Supreme Court New South Wales Medium Neutral Citation: Raulfs v Fishy Bite Pty Ltd [2011] NSWSC 105 Hearing dates: 15-19, 26 November 2010 Decision date: 02 March 2011 Before: Rein J Decision: The first and second defendants are liable to repay the amount of $368,000 plus interest to the receiver of the partnership. The third defendant is not liable to the plaintiff or the receiver Catchwords: CONTRACTS - partners - whether partnership agreement in respect of a restaurant business should be rectified - whether there was a breach of fiduciary duty by the first defendant - whether money paid by the plaintiff to the first defendant should be repaid on the basis of a Quistclose trust, constructive trust and/or total failure of consideration - whether the second defendant, who was the sole director and a shareholder of the first defendant, is liable to repay monies paid by the plaintiff as a knowing recipient, and if so to whom - whether the de facto wife of the second defendant is liable as a volunteer to repay monies paid by the plaintiff - whether money claimed to have been paid by the plaintiff to the second defendant towards the purchase of another restaurant was paid Legislation Cited: Partnership Act 1892 (NSW) Real Property Act 1900 (NSW) Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Barnes v Addy (1874) 43 LJ Ch 513 Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 Boscawen v Bajwa [1995] 4 All ER 769 Browne v Dunn (1829) 57 ER 909 Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 264 ALR 15 Gilbert v Gonard (1884) 54 LJCL 439 Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 John Nelson Developments Pty Ltd v Focus National Developments Pty Ltd [2010] NSWSC 150 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Markus v Provincial Insurance Co Ltd (unreported, 11 May 1983) Marsden v Amalgamated Television Services Pty Ltd [1999] NSWSC 428 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 National Commercial Banking Corp of Aust Ltd v Batty [1986] HCA 21; (1986) 160 CLR 251 Pooley v Driver (1876) 5 Ch D 458 Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 SCEGS Redlands Ltd v Barbour [2008] NSWSC 928 Twinsectra Ltd v Yardley [2002] 2 AC 164 Texts Cited: K Fletcher, Higgins and Fletcher The Law of Partnership in Australia and New Zealand, 7th ed (1996) LBC Information Services J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2008), LexisNexis Butterworths Category: Principal judgment Parties: Deborah Raulfs (Plaintiff) Fishy Bite Pty Ltd (First Defendant) Louie Ajaka (Second Defendant) Helen Ablett (Third Defendant) Representation: Counsel: Plaintiff: M L D Einfeld QC M W Sneddon Defendants: C Birch SC Solicitors: McLaughlin & Riordan Solicitors (plaintiff) JSM Lawyers (Defendants) File Number(s): SC 2008/280770 Judgment 1In these proceedings, the plaintiff, Mrs Deborah Raulfs, for whom Mr M L D Einfeld QC appears with Mr M W Sneddon, seeks to recover monies paid by her in connection with a partnership she entered into with the first defendant, Fishy Bite Pty Ltd (" Fishy Bite "). 2Fishy Bite is owned, either substantially or wholly, by Mr Louie Ajaka, the second defendant, and who is its sole director and secretary. 3The third defendant, Ms Helen Ablett, was until September 2007 the de facto wife of Mr Ajaka. Mr C Birch SC appears for Fishy Bite, Mr Ajaka and Ms Ablett. 4Mrs Raulfs' claim has two discrete components. The first relates to the amount of $400,000 which she paid by way of cheque to Fishy Bite on 27 July 2006. On that date, she and Fishy Bite entered into a deed of partnership ( the "Partnership Deed" ). Mrs Raulfs seeks the return of the monies paid, less a deduction of $32,000 which she received in 2007 in circumstances which I shall describe. There is no dispute that she did pay $400,000 by cheque to Fishy Bite, nor that the proceeds of the cheque were deposited into Fishy Bite's bank account. Nor is it disputed that in October 2006, Mr Ajaka organised the withdrawal of the $400,000 from the Fishy Bite bank account and paid the money into a Suncorp Metway account jointly operated by himself and Ms Ablett, with whom he lived in a de facto relationship at the time. 5The second discrete claim brought by the plaintiff is in relation to a further amount of $230,000. Mrs Raulfs says that over the period 31 May to 31 August 2006, she withdrew that amount in ten tranches of between $5,000 and $30,000 and handed over the cash to Mr Ajaka in connection with a proposed purchase of a restaurant, Seasalt, at Clovelly. Her case is that Mr Ajaka told her that he was negotiating with the owners of Seasalt to purchase it for $1.3 million and that he needed $400,000 cash as a deposit. She says that she understood that she and Mr Ajaka or Fishy Bite would become partners in that restaurant. She says that she did not learn that Seasalt could not be purchased until Mr Ajaka told her that on 11 October 2006. She claims that Mr Ajaka told her that the $230,000 had been deposited with "the boys" in the western suburbs and later told her that the money had been stolen. Mr Ajaka denies that the $230,000 or any portion of it was paid to him by Mrs Raulfs and denies her account of the conversations, which account includes a threat by Mr Ajaka to kill her. On his case, Mrs Raulfs' claim to have handed him $230,000 is a fiction, save that he admits having told her that he was interested in buying Seasalt and that he did have some discussions with Seasalt's owners, which discussions, he says he had informed her, ended in May 2006. 6It will be obvious that the credit of Mrs Raulfs and Mr Ajaka are critical to a determination of the $230,000 issue. It is also of importance in relation to the $400,000. Undisputed Matters 7I shall first set out the factual matters which are not in dispute. 8In early 2006, Mrs Raulfs returned from Germany, where she had been living with her German husband. Mrs Raulfs is Australian and she and her husband had a plan to live permanently in Sydney, so far as Mr Raulfs was concerned, after his retirement from his employment in Germany. Mrs Raulfs was keen to find a business which she could establish and that she (and later her husband) could operate. It appears that as at April 2006, Mrs Raulfs did not want to return to Germany. 9Mrs Raulfs expressed an interest in purchasing the Pool Caf in Maroubra to an employee of the caf and was introduced to Mr Ajaka. Mr Ajaka managed the Pool Caf for a company owned by Ms Ablett. Mr Ajaka was the main shareholder in Fishy Bite, which owned and operated a fish and chip shop at Bronte. Mr Ajaka also managed a restaurant in Bondi Junction in which he had a part interest. Mr Ajaka had had extensive experience in the restaurant trade for over more than 17 years as at 2006. 10Mrs Raulfs and Mr Ajaka discussed the possibility of her investing, originally, $200,000 in the restaurant business, either in the Pool Caf or Fishy Bite or some combination, and eventually the figure which she agreed to invest was $400,000. As these discussions were progressing, an intimate relationship developed between Mrs Raulfs and Mr Ajaka. Mrs Raulfs had no experience whatsoever in restaurants or cafs, and it was agreed that Mr Ajaka would have to train her and explain the business to her, although precisely what was entailed in that is not agreed. 11Mrs Raulfs and Mr Ajaka attended on a solicitor, Ms Sharah (organised by Mr Ajaka), for the purposes of preparing a written agreement. There is a dispute as to what was said to Ms Sharah, but no dispute that Mrs Raulfs said after their meeting that she was not comfortable with Ms Sharah and that she wanted to use another solicitor. 12Subsequently, Mrs Raulfs and Mr Ajaka attended on a Mr Philip King, a solicitor in Randwick who was Mrs Raulfs' choice. Mr King prepared a draft partnership deed, which was read by both Mrs Raulfs and Mr Ajaka (indeed it was read twice by Mr Ajaka) and was, with corrections, agreed to by both parties and executed on 27 July 2006. 13On 27 July 2006, Mrs Raulfs provided a cheque for $400,000 to Mr Ajaka, made out to Fishy Bite. Mr Ajaka banked the proceeds of the cheque with Westpac Bank, where it remained until mid-October 2006. In October, Mr Ajaka arranged for the $400,000 to be transferred to an account with Suncorp Metway, which was a joint account with Ms Ablett in respect of a mortgage debt of Mr Ajaka and Ms Ablett secured by the property at Clovelly in which Mr Ajaka and Ms Ablett resided at the time. Those funds, together with a further $100,000, were used to discharge the balance of the mortgage debt to Suncorp Metway. 14In the following year, Mr Ajaka and Ms Ablett decided to end their relationship, and Mr Ajaka transferred his interest in the Clovelly property to Ms Ablett as part of a property settlement effected on 14 September 2007. Mr Ajaka and Ms Ablett have three children. 15Ms Ablett left control of the Suncorp account to Mr Ajaka. Ms Ablett had no knowledge of the source of the $400,000, which Mr Ajaka applied to discharge the Suncorp debt, and she did not learn of Mrs Raulfs' claim in respect of the $400,000 until July 2008. 16On 8 December 2006, Mrs Raulfs' then solicitors, Grahame W Howe & Co, wrote to Mr Ajaka and Fishy Bite requiring production of all financial and banking records for the business, an account to her for drawings and information relating to an alleged lease dispute and other information relating to the Fishy Bite business. The letter threatened dissolution of the partnership and a requirement for an accounting and indicated that Mrs Raulfs was willing to sell her interest in the partnership for "$400,000 plus drawings plus a share of profits to date." This letter did make reference to the $230,000 as an amount paid in cash "with the intention that a business 'Seasalt Caf' would be purchased and there would be a partnership between our client and Mr Ajaka in respect of 'Fishy Bite', 'The Pool Caf' and 'Sea Salt Caf'": see Exhibit 3. By a separate letter of the same date, a demand was made on Mr Ajaka by Mrs Raulfs' solicitors for the return of the $230,000. 17There followed, within a few days of the letters referred to in [16] above, settlement discussions. Correspondence relating to the discussions is before the Court (see Exhibit 3), and it is apparent that the parties came close to resolving Mrs Raulfs' claims in respect of the $400,000. Any claim to privilege was waived by both parties, and it can be seen that Mrs Raulfs was to be repaid the $400,000 (but not the $230,000), subject to certain documentation being provided by Mr Ajaka. Importantly, it was agreed that an amount due for interest (on the $400,000) of $32,000 would be paid to Mrs Raulfs pending final resolution. It was further agreed that if the settlement did not proceed: "...then all payments made as and from 1 January 2007, will be deemed made on account of our client's share of profit of the Partnership (that is they will be treated as drawings)." 18The settlement was not finalised. Mrs Raulfs received the $32,000. Mrs Raulfs later (in 2008) commenced proceedings in this Court for an order for dissolution of the partnership created between herself and Fishy Bite, and the appointment of a receiver. On 3 October 2008 the Court, by consent, ordered that the partnership was dissolved as at 25 September 2008 and appointed a receiver, who has since that date been operating the business with Mr Ajaka as manager and has been trying to sell the business. The receiver's attempts to sell have not yet met with success, and I was informed that he anticipates a sale at $150,000. By letter dated 7 March 2008 (page 173 of Exhibit A1), the solicitor for Fishy Bite advised Mrs Raulfs' solicitors that Fishy Bite had received an offer of $150,000 for Fishy Bite's 65% interest in the business and offered that interest to Mrs Raulfs for that amount. 19Of critical importance in the case is clause 4.4 of the Partnership Deed executed on 27 July 2006, which provides: "The parties acknowledge that Deborah has made a contribution of $400,000.00 towards the capital of the Partnership." "Partnership" is defined as "the partnership constituted between the Partners pursuant to this Deed" and by clause 2.1 the partners agree that: "...as from the date of this Agreement they have carried on and hereafter they will carry on the Business in partnership on the terms set out in this Deed during the joint lives of the Partners and thereafter during the joint lives of any two or more of the Partners." "Business" is defined as: "the business of takeaway fish and chip shop carried on by the Partners pursuant to this Deed and known by the name of 'Fishy Bite' or such other name as agreed between the Partners from time to time." Clause 3 provides that: "The Partnership shall be carried on at the premises known as 491 Bronte Road Bronte in the State and at such other premises as the Partners may agree upon from time to time." 20The plaintiff's case is that the $400,000 was paid as a capital contribution to the partnership and that the money must be repaid. The case is put on alternative bases, namely: (1) that the express purpose for which the money was paid was contribution to capital of the new partnership and it was not used for that purpose, giving rise to a trust of the kind held to exist in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 ; (2) that there was a constructive trust case of the type found in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 ; and/or (3) that there was a total failure of consideration; entitling Mrs Raulfs to return of the $400,000. 21The defendants' case is that the Partnership Deed does not reflect the agreement reached between Mrs Raulfs and Mr Ajaka (on behalf of Fishy Bite) and that it should be rectified. If the Partnership Deed is rectified in the manner for which the defendants contend, then Fishy Bite was free to do what it liked with the $400,000. Alternatively, the defendants say that if the $400,000 was wrongfully removed from Fishy Bite, it is an asset of the partnership (not Mrs Raulfs) and should be returned by Fishy Bite to the receiver on behalf of the partnership. Mr Ajaka maintains that he would not personally be liable to repay any money because he did not appreciate that he could not remove the money for his own purposes. Ms Ablett maintains that she had no knowledge of the removal of the funds and cannot be liable on the authority of Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 or Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 . 22In November 2006, Mrs Raulfs started recording her telephone conversations with Mr Ajaka without his permission. The transcripts of those conversations were put into evidence by the defendants. Mrs Raulfs, on advice from her counsel, sought a certificate in relation to any criminal proceedings that might be launched in respect of her having recorded the conversations without Mr Ajaka's permission. Each side has made submissions about the recordings, and I will return to that point. 23The evidence put forward by Mrs Raulfs, if accepted, had much of the characteristics of a case of misleading and deceptive conduct on the part of Mr Ajaka and Fishy Bite. That case was not pleaded and Mr Einfeld made clear that it was not sought to be advanced. Mr Ajaka had indicated to Mrs Raulfs that although he would want a million dollars for the entire Fishy Bite fish and chip shop business were he to sell it to a purchaser, he was not entering into the transaction with Mrs Raulfs on the basis that it had that value. What he did say about the fish and chip shop business (and what he did not say) nevertheless has importance to his credibility. Mrs Raulfs' credibility 24Mrs Raulfs is a pattern maker by training and experience. Mrs Raulfs' very extensive affidavit reveals a person of no commercial experience and both it and her oral evidence indicate that she is an unsophisticated person. She expressed difficulties understanding words such as "emphatically" and "contemporaneous". I did not gain the impression from her overall demeanour that she is a dishonest person, but there was a degree of immaturity which was apparent, not only in her evidence, but in her manner. 25Mr Birch, in his submissions, has detailed a number of matters which, he submits, demonstrate that Mrs Raulfs is not a truthful person, namely: (1) At T31.48, Mrs Raulfs denied sending emails to her husband, but at T32.11-30, she said they were sent periodically. (2) At T33.40, she accepted that she had not produced any written record of anything sent to her husband, but at T34.30-50, she said that there could be emails that she had sent, and at T45.5 she said she had no copies of communication with her husband (other than in respect of the proceedings or proposed legal action). (3) At T65.15-24, Mrs Raulfs said that the conversation referred to at page 18 of her affidavit is dealing with expanding Fishy Bite and buying Seasalt, and at paragraph 25 of her affidavit she said this conversation took place in the "period leading up to 31 May 2006". However, at paragraph 48 of her affidavit, she puts the first mention of Seasalt at 23 June 2006. (4) At T70, Mrs Raulfs says that she understood that Ms Sharah required her to have her own solicitor, but she told Mr Ajaka that she insisted on not using Ms Sharah because she did not feel comfortable: see T69.1. (5) At T81.28-30, she agrees that the change from $200,000 to $400,000 was a change to a key term of the deal, and at T81.19-21 admits not telling her husband about this. However, at T81.32-35, she said that she always consulted her husband about an important matter relating to the nature of the deal. (6) At T84.39-41, she said that all of the $400,000 would be used to buy Seasalt, but at T85.6-8, she denied having said this. (7) At T99.22-25, Mrs Raulfs said she never told Mr Ajaka that she had a relationship with her husband who allowed her to have an affair, and attention was drawn to paragraphs 7, 8 and 12 of her affidavit, in which she claims to have resisted Mr Ajaka's advances on the basis that both she and he were married. (8) At T99.27-30, she denies that Mr Ajaka ever told her that their relationship could endanger their respective marriages. However, at page B.70 of the telephone transcript, Mr Ajaka does say words to that effect. (9) At T105.27-31, she said that she would have gone back to Fishy Bite, but Mr Ajaka sacked her and told her never to go back. However, at paragraph 94 of her affidavit, she said that she had responded to Mr Ajaka's sacking of her by saying "That's good, because as I've told you before I hate cooking, I think I will be better working in Sea Salt doing the functions and the PR." (10) At T106.16-25, Mrs Raulfs denies having been told by Mr Ajaka that if she went back to work, she would be paid. However, at B.34-36 of the telephone transcript, Mr Ajaka makes it clear that she would be paid, and also that he did not sack her, but she voluntarily did not want to work there; (11) At T106.5-10, she denies meeting and the contents of conversation with Mr Ajaka and Mr Shukri. However, B.9-10 of the telephone transcript "shows she knew there was going to be a profit distribution calculated by Shukri. That was the contents of the conversation that she denied had ever happened." (12) At T153.1-4 and T153.41-47, she insists that there is something in the telephone transcript which confirms that Mr Ajaka had said that he could stifle a police complaint with his connections but no such reference is to be found. (13) The telephone transcripts: Mr Birch put forward a detailed analysis of the telephone transcripts and highlighted what he submitted were inconsistencies between what is there contained and what is in the affidavit evidence of Mrs Raulfs which I would summarise as thus: (a) the conversations for 17 and 18 November are quite inconsistent with what is contained in paragraphs 113-122 of her affidavit; (b) Mrs Raulfs denied to Mr Ajaka that she was taping the conversations when in fact she was; (c) she did not disclose in her affidavit that she had taped conversations or that some of the material in her affidavit was derived from that taping: see paragraph 123 of her affidavit. (d) she used the tapes in a "highly selective fashion" and in a way that was liable to give a misleading impression; (e) the failure to discover the tapes initially; (f) Mrs Raulfs cannot be believed when she says that she was fearful of Mr Ajaka and for her safety; (g) the transcript reveals that Mr Ajaka had obtained employment for Mrs Raulfs: see [114] of her affidavit; (h) Mrs Raulfs said at B49 "I think we should go to the police about all this" and see T128.1-32. One of the points made is that in the transcript, Mr Ajaka invites Mrs Raulfs to go to the police: see B47 and B55.17-18 of the telephone transcript; and (i) The only threat that Mr Ajaka makes in the transcript is that if they fail to resolve the matter and it goes to court, the outcome for Mrs Raulfs will be unsatisfactory and both parties will be hurt: see B70.1 of the telephone transcript; 26I think that [25](3), (4), (7), (8) and (9) do not have any significant impact on her credit. I think that (1) and (2) are potentially significant, as are (5), (6) and (12), although in respect of (5) Mrs Raulfs did explain at T81.40-42 the time difference. So far as (10) is concerned B34-36 does not establish what is contended. In respect of (11) I do not think the conversation at B9-B10 of the transcript is inconsistent with the denial of the meeting alleged to have taken place between Mr Ajaka, Mr Shukri and Mrs Raulfs, although what is relevant is that Mrs Raulfs denies any meeting and Mr Shukri supports Mr Ajaka's evidence that there was such a meeting. So far as (13) is concerned, I think that (13)(h) is of no significance and (c) is of little significance. I think that (13)(a), (f), (g), (h) and (i) are relevant, and I will comment on these below. There is also the fact that in the conversation to which Mrs Raulfs deposes in paragraph 126 of her affidavit, she accuses Mr Ajaka of having used the money to buy a brothel in King's Cross but she gives no evidence of the basis for that allegation. She does record Mr Ajaka as having in effect denied that allegation in the conversation. In relation to (13)(d) and (e), I think that Mrs Raulfs was in an awkward position. To reveal that she had tapes of the conversation recorded without Mr Ajaka's permission would involve an admission that she had or may have committed a crime and would remove a potential forensic advantage, ( Markus v Provincial Insurance Co Ltd (unreported, 11 May 1983), discussed in Marsden v Amalgamated Television Services Pty Ltd [1999] NSWSC 428 per Levine J) but to present the conversations in her affidavit without revealing that much of them were taken from the tapes presented an incomplete picture. This is in a context where, as it turns out, the tapes contain no admissions by Mr Ajaka. 27I found the notion that Mrs Raulfs would hand over amounts as large as $20,000 and $30,000 in cash as somewhat odd, and her continuing to do so notwithstanding Mr Ajaka's failure or refusal on her case to provide receipts, even more so. I agree that the telephone transcripts are not, when looked at as a whole, supportive of the contention that Mrs Raulfs feared Mr Ajaka. The fact that Mr King, who had three conversations with Mrs Raulfs in October concerning the $400,000, records nowhere any claim that she has given Mr Ajaka another $230,000 and does not recall having been told of the $230,000 is very damaging to Mrs Raulfs' assertions. It is unhelpful to Mrs Raulf's case that she has no record of any email or facsimile sent to her husband recording the proposed investment of a further $230,000 in Seasalt, even accepting that most of her communication with her husband was by telephone. 28I am not persuaded that Mrs Raulfs is a person whose evidence should not be accepted, but I am persuaded that her evidence must be approached with caution. Mr Ajaka's credibility 29In my view, Mr Einfeld's cross-examination of Mr Ajaka demonstrated that Mr Ajaka is an unreliable witness. I accept Mr Einfeld's submission that: (1) Mr Ajaka had a tendency to volunteer self-serving answers rather than answer the questions asked of him; (2) he was evasive in many of his answers; and (3) he initially sought to resist propositions to which he was subsequently forced to agree with. 30I will set out four items of cross-examination which I think demonstrate the validity of Mr Einfeld's submission: (a) T226.30-230.5 (and see T231.25-39) "Q. Right. And when you went to Mr King's office on 24 July 2006, Mr King was informed, wasn't he, that the $200,000 then proposed to be invested by Ms Raulfs was to be invested by way of contribution to capital and not purchase price; that is true, isn't it? A. No. That is rubbish. Q. That is rubbish? A. Yes. It is absolute rubbish. Q. Because if anything like that had been said, you would have been immediately alerted to it, is that right? A. Yes - well, I would have - no, that is not what I am saying at all. My understanding was, as a sale, she was buying my share. That is it. I didn't understand what capital contribution was. I don't recall it being mentioned, either, at the meeting. I don't recall those words being ever used. Q. Right-- A. I recall the word "partnership" being used many times. Q. I did not ask you that because you have set out in detail, haven't you, in your affidavit the conversation which you say took place in Mr King's office on 24 July? A. As I recalled it, to the best of my ability, yes. Q. Without the advantage of any notes that you took at the time of the conversation, is that right? A. No, I referred to his notes, though. Q. You referred to his notes? A. Well, it's just that I saw them. Q. Wait a minute. You just said you referred to his notes; in what way? A. I didn't refer to them at the time, it was after. But I had seen it. Q. What did you mean, when I asked about your recollection, when you said, "but I referred to his notes"; when did you refer to his notes? A. I seen his notes when we subpoenaed them or when we asked for his file. Q. Right. In the course of these proceedings, you mean? A. Yes. Q. Very good. That was before you swore your affidavit, is that right? A. I think so, yes. Q. You only swore your affidavit this year, January? A. Yes, that's right. Q. When you say-- A. And Ms Raulfs saw his notes as well, because she took them. Q. Would you like to tell us what that had to do with any question I asked? A. Sorry. Q. Tell us what that had to do with any question I have asked? A. The way you asked the question, it appeared like it was strange to see those things. Ms Raulfs asked for those notes as well, that's why I said it. Q. To inform his Honour about something you were not asked? A. I apologise. Q. I want you tell us the reason why you thought it relevant to inform his Honour that Ms Raulfs saw Mr King's notes when you were not asked anything about that matter? A. I don't know. I just said it. Q. Do you think it might help your case in some way, do you? A. I can't answer that. Q. Well, I like you to, please? A. Well, no. I just said it. Q. Without a reason? A. (No verbal reply.) Q. On oath? A. Well, I just said it. Q. Just tell me, please, the purpose for which you referred to Mr King's notes, as you informed the court a few minutes ago you did? A. Well, I have forgotten the question now - not that question, sorry. You are saying the purpose for which? Q. The question was, you set out in your affidavit the conversation you had on 24 July 2006 with Mr King and you said, "I did it according to the best of my recollection", do you remember? A. Yes. Q. Then, you volunteered "but I have referred to Mr King's notes"; do you now recall the conversation? A. Yes. Q. The evidence you have given? A. Yes. Q. My question is, for what purpose do you say you referred to Mr King's notes? A. Well, I meant that I had seen them. Q. Is that why you used, in the context of an answer about your recollection of the conversation on 24 July, the expression, "but I referred to Mr King's notes"? A. When I saw them, it helped me to remember certain things. That's what I was trying to say. Q. Now, when you saw Mr King's notes, they helped you to recollect the conversation that took place on 24 July? A. No, not the whole conversation, of course not. Q. I'm asking you to explain what you mean when you said, "it helped me to recollect". What was it that helped you to recollect? A. I don't know specifically. I can't tell you that. Q. Was it something to do with the conversation on 24 July? A. You mean the meeting with Philip King, yes. Q. So it aided your recollection, it assisted your recollection of the events of the conversation on 24 July to look at Mr King's notes? A. Well, I already said Mr King's notes. Q. That's not what you said? A. No, I had told you earlier. Q. You said it assisted your recollection of the conversation of 24 July? A. Yes, that would be right. Yes. Q. For what purpose were you referring to Mr King's notes on an occasion which assisted your recollection of the conversation on 24 July? A. I can't tell you specifically. I can't remember. Q. In any event, do you remember what it was in Mr King's notes that reminded you of the conversation of 24 July? A. No, no. I am not saying that it reminded me. I had already a very good idea of the conversation. Q. But it assisted your recollection in what way? A. I can't say that now, that was back then. ... EINFELD Q. You know very well, don't you, that Mr King's notes contain nothing of the words "buy", "purchase", "purchase price" or any such words, don't you? A. Yes, that's right." (b) T195.12-197.12 "Q. To what profit and losses did you refer in order to form a view that the drop in profits was less than that which you were reported as having stated? A. Sorry, repeat the question please. Q. You just informed the court that when you referred to your profit and losses, you ascertained that the slide in takings was less than 40 per cent. My question is to what profit and loss accounts or reports did you have to refer in order to form the view that you have just expressed? A. What is recorded on the computer, just the income. Q. When you say "what is recorded on the computer", do you mean there were profit and loss statements recorded on your computer, is that right? A. Yes. Q. Profit and loss statements for each of the financial years from 2001 up-- A. No, no. Q. -- please let me finish my question, if you would be so kind? A. Sorry. Q. You mean by that, profit and loss statements for each of the financial years ending June 30, 2001, up to June 30, 2006? A. No. Q. To what were you referring when you said you had profit and loss statements recorded on your computer? A. For that particular year. Q. For that particular year? A. Yes. Q. Do you mean by that, the financial year from 1 July 2005 to 30 June 2006? A. For that particular year, yes. Q. Is that the year to which you were referring? A. I was not looking at the whole year, I was looking, generally, at the weekly takings that's recorded. Q. Do you mean you were not looking at the profit and loss statements in order to form the view, that you informed the court a moment ago, that you had? A. I'm not quite sure what you are referring to. What I'm saying is, I just referred to the takings that had been going on in that particular year, and that is, you know, it seemed less than 40 per cent. It was something where there was not a great lot of thought occurring at the time, because it was a journalist that approached me. I just stated that particular point. It was not as if I sat there and reflected for weeks, days, about a journalist approaching me. Q. Do you remember what you actually said to the journalist, the words you used? A. No. I don't remember." (c) T213.47-T219.43 Q. And you also did not tell her, did you, that your application to have outside seating had in fact been rejected by the same council in July of the previous year. You did not tell her that, did you? A. Yes, I did. Q. You did tell her? A. Yes, I did. Q. But you have not put that in your affidavit either? A. No, I don't think it is in there. Q. No, you don't think you did. And you did not tell her, did you, that the Waverley Council had rejected the application and, in doing so, gave you three separate reasons for rejecting that application? A. No, I did not tell her there were three separate reasons. I don't recall telling her that. Q. But you knew about them? A. I will have to refresh my memory. Q. Well, I can show you the council papers if you wish but in broad terms, will you agree, tell me if you don't, that the first was because "The proposed footpath seating did not relate to an operational caf or restaurant contrary to clause 1.3 and 272 of DCP 15 Footpath Seating for Restaurants". Remember that? A. Yes. Q. Secondly, the council a year before you spoke to Ms Raulfs had rejected your application for outside seating was because "The existing takeaway would not provide a reasonable service to the entire proposed seating area contrary to clause 2.1 of DCP 15". Remember that? A. Yes. Q. The third reason that the council rejected your application a year earlier than your conversations with Ms Raulfs for outside footpath seating was because "The proposed footpath seating area was likely to encroach on to the adjoining pavement compromising the safety of staff, patrons and pedestrians"? A. Yes. Q. And you did not tell Ms Raulfs any of those three matters, did you? A. No, but Q. No. In fact, at the time you told Ms Raulfs that this business was worth a million dollars, at the time you told Ms Raulfs that this business had huge potential derived from the fact that it had a capacity for dual operation utilising footpath seating, you knew very well that exactly that application for exactly that use had been refused by the Waverley Council. That is true, isn't it? A. In the beginning, yes, but then it was approved. Q. We will come to that? A. Yes. Q. My question was, at the time A. Mention Q. Please? A. Sorry. Q. My question was specific. If you don't understand it please tell me and I will put it to you again? A. Yes. Q. My question was at the time you had your conversations with Ms Raulfs right up until the time the partnership agreement was signed in July, you knew very well that the council had rejected exactly the application for the footpath seating which you knew she regarded as an important element in her decision to invest. That is true, isn't it? A. Yes, it is. But she knew that, too. It was rejected on a technicality and then it was approved. Q. Having not asked either of those things, is there anything else you want to add? A. Sorry? Q. Let me ask you about two things you just volunteered. Firstly, have you got outside seating today? A. No. Q. You never had it? A. No. Q. Never used it, have you? A. No. Q. Even up until 2008 you never had it when the receiver was appointed? A. That's correct. Q. And not only did you know, when Ms Raulfs signed the partnership agreement in July 2006, that the council had rejected your application, you had not yet by that time even lodged a new application, had you? A. No. Q. It was not lodged until September 2006, was it? A. That's correct. Q. And even as late as 15 March 2007, for the very same three reasons that I recited to you a moment ago and you accepted, the council again rejected the footpath seating at the Fishy Bite site; that's correct, isn't it? A. No, it is not. Council approved the DA application and it was rejected by the councillors themselves. Q. Yes. So what you mean is A. The council department approved the application. Q. What you really mean is, when you say it was accepted, the truth of the matter is that despite the fact that the council officers, the departmental people recommended it, it was, in fact, rejected by, as you just described, the councillors? A. Correct. This is September. Q. That is a little bit different to what you told his Honour twice, when I did not ask you, that, in fact, the council had approved outside seats? A. If you had given me a chance, I would have been happy to explain. Q. Is that your answer? A. It is. Q. Is it your sworn evidence that the reason you told his Honour that the council approved the application for outside seating because I did not give you an opportunity? A. No. The council approved it. Q. Please answer my question? A. Sorry. Q. If you do not understand my question tell me and I will put it again? A. The council approved. Q. No, please HIS HONOUR Q. Listen to Mr Einfeld's question, then answer that question? A. Sorry, your Honour. EINFELD Q. The reason, you say, you informed the court twice that the council had accepted the application approved, I think were your words for outside seating was because I did not give you an opportunity to give that explanation, is that correct? A. I'm not quite sure what you mean. I said the council approved it. Q. That was not correct? A. No, it is correct. It is on record as approved. Q. Some internal record is it? A. No, no. It is on the record that it is approved. Q. But the councillors A. The councillors, in a special meeting they conveyed, rejected it, that's right. But it is approved on record. I mean, it is approved. Q. The councillors A. You are making out it is not it is approved. Q. The councillors in their meeting, notwithstanding a reason that it should be approved, in fact rejected it? A. No, it was approved by council and the councillors then came and rejected it. But it is still approved on record, sir. HIS HONOUR Q. Did you get a letter to that effect saying it was approved? A. Absolutely. Yes. EINFELD Q. Then it was rejected? A. With the invitation to take it back to them when we wanted to, they would look at it again. Q. In any event, it was long after July 2006? A. That's correct. Not long after, just after September. HIS HONOUR: Mr Einfeld, you were saying you were going to come back to another aspect of what was said earlier when Mr Ajaka said "she knew it". I think it was in relation to the refusal by Waverley Council. Mr Ajaka did say, "well, she knew it". EINFELD: He did say it in an unsolicited statement. I will come back to it. If I don't, someone else will. Q. There is nothing in your affidavit about having informed Ms Raulfs that the application for the outside seating was more than a year old and there is nothing in your affidavit about its rejection in 2005, and you accepted that. You did say, without my asking you, "but she knew it", do you remember? A. Yes. Q. Because you told her? A. Yes. Q. I see. So, when you gave your very detailed account in your affidavits of your many conversations with Ms Raulfs, leading up to her decision to invest in your business, you informed her that it had huge potential for outside footpath seating use, do you agree? A. Yes. Q. Because you did tell her that? A. I just agreed. Q. Well, you agreed you said so in your affidavit, you also agreed that that is, in fact, what you told her? A. Yes. Q. And you knew that she was very interested in the potential of the restaurant, from its use as an outdoor cafe, as an important ingredient in her decision making process; yes? A. Yes. Q. You put that in your affidavit, is that right? A. Yes. Q. And is this your evidence that even though you told her that the business potential had eventually stalled or stopped because council rejected the outside seating, you did not put it in your affidavit? A. That's right. Q. Would you like to be kind enough to offer a suggestion as to why you did not include that part of your conversation in your affidavit, notwithstanding you have included the part about telling her it had huge potential for outdoor use? A. The only explanation I can offer is that this affidavit came about from my best recollection of certain events, it did not come about from me saying it is every single conversation we ever had. Q. But you gave Ms Raulfs to believe, didn't you, that the transformation from a take away to a dual business was a matter of mere formality, didn't you? OBJECTION BIRCH: If he is suggesting that that is the evidence, I think the witness should be taken to the evidence or if Mr Einfeld glosses it, I do not think it is admissible. EINFELD: I think it is. Q. You set out to convey the impression, didn't you, that the use of the cafe was a matter of mere formality? A. I believed that, yes. Q. You gave her to believe that, you say, because you believed it? A. Yes. Q. You told her, apart from paying some council fees and charges and getting some tables and chairs, there was nothing to it; that is right, isn't it? A. I said that but I said other things, too. Q. Well, you said to her that it is a matter of paying council fees and charges, and you put that in your affidavit? A. Yes. Q. When you said "I said other things, too" are those other things, too, in your affidavit anywhere? A. Probably not. Q. Any explanation? A. The same explanation as I said before. Q. Namely? A. Namely, that I'm not suggesting that every single conversation we ever had in all our negotiations is in my affidavit. (d) T234.31-235.43 "EINFELD Q. I want to suggest to you, sir, that in fact you went through the document? A. Yes, I did. Q. And you did so together with Ms Raulfs? A. No, we did not go through the whole document. Q. But you went through the whole contract with Ms Raulfs? A. We went through the percentages and the price. Q. In other words, whatever it was you went through you did not just do it on your own, you did it with Ms Raulfs, is that right? A. Yes, I did. I did it with Rs Raulfs. Q. I don't want to give you any surprises Mr Ajaka, but in your own affidavit you say, at paragraph 85 on page 276 of A1, you received the draft partnership agreement from Mr King. "DR", that stood for Ms Raulfs, is that right? A. Yes. Q. "Was with me and we both went through the document". See where you have said that? A. I'm sorry, which paragraph? 85? Q. 85, first sentence? A. That's right, yep. Q. So there is no doubt, is there, that you and Ms Raulfs went through the document? A. No. Q. Together. Not just on your own? A. I don't agree with that because we did not go through the whole document as it clearly states further down in my affidavit. Q. Where does it state clearly further down in your document-- A. Well, we-- Q. Please let me finish my sentence? A. Sorry, sorry. Q. Where do you state lower down that you did not go through the whole document together? A. It doesn't say those words. It says-- Q. Well, why-- A. Can I answer now? Sorry. HIS HONOUR Q. Yes, you can answer the question? A. I beg your pardon, I'm sorry. Q. That's all right? A. I was trying to answer the question to say what I said before and that is we talked about the percentages and the price. EINFELD Q. You just informed his Honour that you said further down that you did not go through the whole document together. Where do you say that, sir? A. I don't say that there." 31Mr Einfeld drew attention to the fact that Mr Ajaka asserted in relation to two important matters (the poor performance of the business and the refusal of the council to grant permission for outdoor seating), that he had informed Mrs Raulfs of them, when in his affidavit he made no mention of them. I did not think that Mr Ajaka's explanation as to why he had not included them in his affidavit was at all convincing: see T220-221. In respect of whether he had told Mrs Raulfs that the business had been making virtually no profit, he had agreed at T204.41 that he had not told her, but then asserted that he had at T205.34-40. 32There are some other aspects of Mr Ajaka's evidence that reinforce the impression that he is not, in general, a reliable witness: (1) He deposes to parts of conversations which have not been transcribed by the expert Mr Garde in his recount of the taped telephone conversations. These are in bold italics and have been inserted by Mr Ajaka. These additional portions all involve Mr Ajaka asserting something to Mrs Raulfs that, if accepted by her, would be damaging to her case. Not only is it rather a coincidence that all of these extra damaging portions are said to have occurred in the portions that were not transcribable, but as Mr Einfeld pointed out, one of these "insertions" does not logically follow from the portion of the transcript that was transcribed (see T307-308 in respect of page 308 of Exhibit A1). Mr Ajaka's effective assertion that he can now recall the time at which these conversations were held when he had difficulty remembering what he said to a journalist at about the same time and other matters of detail is difficult to accept. (2) Mr Ajaka asserts that Mrs Raulfs told him that she had given "a couple of hundred grand " someone she met through her "dealer": see page 290 of Exhibit A1. Mr Ajaka has not anywhere in his evidence asserted that Mrs Raulfs was, to his observation, a "user" of drugs, and her denial that she was a user (see T143.31-38) was not challenged, although see page 313 of Exhibit A1 and T311-312. If she did not take drugs she would not have a "dealer" and the statement attributed to her by Mr Ajaka makes no sense. (3) I found Mr Ajaka's assertion that he did not think it surprising that Mrs Raulfs (on his evidence) wanted to see no records of Fishy Bite or any profit and loss statements as difficult to accept. Mrs Raulfs' evidence is that she did ask him for profit and loss statements and she says that Mr Ajaka did show her a profit and loss statement for the Pool Caf. She says that Mr Ajaka had whited out the name of the Pool Caf on the document, telling her "because you know Deborah if anyone gets their hands on these figures I'll be in trouble with the Tax Office as I don't give the true figures when I am doing my tax": see page 74 of Exhibit A1. Mr Ajaka admits that he did show her the document, but he says that it did not relate to the Pool Caf. He says that it relates to another restaurant whose name he cannot reveal: see page 329 of Exhibit A1. Mr Ajaka was not asked about this in cross-examination (there was an agreement between counsel that no Browne v Dunn (1829) 57 ER 909 points would be taken: see T192.50), but more particularly, since Mrs Raulfs was interested in the Pool Caf and there is no dispute that it was being discussed, her version seems to me to be far more likely. (4) Mr Ajaka asserted that when Mrs Raulfs told him that she wanted to increase her investment in the partnership by a further $200,000, he responded by saying "I'll tell you something I'm getting a bit sick of this mucking around. I do mind.": see paragraph 84 at page 276 of Exhibit A1, which I regard as implausible and designed to create the impression that he was not really interested in selling the fish and chip shop, which is inconsistent with what he told a journalist and is not plausible . (5) Mr Ajaka told Mrs Raulfs that the fish and chip shop was at a great location with "huge potential", but did not tell her about the refusal of council to approve outdoor seating, the significance of the introduction of parking metres and the poor performance of the caf. (6) Mr Ajaka said it was ridiculous to suggest that he might agree to Mrs Raulfs being in business with Ms Ablett at the Pool Caf (paragraph 66 of his affidavit) but see T331.8-18. 33The profit and loss statements for the years ended 30 June 2004 and 30 June 2005 were not produced by Fishy Bite or Mr Ajaka notwithstanding notices to produce served on the first and second defendants. The 2006 profit and loss statement was only produced on the fourth day of the hearing. Mr Ajaka said that he had asked Mr Shukri to forward the document to his solicitors, but this was not done and Mrs Raulfs' solicitors had to press vigorously for this document. 34Mr Ajaka did assert in answer to a question of mine that he had bought the business for $450,000 ten years earlier. There was no independent corroboration of this evidence. In any event, by June 2006, he knew that Mrs Raulfs regarded the prospect of outdoor seating as important (T212-213), he knew that the proposal for such seating had been rejected by the council (see T213-214), and he knew that the performance of the fish and chip shop had been poor. It is difficult to accept that a business (which did not include ownership of the premises) with results as low as those achieved in 2004-2006 could have honestly been thought to be worth one million dollars at June or July 2006, and Mr Ajaka's willingness to sell Fishy Bite's 65% interest for $150,000 in 2008 (see [18] above) is relevant in that connection. The receiver's assessment of a sale price of $150,000 for the entire business is another indication. 35I think that Mr Einfeld demonstrated (see T251-255) that Mr Ajaka well knew what each of the words and phrases "capital", "contribution" and "partnership" meant and that he could not have regarded clause 4.4 of the Partnership Deed as being technical legal jargon, as he maintained. I thought that cross-examination demonstrated that Mr Ajaka very likely reconstructed his version of the conversation with Mr King based on Mr King's notes and not as a result of a genuine recollection: see T227-228, and see also paragraphs 83 and 89 of Mr Ajaka's affidavit. 36In general terms, I am inclined to accept the evidence of Mrs Raulfs over that of Mr Ajaka, but for the reasons I have mentioned I think Mrs Raulfs' evidence needs to be approached with caution. Mr King 37I accept Mr King as a witness of truth, and I do not accept the submission that any of the answers he gave were prompted by a concern that he might be criticised for failing to follow instructions given to him by Mrs Raulfs or Mr Ajaka. Ms Sharah 38I accept that Ms Sharah was a truthful witness, but I think that cross-examination demonstrated the unreliability of her recollection. Mr Shukri 39The reliability of Mr Shukri's recollection concerning what Mrs Raulfs had said at a meeting between himself, Mrs Raulfs and Mr Ajaka some months after the Partnership Deed was signed was effectively impugned by cross-examination: T405-T408 and see T408.23-27. Further factual matters 40I make the following findings of fact, in addition to the matters earlier recounted as not being in dispute: (1) Mrs Raulfs was not given a role by Mr Ajaka in the management or administration of Fishy Bite. (2) Mr Ajaka did not involve Mrs Raulfs in any issues relating to the conduct of the partnership in the period 27 July to December 2006 (or beyond). (3) Fishy Bite made a profit of only $509 for the year ending 30 June 2006 and either losses or modest profits in the years ending 30 June 2004 and 30 June 2005: see T195. (4) Fishy Bite's application for seating had been refused by the Waverley Council in February 2005, and no further application was made prior to 27 July 2006. (5) By July 2006, Mr Ajaka was aware that metered parking at Bronte Beach had a significant and detrimental effect on earnings at the Fishy Bite shop. (6) Mr Ajaka did not tell Mrs Raulfs of the facts in (3), (4) and (5). (7) Mr Ajaka knew that Mrs Raulfs was completely unsophisticated in business and in the area of restaurants, cafs and fast food outlets. (8) Mr Ajaka was very experienced in the restaurant, caf and fast food business. (9) Mr Ajaka knew that Mrs Raulfs regarded the addition of outdoor seating as a very important matter in her decision to invest in the partnership: see T212-213. (10) Mr Ajaka told Mrs Raulfs that obtaining council approval for outdoor seating involved nothing but the payment of fees: see T219. (11) Mr Ajaka was at pains to avoid any incorporation of value into the agreement because he knew that the fish and chip shop had a value far less than one million dollars, whilst conveying to Mrs Raulfs the impression that it did have such a value. Mrs Raulfs' role in the partnership 41I have earlier made reference to Mrs Raulfs' lack of experience in the restaurant business. It is her evidence that Mr Ajaka told her that he would have to train her: see paragraph 5 of her affidavit at page 52 of Exhibit A1 and paragraph 25 at page 66 of Exhibit A1. She also says at page 64 of her affidavit that Mr Ajaka said to her: "You are so lucky meeting me as I can train you in management and how to be a great businessperson like myself. We could be good business partners together." and see T107-109 (cross-examination of Mrs Raulfs). 42Mr Ajaka denies the last-mentioned conversation (page 327 of Exhibit A1), but at page 259 of Exhibit A1, he describes a conversation in which Mrs Raulfs said to him: "If I buy a share, I have the money for a share and I don't know how to run the business, you do and you can train me. Besides, you said earlier that if you had a partner you would have the time to allow you to run Fishy Bite as a caf also. I can be the face of the caf after you train me up." 43I note also that according to Mr Shukri, Mr Ajaka's accountant, who gave evidence on behalf of the defendants, Mr Ajaka said to him (page 384 of Exhibit A1): "We agreed that [Mrs Raulfs] would work in the shop and learn the business while I did the administrative and management work. That was supposed to free up some of my time so that I could get on with other things." 44There was a factual contest between the parties about whether Mrs Raulfs worked in the shop over a nine day period or only for three days and a dispute about whether she was "sacked" by Mr Ajaka, but it would seem that Mr Ajaka had no intention of teaching or training Mrs Raulfs in relation to buying products, handling accounts and general administration. Mr Ajaka on his own evidence was to train Mrs Raulfs so she could run Fishy Bite as a caf: see page 259 of Exhibit A1. Mr Ajaka says that, in response to her complaint about work in the fish and chip shop, he said "If you don't know the difference between whether it's operating correctly or not then how can you possibly manage the place" and that Mrs Raulfs had said "I want to do the admin with you": see page 281 of Exhibit A1. Her version of the conversation she had with Mr Ajaka was that she complained about the lack of instruction and he said to her "Well, you are sacked and I don't want you going back to Fishy Bite anymore" (see page 95 of Exhibit A1) and that the conversation continued: "Me: I have put money into that business. I am a Partner, you can't speak to me like that. LA: I'm the majority shareholder and I don't want you going to Fishy Bite any more. Deborah, it won't be very long now until we have Sea Salt, you will then be able to go and work there and do functions and things for us. You will be better suited doing that. Me: That's good, because as I've told you before I hate cooking, I think I will be better working in Sea Salt doing the functions and the PR. LA: Yes, you will be good at that." If that is what was said, it is inconsistent with Mr Ajaka having told Mrs Raulfs by May 2006 that the Seasalt purchase was not going to proceed. 45At page 307 of Exhibit A1 in Mr Ajaka's affidavit (being a part of the transcript of the recorded conversations) is the following: "ME: Teach you about the NOT TRANSCRIBABLE whatever, teach you about the administration, after you learnt the basics because you can't be ex..., an administrator without knowing the operation. Didn't we make that clear? Didn't I make that clear? Didn't you agree?..." 46I think the conversation set out in [43] demonstrates that Mr Ajaka did not want Mrs Raulfs to have a role in the management and administration of the business even though, contrary to what he said to Mr Shukri, he had told her that she would have such a role. Mr Ajaka gave no evidence of what he was doing in the Fishy Bite caf which Mrs Raulfs was to take over from him. 47I accept Mrs Raulfs' version of the conversations and that she was told that she would be involved in the administration of the Fishy Bite business. I accept that Mr Ajaka did not tell her that Seasalt could not be purchased until October 2006. Rectification 48In order to obtain an order that the Partnership Deed be rectified, Fishy Bite must establish that the Partnership Deed does not accurately reflect the intention of the parties. The burden on a party asserting that the written document as executed by him (or it) does not reflect the parties' common intention is a heavy one: see Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 264 ALR 15 . In my view, Fishy Bite has not discharged that onus. In particular, I have regard to the following matters: (1) The fact that Mr Ajaka read the draft deed, which contained clause 4.4, differing in its form only as to amount, twice: "The parties acknowledge that Deborah has made a contribution of $400,000 towards the capital of the partnership" and even corrected defects in the drafting, but not that alleged defect; (2) The absence anywhere in the deed of a reference to "sale" or "purchase" despite Mr Ajaka's assertion that he used the words "sale" and "purchase" in his conversation with Mr King; (3) On 26 July 2006, Ms Raulfs sent a fax to Mr King on Mr Ajaka's fax machine and Mr Ajaka approved its contents: see page 144 of Exhibit A1 - it referred to Mrs Raulfs' "contribution" of "$400,000", but the words "sale" and "purchase" were not used; (4) Mr King's notes do not mention the words "sale" or "purchase", and Mr King's evidence at page 615 of Exhibit A2 was that he was not told that Mrs Raulfs was purchasing a share of the business; (5) Mr King's evidence and his notes are consistent with his having been told that Mrs Raulfs was injecting $200,000 (initially) as capital, and not that she was purchasing a share of Fishy Bite's business: see T179 and T180.45-47, and see T181.4-15, and T181.44; (6) Mr King's evidence that had he been informed that there was to be a sale, he would have taken a different course to that which he took; (7) Mrs Raulfs' affidavit at pages 534-537 of Exhibit A2; and (8) The fact that Fishy Bite (Mr Ajaka) has never lodged the agreement for assessment and payment of stamp duty, which would be payable if it were a sale agreement, and has not paid any capital gains tax. 49Insofar as Mr Ajaka relies on the evidence of Ms Sharah, I think that it is of limited assistance to the defendants given that: (1)the instructions she was given were given two months earlier; (2) Ms Sharah's draft deed does not refer to sale or purchase; (3) the draft prepared by Ms Sharah was not, in any event, the Partnership Deed entered into; and (4) Ms Sharah's evidence that Mrs Raulfs had said that she was purchasing a share was undermined in cross-examination. 50Insofar as Fishy Bite's case rests on Mr Ajaka's evidence, I am disinclined to accept him as a truthful witness for the reasons already given. 51Insofar as Fishy Bite's case rests on Mr Shukri's evidence, I thought that cross-examination demonstrated that Mr Shukri's recollection was very weak and the reliability of his account was significantly undermined. 52I do not think that there can be any doubt that the Partnership Deed required the $400,000 to be treated as an asset of the partnership between Fishy Bite and Mrs Raulfs. It was not money to be used by Fishy Bite or Mr Ajaka for its or his own purposes. There was no dispute that Mr Ajaka is the alter ego of Fishy Bite. 53Mr Birch accepted that if the defendants' claim to rectification of the Partnership Deed was rejected then Fishy Bite was not entitled to remove the $400,000 into the Suncorp account, and had thereby breached its fiduciary obligations owed to Mrs Raulfs as a partner: see Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178. The plaintiff, however, claims that she is entitled to the return of the $400,000 to her, firstly on the basis of a Quistclose trust, secondly on the basis of a constructive trust of the type outlined in Muschinski v Dodds, and thirdly on the basis of total failure of consideration. The Quistclose Trust 54In Quistclose, it was held that a borrower which had received a loan for a specific purpose of paying a dividend, which purpose had failed, was entitled to the return of the funds which had been held on trust for the shareholders entitled to the dividend and then on a secondary trust for the lender. This is discussed in detail in J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7 th ed (2008), LexisNexis Butterworths . Whether the trust is to be described as a new category or whether it is part of orthodox trust law (see Twinsectra Ltd v Yardley [2002] 2 AC 164 and Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at [32]-[39] and the discussion in Jacobs' Law of Trusts in Australia ) are interesting questions, but the underlying principle appears to be that "if one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given": see Gilbert v Gonard (1884) 54 LJCL 439 at 440 per North J, cited with approval by Lord Millett in Twinsectra at [76]. 55Given the concession by the defendants that if the Partnership Deed is not rectified then Fishy Bite was in breach of its fiduciary duty by transferring the $400,000, the question of whether a Quistclose trust is established might be of limited importance in this case. The plaintiff, however, submits that the proceeds of the cheque were not utilised for the purpose for which it was provided so that Fishy Bite must repay the $400,000 to her. There are two difficulties with this contention. The first is that the payment to Fishy Bite was intended to be the payment of the $400,000 as partnership funds that Mrs Raulfs had agreed to pay. In other words, the money "was paid and received with the intention that it should become the absolute property" of the partnership: see Twinsectra per Lord Millett at [91]. On receipt by Fishy Bite, the monies were beneficially owned by the partnership, not Fishy Bite, and when the $400,000 was paid out to Mr Ajaka, wrongly on Mrs Raulfs' case, what was paid out were assets of the partnership. The second point is the obverse of the first. If Fishy Bite were to now pay back $400,000 to Mrs Raulfs, then she would not have contributed the $400,000 which she was obliged to contribute and she would be required to pay over to the receiver that same amount (subject to the resolution of the remaining issues). Failure of consideration 56The plaintiff's case on this point was that the partnership was like a marriage which was never consummated and that there was in effect a total failure of consideration. Partnership is, as between partners, a contractual relationship (see Pooley v Driver (1876) 5 Ch D 458 at 472 per Jessel MR, cited in K Fletcher, Higgins and Fletcher The Law of Partnership in Australia and New Zealand , 7 th ed (1996) LBC Information Services at 72), although the Partnership Act 1892 (NSW) does govern that relationship and the existence of a partnership is relevant to third parties in their dealings with the business. Mr Einfeld accepted, however, that the partnership existed from 2006 to 2008. 57The principles relating to total failure of consideration have been set out in Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 . At 375-376, Deane and Dawson JJ said: "The principle which underlies the claim of the payer for restitution of the whole purchase price in that category of case is "the most ordinary principle of law" identified by Brett LJ in Wilson v Church : '[W]here money is paid for a consideration which is to be performed after the payment, if that consideration wholly fails, the money becomes money in the hands of the borrowers held to the use and for the benefit of the lenders, and must be returned'. That statement of principle was made in an appeal from a judgment of Fry J in proceedings in the Chancery Division. Like the indebitatus count for money had and received, it was framed in the traditional language of trust or use. The indebitatus count was, however, a common law count for the enforcement of a common law obligation and the underlying principle which Brett LJ identified had long been part of the fabric of the common law. Nonetheless, in a modern context where common law and equity are fused with equity prevailing, the artificial constraints imposed by the old forms of action can, unless they reflect coherent principle, be disregarded where they impede the principled enunciation and development of the law. In particular, the notions of good conscience, which both the common law and equity recognized as the underlying rationale of the law of unjust enrichment, now dictate that, in applying the relevant doctrines of law and equity, regard be had to matters of substance rather than technical form." See also Mason CJ at pages 350-352. 58In Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 , the High Court had occasion to consider the issue of total failure of consideration. Gleeson CJ, Gaudron and Hayne JJ said at 525,: "Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that. The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds , show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared. Deane J, referring to "the general equitable notions which find expression in the common law count", gave as an example "a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it". In the case of money paid pursuant to a contract, it would involve too narrow a view of those "general equitable notions" to limit failure of consideration to failure of contractual performance." 59The statement of principle by Deane J in Muschinski v Dodds, to which the High Court in Roxborough referred, is found at pages 619-620: The prima facie rules respectively entitling a fixed term partner to a proportionate repayment of his or her premium and a contractual joint venturer to a proportionate repayment of his or her capital contribution on the premature dissolution of the partnership or collapse of the joint venture are properly to be seen as instances of a more general principle of equity. That more general principle of equity can also be readily related to the general equitable notions which find expression in the common law count for money had and received (cf. Moses v. Macferlan (1760) EngR 713; (1760) 2 Burr 1005, at p 1012 [1760] EngR 713; (97 ER 676, at pp 680-681); J. & S. Holdings Pty. Ltd. v. N.R.M.A Insurance Ltd. [1982] FCA 78; (1982) 61 FLR 108, at p 120) and to the rationale of the particular rule of contract law to which reference has been made (cf. Fibrosa, at pp.61ff. and esp. at p.72). Like most of the traditional doctrines of equity, it operates upon legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct (cf. Story, Commentaries on Equity Jurisprudence, l2th ed. (1877: Perry), vol. 2, par. 1316; Legione v. Hateley (1983) 152 CLR at p 444). The circumstances giving rise to the operation of the principle were broadly identified by Lord Cairns L.C., speaking for the Court of Appeal in Chancery, in Atwood v. Maude (1863) LR 3 Ch App, at p 375: where "the case is one in which, using the words of Lord Cottenham in Hirst v. Tolson (1850) 2 Mac. & G. 134 [1850] Eng R 313; (42 ER 52), a payment has been made by anticipation of something afterwards to be enjoyed (and) where ... circumstances arise so that future enjoyment is denied". Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do: cf. Atwood v. Maude, at pp 374-375 and per Jessel M.R., Lyon v. Tweddell (1881) 17 ChD 529, at p 531." 60A recent application of this principle is to be found in John Nelson Developments Pty Ltd v Focus National Developments Pty Ltd [2010] NSWSC 150 at [325]-[336] per Ward J in the context of a joint venture agreement. 61It was submitted on behalf of the plaintiff that the $400,000 must be repaid to her because the partnership never really operated in fact. 62There is an overlap between the area of constructive trust, the unconscionable retention of a benefit and total failure of consideration. To the extent that the matter is viewed as one of constructive trust, I think the conclusion that I have reached about the money being partnership money which must be returned to it applies. If the matter is viewed as one of, or close to, total failure of consideration, then the answer to the question of whether total failure of consideration can be relied on will determine the result. 63In relation to the total failure of consideration argument there are several dimensions. First, in favour of the contention that the partnership contemplated by the deed never became a reality are these matters: (1) Mr Ajaka's acceptance (at T285) that Mrs Raulfs never really did have any involvement in the operation of the Fishy Bite business and see T292.14-293.7 and T295-296; (2) the absence of any partnership meetings to discuss the business or any matter of note connected with the business; (3) the failure of Mr Ajaka to open a bank account for the partnership; (4) the failure of Mr Ajaka to place the $400,000 in a partnership account, and its removal from Fishy Bite's account; (5) the provisional agreement in December to treat the partnership as at an end, and the promise to repay the $400,000 (albeit subject to finalisation) and pay interest on the $400,000; (6) the fact that Mrs Raulfs was never shown Fishy Bite's financial documents (see T286); (7) the partnership accounts were never shown to Mrs Raulfs; (8) Mr Ajaka operated the Fishy Bite bank account not Mrs Raulfs: see T273; and (9) Save for the amount of $32,000 paid after settlement negotiations, Mrs Raulfs never received any amount for drawings or a wage notwithstanding that Mr Ajaka told her she would be paid $1000 a week salary and $4000 per month drawings: see T275 and page 129 of Exhibit A1. 64If Mrs Raulfs' evidence about what she was promised in relation to operation of the business is accepted then further support would be provided for the contention that the partnership never became a reality because Mr Ajaka did not give Mrs Raulfs an administrative role in the business. Mr Ajaka said that he was willing for her to have a role in managing the shop. He did not provide her with any training in the administrative and financial aspects of the business in any general sense. It is clear that Mr Ajaka did not permit Mrs Raulfs to have any real or effective role as a partner, and he did not permit her to have any role in the administration of the business as a partner or otherwise. 65Mr Ajaka promised in November 2006 to repay the $400,000 but it is Mr Ajaka's evidence that he said that he was willing to buy back Mrs Raulfs' share for $400,000 (see pages 291-292 of Exhibit A1 and T282.10) and that Mrs Raulfs told him she wanted her money back and that he said he would "see what I can do about raising the money to buy you out". He also says that he told her "you'll also get the profit share up to the time when it actually goes through". This promise treats the partnership as being on foot. 66I have noted Mr Einfeld's acceptance that the partnership was in existence between July 2006 and September 2008. This alone seems to present a rather solid obstacle to a case based on total failure of consideration. There are also further matters pointing to the existence of the partnership beyond the mere fact of the Partnership Deed: (1) the demands made on behalf of Mrs Raulfs referred to in [16]; (2) the agreement that if the provisional resolution reached in December 2006 did not proceed, the payments made to Mrs Raulfs in the interim were deemed to be partnership drawings, and the reference at page 12 of Exhibit 3 in the letter from Curwoods on behalf of Mrs Raulfs: "Until the Deed of Settlement and other documents are completed and entered into our client remains a partner and the respective rights and interests of the parties are unaffected." (3) the payment of the $32,000 to Mrs Raulfs; (4) the application to the Court for dissolution of the partnership and for appointment of a receiver; and (5) the further demand made on behalf of Mrs Raulfs to access the partnership accounts (see page 67 of Exhibit 3). 67Mr Birch drew attention to the fact that as at December 2006, the plaintiff may have been entitled to seek rescission of the partnership agreement. When the proposed settlement agreement did not eventuate into a final binding agreement, the plaintiff's new solicitors sought an order for dissolution of the partnership and the appointment of a receiver. These steps, Mr Birch submits, are inconsistent with any claim for rescission and amount to an election to treat the partnership agreement as a valid and binding agreement. Mr Birch submits also that the orders having been made constitute a res judicata or estoppel in accordance with Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 506ff. 68I think that Mrs Raulfs may well have had, by the end of November 2006, a basis for seeking rescission of the partnership agreement as there had, to that point, been a total failure of consideration brought about by Mr Ajaka's effective preclusion of her from any of the normal incidents of partnership and his refusal to permit her any role in the management and administration of the business. This would have entitled her, in accordance with the principles outlined in Muschinski v Dodds, to the return of the $400,000. However, I think that her application for, and obtaining of, an order for dissolution of the partnership and appointment of a receiver amount to an election between two inconsistent rights: namely on the one hand, to assert that the partnership agreement had failed for want of consideration, and on the other hand to seek to proceed to enforce rights granted to her as a partner (see, in relation to election in the contractual context, Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at [56]-[58]). Demands to see the partnership accounts are in the same category and the agreement that, if the settlement provisionally reached did not eventuate, the $32,000 to be paid to her should be deemed to be on account of drawings also falls into the same category. 69It follows that in my view no claim can now be maintained based on total failure of consideration or Muschinski v Dodds, and it is not necessary to consider the alternative argument of res judicata or the issue of estoppel. 70It follows that Fishy Bite must repay $400,000 to the receiver of the partnership but not to Mrs Raulfs. 71I have held that the $400,000 was received by Fishy Bite for a purpose of the partnership established by the Partnership Deed and accordingly that Fishy Bite must repay that money to the receiver. Interest would also be payable on the money from the time it was paid into the Fishy Bite account. 72I need now to deal with the question of whether Mr Ajaka and Ms Ablett are liable to repay to Mrs Raulfs money received by them from Fishy Bite. Mr Ajaka 73Mr Ajaka received a benefit, namely the discharge of $400,000 worth of debt owed jointly by himself and Ms Ablett. It was submitted that he genuinely believed that he was free to do what he (or Fishy Bite) wanted to do with the money and that even if the Court holds that he was not so entitled, that does not mean that he did not think he was not. I do not accept this contention. 74First, I do not accept that Mr Ajaka is an honest witness, and I do not have any confidence in his evidence that he thought that the money was available to Fishy Bite to do as it wished. Secondly, since there is no dispute that he was the directing mind of Fishy Bite and that he was on notice that the $400,000 was a contribution of capital to the partnership, he therefore had notice of the trust and of the fiduciary duty owed by Fishy Bite to Mrs Raulfs. He had notice of the breach of it by his transferring, on behalf of Fishy Bite, the money into the Suncorp account: see Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 396 per Gibbs J: "...it is clear that the principle extends to the case 'where a person received trust property and dealt with it in a manner inconsistent with trusts of which he was cognizant': Soar v Ashwell [1893] 2 QB 390 at 396-7 ; [1891-4] All ER Rep 991 at 995; Lee v Sankey (1873) LR 15 Eq 204 at 211 ; [1861-73] All ER Rep Ext 1003, and in Re Blundell; Blundell v Blundell (1888) 40 ChD 370 at 381 ; [1886-90] All ER Rep 837." Ms Ablett 75Ms Ablett, like Mr Ajaka, obtained the benefit of a $400,000 reduction of a joint debt. By the time she learned of the source of the funds, she had entered into a settlement with Mr Ajaka whereby she had received, in effect, Mr Ajaka's half interest in the Clovelly property. 76The liability of a third party (C) to the person (A) to whom B owes duties as trustee or fiduciary, as a result of breach of trust or breach of fiduciary obligation, is an area of some complexity which has been considered in a number of significant cases: Barnes v Addy (1874) 43 LJ Ch 513, Farah, National Commercial Banking Corp of Aust Ltd v Batty [1986] HCA 21; (1986) 160 CLR 251 , and most recently in Heperu. It is important in this case to note that Mr Einfeld eschewed any case based on Barnes v Addy , and contends that Mrs Raulfs' case fell within the principles enunciated by Allsop P (with whom other members of the Court agreed) in Heperu. Heperu 77Heperu is a decision of the New South Wales Court of Appeal. Heperu and other companies provided cheques to a Mr Cincotta for investment, but Mr Cincotta misappropriated those cheques and deposited them in an account (Perpetual) in the name of Ms Belle, his wife. Funds were withdrawn from the Perpetual account and deposited into another account (Westpac) held by Ms Belle. These funds were then used to pay a mortgage debt and credit card debts. Heperu sought to overturn a finding of the trial judge that Ms Belle had no knowledge of the activities of her husband, but this was rejected. There were issues about whether Ms Belle had authorised Mr Cincotta to operate the accounts. The Court of Appeal held that Ms Belle was liable on one basis only, namely that she was a volunteer, and subsequent to the deposit of funds had been made aware of the breaches by Mr Cincotta. Both parties submit that Heperu supports their contentions. 78Allsop P, in whose judgment Campbell JA and Handley AJA concurred, dealt with Ms Belle's liability as a volunteer at [87]-[174]. The President concluded that the funds in the Perpetual account were clearly the proceeds of misappropriated cheques, and that by being placed in the Perpetual account there was "a mixture of trust funds and personal funds of the effective defaulting fiduciary" (see [112]). His Honour referred to a difficulty about tracing the misappropriated funds into the mortgage payments (not a difficulty in the present case) and noted that the claim against Ms Belle was a personal cause of action, not one for proprietary relief. His Honour then held: (1) that the relevant time to consider whether the volunteer holds identifiable property (owned at law or in equity) by the plaintiff is at the time when the volunteer is given notice of the plaintiff's claim that the funds have been misappropriated and found their way into the account of the volunteer; (2) that if at the time of notification, the volunteer has retained funds or their traceable product, then based on Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 , there was an obligation touching the volunteer's conscience to recognise the entitlement of the victim to restoration of the funds derived from the misappropriations; and (3) tracing is the process by which a claimant demonstrates what happened to its property. 79The Court of Appeal did not have enough information before it to determine whether at the relevant time Ms Belle had a traceable interest in the mortgaged properties, and invited further submissions. 80The Court of Appeal in Heperu held that Farah was not concerned with an identified fund of money or property in the defendant's hands at the relevant time, which through tracing at law or in equity could be seen as one in which the plaintiff had an interest and was therefore not dealing with a case against a volunteer found to hold at the relevant time identifiable property owned at law or in equity: see [159]-[162]. 81At [47]-[60], Allsop P considered the question of whether Ms Belle had given Mr Cincotta authority to operate the Perpetual account. Allsop P at [55] identified the question as "whether Ms Belle authorised the use of the Perpetual account by Mr Cincotta for the deposit of cheques and withdrawal of funds fraudulently obtained" and held that she did not: see [58]-[59]. 82There is no dispute that the $400,000 received from Mrs Raulfs was paid by cheque drawn on Fishy Bite's account and into the joint account of Mr Ajaka and Ms Ablett with Suncorp Metway. The questions are: (1) did Ms Ablett authorise the deposit of the proceeds into the Suncorp Metway account; (2) was Ms Ablett a volunteer; and (3) was Ms Ablett's ownership of the Clovelly property as at the time she learned of Mrs Raulfs' claim a "traceable product"? The authorisation point 83Mr Einfeld submitted that because Ms Ablett gave authority to Mr Ajaka to operate the joint account (see her evidence at T350-352), this renders her liable for the receipt into the account of the misappropriated funds on the principles discussed in Heperu at [58]-[60]. Mr Einfeld also submitted that the requirement for notice discussed in Batty and in SCEGS Redlands Ltd v Barbour [2008] NSWSC 928, a decision of mine (see [31], [32] and [35](2)(b)), only operates where the defendant has not had the benefit of the money, and in this case, Ms Ablett has had the benefit of the money. 84The question which Allsop P in Heperu said had to be asked was "whether the authority that Ms Belle gave to her husband can be understood to include receiving on her behalf the proceeds of misappropriated cheque" and it was held that it could not: see [59]. Although Ms Ablett left handling of the account entirely to her husband, it was not a business account and she had no knowledge of the misappropriation in question, nor was it suggested that there had been any misappropriation or breach of trust on a prior occasion. I do not think the authority given by Ms Ablett to Mr Ajaka extended to the receipt of misappropriated funds. 85Thus Ms Ablett does not have a liability to Mrs Raulfs by reason of the joint account. If she has a liability, it is because of the payment of those funds to Suncorp Metway was to her benefit (or partly to her benefit) because it reduced her liability to repay $200,000 of the $400,000 joint debt. I agree with Mr Birch's submissions that SCEGS Redlands concerned only a personal remedy against Mr Dungey, no proprietary or tracing remedy having been sought against him: see [8] and [22]-[23] of SCEGS Redlands . Mr Birch relied on SCEGS Redlands for the proposition that Ms Ablett could not be held to have constructive notice: see [43] and [44] of SCEGS Redlands . I accept that Consul Development and the affirmation of its binding character in Farah preclude the finding of constructive notice. 86I think this disposes of the agency point. 87Mr Birch contends that Heperu does not assist Mrs Raulfs because: (1) at no time prior to registration as sole owner of the Clovelly property did Ms Ablett obtain knowledge of the breach of the fiduciary obligation by Mr Ajaka; (2) Ms Ablett gave consideration to Mr Ajaka for the transfer to her of Mr Ajaka's share of the property and could not be described as a volunteer; (3) section 42 of the Real Property Act 1900 (NSW) gave Ms Ablett indefeasibility of title; (4) if a claim cannot be brought against a person within the requirements of Barnes v Addy, as interpreted by Consul Development and Farah, and cannot be brought against the real property of that person because of s 43 of the Real Property Act, as interpreted by the Victorian Court of Appeal in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 and approved in Farah, then a claim cannot be brought in personam against the holder of the property; (5) Heperu does not assist the plaintiff because: (a) Heperu did not involve any argument based on s 42 of the Real Property Act ; and (b) Ms Ablett had ceased to be a volunteer when she received notice, and the principle based on Black v S Freedman & Co does not apply; (6) any claim against a fund or property in the hands of a volunteer would have to satisfy one or other of the two limbs of Barnes v Addy ; and (7) the $400,000 was paid to Suncorp Metway. 88There can be no doubt that Heperu was not dealing with the issue of indefeasibility, and there seems to be considerable force in the proposition that in the absence of a claim that meets the requirements of Barnes v Addy, as laid down in Consul Development and confirmed in Farah , and in the absence of conduct falling within the fraud exception, there is no scope for an in personam claim independent of a claim against a fund or property in Ms Ablett's hands to be maintained: see Farah. 89There is authority for the proposition that when a mortgage is paid out with funds obtained in breach of trust and fiduciary duty, the claimant can stand in the shoes of the mortgagee whose mortgage debt has been paid out: see Boscawen v Bajwa [1995] 4 All ER 769 . The precise basis on which that occurs may be in dispute (see Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd [2003] NSWSC 1072; (2003) 59 NSWLR 452 per Bryson J), but the High Court cited Boscawen in Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 at 301 in support of the general proposition that: "The equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff." 90The question of whether A can recover against C when B has paid trust monies to the benefit of C (or the benefit of B and C) on a mortgage account (there being no doubt that Ms Ablett benefited in 2006 by an amount of at least $200,000 in the reduction of the joint debt) and how that may fit within the approach taken by the High Court in Farah, whilst important and potentially complex, does not need to be resolved here. This is because not only was the mortgage discharged before Ms Ablett received any notice of Mrs Raulfs' claim, but because Ms Ablett had, before receiving notice of the claim, entered into a family law settlement with Mr Ajaka which included, as a term, the transfer to Ms Ablett of Mr Ajaka's interest in the Clovelly property and registration of the property in her sole name with her giving up any rights against Mr Ajaka in respect of the property or payments to which she might otherwise be entitled. In respect of the unencumbered title to the Clovelly property, Ms Ablett was not, at the time she was put on notice of Mrs Raulfs' claim, a volunteer, and there was, at that point in time, nothing touching her conscience that prevented her from denying Mrs Raulfs' claim. Therefore, Heperu does not support a claim against Ms Ablett. It is therefore not necessary to determine whether there was in her hands a "traceable product" or to consider the argument based on change of position. 91It follows that Mrs Raulfs has no claim against Ms Ablett. The $230,000 92Leaving aside the attack on the credibility of both Mrs Raulfs and Mr Ajaka, there are a number of matters which I think tend to support Mrs Raulfs' account. These are: (1) There is the undisputed evidence that Mrs Raulfs withdrew a total of $230,000 on 31 May 2006, 20 June, 27 July, 28 July, 2 August, 30 August and 31 August; (2) Mr Ajaka accepts that he drove Mrs Raulfs to the bank for some of the withdrawals; (3) the withdrawals all occurred within the time that the discussions with Mr Ajaka had commenced, and most of them around the time of the payment of the $400,000; and (4) I accept that Mr Ajaka did not tell her that Seasalt was not an option until October 2006. 93There are a number of matters which, I think, undermine Mrs Raulfs' version: (1) She obtained no receipts for the money - her explanation was that she asked for receipts but that Mr Ajaka did not give her any. (2) There is no mention in the documentation of the partnership of the additional $230,000, and on Mrs Raulfs' case, no clear agreement as to what interest the $230,000 would give her in Seasalt. Mrs Raulfs was quite vague as to how she would obtain an interest, and what that interest would be. (3) She did not raise the $230,000 in the conversations with Mr Ajaka that she recorded until 24 November 2006, even though she had recorded several conversations with him before that time. (4) She says in her affidavit that she told Mr King about the $230,000 on two occasions (see paragraph 116 of page 103 and paragraph 128 of page 115-116 of Exhibit A1). In cross-examination she reiterates that she had told Mr King (see T123.45) but at T124.3 she said she did not ask Mr King to include a demand for the return of the $230,000, and there is the following passage in the cross-examination at T124.40-125.2: "Q. So why then didn't you ask Mr King to prepare a demand to be served with the notice of termination of the partnership for the $230,000? A. Because when I went there, Mr King did everything. He said to me, "I can only do this with the $400,000 because it is in the contract", the written contract. So, I was only there for a few minutes. Q. I'm going to ask you a question and your counsel may wish to object to it, so just pause a second before you answer it, Ms Raulfs. When you went and saw Mr King, did you ask him for some advice about what you could do to recover the $230,000. A. Not at the time. I was distraught and very frightened. Q. Very frightened of Mr Ajaka, that is the case, isn't it? A. That's correct, yes." (5) The answer which Mrs Raulfs gave in the passage set out in (4) above is doubly damaging for Mrs Raulfs. Her first explanation was in effect that Mr King said he could not do anything because there was no reference to the $230,000 in the Partnership Deed and secondly that she was only there for a few minutes. Her next answer provides a third reason, namely that she was frightened of Mr Ajaka. (6) Mr King's evidence does not corroborate Mrs Raulfs' evidence that she told him about the $230,000 - he has no note of such nor any recollection of her having told him. I find on the balance of probabilities that Mrs Raulfs did not tell Mr King that she had handed over $230,000 to Mr Ajaka. (7) The question of whether Mrs Raulfs in fact feared Mr Ajaka (see T123-124, T130, T135 and paragraph 127 of Mrs Raulfs' affidavit) was put squarely in issue by Mr Birch in his submissions. I am not sure it is strictly necessary to resolve that question because I do not accept that Mrs Raulfs did tell Mr King about the $230,000. Mrs Raulfs did obtain an interim apprehended violence order against Mr Ajaka and later a final order, and if Mrs Raulfs' version of events is accepted it would appear she had good reason to fear Mr Ajaka. There is, however, no independent evidence that supports Mrs Raulfs' accusations against Mr Ajaka and her contention that she feared him, and there is some evidence which suggests she did not fear him. The transcript of the conversations certainly contains some heated exchange but it also contains material of a fairly light-hearted, even childish nature, that points in the other direction. There is no dispute that after Mrs Raulfs stopped working at the Fishy Bite caf Mr Ajaka arranged a job for Mrs Raulfs at the Coogee Sands Hotel. There was unchallenged evidence from a Mr Sam Papallo which establishes that Mrs Raulfs went to the Su-Shi restaurant in late November or early December, and that she was drinking there when Mr Ajaka was working there. I am not persuaded on the evidence before me that Mrs Raulfs feared Mr Ajaka, or that if she did that was the reason that she did not instruct Mr King to recover the $230,000. (8) Further, Mrs Raulfs says that Mr Ajaka told her that he would give her both the $400,000 and the $230,000 and that she told Mr King about this: see paragraph 128 on page 115-116 of Exhibit A1. Once again Mr King did not corroborate her claim. Also see page 643 of Exhibit A2. (9) There have been no notes relating to Seasalt produced, and not one email or facsimile to her husband setting out the potential investment in Seasalt or the need for funds to enable the purchase of Seasalt. (10) Even on Mrs Raulfs' evidence there was no agreement (or even discussion) of what share in Seasalt or the total business she would receive for the $230,000: see T121. 94The matters to which I have earlier referred concerning Mrs Raulfs' credibility, particularly when coupled with [93](1)-(10), leave me neither persuaded that the $230,000 was handed over for the purpose Mrs Raulfs has asserted, nor persuaded that it was not. I accept Mrs Raulfs' evidence that she is not a drug user, and I reject Mr Ajaka's evidence that she told him that she had given the money to someone she met through her "dealer", but I am not persuaded on the balance of probabilities that Mrs Raulfs handed over $230,000 to Mr Ajaka for the purpose of investment in Seasalt. It is possible that Mrs Raulfs did hand over the $230,000 for a purpose which she was not willing to reveal in her evidence or tell Mr King about, but it is not Mrs Raulfs' case that she handed over $230,000 for any purpose other than investment in Seasalt or a partnership including Seasalt. Conclusion 95It follows that Fishy Bite and Mr Ajaka are required to pay the amount of $400,000 (less $32,000) to the receiver of the partnership, but Mrs Raulfs' claim against Ms Ablett fails. Interest will need to be calculated on the $368,000. The parties should bring in short minutes and I will hear the parties on the issue of costs, and the question of what future orders need to be made concerning the partnership accounts. ********** 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. Decision last updated: 03 March 2011