Supreme Court New South Wales Medium Neutral Citation: Allianz Australia Insurance Limited & Anor v Rose Marie Lo-Giudice [2012] NSWSC 145 Hearing dates: 24/02/2012 Decision date: 24 February 2012 Jurisdiction: Equity Division Before: Pembroke J Decision: See paragraph [39] Catchwords: EQUITY - mistake and fraud TORTS - conversion - drawing of cheques induced by fraud - cheques dealt with in a manner repugnant to true owner's right of possession REMEDIES - trust - stolen funds held on trust - proprietary remedy - charge over asset purchased with stolen money Legislation Cited: Evidence Act 1995 (NSW) Crimes Act 1900 (NSW) Cases Cited: Australian Guarantee Corp Ltd v State Bank of Victoria Commissioners [1989] VR 617 Black v S Freedman & Company (1910) 12 CLR 105 Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342 Citibank Ltd v Papandony [2001] NSWCA 375 Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Foskett v McKeown [2001] 1 AC 102 Hunter BNZ Finance Ltd v ANZ Banking Group Ltd [1990] VR 41 Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1989) 18 NSWLR 420 Midland Bank Ltd v Reckitt [1933] AC 1 Parsons v R (1999) 195 CLR 619 Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440 Penfolds Wines Pty Ltd v Elliott (1945) 74 CLR 204 Re Oatway [1903] 2 Ch 356 Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 Shields v Westpac Banking Corporation [2008] NSWCA 268 Westpac Banking Corporation v Ollis [2007] NSWSC 956 Westpac Banking Corporation v Palasty [2011] NSWSC 1478 Wilton v Commonwealth Trading Bank of Australia [1973] 2 NSWLR 644 Category: Principal judgment Parties: Allianz Australia Insurance Limited - first plaintiff Allianz Australia Services Pty Limited - second plaintiff Rose Marie Lo-Giudice - defendant (also known as rose Maria LoGiudice, Rose Maria Logiodice, Rosie Lucia Giudice, Rose Lo-Giodice, Rosa Tizzone Representation: Ms T L Wong - for the plaintiffs No appearance for the defendant Sparke Helmore Lawyers - for the plaintiffs No appearance for the defendant File Number(s): 2011/243553 Judgment Introduction 1These proceedings concern a fraudulent scheme by which the defendant induced Allianz Australia Insurance Ltd ("Allianz") to issue forty-six cheques ("Cheques") totalling $509,466.05 which were deposited in a bank account controlled by the defendant whilst she was the employee of the second plaintiff, Allianz Australia Services Pty Limited ("Allianz Services"). 2The evidence shows that the defendant fraudulently induced Allianz to draw the Cheques by inputting false information into Allianz' computer systems. The Cheques were sent to a post office box in the Queen Victoria Building which the defendant had opened in her name ("PO Box Address"). She then deposited the Cheques into a bank account held with Suncorp Bank and used a portion of the proceeds to purchase the property comprised in folio identifier C/343911, known as 19 Orient Street, Gladesville NSW 2111 ("Property"). 3The plaintiffs seek damages for mistake and conversion in the amount of $509,466.05 (plus interest and costs) being the total value of the Cheques deposited by the defendant. The plaintiffs also seek a charge over the Property in the amount of $383,893.17 (plus interest), being the amount of the misappropriated monies that can be traced to the purchase of the Property (see paragraphs 25-28 below). 4In summary, the defendant perpetrated a fraudulent scheme upon Allianz by: (a) sending facsimiles to Allianz which purported to be requests for payment from the well-known financial institution, Esanda Finance Corporation Limited ("Esanda") (now a division of the Australia and New Zealand Banking Group Ltd), when in fact the facsimiles were drafted and sent by the defendant; (b) using the facsimiles to enter false requests for payment into Allianz' electronic claims system and to generate cheque requisitions for payments to Esanda which were not the subject of any valid claim on an insurance policy held with Allianz; (c) causing the Cheques to be sent to the PO Box Address in the Queen Victoria Building, which was registered in the defendant's name and was not a valid address for payments to Esanda; (d) taking possession of the Cheques and converting them to her own use by depositing them into an account she held with Suncorp Bank in the name of "Esanda Property Group", which was a business name which had been registered by the defendant. 5The defendant was not an employee of Esanda and had no contractual or other legitimate basis for entering the payment requests into Allianz' computer systems and for causing the Cheques to be sent to the PO Box Address or for depositing the Cheques into the bank account controlled by her in the name of "Esanda Property Group". She had no possible claim to any of the Cheques. Standard of Proof 6The plaintiffs accept that the well-known statement of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362 applies: see s 140(2) of the Evidence Act 1995 (NSW). I am satisfied that the case has been proved to the requisite standard. 7The defendant has been notified of the proceedings but the evidence shows that she has determined that she will not make any appearance at the final hearing nor make any attempt to defend the proceedings. Findings of Fact 8The defendant goes by several names, including Rose Marie Lo-Giudice and Rose Lo-Giudice, Rosie Lucia Giudice and Rosie Giudice and Rose Maria Logiudice. At all material times, she resided at 39 Small Street Putney. 9The defendant commenced employment with the second plaintiff, Allianz Service on 17 March 2009 in the role of 'claims consultant' within the Motor Equity Insurance Portfolio at the First Plaintiff, Allianz. As a 'claims consultant', her responsibility was to manage a portfolio of claims, which included reviewing and authorising payments of claims made on motor vehicle insurance policies held with Allianz. On 1 February 2011, her employment with Allianz Services was terminated. 10The procedure for processing a claim made by an Allianz customer (referred to as an "Insured") under a motor vehicle insurance policy held with Allianz ("Claim") requires each claims consultant to take the following steps: (a) receive documents from an Insured in relation to a Claim and any others entitled to receive payments under the relevant motor vehicle insurance policy; (b) request from an Insured details of any finance company to whom an amount would be due under the relevant insurance policy; (c) receive from the finance company details of any amount payable to the finance company from the amount to be paid out pursuant to the Claim; (d) check the Allianz electronic database, REGENT/POLISY (which facilitates payments by Allianz of any amount due pursuant to Claims), to ensure that the insurance policy under which the Claim is made is a current insurance policy with all premiums up to date; (e) enter details from the Claim Documents into REGENT/POLISY; (f) enter details from the Claim Documents into the Allianz Claims Management System (ACMS), another Allianz electronic database (which stores all information relevant to Claims); and (g) enter payment request details in the REGENT/POLISY system, using relevant details from the Claim Documents and sending a cheque requisition for payment to the Insured's finance company for approval by their Senior Claims Consultant. 11As a claims consultant, the defendant was required to perform each of these tasks. Fraudulent Cheque Scheme 12On 8 September 2010, the defendant applied for and obtained use of a post office box located in the Queen Victoria Building, Sydney. The address of the post office box was PO Box Q1353, Sydney NSW 2000 (the "PO Box Address"). 13On 6 October 2010, she registered herself as the proprietor of a business which was trading under the name of "Esanda Property Group". The certificate of registration of business name states that the principal place of business of the "Esanda Property Group" was 39 Small Street, Putney, NSW 2112, being the defendant's home address. 14On 12 October 2010, the defendant opened bank account no. 601270273 with Suncorp-Metway Ltd in the name of "Esanda Property Group" ("Suncorp Account"). The mailing address for the Suncorp Account was 39 Small Street, Putney, NSW 2112. 15During the period 29 September to 21 December 2010, the defendant prepared and sent to Allianz facsimiles which purported to be from 'Esanda', but which were drafted by the defendant. Each facsimile purported to make a request for payment in relation to a motor vehicle insurance policy held with Allianz and stated either "This amount must be received at PO Box Q1353 Queen Victoria Building NSW 1230 on or before the specific time" or " Please post payment to Po Box Q1353 QVB Post Office Sydney NSW 1230 " ("Payment Requests"). 16An employee of Esanda has confirmed that Esanda did not make claims in the amounts stated in the Payment Requests with respect to the loan accounts referred to in those facsimiles at the time the facsimiles were sent. The same employee has also confirmed that the PO Box Address is not a legitimate address for payments made to Esanda and that the defendant is not an employee of Esanda and has not provided services to it. 17The defendant then entered the details of the Payment Requests into Allianz' computer systems and generated cheque requisitions for the purported claims made in those facsimiles. Each cheque requisition states that the payee is Esanda with its address being the PO Box Address. It also reveals that it was requested by the defendant. 18As a result of the Payment Requests and the Cheque Requisitions, the defendant caused National Australia Bank Ltd, acting on behalf of Allianz, to issue forty-six (46) cheques totalling $509,466.05 made out to 'Esanda' and to send those cheques to the PO Box Address. The defendant then collected the cheques from the PO Box Address and deposited them into the Suncorp Account during the period 12 October 2010 to 10 January 2011. 19I satisfied that at all material times prior to and following the issuance of the cheques and their deposits in the Suncorp Account: (a) the defendant knew that the cheques were issued by Allianz and were sent to the PO Box Address by mistake as the payments were not in respect of genuine claims under motor vehicle insurance policies held with Allianz; and (b) the defendant knew that she did not have any contractual or any other lawful entitlement to receive the proceeds of the cheques and that Allianz did not intend to pay the proceeds of the cheques to the defendant. 20On 13 November 2010, the defendant entered into a contract with William Robert Bradshaw for the purchase of the property comprised in folio identifier C/343911, known as 19 Orient Street, Gladesville NSW 2111 ("Property") for a purchase price of $1,077,500. The vendor's agent on the purchase was Belle Property, Gladesville. On 23 November 2010, she caused a bank cheque to be issued in the amount of $53,750 from the proceeds of the Suncorp Account in favour of Belle Property, Gladesville. On the same date, the defendant also drew a personal cheque in the amount of $125 on the Suncorp Account in favour of Belle Property, Gladesville. The amount of $53,875 (comprised of the bank cheque of $53,750 and personal cheque of $125) was received by Belle Property Gladesville on 15 December 2010 as payment of a 5% deposit of the purchase price of the Property. On 15 December 2010, the defendant paid $44,772.50 to the Office of State Revenue from the proceeds of the Suncorp Account, being the stamp duty payable on the purchase of the Property. 21Settlement of the purchase of the Property occurred on 31 December 2010. On that date: (a) a transfer of the Property from Mr Bradshaw to the defendant was executed, stamped and subsequently registered; (b) the defendant mortgaged the Property to HSBC Bank Australia Limited ("HSBC") and HSBC advanced the sum of approximately $717,728.90 for the purchase of the Property; (c) the defendant provided to the vendor, Mr Bradshaw, a bank cheque in the amount of $285,245.67 from the proceeds of the Suncorp Account; (d) the defendant made a further payment to Mr Bradshaw of approximately $25,000, being the balance of the purchase price payable on settlement. 22From 11 November 2010 to 30 December 2010, the defendant deposited into the Suncorp Account cheques drawn on the NAB Account of Allianz totalling $460,878.74. During this same period, the following payments totalling $383,893.17 were made directly from the Suncorp Account in respect of the purchase of the Property: (a) the bank cheque in the amount of $53,750 drawn in favour of Belle Property, Gladesville on 23 November 2010; (b) the personal cheque in the amount of $125 drawn in favour of Belle Property, Gladesville on 23 November 2010; and (c) the bank cheque in the amount of $44,772.50 drawn in favour of the Office of State Revenue on 15 December 2010; and (d) the bank cheque in the amount of $285,245.67 drawn in favour of Mr Bradshaw on 30 December 2010. 23On 30 June 2011, the defendant was arrested by the NSW Police and charged in relation to the events which are the subject of these proceedings. On 8 December 2011, she pleaded guilty to the following three charges relating to a substantial proportion of the cheques in issue in these proceedings: (a) two counts of dishonestly obtain financial advantage or cause disadvantage by deception pursuant to s 192E(1)(b) of the Crimes Act 1900 (NSW) in relation to the deposit of $15,000 into the Suncorp Account on or about 12 October 2010 and the deposit of $388,794.42 into the Suncorp Account between 29 September 2010 and 10 January 2011; and (b) one count of use of false document to obtain financial advantage or cause disadvantage pursuant to s 254(b)(ii) of the Crimes Act in relation to a fraudulent application for a HSBC Home Loan and production of a fraudulent Australian passport. 24I am quite satisfied that the actions of the defendant in processing the Payment Requests and causing the Cheques to be issued and sent to the PO Box Address constituted intentionally fraudulent conduct which she undertook with a view to defrauding Allianz of the proceeds of the Cheques and using those proceeds to purchase the Property. Mistake 25It is well-established that a party who pays money to another as a result of a fraudulent mistake is prima facie entitled to recover those moneys in accordance with the principle explained by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 375-6. 26In this case, Allianz made the payments to the defendant under the mistaken belief that it was making the payments to Esanda in respect of genuine claims under motor vehicle insurance policies held with Allianz. In fact, the payments were being made to the defendant (and not to the well-known finance company, Esanda) pursuant to false requests for payment which had been prepared by the defendant in order to enrich herself at the expense of Allianz. This is a straightforward case of mistaken payment and Allianz is entitled to judgment in the amount of $509,466.05 (plus interest from the date of deposit), being the amount paid to the defendant by mistake. Conversion 27There are two elements of the tort of conversion. The plaintiff has either possession or a right to immediate possession of the goods at the time of conversion. And the defendant intentionally deals with the goods in a manner repugnant to the possession or immediate right of possession of the "true owner" to the goods. See Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 229 per Dixon J ; Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342 at [124] per Allsop P . 28It is well-established that negotiable instruments such as cheques can be the subject of an action for conversion: Parsons v R (1999) 195 CLR 619 at [32]; Wilton v Commonwealth Trading Bank of Australia [1973] 2 NSWLR 644; Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1989) 18 NSWLR 420. In circumstances where the drawing of the cheques has been induced by fraud and there is no person with a better title to the cheques, the drawer is the true owner of the cheques and remains entitled to possession of them: Midland Bank Ltd v Reckitt [1933] AC 1; Australian Guarantee Corp Ltd v State Bank of Victoria Commissioners [1989] VR 617 at 636; Hunter BNZ Finance Ltd v ANZ Banking Group Ltd [1990] VR 41 at 47; Citibank Ltd v Papandony [2002] NSWCA 375 at [65]. 29In this case, there was never any contract or any purported contract between Allianz and the defendant that could have provided a legitimate basis for payments to be made by way of the Cheques by Allianz to the defendant. At all relevant times, Allianz was therefore the true owner of the Cheques and entitled to sue for their conversion. 30By depositing the Cheques in the Suncorp Account, the defendant acted in a manner that was repugnant to Allianz' right to possession of the Cheques. This constituted conversion of the Cheques by the defendant to her own use. The plaintiffs have therefore made out the cause of action against the defendant in conversion and Allianz is entitled to damages in the sum of $509,466.05, being the total value of the forty-six Cheques which were deposited in the Suncorp Account, plus interest from the date of conversion of each of the Cheques. Proprietary Remedies 31Upon payment of the proceeds of the Cheques to the defendant, she held the proceeds of the stolen funds on trust for Allianz: Black v S Freedman & Company (1910) 12 CLR 105; Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426; Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at [111] per Spigelman CJ . 32Where a trustee places trust funds in an account and then, in breach of duty, uses moneys withdrawn from the account to purchase an asset, the beneficiary is entitled to claim either: (a) a charge over the asset for the amount of the misapplied money; or (b) a proportionate beneficial interest in the asset to the extent to which trust moneys were used to provide part of the cost of acquiring the asset. See Re Oatway [1903] 2 Ch 356; Scott v Scott (1963) 109 CLR 649; Paul A Davies (Australia) Pty Ltd (In liq) v Davies [1983] 1 NSWLR 440; Foskett v McKeown [2001] 1 AC 102 at 131 per Lord Millett; Westpac Banking Corporation v Ollis [2007] NSWSC 956 affirmed on appeal in Shields v Westpac Banking Corporation [2008] NSWCA 268; Westpac Banking Corporation v Palasty [2011] NSWSC 1478. 33The plaintiffs claim the remedy of a charge over the Property for the amount of the misapplied moneys. The value of the charge is determined by the extent to which the plaintiffs are able to trace the moneys obtained by fraud into the acquisition of the Property: see e.g., Westpac Banking Corporation v Palasty [2011] NSWSC 1478. 34In the present case, all of the forty-six Cheques were deposited into the Suncorp Account controlled by the defendant. There were only two payments to the Suncorp Account that were made by the defendant from another account held by her with Suncorp, being the sums of $1,000 on 10 November 2010 and $100 on 11 November 2010. Both of these amounts were simultaneously withdrawn from the account on the same dates as the deposits were made. 35On 11 November 2010, immediately following the deposits and withdrawals that had occurred on that date, the Suncorp Account had a balance of only $8.04. After this date and prior to settlement of purchase of the Property, forty-two of the Cheques totalling $460,878.74 were deposited in the Suncorp Account and payments of $383,893.17 were made directly from the Suncorp Account in respect of the purchase of the Property. 36There is therefore a clear and direct link between the deposit of the moneys obtained by fraud into the Suncorp Account and the use of $383,893.17 of those moneys to purchase the Property. Allianz is entitled to a charge over the Property in the amount of $383,893.17 plus interest from the date of settlement, being 31 December 2010. Orders 37For those reasons, the plaintiffs are entitled to the following orders: (a) Judgment against the defendant in the sum of $509,466.05 plus interest calculated from the dates of deposit of the monies into the Suncorp Account. (b) A declaration that the Property is subject to a charge in favour of the First Plaintiff in the amount of $383,893.17 plus interest calculated from 31 December 2010 being the date of purchase of the Property. 38The plaintiffs also seek an order for indemnity costs. The defendant never had an arguable defence and could have consented to the orders sought, thus avoiding the need for a hearing. An indemnity costs order is appropriate. ********** 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: 29 February 2012