Supreme Court New South Wales Medium Neutral Citation: Armstrong Scalisi Holdings Pty Ltd v Abboud [2012] NSWSC 268 Hearing dates: 28 February 2012 - 1 March 2012 Decision date: 01 March 2012 Jurisdiction: Equity Division Before: Rein J Decision: Relief sought by the plaintiff in its further amended statement of claim granted. Catchwords: EQUITY - agent with control over trust property - removal of trust funds EQUITY - priority and notice - notice EQUITY - implied trusts - constructive trusts - knowing receipt EQUITY - trusts and trustees - following trust property EVIDENCE - burden of proof, presumptions, and weight and sufficiency of evidence - failure to give evidence where party choses not to defend the case - inferences to be drawn Cases Cited: Barnes v Addy (1874) LR 9 Ch App 244 Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Cullen (Executor of Lascelles) v Welsbach Light Co of Australasia Ltd [1907] HCA 3; (1907) 4 CLR 990 Farah Constructions Pty Ltd v Say Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Heperu Pty Limited v Belle [2009] NSWCA 252 Heperu Pty Limited v Belle [2011] NSWSC 1151 Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 Manly Council v Byrne [2004] NSWCA 123 Texts Cited: Young, Croft and Smith, On Equity (2009) Category: Principal judgment Parties: Armstrong Scalisi Holdings Pty Ltd (Plaintiff) Jillian Faith Abboud (First defendant) Gino Cassaniti (Third defendant) Representation: Counsel: R Dubler SC; D Allen (Plaintiff) No appearance by the defendants Solicitors: Proctor & Associates (Plaintiff) No appearance by the defendants File Number(s): SC 2010/45094 ex tempore Judgment 1In these proceedings the plaintiff alleges that Mr Gino Cassaniti (third defendant) ("Gino") withdrew $75,000 from the plaintiff's trust account by means of a cheque made payable to John Williams Real Estate in that amount, which was provided to John Williams Real Estate as a deposit for the purchase of a property at 11 Flora St ("Flora Street Property") in Mrs Jillian Faith Abboud's (first defendant) ("Mrs Abboud") name and a property at 8 Adna Street ("Adna Street Property") in the name of her husband, Mr George Abboud ("Mr Abboud"). Mr Abboud was, until this week, the second defendant to the proceedings but he was never served and he did not appear. Mr Abboud has in any event transferred his interest in the Adna Street Property to Mrs Abboud. CAP Accounting ("CAP") is an accounting practice operated by the plaintiff and a significant portion of the shares in the plaintiff are owned by Mr David Cassaniti ("David"), an accountant who is also Gino's brother. 2The plaintiff seeks, in effect, to trace the $75,000 into the two properties and to obtain judgment for that amount plus interest against Gino and Mrs Abboud. 3On Friday 25 February 2012, solicitors acting for Gino and Mrs Abboud contacted my Associate asking whether they should list an application for adjournment of the hearing on Monday or Tuesday. The matter had previously been listed for hearing for three days commencing Tuesday 28 February 2012. My Associate advised them that any application for vacation of the hearing dates should be brought at 3:30pm on Friday. On Friday, Mr Santisi of counsel appeared for Gino and Mrs Abboud and filed in Court a notice of motion and a notice of appearance by his instructing solicitor, Mr Stephen Zahr ("Mr Zahr"). Mr Santisi relied on an affidavit of Gino, who deposed to the fact that his former solicitors could no longer act for him and Mrs Abboud and that those solicitors had filed a notice of ceasing to act. I refused the application to vacate the hearing on the grounds that the fact that Mrs Abboud and Gino's solicitors had withdrawn (it seems due to lack of funds) was not a reason for vacation of the hearing date and further that the matter had already been vacated twice before and involved a relatively small sum of money. On this last point, the statement of claim had been amended from a claim for $75,000 to one for $75,000 plus $471,000 for accounting fees but on Tuesday 28 February 2012 the plaintiffs made it clear that the $471,000 claim was against Mr Abboud only and since he had not been served, that claim could not be pursued. The plaintiff sought leave to file a further amended statement of claim which dropped any claim against Mr Abboud and which therefore put beyond doubt that the amount of the claim against Mrs Abboud and Gino is $75,000 plus interest. 4On Tuesday 28 February 2012, Mr Jewell of counsel appeared, saying his application, made on behalf of Mr Zahr, was for leave to withdraw from the case. Gino accepted that the notice of motion had been filed the previous Friday only to permit an application to vacate the hearing to be made. Accordingly, I granted leave for Mr Zahr and Mr Jewell to withdraw. 5Before Mr Jewell withdrew, Gino made it clear that he did not want the case to go on without representation for himself and Mrs Abboud. He initially said he had no funds to pay for counsel but when I encouraged him to discuss representation with Mr Jewell and indicated that I might be willing to stand the matter over to Wednesday 29 February 2012 to allow Mr Jewell to prepare, Gino said he did not wish to retain Mr Jewell but wished to retain someone more experienced: see T10. After Mr Jewell withdrew, Gino made an application to adjourn the matter till 2.00pm on Wednesday to enable him to retain counsel. An adjournment till 10.00am Wednesday was not opposed by Mr Dubler SC, who appears with Mr Allen for the plaintiff, but an adjournment till 2.00pm was opposed. I acceded to the request for adjournment, but until 10.00am on Wednesday. 6When the matter was called on Wednesday 29 February 2012 there was no appearance by the defendants and the matter proceeded ex parte. 7David's evidence is that a client of the accounting practice, a Mr Michael Graham Lowe ("Mr Lowe"), for whose companies CAP had undertaken accounting work, paid a bank cheque for $75,000 to the practice on 8 March 2007 in payment of an invoice sent by CAP. That cheque was deposited to the trust account operated by the plaintiff: see page 110 of Exhibit A (all page references hereafter are to Exhibit A), Mr Lowe's affidavit sworn 10 June 2010 (pages 462 to 493) and Exhibit F. 8The CAP trust account ledger records the receipt of $75,000 on 8 March 2007 but it also has these words alongside that record: "Bank Chq - Abboud". 9An amount of $75,000 was withdrawn from the CAP trust account on 22 March 2007: see page 111 and Exhibit F. 10David's evidence is that he was hospitalised at this time and that Gino was responsible for writing up the ledger and was a signatory to the CAP trust account (paragraph 16 of David's affidavit sworn 27 January 2012: see page 50). The plaintiff contends that the words "Bank Chq - Abboud" were inserted by or at the direction of Gino to prepare for the removal of funds to Mr and Mrs Abboud a few weeks later. 11The plaintiff alleges that Mrs Abboud, Mr Abboud and Gino are friends and have a close business connection. The plaintiff alleges that Mr Fred Khalil, who was employed by the plaintiff and who worked closely with Gino, is part of that same coterie of friends (paragraphs 12 and 13 of David's affidavit sworn 27 January 2012: see page 50). 12Gino, by his defence, admits that Mr Lowe obtained and delivered a bank cheque to CAP in the sum of $75,000 and that CAP paid the cheque into its trust account, but says that bank cheque "comprised money belonging to George Abboud" and that such money was to be held on trust for Mr Abboud: see page 26. In a similar vein, by paragraph 18 of his defence, Gino asserts that the $75,000 belonged to Mr Abboud and there was no requirement to notify David of the withdrawal of the money. 13Given the evidence of Mr Lowe and David and the absence of any evidence that Mr Lowe was connected with Mr Abboud or that the payment had any connection with Mr Abboud, I am satisfied that the $75,000 paid to CAP (i.e. the plaintiff) was paid by Mr Lowe and satisfied that no part of the money paid by Mr Lowe or his company was money belonging to Mr Abboud. 14It follows that if Gino treated the $75,000 as monies owned beneficially by Mr Abboud, he had no basis in so doing and his removal of the money from the CAP trust account had no lawful basis. As a person authorised to sign trust account cheques and to manage the trust ledger, Gino was an agent with control over the plaintiff's property and by reason of his removal of funds from the CAP trust account, without approval and for a purpose unconnected with CAP's business or for its benefit, he is required to account to the plaintiff for the money that he took from the trust account and paid to John Williams Real Estate for the benefit of Mr and Mrs Abboud. 15It follows that Gino is liable to repay the $75,000 plus interest to the plaintiff. 16I am satisfied that the $75,000 owned by the plaintiff was used by Mrs Abboud and Mr Abboud to pay the deposit on the two properties, respectively $55,000 and $20,000: see pages 33 and 113 and paragraph 9 of David's affidavit sworn 12 February 2012 at page 31. 17There are two factual matters which I need to determine. The first is when was Mrs Abboud put on notice that Gino had taken $75,000 from the CAP trust account. The plaintiff contends, in connection with its Barnes v Addy claim, that Mrs Abboud was privy to the use of the trust funds for the purchase of the property for reasons which I shall explain shortly, but the plaintiff also contends that even if Mrs Abboud did not know about the use of trust money in March 2007, she was put on notice of the claim by December 2008. Mrs Abboud by her defence (paragraph 20: see page 22) admits the allegation of notice by December 2008 (paragraph 29 of the amended statement of claim: see page 13). 18Mrs Abboud was therefore on notice of the plaintiff's claim prior to the time that she became the registered proprietor of the Adna Street Property. There is a transfer of that property showing a consideration of $310,000 paid by Mrs Abboud (see page 35) but the plaintiff alleges that no consideration was provided by Mrs Abboud for it. A notice to produce served on Mrs Abboud produced no documents relevant to the claimed consideration and the plaintiff contends that, given the failure of Mrs Abboud to produce such documentation and her failure to give evidence in the case, it can be inferred that no consideration was paid by her. By reason of her failure to give evidence in the case or to produce any relevant evidence to establish that she did pay money for the transfer, I think that is an appropriate inference to be drawn. 19The second factual matter is to determine whether, on the balance of probabilities, Mrs Abboud was aware at the time of the receipt of the $75,000 that it was money that came out of the CAP trust account. 20The evidence marshalled in support of that contention is circumstantial and involves a number of disparate steps: (1) that Mrs Abboud was actively involved in the business affairs of her husband and her husband's companies, not only as a bookkeeper (see page 254) but more generally (paragraph 11 of David's affidavit sworn 27 January 2012: see page 50); (2) that Mrs Abboud has had experience as a bank officer (see page 255) and was a business manager (see Exhibit B) and office administrator (see Exhibit C); (3) that Mrs Abboud had borrowed $396,000 from the St. George Bank ("the Bank") for the purchase of the two properties (either alone or with Mr Abboud); (4) that she purchased the Flora Street Property in her name; (5) that a fax on CAP letterhead was sent on behalf of Mr and Mrs Abboud to the Bank, signed by Mr Khalil (see page 107), purportedly on behalf of David but not in fact authorised by David, which stated: " George & Jillian Abboud We act for the abovementioned. Our clients have instructed us to advise you that we are currently holding: - $125,000.00 in trust for Jillian Abboud, and - $75,000.00 in trust for George Abboud. Should you have any further queries please do not hesitate to contact Gino Cassaniti of our office." That fax, whilst it does not when read literally, state that CAP was in fact holding $125,000 in trust for Mrs Abboud and $75,000 for Mr Abboud, it clearly was designed to create that impression. (6) that Gino signed a document confirming that he had made a gift of $125,000 to Mrs Abboud (see page 103) and signed a document confirming that he had made a gift of $40,000 to Mr Abboud (see page 105); (7) that Mrs Abboud, Mr Abboud, Gino and Khalil were all close friends; (8) that Mrs Abboud purchased the Flora Street Property in her name in March 2007; (8) that Mrs Abboud paid $2,000 deposit to the real estate agent in March 2007; 21The CAP trust account did not as of 21 March 2007 contain $125,000 in trust for Mrs Abboud or $75,000 for Mr Abboud: see Exhibit F and the conclusion which I have set out above in relation to the $75,000 that was received. David did not sign or authorise the fax of 21 March 2007 to be sent. The fax, it is contended, appears to have been designed to establish that Mr and Mrs Abboud had funds available to them to purchase the two properties, in conjunction with the Bank loan. 22The plaintiff's submissions are that in virtue of what is known as the first limb of Barnes v Addy (see Barnes v Addy (1874) LR 9 Ch App 244 at page 251), Mrs Abboud is liable as a person who has received trust properties monies with knowledge of the breach of trust. This is often referred to as the "knowing receipt" limb. To establish knowing receipt, the plaintiff must show that the recipient had actual knowledge of the breach of trust or fiduciary duty, or wilfully shut his or her eyes to the obvious, or wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make or had knowledge of circumstances which would indicate the facts to an honest and reasonable person: see Farah Constructions Pty Ltd v Say Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [176] - [178] and see Young, Croft and Smith, On Equity (2009) at [6.880] - [6.910]. 23I do not think that the evidence presented makes it crystal clear that Mrs Abboud knew that Gino was using money from the CAP trust account, but given that Gino's assistant, Mr Khalil, was writing to the Bank in Gino's name (and, I infer, on Gino's instructions, given Gino's role in removing the $75,000 and his name being given as the contact person to the Bank) and doing so on behalf of Mr and Mrs Abboud, who were in the process of borrowing money from the Bank, it seems likely that Mrs Abboud did know. 24If Mrs Abboud knew that Gino was writing to the Bank on her behalf (and on behalf of her husband) and telling the Bank that money was held by CAP on trust for her when in fact it was not, the inference that she knew that Gino was planning to provide funds from CAP to assist her purchase of the property, as he in fact did, is not difficult to draw. 25I think it is unlikely that Gino did have Mr Khalil write to the Bank stating that CAP had instructions to do so from Mrs (and Mr) Abboud without Mrs Abboud's knowledge, particularly as she was the borrower of $396,000 from the Bank and described as principal (see Exhibit D) and was the person who looked after her own and her husband's finances (paragraph 11 of David's affidavit sworn 27 January 2012: see page 50) and that she paid the $2,000 deposit on the Flora Street Property (see page 120). 26I accept that Mrs Abboud might have an explanation for these things but she has chosen now not to defend the proceedings (and has, even when she was represented, shared representation with Gino). In Manly Council v Byrne [2004] NSWCA 123 there is a detailed discussion of the principles in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 and a number of passages are extracted, including the following at page 312 per Menzies J: "where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference" but see also page 308 per Kitto J and pages 319 to 332 per Windeyer J, set out in Manly Council v Byrne. 27In Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd ( 1991) 22 NSWLR 389, Handley JA (with whom other members of the Court, Kirby P and Priestly JA, concurred) held that the principle could operate against a party whose witness was called but not asked a question on a topic that the witness would be expected to have information about. I think it would be surprising that a party who does not give evidence because he or she choses not to defend the case would be regarded as in a better position than one who does defend the case, so I do not think it inappropriate to apply the principles in Jones v Dunkel to the present situation. I think further support can be garnered for this approach from a passage in Cullen (Executor of Lascelles) v Welsbach Light Co of Australasia Ltd [1907] HCA 3; (1907) 4 CLR 990 at page 1002 per Griffith CJ: "if the only party in possession of direct evidence withholds it he cannot complain that effect is given to the circumstantial evidence." 28I draw the inference that Gino arranged for the letter from CAP to be sent to the Bank with Mrs Abboud's knowledge and approval and further draw the inference that she knew that Gino had obtained from the plaintiff's trust account the $75,000 used to pay the deposit for the Flora and Adna Street Properties on behalf of herself and her husband. 29If I am wrong in that conclusion and Mrs Abboud did not know that trust money had been used to pay for the deposit on the properties, she did not provide any consideration for the funding and hence was a volunteer on notice at least by December 2008 that the plaintiff's money had been provided to enable her to purchase the Flora Street Property and to enable her husband to purchase the Adna Street Property. In those circumstances, I think that the principles discussed in Heperu Pty Limited v Belle [2009] NSWCA 252 in the Court of Appeal apply and see Heperu Pty Limited v Belle [2011] NSWSC 1151 per Slattery J for an application of those principles. This is not a case in which monies paid to the recipient or volunteer have then gone out of the hands of the recipient. In this case, the monies were used to purchase property which is still held by Mrs Abboud. 30Given that $75,000 of the plaintiff's money was used to purchase the two properties, I see no hardship or unfairness to Mrs Abboud being required to reimburse that amount, together with interest from the date which the plaintiff seeks, that is, from 28 March 2007 until today. 31Interest has been calculated on the two amounts of the deposits to a total of $33,260.96, which, when added to the $75,000, makes the figure due to be paid by the first and third defendants $108,260.96: see Exhibit G (interest calculation). Judgment is to be entered for that amount. 32I think it is appropriate that the relief sought by the plaintiff in its further amended statement of claim be granted. I make declarations and orders in accordance with the document headed "Judgment" which I will initial and date with today's date. ********** 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: 22 March 2012