance. Mr Seeto told him not to worry and that he would look after him. Mr Seeto said that his firm was called Gould Ralph and that he was one of the partners in the firm. He said, "We look after business people like you" and "we charge a lot less than Deloittes". Soon after that meeting Mr Azuma moved all of the companies' accounting work to Mr Seeto's firm that he knew as Gould Ralph. 4 Between that time and about 2001 Mr Azuma would see Mr Seeto approximately five or six times a month. He was introduced to Mr Seeto's partners Malcolm Beard, the fourth defendant ("Mr Beard") and Gregory Ralph, the fifth defendant ("Mr Ralph"). They provided him and his companies with accounting, taxation and auditing services. Mr Azuma said that by 1998 he regarded Mr Seeto as his closest and most trusted financial and investment adviser in all his business decisions in Australia. He made no business decisions without seeking guidance from Mr Seeto. Mr Seeto was duly appointed as a director of the first and second defendants as well as other companies with which Mr Azuma was involved. 5 In about April 1998 Mr Azuma had a meeting with Mr Seeto at Mr Seeto's office at 50 Bridge Street, Sydney. According to Mr Azuma the following conversation took place: Mr Seeto: "I have found this high return investment offshore which can return you a minimum of 50% a year. It's completely safe, because our firm is in charge of the funds we receive from investors like you as custodian and I am the only signatory on our firm's custodian account." Mr Azuma: "What's a custodian account?" Mr Seeto: "It's like a trust account. You have dealt with accountants and lawyers before. You know how a trust account works, right?" Mr Azuma: "Yes. I know. It's guaranteed by your professional insurance." Mr Seeto: "That's right. But to exclude a lot of small investors, these investment opportunities often have a high minimum amount of investment required. We need a lot of money to qualify, a minimum of US$10 million. I have put in my own money. But we need more people to invest in order to qualify. Are you interested?" Mr Azuma: "Yes. But I don't think I have US$10 million." Mr Seeto: "That's ok. Investors can put their money together to form a syndicate, like a group, until US$10 million is reached. I have already put my own money into one and made fantastic money from it already." Mr Azuma: "So how does it work?" Mr Seeto: "You know, Sho, in this world, the banks have lots of ways of making a lot of money in a very short time. Nobody else has this kind of opportunities. A good example is the Royal Bank of Scotland. The way they do it is by taking money from investors like you which lifts their reserve level required by their central bank. With their higher reserve level, they are able to free large sums of money, many times the amount of your investment, to generate fast and large returns through their freed funds in trading programs. That's why they can afford to pay you 50% a year. But they would only do this with a very specially selected approved group of investor syndicates. This is not available to everyone." Mr Azuma: "I guess you got approved already?" Mr Seeto: "I know this guy; his name is Andrew Mansell. He is in charge of this in Australia. We are partners. I can introduce you to him if you are interested." Mr Azuma: "Yes, I am. But he is not the person in control of the money I put in. Is that right?" Mr Seeto: "That's right. Absolutely. That's why our firm has established a custodian account to be controlled by me only. On top of that, if you are worried about safety, Gould Ralph has insurance to cover situations if something happens to your money. Our insurance cover is $20 million. We also have the world's biggest insurance company Lloyds to cover us on top of that. Don't forget the money only sits in our custodian account to get you 50% a year return. If you want us to invest into other programs, then the return will be even higher." Mr Azuma: "I am happy with 50%. If you can make it happen and guarantee the money will be returned to me safely, I will pay double your normal charges for your advice." Mr Seeto: "Thank you Sho. You are helping me also if you can join in this investment. One condition though: to have your 50% return, you must keep the money in the custodian account for a minimum of 12 months. If you want it earlier than that, you can; but then you will only get normal interest rates like any bank in Australia would pay you. You just need to give us 45 days notice." Mr Azuma: "That sounds great. Let's do it." Mr Seeto: "How much can you put in? The minimum amount for each investor is US$100,000; the more the better. Otherwise, we have to wait until we get to US$10 million before we can qualify. These things also have a deadline when these programs will close and become unavailable and you will have to wait for the next one available." Mr Azuma: "I think I can get about US$3 million." Mr Seeto: "Great. I'll speak to Andrew and see whether that's enough." 6 A few days later Mr Azuma was introduced to Mr Mansell. Mr Mansell said that he had prepared some documents for Mr Azuma. Mr Mansell then handed him a bound document. This was annexed to Mr Azuma's principal affidavit and marked "E". Mr Azuma said, "With my English, I cannot possibly understand this. Is that just like what you said to me about how it works, right?" Mr Seeto was present and said the following: "It doesn't talk about any investment program specifically. But it is like an education. It tells you the background of why high returns are possible and how it works in the financial world. However, with our custodian account investment, you get a fixed 50% a year, guaranteed by our firm's professional insurance and Lloyd's insurance cover." 7 Mr Azuma said that he still did not really understand how it worked and mentioned that he would need to get some of the documents translated into Japanese. Mr Seeto also gave Mr Azuma some further documents at this time. These were annexed to his principal affidavit and marked "F". He said, "make sure the Japanese translator does not tell anyone about this investment." Mr Seeto also said, "otherwise, we will all break the rules of secrecy about the investment and lose the deal." Mr Seeto then said the following: "One other thing. I suggest that you open a bank account with Lloyds Bank offshore for your profits to be paid into directly, without coming to Australia. You should get a British Virgin Island company to be the account holder. I have the British Virgin Island company and Lloyds Bank's account opening documents ready here for you to just sign. After that, just leave the rest to me." 8 Mr Seeto then handed him some documents saying, "just sign here" as he pointed to various parts of several pages. Mr Azuma said he signed them without reading them. A few days later he had some of the documents translated into Japanese. It is convenient to refer to some of these documents before continuing. 9 The documents referred to as annexure "E" at par [6] above included a document headed "HIGH YIELD CAPITAL ENHANCEMENT PROGRAM". It was described as having been "prepared for Mr Sho Azuma" and marked "strictly private and confidential". The following page of the document is headed "SEETO GROUP" followed by a sub-heading "Funding of High Yield Private Investment / Bank Debenture Programs". The text of the document is nothing short of incomprehensible drivel, as the following material reveals: "Dear Sho, In accordance with our meeting I have compiled the following documentation as listed in the index for your reference for your Corporations consideration. The Seeto Group in conjunction with its associates in the United States and the United Kingdom have internationally Pre-Approved investment partners with bankers and traders within the top 25 trading Banks in the United Kingdom, (Barclays Bank PLC, National Westminster and Midland Banks) and Europe, (Swiss Banking Corporation, Union Bank of Switzerland and Credit Suisse) which enables us to participate in I.M.F./FED registered Bank Trade Programs. We also have access to the major trading banks within the United States and it should be understood from the outset that all programs are registered and approved by the US Treasury and the FED and are duly stamped with their registration approval numbers. The information found herein, should be used as a guide for the development of a program which will attain the necessary yield for your investors, given the parameters as developed between you and the trustees, and matching those parameters with the trading facilities and programs available to us today, we feel that in order to best serve the client, we must utilize the I.M.F Trade programs, in that the I.M.F programs yield the greatest returns and the highest level of security for the investment Dollars. Also, given the fact that the I.M.F. permits a return of I.M.F Trading Dollars as grants to humanitarian projects, a paring [sic] of yield and grant monies will be suitable to the needs of the client. The most lucrative of the HIGH YIELD BANK TRADE PROGRAMS that are currently in effect, are the short term and Table Top Funding Programs. Both consist of minimum investments of USD$100,000,000.00 and the "Principal Amount" remains fully guaranteed by a 106% PBG from the trading bank and the profits are provided for by Bank Guaranteed Pay Orders which are issued 72 Hours after the "Investment Amount" has been utilised for trading. The risk is ZERO, profits are absolute, not on a best effort basis. At each contract period the profits are based on the amount of funds placed for that period. Should you and your associated parties be ready willing and able to enter into a Joint Venture Contract with the Seeto Group and its associates and can bring forward the USD$100,000.00 minimum do not hesitate to contact either myself or Stephen Seeto and we will make ourselves available to structure this transaction, for a potential closing. Yours sincerely, Andrew R Mansell" 10 A line across the bottom of that document states an address at Level 40, 50 Bridge Street, Sydney NSW 2000 Australia and telephone numbers +61 29 328 0356 and 0417 459 634 as well as a facsimile number +61 29 418 4446. 11 Depending upon one's particular point of view, it is difficult to say accurately whether the other documents in this suite of documents were more or less intelligible than the first one. They certainly compete closely for the same level of incomprehensibility. For example, a document headed "I.M.F. REGISTERED BANK TRADE PROGRAMS" purports to give "an overview of the Bank Debenture Insurance Program, referred to by the layman as the Bank Trade Program". The document proceeds thereafter to set out a collection of such incoherent gibberish that it is a challenge to extract only portions of it as the best examples. However, the following is just some of what the document contains: "The FED recognizes a tier of High quality banks, usually in the top 100, which it authorises to deal in the INVESTMENT AND DEBENTURE ISSUANCE PROGRAM. Those are the APPLICANT or PRIME BANKS. The criteria for being on the FED'S list includes [sic] the strength in normal banking ratios, as well as countries in which the FED desires to be active. It is clear that the largest supply of INTERNATIONAL USD is in Europe, which explains the Dominance of European Banks on the FED list." ***** "Of course, the simplest manner of entrance into a high yield program, would be through US Dollars (cash Deposits), the second most widely used is the STANDBY LETTER OF CREDIT and CERTIFICATE OF TIME DEPOSIT. The most readily acceptable form of STANDBY LETTER OF CREDIT is found as (EXHIBIT 4 ATTACHED). Should an individual, Corporation or Entity wish to apply their Funds to a Trade Program, it must also be understood at this time, that due to the fact that there are only seven Internationally known and accepted Bank Traders, dealing with trades outside the banks themselves, there are only a limited number of acceptable and Pre-Approved Investment Partners acceptable to each of those Bank Traders. The Seeto Group and its associates are known to bank traders and bankers and have been accepted as a trading partner by them. As an acceptable Investment Manager to the Bank Trade Programs, The Seeto Group has joined those Bank Trade Programs currently in operation as a JOINT VENTURE PARTNER and BENEFICIARY with individuals and corporations who have brought forward their CASH and LETTERS OF CREDIT. This JOINT VENTURE PARTNERSHIP becomes a simple co-beneficiary for purposes of entering the trading programs, and a beneficiary of the funds as developed through that trading program. Each joint venture is developed on its own merit, while the partnership arrangement develops the percentages of fees and funds to be paid to the partnership, through the trading program. Through the evolution of the bank trading programs, numerous documents have been developed and perfected by the traders, brokers and partners in these trades. In order to simplify the variety of documents required to enter, close, fund and be funded, in the latest of the high yield Short Term Bank Trading Programs, the following texts have been perfected and made available to you as a trading partner with The Seeto Group. Please bear in mind that these documents are for a CASH TRADING PROGRAM, and will be adjusted for the use of LETTERS OF CREDIT and OTHER ACCEPTABLE INSTRUMENTS, as entry into those programs." ***** "Please note, while utilizing LETTERS OF CREDIT, CERTIFICATES OF DEPOSITS, DEBENTURES or OTHER ACCEPTABLE BANKING INSTRUMENTS, for hypothecation, to effect the opening of a trade program. The beneficiaries of that trade program should be aware that these said instruments would only be Hypothecated, unless otherwise stipulated between the trader and the beneficiaries of that instrument. Using the instrument and its subsequent Hypothecation relieves the trading bank from the issuance of the 106% BANK GUARANTEE as normally issued to the beneficiaries through a cash injection into trade. It should be noted that, through the life of the instrument(s), that the instrument(s) may be called or forfeited as a cash injection for the trading program to institute the bank guarantee. Through the institution of a sinking fund, or blocked funds to cover the value of that LC, CD, DEBENTURES or OTHER ACCEPTABLE BANKING INSTRUMENTS, may then be returned to the issuer uncashed and unclaimed or the funds to cover the issued value. I hope that this overview and the attached documentation will be helpful for you in determining your position in entering a JOINT VENTURE arrangement and the HIGH YIELD BANK DEBENTURE TRADING PROGRAM, as previously mentioned, and should you have any questions, please feel free to contact our group." 12 It should not pass without comment that some of this material was actually translated into Japanese. 13 One of the documents that were handed to Mr Azuma at the meeting, referred to as annexure "F" in par [8] above, was a letter on the letterhead of "Gould Ralph Services Pty Ltd Chartered Accountants". It was undated. It was headed "GOULD RALPH SERVICES PTY LTD ACTING AS CUSTODIAN". It was not specifically addressed to Mr Azuma or any of his companies. It commenced with the words "Dear Sirs" and was in the following terms: "We have been asked to contact you in relation to a transaction you may be entering whereby you have been asked to deposit funds into our custodian account we have established. This letter defines our role, and outlines the procedures we will follow in our capacity as custodians. The funds deposited are under our firm's sole control, are not leined [sic], encumbered or pledged in any way. The funds are held by our firm as custodian and will only be withdrawn on return of funds to the depositor. We note that with respect to this matter, we are not soliciting funds from depositors nor are we providing investment advice. Our role is purely as custodian of the funds deposited by you. We note that as a professional firm, we have current professional indemnity insurance taken out with Lloyds of London Insurance (through Resource Underwriting Pacific Pty Ltd). A certificate of currency of this policy can be provided. In addition, depositors have the option of additional insurance by purchasing Deposit Protection Insurance ("DPI") with Lloyds of London for a cost of 0.5% (half of one percent) of their deposit amount. Procedures 1. On advice of the depositor's details we will communicate with the depositor by facsimile to confirming [sic] that we are expecting their deposit. Where DPI has been requested, we will provide a Lloyds Insurance Cover Note for the pending deposit. 2. Once the deposit has been received into our custodian account we will again fax the depositor confirming receipt of their funds and that their funds are held in our custodian account. The length of the deposit will be stipulated in the agreement between the depositor and the transacting party. The period will be confirmed to the depositor. Where DPI has been purchased we will confirm that a policy will be issued within 14 days of the deposit date. 3. Once the transaction period has expired, we will return funds directly to depositors to their banking co-ordinates as stipulated in the agreement between the depositor and the transacting party. No fees are charged to the depositor for our custodian services. Our fees are paid by the transaction party. Gould Ralph Services Pty Limited and Stephen Andrew Seeto Gould Ralph & Company is a Chartered Accounting firm established in 1975 with an emphasis on revenue law. During the next decade the practise [sic] saw substantial growth, particularly in the areas of general accounting and auditing. The firm consists of four partners and employs approximately 30 staff. Stephen Seeto holds a Bachelor of Economics Degree from the University of Sydney and is a fellow of the Institute of Chartered Accountants in Australia. Stephen is a registered company auditor, a Justice of the Peace and holds various directorships both in listed and private companies. Stephen joined Gould Ralph & Company in 1987 having left Peat Marwick Hungerford as a manager. He was accepted into partnership in 1989. Resource Underwriting Pacific Pty Ltd ("RUPPL") RUPPL was established in 1991. As part of the Chartwell Managing Agents Limited group (one of the largest managing agencies in the Lloyd's insurance market), RUPPL provide direct access to the Lloyd's insurance market. We trust that the enclosed information is beneficial for your purposes. Should you wish to discuss the matter further, please do not hesitate to call the writer on 61412 679588. Yours faithfully GOULD RALPH SERVICES PTY LIMITED STEPHEN A. SEETO B.Ec., F.C.A." 14 About a week or two after receiving the documents, Mr Azuma received a letter dated 28 April 1998 from OCRA enclosing documents relating to the incorporation of a British Virgin Island company. Mr Azuma said that the receipt of that document and others enclosed with it gave him "an added sense of trust in Mr Seeto's handling of [his] funds". A few days later Mr Azuma opened a US dollar account with the National Australia Bank and caused the conversion and transfer of US$3,010,000 from the first plaintiff's Australian dollar term deposit account with that bank to his personal US dollar account. 15 A few days after that Mr Azuma had a further conversation with Mr Seeto to the following effect: Mr Azuma: "I have US$3 million ready to be transferred to the custodian account now. Can you give me the details of your firm's custodian account?" Mr Seeto: "That's great. But as I told you, we need to get US$10 million before we can qualify to invest. I have an account where I put everyone's money in before I send it to our offshore custodian account once it gets to US$10 million. The account name is Seito Ocean Pty Ltd. This is one of my family companies. I am the signatory on that account. As I told you, I am also putting my own family money into the custodian account investment through this family company. That's why I am getting everyone to put their money into this account first. Once we get to US$10 million in that account I will send it to our firm's offshore custodian account." 16 On or about 13 May 1998 Mr Azuma transferred US$3 million into an account styled Seito Ocean Pty Ltd. In due course some weeks later Mr Seeto told Mr Azuma that he had sent Mr Azuma's US$3 million "to our custodian account". Mr Seeto said, "In 12 months time, we will all be fifty percent richer." 17 In about April 1999 Mr Azuma gave Mr Seeto another US$1.5 million for investment in the same way. This money was transferred from the first plaintiff's National Australia Bank account to the account of Gould Ralph Services Pty Ltd at a conversion rate of 0.6258. Mr Seeto told him to open a new bank account with the Royal Bank of Scotland. 18 Also at about this time in approximately late April 1999 Mr Azuma spoke to his Japanese friend Terry Nishiura. He told him about the money he had invested. Among other things, Mr Nishiura portentously described the promised fifty per cent rate of return as "almost unbelievable". Mr Nishiura and Mr Azuma subsequently met Mr Seeto. Mr Nishiura said that he had "read a Japanese translation about the IMF registered program". He said that he "understood a little bit more" but that it still "sounds very complicated". 19 Between about 30 April 1999 and 6 May 1999 Mr Nishiura gave Mr Azuma US$100,000 which he then caused to be transferred to Gould Ralph Services Pty Ltd from the first plaintiff's National Australia Bank account. 20 In June 1999 Mr Azuma was a guest, together with his family, at Mr Seeto's 40th birthday party at his home in Killara. 21 In about late July 1999 Mr Azuma told Mr Seeto that he had "not received anything from Lloyds Bank about [his] profits from [his] first US$3 million investment". Mr Seeto said, "That's very strange . . . I will make some enquiries". Mr Azuma heard nothing from Mr Seeto until about August or September 1999 when Mr Seeto told him the following: "Lloyds wouldn't tell me anything. There is something strange going on. But your money and your profits are in our custodian account. So, don't worry. Let's sort out the bank account with Lloyds Bank first. Andrew knows some people at Lloyds. I'll try to contact him to get him to find out what's going on with your account. But I haven't been able to get hold of him. Give me a few weeks. He may be holidaying somewhere in the Caribbean's [sic]." 22 By about October 1999 Mr Seeto had apparently spoken to Mr Mansell who had suggested that Mr Azuma change to the Royal Bank of Scotland in the Channel Islands "instead of Lloyds". Mr Seeto told him that his money would then be credited to his account with that bank in not more than two weeks. He signed some more documents given to him by Mr Seeto. 23 In about November 1999 Mr Azuma had still not received anything. On or about 23 December 1999 Mr Azuma received a fax from Mr Seeto. This appeared to confirm that he would receive US$450,000 that he had specifically asked Mr Seeto to arrange in order to lend to a friend in Japan. The receipt of this fax and presumably of the money also "reassured" Mr Azuma who took no other steps about recovering, or even enquiring about, his money until approximately May 2000. However, he did not manage to speak to Mr Seeto until about August 2000. He was not told anything that was helpful. In the latter part of 2000 Mr Azuma tried many times to contact Mr Seeto without any success. He finally spoke to him in about February or March 2001. This is what Mr Seeto told him: "Sho, I've wanted to tell you for some time now but I didn't want you to be too worried. I did something very stupid by trusting Andrew Mansell and letting him be a signatory on our custodian account. I just found out that he took the money out from the custodian account from behind my back. That is your money, my money, lots of other investors' money. I am trying to find out where the money went and to get it back." 24 With what in the circumstances could only be described as Herculean self control, Mr Azuma responded as follows: "Really? You cannot be serious. You said your firm's custodian account was like a trust account. Andrew was not even a partner of your firm. He was just a broker. How could you make him a signatory on your firm's trust [sic] account?" 25 Mr Seeto told him not to worry and that he would get the money back. He said that he had hired lawyers around the world and that it was only a matter of time. The following conversation then took place: Mr Azuma: "I want all my money back now. I don't care what you have to do. What about your firm's $20 million professional insurance? Have you claimed on it yet?" Mr Seeto: "Because of what I did, the insurance may not cover this. Plus, if the other partners of my firm get to know about this, I will lose all control over it. You will have to deal with them. I don't think they would hire lawyers to chase the money for you the way I would. Trust me, Sho. Leave it with me. I am your best hope." Mr Azuma: "You mean to tell me that the other partners of Gould Ralph did not know about Gould Ralph's own custodian account? You did this behind their back?" Mr Seeto: "Sho, my partners have not treated me fairly in the past. I don't owe them anything. I am sure they can look after themselves. Trust me, you don't want to deal with them. They don't care about me or you. I have hired lawyers in the US and Australia to chase for your money and my own money. I am your best hope of getting your money back." 26 Despite that assurance, Mr Azuma received no assistance or satisfaction from Mr Seeto at all. In May 2003 Mr Azuma instructed his solicitor to commence investigations. When his solicitor approached Mr Ralph he was told that it was all Mr Seeto's doing and that the partners knew nothing about it. Mr Ralph denied that he was responsible and told Mr Azuma's solicitor to ask Mr Seeto for the money back. Mr Azuma subsequently instructed his solicitor to commence the present proceedings. That occurred on 13 May 2004. The proceedings 27 The case between the plaintiffs and the first, second and third defendants was settled on the first day of the hearing on 11 August 2008, and those defendants took no further part in the proceedings. This served to highlight the significant remaining issue. That was whether or not Mr Beard and Mr Ralph were somehow bound to account to the plaintiffs for the actions of Mr Seeto or were otherwise liable to the plaintiffs as the result of anything done by him in his capacity as their former partner in the firm Gould Ralph & Company Chartered Accountants. There is a related preliminary or threshold issue of whether or not the partnership that included Mr Seeto had in any event been dissolved prior to any or some of the events that give rise to the plaintiffs' complaints. 28 The plaintiffs originally pleaded their case against the fourth and fifth defendants in several ways. However, their claims were ultimately limited at the hearing to claims of breach of contract and breach of trust. A claim for restitution was not abandoned but was described by Mr M W Young of counsel, who appeared for the plaintiffs, as "not the main part of the plaintiffs' case". Claims in negligence and for relief in the form of a taking of accounts were specifically abandoned. 29 With the exception of the issue of the date of the dissolution of the partnership, there were few relevant factual disputes between the plaintiffs and the fourth and fifth defendants. This was because it was never asserted by the plaintiffs that Mr Beard and Mr Ralph actually knew what Mr Seeto was doing when he dealt with Mr Azuma in the way that he described. Mr Beard and Mr Ralph gave evidence that they knew nothing of Mr Seeto's dealings with Mr Azuma or Mr Mansell and that evidence was not successfully challenged. Mr Beard said that prior to 2001 he was neither aware of any activities of the accounting partnership outside of audit or insolvency activities nor did he authorise them. He specifically denied authorising what he described as "activities in the nature of offers to invest in mid term notes in which the Seeto Group was involved" or "anything related to any foreign investment in Bank Trade Programs or High Yield Capital Enhancement Programs" or "anything to do with any custodian bank account". Mr Ralph's evidence was to like effect. Mr Ralph also said that he had no knowledge prior to 2001 of any investment scheme organised by Mr Seeto. He said that he "was extremely surprised and amazed about the whole affair". He said that Mr Azuma said to him in substance, "We didn't think you were involved". 30 Mr Seeto swore a long affidavit dated 3 September 2007. However, he took no active part in the proceedings and his affidavit was not read or referred to. Accordingly, I have had no regard to that affidavit and the version of events that Mr Seeto provided never became evidence before me. There was in these circumstances no evidence from Mr Seeto either to contradict or support Mr Azuma's versions of conversations between them concerning the transactions and surrounding events. When did Mr Seeto cease to be a partner of Gould Ralph & Company Chartered Accountants? 31 The plaintiffs contend that Mr Seeto was in partnership with Mr Beard and Mr Ralph until as late as June 2001. Mr Beard and Mr Ralph contend on the contrary that their partnership was dissolved in November 1998. That dispute arises in the way described below. 32 Mr Ralph gave evidence that Mr Seeto was appointed as a partner of Gould Ralph & Company in 1992. In about early October 1998 Mr Seeto went to see Mr Ralph in his office at Level 40, 50 Bridge Street, Sydney and said to him words to the effect of the following: "I am resigning from the practice. I am too busy with family businesses and my other investments but I think I should remain a director of Gould Ralph Services for the time being to maintain the relationship with the tax clients I've introduced. Would it be okay for me to keep an office here?" 33 Mr Ralph said, "Mr Seeto's resignation was not formally documented". However, Mr Ralph said, "After October 1998, Mr Seeto stopped receiving any remuneration from the partnership". The tax return of Gould Ralph & Company for the financial year ended 30 June 1999 shows Mr Seeto earning $20,000 for that year, representing payment to him at the rate of $5,000 per month for the months of July to October inclusive. 34 Mr Ralph said that at about that time Mr Seeto asked him if it would be alright for him to maintain an office at the Bridge Street premises. Mr Ralph said that it would. Following that conversation Mr Seeto moved to a different office on the same floor. After October 1998 Mr Seeto was only in his office occasionally. 35 In contrast to this evidence are some of the documents that were lodged by or on behalf of the partnership Gould Ralph & Company with the Department of Fair Trading. For example, a Statement of Renewal of Registration of a Business name in respect of Gould Ralph & Company was lodged on 30 August 2000. It is signed by Mr Ralph. It effects a renewal of registration of the business name conducted by the named partners until an expiry date on 23 September 2003. Its date of issue is 24 August 2000. Mr Seeto is listed as one of three proprietors of the business along with Mr Beard and Mr Ralph. Mr Ralph said that the document that showed that Mr Seeto remained as a partner was "incorrect". He said that the document was prepared by the office manager and bookkeeper Dorothy Lewis and that he "signed the document without taking enough care to ensure that it was accurate". 36 A Statement of Change in Persons lodged with the Department of Fair Trading in respect of the partnership shows that Mr Seeto ceased to carry on business under the business name Gould Ralph & Company on 7 December 1999. This was in contrast to Mr Ralph's evidence that Mr Seeto resigned in October 1998. Mr Ralph said of this discrepancy, "I do not know how that came about". The form was not lodged until 28 June 2001 as shown by a handwritten notation upon it. The form was also an edition current at 6 April 2001 suggesting, if not establishing, that its execution could not have occurred before that date. 37 A letter dated 28 June 2000 signed by Mr Ralph on the letterhead of "Gould Ralph Services Pty Ltd Chartered Accountants" to Willis Australia Ltd attached a professional indemnity proposal "to be effective 1 July 2000". The letter said, "circumstances have not changed significantly since our last proposal". The attached proposal related to Gould Ralph & Company and Gould Ralph Services Pty Ltd and listed Mr Seeto under the column headed "Names of all Principals/Directors" with a side notation in parentheses saying "part time". It arguably referred to Mr Gould as a "former partner" in a section outlining and notifying possible claims in a way that contextually suggested that Mr Seeto was a then current partner. Mr Ralph drew attention to the contents of the contemporaneous income tax return for the partnership for the year ending 30 June 2000 that showed Mr Ralph and Mr Beard as the only partners of Gould Ralph & Company. 38 Mr Ralph was cross-examined about these matters. He denied that Mr Seeto said to him in about October 1998, "I am happy to keep working and want to stay on in the partnership, but I will need flexibility in being able to do my own thing when I need to". He also denied that Mr Seeto said, "I am, of course, happy for my remuneration to be reduced according to some formula". Mr Ralph denied generally that, rather than having any conversation with Mr Seeto in October 1998 about him resigning from the practice, the conversation that he had was in relation to changing the method of remuneration because Mr Seeto was in effect going part-time. 39 The original partnership was not formalised by a deed of partnership. Correspondingly, no deed of dissolution was executed when Mr Seeto resigned. Mr Ralph was not prepared to say that the Statement of Change in Persons that he signed was signed in 1999. All he was prepared to say was "I can only presume that's when I signed it". He also "presumed" that it was prepared (not by him) in the same year. He said that it was not his understanding that the document was prepared in 2001. He also said that it was "not correct" that it "was prepared in an effort to attempt, in the middle of 2001, after [he] found out about Mr Seeto's activities, to pretend that Mr Seeto had left the partnership a year and a half previously". 40 Mr Ralph agreed that it was "likely" that the Statement of Change in Persons was lodged in 2001 and at a time after he had learned of Mr Seeto's activities. It was put to Mr Ralph that the document "was prepared in an attempt to deceive anybody looking at the register of business names into thinking that Mr Seeto had ceased participation in the firm back in December of 1999". To that suggestion Mr Ralph responded, somewhat curiously, "Well, I had no involvement in that proposition". He agreed that when he signed the document he knew that it was dated 7 December 1999. However, he said that he had no recollection of signing it. 41 Mr Ralph was then asked the following questions: "Q. What has happened is there has been an attempt to put in a form pretending that it is a 1999 form, but someone has forgotten that they are actually using a 2001 form; isn't that right? A. That does appear to be the case, yes. Q. So, there was an attempt to pretend that the document was a 1999 document, exposed merely by the sloppiness in using only the form current in 2001; isn't that right? A. It would have that appearance now that you have drawn my attention to it, yes. Q. And this is something that you did in the middle of 2001 because you were terrified that somebody would link you with Mr Seeto's activities; isn't that right? A. No. That's not correct. I don't have any recollection of that and I didn't have that concern at the time." 42 Mr Ralph could not explain the discrepancy between the date 7 December 1999 in that document and his earlier evidence that Mr Seeto had resigned from the partnership in October 1998. He said, "My understanding is that Mr Seeto resigned in 1998. I cannot explain this document, the date 1999, and I have no recollection of actually signing it". 43 Mr Ralph was also cross-examined about documents that suggested that Mr Seeto maintained some sort of role as a manager of employees of the partnership. These questions included the following: "Q. Now, in July of 2001 Ms Sok Yee Ng, she was an employee of one or other of the practice entities, is that right? A. Yes. Q. And she was being supervised by Mr Seeto, wasn't she? A. No, it wasn't my understanding that she was being supervised by Mr Seeto. Q. I will hand you this document. That's a memorandum from Ms Ng of July 2001, isn't it? A. It appears to be addressed to Mr Seeto. Q. Yes. Where Ms Ng is reporting on various work that she has done to Mr Seeto, isn't that right? A. Yes, it appears that she is bringing Mr Seeto up to date with what work had been done and the status of work for Mr Azuma and Seiwa Australia Pty Limited. Q. And that was work being done by the Gould Ralph practice, isn't that right? A. Yes, it was. Q. And that was the practice in 2001 for people like Ms Ng to do work for Gould Ralph clients and to be supervised in doing that by Mr Seeto, isn't that right? A. Well, I don't believe she's being supervised by Mr Seeto. My understanding, I only had a very fleeting involvement, just in terms of maintaining the relationship, looking after the affairs of his very few clients. And to put that in context, he, you know, we are talking about probably three or four clients. Q. What do you mean by maintaining the relationship? A. When Stephen left he expressed a desire to maintain the relationship with the clients that he had introduced and had a relationship with the firm to ensure that their affairs were looked after. He was facilitating that relationship between the client and the Gould Ralph practice. Q. Facilitating that for the benefit of the Gould Ralph practice? A. No, I think he was facilitating that for his personal reasons. There was no remuneration paid to him for that." 44 It was submitted on behalf of Mr Beard and Mr Ralph that the payroll register showing that Mr Seeto received no remuneration after October 1998 and the partnership income tax return for the year ending 30 June 2000 that did not include him as a partner were conclusively in favour of the proposition that Mr Seeto had ceased to be a partner of Gould Ralph & Company by October 1998. The former was consistent with him having been paid $20,000 until the month of his resignation and nothing thereafter. Mr Ralph's partnership income tax return for the year ending 30 June 1999 did show Mr Seeto as a partner but that was said to be consistent with him holding such a position up to, but not after, October of the previous year. It was consistent with that state of affairs that Mr Seeto was not shown as having been removed as a partner for the purposes of income tax returns at any time earlier than the income tax return for the year ended 30 June 2000. 45 It was also submitted on behalf of Mr Beard and Mr Ralph that any suggestion that the date of Mr Seeto's resignation, or documents that referred to it, had been backdated in order to create an impression that Mr Seeto was at some time not a partner of Gould Ralph & Company, contrary to the true position, does not withstand scrutiny having regard to the facts. In particular, the first US$3 million dollars that had been paid over by Mr Azuma was paid as early as 13 May 1998 with the balance of US$1.5 million handed over in April 1999. According to this submission, if any attempt were made to give the appearance that Mr Seeto's membership of the firm ceased at any particular time, contrary to the true position, and in order to avoid a potential liability, it is unlikely in the extreme that it would have been done in a way that did not exclude a hypothetical liability for the first transaction prior to October 1998 or for all transactions prior to 7 December 1999. 46 In my opinion the strongest likelihood is that Mr Seeto did resign as a partner in October 1998. There is a contemporaneous cessation of payments to him from that time consistent with his departure from the firm. This is also accurately recorded in a document that in my opinion most likely reflects the true position. That is the income tax return for the partnership for the year ending 30 June 2000. On one view the authenticity of the information contained in this document could be doubted having regard to the date when it might be expected to have been prepared. Mr Ralph had agreed that he and Mr Beard and Mr Barnett had all been directors of Gould Ralph Services Pty Ltd up until 1 April 2001. The shares that he held in that company were transferred to Mr Seeto for a nominal consideration at that time and the company changed its name to Seeto Financial Services Pty Ltd. He denied that this all occurred in order that he (and presumably his partners) could distance themselves from the activities of Mr Seeto. When the shares in Gould Ralph Services Pty Ltd were being disposed of in April 2001, the income tax return would also have been due. Unfortunately, it is not dated and there is no direct evidence of when it was prepared. No attempt was made to suggest that the document contained material or information that was false. 47 In any event, there is no collateral material that suggests that the payroll register does not accurately reflect what it purports to record. Exhibit 9 was in the form of a printout from an electronic register and the date of generation of the document is 7 August 2008. No attack was made upon the authenticity of the document or upon the accuracy or validity of the information that it contains. It purports to be a statement of earnings by Mr Seeto from Gould Ralph & Company. If there are other documents that record payments to Mr Seeto as a partner of the firm after October 1998, they are not in evidence and have not otherwise been mentioned. The payroll register is consistent with Mr Seeto having ceased to be a partner of Gould Ralph & Company in October 1998. 48 That leaves the other documents upon which the plaintiffs rely that suggest something different. Mr Leopold of senior counsel, who, with Mr S Gray of counsel, appeared for Mr Beard and Mr Ralph, submitted that the inclusion of Mr Seeto in the Statement of Renewal of Registration of a Business Name was "inadvertent". No other submission was made. If the submission is correct, the document was prepared by a person who was not called to say that he or she did so inadvertently. It was (presumably) also inadvertently signed by Mr Ralph without taking care to ensure that it was accurate. It is difficult in the circumstances to know whether the document is now being given an importance or significance that it does not deserve or whether in fact it always had an importance and significance that was not appreciated at the time it was created or at least until now. In my opinion it is only possible to say that the document is not as convincing in the scheme of the present dispute as either the payroll record or the 2000 partnership income tax return. 49 The Statement of Change in Persons is more problematic. It contains information that conflicts with other material upon which Mr Beard and Mr Ralph clearly rely: the date of 7 December 1999 is not in harmony with October 1998. Secondly, it was lodged without correction in 2001 at precisely the same time as the shares in Gould Ralph Services Pty Ltd were being transferred to Mr Seeto, and its name was being changed, but without any apparently legitimate connection to that transaction. There is a flavour that Mr Seeto's dealings involving Mr Azuma had come to light at or by this time and that they were matters of some concern to Mr Beard and Mr Ralph. If this is accurate, however, there appears to be no improper purpose for the creation of the document because, as earlier discussed, it simply fails to provide Mr Beard and Mr Ralph with any comfort with respect to any of the Seeto/Azuma transactions that took place prior to the important date that it contained. 50 It was also submitted on behalf of Mr Beard and Mr Ralph that to the extent that the document constitutes a representation by or on behalf of the partnership to the world at large that Mr Seeto was a partner in the partnership to the time of the notice, it was a representation that was made on or about 28 June 2001 when it was lodged. That is a date that was well after the last of the three transactions upon which the plaintiffs sue and has nothing to do with the rights and liabilities of the parties to the transactions. At the time of those transactions, there was no such representation in existence. However, that submission is out of place in the context of the present analysis, which is concerned with a possible inconsistent statement or alternatively an admission by the remaining partners of the firm on the question of who were the members of the firm in fact, rather than with the question of whether or not Mr Azuma may have been misled as to the constitution of the firm at a time leading up to or when the transactions took place. 51 The insurance proposal documents are in my opinion of no particular significance. They were lodged as a composite proposal with respect to more than one entity. No attempt has been made to distinguish between partners of the firm and directors of the company. This may be evidence of a lack of attention to detail but does not in my opinion amount to any more than that. The entities to be insured were both Gould Ralph & Company and Gould Ralph Services Pty Ltd and Mr Seeto was unambiguously a director of the latter as at 28 June 2000. The concept of a "part-time" director is not without some difficulty in that context as Mr Young's cross-examination of Mr Ralph emphasised. However, it is no less awkward in the present context than the concept of a part-time partner, which no one ever suggested Mr Seeto to be. The words "former partner Vanda Gould and Stephen Seeto . . .as liquidators of" and so forth do, however, appear literally to suggest that only Mr Gould was, and that Mr Seeto was not, being described as a former partner. 52 A significant attack was made upon Mr Ralph's credit having regard to the Statement of Change in Persons that he signed and the suggestion that he was attempting to create a false impression of the actual state of the partnership. There are several problems with this, the most significant being that the document failed to "avoid" the consequences of the first transaction. No such attack can be levelled at Mr Ralph for the Statement of Renewal of Registration of a Business Name, of course, as it was on its face inimical to Mr Ralph's contentions about the membership of the firm when the transactions took place and otherwise supportive of the plaintiffs. 53 The plaintiffs' position on these issues is no less than an allegation of dishonesty by Mr Ralph. I cannot be comfortably satisfied, and I am not prepared to find, that the plaintiffs have established that Mr Ralph set out falsely to execute a document informing the Department of Fair Trading that Mr Seeto ceased to be a partner on a particular date contrary to the true position or that he gave false evidence on that issue before me. I find that Mr Seeto resigned from the partnership in October 1998. Did the plaintiffs enter into a contract with Gould Ralph & Company? 54 The objective theory of contract continues to determine the rights and liabilities of parties to a contract: see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40] as follows: "[40] This Court, in Pacific Carriers Ltd v BNP Paribas , has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." 55 This principle applies when the task is to ascertain who are the parties to a putative contract. Evidence given by Mr Azuma as to his belief or understanding about with whom it was that the plaintiffs were contracting must yield to an objective assessment of that issue. Mr Beard and Mr Ralph submitted that the objective facts all pointed away from the partnership as having any dealings with the plaintiffs. For example, the document referred to at par [9] above, forming part of annexure "E" to Mr Azuma's principal affidavit, is replete with references to "the Seeto Group" in a way that points to it being a party to any contract that might have come into existence. Among other things, it invited Mr Azuma "to enter into a Joint Venture Contract with the Seeto Group". It also invited him to "not hesitate to contact either [Andrew Mansell] or Stephen Seeto". Mr Beard and Mr Ralph submitted that all of this seemingly implied that Mr Seeto and Mr Mansell were the two principals of "The Seeto Group" who would make themselves available "to structure this transaction". That is said to have pointed well away from the partnership because the objective manifestations were that Mr Mansell was a "broker" and the objective pointers were in the direction of some sort of investment broking venture between Mr Seeto and Mr Mansell. 56 The I.M.F. REGISTERED BANK TRADE PROGRAMS document referred to at par [11] above contains several references to The Seeto Group. There are cognate references to "our group". The Seeto Group is also described as the "Investment Manager". A later reference seems clearly to suggest that any investor would become "a trading partner with The Seeto Group". The document also invites anyone with questions "to contact our group". 57 Another document in the series of documents forming annexure "E" is entitled TRADE PROGRAM ENTRY PROCEDURES. Part of that document is in the following terms: "As discussed The Seeto group, through its overseas sources, is ready, willing and able to proceed, as an active VENTURE PARTNER, with you and your clients . . . 4. Upon receipt of the formal PROOF OF FUNDS, the bank trading officer will immediately make to be issued, a BANK TRADING CONTRACT, to The Seeto group, as its trading partner . . . Acceptance of this contract by the The [sic] Seeto Group, is critical to the entry timing and the trades ability to obtain the stated yields of the stipulated HIGH YIELD BANK TRADE PROGRAM, as found in this contract." 58 A document described as a JOINT VENTURE AND YIELD DISTRIBUTION AGREEMENT anticipates the making of an agreement between the asset owner and "The Seeto Group". It contemplates that the asset owner will appoint The Seeto Group as what is referred to as "Attorney-In-Fact". The blank attestation clause even contemplates the affixing of the corporate seal of The Seeto Group. 59 There is no reference in any of the documents that make up annexure "E" to Mr Azuma's principal affidavit to Gould Ralph & Company or to Mr Beard or Mr Ralph. 60 The letter in annexure "F" to Mr Azuma's principal affidavit is on the letterhead of the company that changed its name to that of the first defendant. Mr Beard and Mr Ralph submit that references in that letter to "the firm" are therefore references to the first defendant. When the letter speaks of "our role . . . as custodian of the funds deposited by you", this should be read as a reference to Gould Ralph Services Pty Ltd being the company that wrote it. Unfortunately, the heading in that letter "Gould Ralph Services Pty Limited and Stephen Andrew Seeto" is apt to confuse because the material directly following it refers to Gould Ralph & Company and does not refer at all to the corporation. However, there is no suggestion in the letter that Gould Ralph & Company has any role to play in managing the funds or that it will ever acquire any such a role. 61 During his cross-examination, however, Mr Azuma's attention was drawn to the difference between the company and the partnership. At page 61 of the transcript he was asked the following question: "Q. You have come anxious to say that you thought you were placing the monies with Gould Ralph because that's the name the partnership bears, when you really know that you were intending to place the investment monies through Gould Ralph Services Pty Ltd; correct? A. I don't know the difference." 62 However, Mr Azuma made notes for the purposes of giving evidence in the proceedings: see transcript page 27. When cross-examined about these notes Mr Azuma said the following at page 115 of the transcript: "Q. Well, in any event, what you were writing there you think was that you knew in about April 1998 that there was a company called Gould Ralph Services and another entity called Gould Ralph which are chartered accountants; right? A. I think so." 63 It was contended on behalf of Mr Beard and Mr Ralph that if the letter had confused Mr Azuma at any time, that confusion had dissipated prior to his entry into any of the impugned transactions. Whilst Mr Azuma's subjective understanding is not relevant, Mr Beard and Mr Ralph presumably contend that an objective bystander in his position would not have come to a different conclusion. 64 Annexure "F" to the affidavit included a document (not reproduced above) entitled SECURED FUNDS PROGRAM. The document says that "invested funds are deposited with a highly respected firm of 'chartered accountants' custodian account where all deposits are covered by professional indemnity insurance". Much of the document is a repetition of information provided in other documents. The document includes the statement "Investor, if accepted will receive a joint venture agreement to be executed with the program facilitator". Mr Beard and Mr Ralph contend that that is a reference to The Seeto Group. 65 The first US$3 million was deposited into an account in the name of the second defendant. That was a private company associated with Mr Seeto. It had nothing to do with any services of the kind that might reasonably have been expected to be provided by Gould Ralph & Company. According to the submission of Mr Beard and Mr Ralph, no reasonable person in the position of the plaintiffs would have thought that the partnership would be managing funds that were placed in Mr Seeto's private family company account in respect of the first tranche. Similarly, that reasonable person would have considered "our firm" to be a reference to the first defendant and not the partnership. The partnership was in no position to manage monies in either a Seeto controlled family company account or in a custodian account over which the first defendant had "sole control". 66 The second and third tranches were each deposited with the first defendant. They followed the delivery of two letters from the Kim How Group dated 25 September 1998 signed by Mr Mansell and one dated 2 November 1998 from Mr Seeto. The terms of these letters are no less ridiculous than most of the previous written material that had been provided to Mr Azuma. For example, the first letter suggests the availability of "programs" that can return profits of as high as "1,400% in ten banking days – immediately discountable". Somewhat redundantly, the letter describes this program as an "excellent opportunity". The letter concludes with the following words: "Sho this gives you a very brief idea of the type of programs we are currently examining showing different securitization of the Capital. Obviously everything is dependant on the contract that is presented which is critical to the decision of whether to proceed for formal entry into the program. We are probably going to proceed with the Bank of America program and the blocked funds program in our own bank account that has been recommended by the Royal Bank of Scotland as these provide the best security of capital and a reasonable return of profits per month." 67 The document constantly uses the pronoun "we". It does not do so in any way that is objectively, or in any other way, referable to Gould Ralph & Company. 68 The second letter also makes no direct or indirect reference to the partnership. The document is patently meaningless. The phone numbers that it displays were not those of the partnership and in all likelihood were those of Mr Seeto's Killara residence. Mr Beard and Mr Ralph submit that The Kim How Group was probably some form of joint enterprise between Mr Seeto and Mr Mansell. 69 Mr Beard and Mr Ralph made the following submission on what the objective material said about the existence of any contract or the parties to it: "29. Here, looking at all of the circumstances which were objectively manifested, all the objective pointers strongly suggest that, if there was any contract as alleged by the plaintiffs in relation to any of the three transactions, then it was a contract with either the first defendant (as ' custodian ' with ' sole control ' of the funds) or with Mr Seeto and Mr Mansell in their capacity as persons engaged together in a venture initially referred to as ' The Seeto Group ' and later (in relation to the second and third transactions) ' The Kim How Group '. There was nothing in the objective communications pointing to the partnership. In particular, there was nothing pointing to it as an entity said to have been responsible for ' managing ' invested funds." 70 The plaintiffs' submissions emphasise Mr Seeto's constant references to "the firm" and expressions or concepts that on one view tended to implicate it as being the partnership, such as references to professional indemnity insurance and "our firm's custodian account". Gould Ralph & Company is never mentioned in terms in Mr Azuma's principal affidavit. He refers to 'Gould Ralph' and says at par [11] that he "moved all accounting work to Mr Seeto's firm which [he] knew as 'Gould Ralph'." References thereafter to 'Gould Ralph' are presumably intended to be understood having regard to the view he formed that 'Gould Ralph' always meant the accounting firm and not otherwise. The issue is whether or not that view was a view that a reasonably informed objective observer would also have formed in the circumstances. 71 One of the unavoidable components of the factual matrix against which that question needs to be considered is what appears to me to be the plainly fraudulent nature of everything that Mr Azuma was told or given. (This is considered later in the context of what was the usual business of the partnership). However, for present purposes it is important not to lose sight of the emerging picture to which Mr Azuma as a reasonable person was being exposed. I raised with Mr Young during the course of his very helpful submissions the question of whether or not the programs or transactions that were being explained to Mr Azuma were genuine transactions. There is some tension between the ideas that money can earn fantastic income, or any income at all, without ever leaving the sanctuary of a custodian account (whatever that might have been). For example, Mr Young and I had the following discussion: "HIS HONOUR: Do you understand how, for example, the transaction as described in the documents generated income if it never left a custodian account? YOUNG: In the real world I don't think it could ever possibly work. Well not work legally. One could imagine some system where money sat in an account and then representations were made about that account that in some way helped in some practice of deception where one would launder money. And if ever somebody asked where you got money from you would give proof of clean funds and say look at this money, I'm in an account, and use that in some money laundering scam, although it's hard to know exactly how that could work if the money was just sitting in an account. HIS HONOUR: Hard is an understatement. Sure. I have some real difficulties with the proposal or with the alleged structure of the transaction that suggests that the deposit of US$10m into a particular custodian account can in effect underwrite a bank's relationship with the industrial bank in a way that permits it to raise funds elsewhere at high returns. YOUNG: I think that's clearly nonsense." 72 Mr Young went on to submit that Mr Azuma was not someone with sufficient skills or capacity to realise that the touted programs "were a load of rubbish". However, that is beside the point. Mr Nishiura was certainly concerned to observe that the investments appeared almost unbelievable. And so they were. In my view any reasonably informed hypothetical person proposing to enter a contract promoted and 'explained' using the words and documents that were said or given to Mr Azuma by Mr Seeto and Mr Mansell would appreciate that no one, and certainly not a firm of accountants, could offer that person the benefit of a legally enforceable bargain that promised a return of 50 per cent per annum "guaranteed by . . .professional insurance". The putative contract was illusory. 73 It is accordingly doubtful that Mr Azuma or the plaintiffs entered into a contract with anyone that had as one of its terms the return of his capital after 12 months with earnings of 50 per cent. If such a contract were formed with anyone, it was formed with Mr Seeto and/or Mr Mansell or the Seeto Group, whatever that meant. I can see no reasonable basis for concluding that the plaintiffs ever entered into such a contract, or indeed any contract at all, with Gould Ralph & Company. References in the documents to "we" were in my opinion always references to Mr Seeto and Mr Mansell or the indistinct groups they represented. None of the documents was a document on the letterhead of Gould Ralph & Company or a document that otherwise promoted that firm as an actual or even potential contracting party. Mr Azuma and the plaintiffs were undoubtedly duped, but it is not the corollary of that sad fact that the accounting firm of which Mr Seeto was once a member became bound somehow to a contract of the type alleged. 74 The partnership did not enter into a contract with the plaintiffs and Mr Beard and Mr Ralph are not liable to the plaintiffs for breach of contract. Would Mr Seeto have bound the partners in any event? 75 Even though I have found that Mr Seeto was not a partner after October 1998, it is necessary to consider the plaintiffs' argument that he was and that any contract that he might have made with the plaintiffs bound the partnership. The plaintiffs relied upon s 5 of the Partnership Act 1892, which is in the following terms: "5 Power of partner to bind firm (1) Every partner in a partnership other than a firm that is a limited partnership or incorporated limited partnership is an agent of the firm and of the other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member, binds the firm and the other partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner. (2) Every general partner in a limited partnership or incorporated limited partnership is an agent of the firm and of the other general partners for the purpose of the business of the partnership, and the acts of every general partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member, bind the firm and the other general partners, unless: (a) the general partner has in fact no authority to act for the firm in the particular matter, and (b) the person with whom the general partner is dealing either knows that the general partner has no authority, or does not know or believe the general partner to be a general partner. " 76 Mr Young emphasised that the critical words are "carrying on in the usual way business of the kind carried on by the firm of which the partner is a member". The acts of a partner done for such a purpose will bind the firm and the other partners. The relevant act is the entering into a contract of which the relevant characteristics were the receipt of monies into a custodian (or probably more accurately trust) account for the purpose of remaining there for return or repayment on demand. 77 This argument was developed further as follows. The taking or receiving of money from a client, then keeping it while it earns interest in a relatively safe way, such as sitting in an account earning interest, is the kind of business carried on by accountants. The first and second plaintiffs were existing clients of the firm. It was in the usual way that an accounting practice would conduct its business: it would offer services to its clients in relation to their money. That is what happened in the present case. 78 The plaintiffs relied upon Mercantile Credit Co Ltd v Garrod and Another [1962] 3 All ER 1103 in support of their contention that what is important is the appearance to the outside world of what it is that the partnership ordinarily does. In that case the defendants were the owners of a garage business. The terms of the partnership excluded the buying and selling of cars. However, the sale of a car by the first defendant's partner as part and parcel of an arrangement whereby the plaintiffs were to hire it out on hire-purchase terms was held to be the doing of an act for the carrying on in the usual way of business of a kind carried on by the firm. The firm was thereby bound by virtue of s 5 by the fraudulent act of the first defendant's partner notwithstanding the exclusion, as between the partners, of the buying and selling of cars from the scope of the partnership business. 79 Mr Young submitted that what matters is not any private arrangement that may exist between Mr Ralph, Mr Beard and Mr Seeto in closed session, or what may be disclosed by them to their insurer, or what may be in their secret policy manual that they might give to their staff to try to separate businesses affairs from all others. It is what would appear to someone in the position of Mr Azuma to be the case concerning the nature of the business being carried on. See also Young v Lamb [2001] NSWCA 225 at [50]. 80 Mr Beard and Mr Ralph referred to Fletcher, The Law of Partnership in Australia, 9th ed (2007) at [6.15] as follows: "[6.15] It may happen that a partner, without the consent of co-partners, carries out a transaction which, although it comes within the scope of the kind of business carried on by the partnership, is carried out in an unusual manner. In such cases, the transaction will not be binding upon the partnership, because the extraordinary manner of carrying out the transaction should put the other party to it on inquiry as to the authority of the partner with whom he or she is dealing. This condition . . . is a useful check and balance provision where the person dealing with the partners is aware of usual practice within businesses of that sort but may work injustice in situations where conduct is extraordinary when compared with usual practice in that type of business but may not appear unusual to a person unacquainted with the practices of a particular kind of business. ***** For an act to be usual in a particular kind of business it must be reasonably necessary and not merely convenient, for the carrying on of that type of business. ***** In deciding whether a transaction, entered into by one of the partners, without the authority of the others, is binding on the partnership, regard must be paid not only to the nature of the business carried on by the partnership, but also to the manner in which that particular transaction is carried out." 81 The question is whether the particular transaction "is of a type usually effected in the kind of business carried on by the firm, whether or not the firm does in fact usually enter into that sort of transaction": per Fletcher at page 163 citing Mercantile Credit Co Ltd v Garrod (supra). The evidence of Mr Ralph was that the usual business carried on by the partnership was auditing and insolvency work. Mr Beard and Mr Ralph submitted that the activities in which Mr Seeto was engaged were not the business of a kind carried on by such a practice. In all of the circumstances a reasonable man in the position of Mr Azuma would have been put on inquiry as to Mr Seeto's authority. This is an issue in which the Court is entitled to use its common sense: see Mercantile Credit Co Ltd v Garrod at 1107F. 82 As I have already discussed, the nature of the transactions that were being promoted by Mr Seeto were very strange indeed. Mr Leopold suggested that they were "bizarre" and that that would have been apparent to any ordinary objective bystander. Mr Nishiura's characterisation of what he was being told as "almost unbelievable" was undoubtedly intended to be polite understatement. The investment proposals outlined in the various documents produced by Mr Seeto and Mr Mansell did not withstand even the most casual scrutiny and were plainly nonsensical as counsel for the plaintiffs quite properly conceded. It is difficult, if not actually impossible, to conceive of a legitimate partnership business whose usual way of business of the kind carried on by it could have included anything of the sort promoted to Mr Azuma by either Mr Seeto or Mr Mansell. On no view of the matter was it usual and it was probably not even business strictly so called. The whole scheme was so extraordinary that it should have put Mr Azuma on notice or inquiry as to Mr Seeto's authority. In my view nothing done by Mr Seeto, had he been a partner, would have bound the other members of the firm. 83 The plaintiffs also relied on s 11(1) of the Act. That section provides as follows: "11 Misapplication of money or property received for or in the custody of the firm (1) In the following cases involving the partners of a firm other than an incorporated limited partnership, namely: (a) Where one partner acting within the scope of the partner's apparent authority receives the money or property of a third person and misapplies it, and (b) When a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm, the firm is liable to make good the loss." 84 The plaintiffs relied upon this section, contending that the facts of this case fell squarely within its terms. Mr Beard and Mr Ralph, however, took issue with the fact that Mr Seeto had "received" anything at all. All of the funds that were transferred by the plaintiffs were credited directly to accounts operated by companies that were connected to Mr Seeto through shareholding or directorship but not by him personally. Mr Leopold submitted that s 11 had nothing to do with this case. It applies if a partner receives money. Mr Seeto did not receive money. The second defendant received US$3 million and the first defendant received US$1.5 million and US$100,000. No partner received any money at all. According to Mr Leopold, to pretend that the second defendant Seito Ocean Products Pty Ltd is the same as Mr Seeto would be to "wipe out two or three hundred years of the law of separate corporate personality". 85 Fletcher (supra) deals with this section at par [6.65] in the following terms: "Subsection (a) covers the case where the wrongdoer is purporting to act in pursuance of apparent authority, which is the authority which co-partners, either expressly or by their conduct, have represented that person as having. In this case it will be noted, the firm is liable only if the partner who actually receives the money, actually misapplies it. It does not appear to be necessary for that partner to apply it to her or his own purposes; the firm would be liable if the moneys or property of one client were applied for the purposes of another of, a fortiori, for the firm's purposes. The section has no application where a partner receives property of a third party in some capacity other than that of a partner in the firm, which the third party seeks to make liable. A solicitor in the ordinary course of business may become legal adviser to trustees and in that capacity receive or disburse trust moneys. If those moneys are misapplied, the partners of the solicitor will share liability under this section. However, accepting office as a trustee or acting in a manner which results in the adviser being constituted constructive trustee of funds is outside the ordinary course of business of a solicitor and misapplications of trust funds in such circumstances will not create a liability in other partners..." 86 Mr Young argued that it was too restrictive a view of the section to confine it to circumstances where the receipt of the funds was only into the hands of the wrongdoer personally, as opposed to a deposit of funds into an account in the name of a company that he controlled, as in the present case. I was referred to, and I could find, no authority dealing directly with this proposition. It would on one view be a curious result if the section did not extend to activities otherwise falling within its terms simply because the vehicle for the receipt of the funds was a corporate extension of the wrongdoing partner. 87 However, the answer would appear to lie in the fact that a receipt of funds in such a fashion would be outside the ordinary course of business of the Gould Ralph & Company partnership. If the section has no application where a partner receives property of a third party in some capacity other than that of a partner in the firm, it would not extend to the receipt of funds into the account of either the first or second defendants as occurred in fact. Even if the receipt by those companies were considered for the sake of the argument to be a receipt by Mr Seeto, it could not on any view be considered to be a receipt by him in his capacity as a partner of the firm. 88 In my opinion, s 11 has no application to the present case. If Mr Seeto was not a partner, did he act with the ostensible authority of the partnership? 89 In Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375, Hodgson JA at [41] referred to Bowstead for the following proposition: "[41] There is also a useful statement of the basic principle is stated as follows in Bowstead & Reynolds On Agency (17th Ed), Article 74: 'Where a person, by words or conduct, represents or permits it to be [represented] that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the face of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority'. " 90 Mr Beard and Mr Ralph complain that the plaintiffs never pleaded this issue but that if they are permitted to rely upon it, that proposition is a complete answer. First they submit that a representation must have been made by the putative principal, not by the putative agent, that the agent is authorised to bind the principal. In the present case, there is no evidence of any such representation. The signage that said "Gould Ralph" at the premises where Mr Seeto was permitted to remain after the partnership had been dissolved did not satisfy the requirement of such a representation. If it were otherwise, then there would be a representation that all employees of the partnership were authorised to bind it. Furthermore, there was in any event no evidence from the plaintiffs that Mr Azuma was unaware that Mr Seeto had ceased to be a partner and there should be no finding that the plaintiffs were unaware of it in the absence of such evidence. 91 Secondly, the plaintiffs must demonstrate reliance on such a representation. There was no evidence given by Mr Azuma or anyone as to any such reliance. This was said to be fatal to the argument based on ostensible authority. Even if there were such evidence, Mr Beard and Mr Ralph re-emphasised the extraordinary and bizarre nature of the impugned transactions that were contemplated. Those transactions could realistically have had no apparent connection with the partnership and any suggestion that the plaintiffs did rely on some representation would fall to be considered, and rejected, in that light. 92 I consider these submissions to be correct. Mr Azuma gave a lot of evidence to the effect that he thought "Gould Ralph" was Mr Seeto or the Seeto Group, and Mr Seeto or the Seeto Group was "Gould Ralph". However, the source of Mr Azuma's understanding was always Mr Seeto and neither Mr Beard nor Mr Ralph was said to have contributed to it in any way. Mr Beard and Mr Ralph submitted that there was no foundation for Mr Azuma's assertions to this effect and described them as "irrational". There was said to be a complete lack of any connection between the activities of one and the activities of the other, the only common denominator being Mr Seeto. The breach of trust allegations 93 The plaintiffs alleged that it was impliedly agreed between them and the partnership and the first and second defendants that the partnership and the first and/or second defendants would be trustees of the invested funds and that as trustees the partnership and those defendants are liable to account to the various plaintiffs. Mr Young put his argument in the following way: "By the same arguments as to who the contract was made with, by those same arguments, the trust was with the partnership, although the company may also be a trustee since its account was the one that the monies were actually going into. But it was really the partnership that was being entrusted with the money, with the partnership to nominate its nominee company to hold the bank account. The money was held on trust, it's been misapplied, and all of the partners are liable for that breach of trust." 94 Mr Beard and Mr Ralph responded with the following propositions. First, an essential element in the creation of a trust is that there must be proper evidence of the intention to create it: see Aras v Schmutz (Court of Appeal, 9 December, 1997 per Powell JA, unreported); Jacobs' Law of Trusts in Australia, 7th ed (2006) at [306]. There is no indication at all in the evidence that the payment of the US$3 million involved any intention to create a trust. The language of the conversation between Mr Azuma and Mr Seeto shortly after 7 May 1998 (referred to above at par [15]) is to the effect that the money was paid to the second defendant initially, with a view to it only subsequently being paid into the so-called custodian account of the first defendant. Other than the references to that account, which was to be a subsequent step, there is nothing indicating any intention to create a trust. 95 Secondly, with respect to all of the transactions, and on the assumption that the creation of a trust was intended, the trust property was transferred to the first defendant and to no one else. If anyone became a trustee of the funds, it was the first defendant. There was here neither a vesting of trust property in the partnership as trustee by a transfer to it or by a declaration of trust by it; nor was there a direction that the partnership hold the funds as trustee: see Aras v Schmutz (supra). The partnership never became a trustee because it is the essence of a trust that property be vested in it as trustee and it never was. 96 Thirdly, there was no breach of trust. The alleged breach is pleaded as a failure to account. However, the partnership was never in a position to account because the express arrangements were that the first defendant was to have the "sole control" of the funds: see the letter dated forming part of annexure "F" to Mr Azuma's affidavit at par [13] above. 97 Finally, if the trust money or other property does not come into the hands of the partnership "but simply into the hands of one of the partners then the other partners are not liable to account unless they have notice of the breach of trust or other circumstance which renders the offending partner liable as a constructive trustee": Estate Realties Ltd v Wignall [1992] 2 NZLR 615 at 634. Mr Beard and Mr Ralph submitted that the evidence fell short of establishing that the alleged trust money came into the hands of the partnership or that either of them had notice of any alleged breach of trust. 98 In my opinion, these arguments are unassailable. In particular, there is no evidence that either Mr Beard or Mr Ralph had any knowledge at all of what Mr Seeto was doing in his various dealings with Mr Azuma and the other plaintiffs. Indeed, it was ironically part of the plaintiffs' case that they knew nothing: see par [25] above and Mr Seeto's warning to Mr Azuma that "if the other partners of my firm get to know about this, I will lose all control over it". 99 I am not satisfied that the remaining partners are liable to the plaintiffs for any breach of trust. The restitutionary claim 100 Although only faintly put, this part of the plaintiffs' case requires at least a demonstration of the fact that the funds in question were actually paid to or received by the partners for their benefit. For reasons already expressed, this did not occur and this part of the plaintiffs' case fails. Limitations defences 101 Mr Beard and Mr Ralph also relied upon defences under the Limitation Act 1969. They submitted that Mr Azuma did not become a plaintiff until 19 July 2006 although the relevant amendments to the pleadings became effective on 30 June 2006. Accordingly, any cause of action brought by Mr Azuma must have accrued within six years prior to that date, or by 30 June 2000. 102 Mr Azuma's cause of action in contract accrued on the date of the alleged breach of contract. The breach of contract claims have been pleaded as a failure to repay the funds. Mr Beard and Mr Ralph contend that this failure first occurred on the date when the plaintiffs first demanded repayment which according to them was on or about 21 December 1999. To the extent that Mr Azuma had any claim himself for the return of the monies, his cause of action expired on this analysis on or about 21 December 2005. 103 Necessarily coupled with this submission is the contention that the other plaintiffs have no cause of action in contract for the return of the money for the reason that the money was not theirs: it was Mr Azuma's money, and his joinder to the proceedings was a tacit recognition of that fact. Mr Beard and Mr Ralph point to the evidence given by Mr Azuma that the money was originally sourced in rental income to which the first plaintiff was entitled so that there must have been a loan by that company to Mr Azuma and that he used the borrowed monies for purposes of the first impugned transaction. In such circumstances Mr Azuma has suffered the loss and he is liable to the first plaintiff as a borrower from it. With respect to the later transactions, neither is recorded in the financial statements or accounts of the first or second plaintiffs in the 1999 financial year. If any loss was suffered it was a loss incurred by Mr Azuma whose claim is time barred. 104 The plaintiffs' response was as follows. The evidence is that the first instance where money was asked for and not repaid was at the earliest in late 2000 or early 2001. Mr Nishiura asked for his money in late 2000, and Mr Azuma asked for his money in 2001, and those were the first refusals. Mr Young submitted that the court should simply go to the evidence, which was that there was no demand made before late 2000, being a date after the six-year period prior to the commencement of joining Mr Azuma. Accordingly, the breach of contract alleging a failure to repay money on demand occurred late in 2000 at the earliest, and is within the limitation period in any event. 105 Mr Young responded to the title or true ownership issue with the following submissions: "The money was from the first and second plaintiffs. The letters that Mr Azuma wrote in relation to arranging the payment of the US $3 million were all on the letterhead of Seiwa Australia. Seiwa Australia and Australia Seiwa were the existing clients of Gould Ralph. Although the money was passed through Mr Azuma's personal US dollar account and it seems that there was also a term deposit in his name that held the money at some stage, he gave the evidence that the money came from Seiwa Australia and it came from its properties. In all likelihood, as I submit is the case, Seiwa Australia was the company contracting at that stage, if not both companies, although it was the only one that advanced money at that stage. And it was from Australia Seiwa that the second tranche of money came. That only leaves the third amount of money, being Mr Nishiura's money. The money was certainly ultimately coming from Mr Nishiura, but Mr Azuma asked Mr Nishiura to go ahead with it. The original arrangement with Mr Seeto was that monies would be built up as much as possible in this custodian account to enable these interest rates to be held. In my submission the correct construction of what happened was that Mr Azuma, on behalf of his two companies - they being the companies that were Gould Ralph clients - got Mr Nishiura's money, holding it in effect on trust for Mr Nishiura, and then invested it with the Gould Ralph custodian account. So that although those companies are liable to account for that money to Mr Nishiura as trustee, they were entitled to sue for that money against the partnership to recover it. As the legal owner of the money." 106 In relation to the first issue, Mr Young is correct. There was no demand before May 2000 at the earliest and probably no earlier than "the latter part of 2000" when Mr Azuma tried to contact Mr Seeto many times. The onus of proof of this issue lies on Mr Beard and Mr Ralph. I am not satisfied that there was any accrual of the causes of action pleaded as a breach of contract at any time beyond six years from the date when Mr Azuma became a plaintiff. It is therefore unnecessary to determine the question of whether or not the first and second plaintiffs had a good title to sue. 107 In relation to the claims based upon a breach of trust, the cause of action first accrues on the date of commission of the beach rather than on the date when a beneficiary suffers loss: see Re Somerset; Somerset v Earl Poulett [1894] 1 Ch 231 at 263. If the funds have been lost then the relevant date of the breach is the date when the defendants refused to return the funds to Mr Azuma. This was in late 2000 as set forth above. The claim for breach of trust is therefore not barred by statute in accordance with the earlier analysis. Conclusions 108 It follows in these circumstances that the plaintiffs have failed. Subject therefore to any matters to which any of the parties might wish to refer me, I propose to make orders in these terms: 1. Proceedings dismissed. 2. Order the plaintiffs to pay the costs of the fourth defendant and the fifth defendant. ********** 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.