RABO EQUIPMENT FINANCE LTD v. BOUTAYEH [2001] NSWSC 517

New South Wales Supreme Court

CITATION : RABO EQUIPMENT FINANCE LTD v. BOUTAYEH [2001] NSWSC 517 CURRENT JURISDICTION: EQUITY FILE NUMBER(S) : SC 2598/01 HEARING DATE(S) : 5/06/01 JUDGMENT DATE : 28 June 2001

Rabo Equipment Finance Limited - Plaintiff Pierre Boutors Boutayeh - First Defendant JMJ Refunds Pty Limited - Second Defendant Petro Mariam Holdings Pty Limited - Third Defendant PARTIES : Westpac Banking Corporation - Fourth Defendant Joseph Alexander - Fifth Defendant Australia and New Zealand Banking Group Ltd - Sixth Defendant Imad Boutayeh - Seventh Defendant St George Bank Limited - Eighth Defendant JUDGMENT OF : Bryson J at 1

J. Marshall - Plaintiff COUNSEL : J. Gooley - Fifth Defendant

SOLICITORS : Blake Dawson Waldron - Plaintiff John Spence & Associates - Fifth Defendant CATCHWORDS : INJUNCTION - interlocutory injunction - plaintiff sought injunction restraining dealing with Fixed Deposit into which it claimed to trace part of proceeds of funds obtained by fraud - defendant explained on oath his dealings and circumstances in which payment was made to him - on the facts the plaintiff's prospects of success did not warrant interlocutory injunction - injunction obtained ex parte was dissolved. Lipkin Gorman v. Karpnale Limited [1991] 2 AC 548 CASES CITED : Australia & New Zealand Banking Group Limited v. Westpac Banking Corporation 164 CLR 662 David Securities Pty Ltd v. Commonwealth Bank of Australia 175 CLR 353 DECISION : See para.[16]. Injunction dissolved.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRYSON J.

Thursday 28 June 2001

2598/01 RABO EQUIPMENT FINANCE LIMITED v. PIERRE BOUTORS BOUTAYEH & 3 ORS

JUDGMENT 1 HIS HONOUR: On 5 June I heard an application by counsel for the fifth defendant made orally to terminate the restraint imposed by Order 5 of 18 May 2001. The Amended Summons filed on 22 May 2001 was the first form of summons which made claims against the fifth defendant. The plaintiff claimed an order that the Hire Purchase Agreement entered into by the plaintiff and the first defendant Mr Boutayeh on 30 April 2001 be rescinded ab initio, and many consequential orders including an order that the first defendant account for the funds advanced, injunctions and interlocutory injunctions restraining various other defendants in respect of dealings with proceeds of the funds advanced by the plaintiff for purchase of the goods under Hire Purchase, including in Claim 10 "An order that the fifth defendant pay to the plaintiff the sum of $60,000". When I heard argument on 5 June, the Statement of Claim had not been filed; it has since been filed on 14 June and makes allegations against the fifth defendant in paras.59 to 67. 2 The plaintiff has shown a strong prima facie case to the effect that the first defendant Mr Boutayeh in the names of himself and two companies which are the second and third defendants put a proposal to the plaintiff early in March 2001 for the plaintiff to provide financial accommodation to Mr Boutayeh in a form of Hire Purchase arrangement in which three new steel fabrication machines would be supplied by Japan Machine (Australia) Pty Ltd, and the plaintiff would buy the machines and then hire them to Mr Boutayeh under a Hire Purchase Agreement which the companies would guarantee. The plaintiff decided to accept the proposal about 9 March 2001. About 12 April 2001 Mr Boutayeh and the companies produced an amended proposal under which different machines would be acquired from All Purpose Machinery. They produced two Tax Invoices for the supply of the machinery by All Purpose Machinery to the plaintiff for sums totalling $1,364,000. (Surprisingly these invoices were dated 6 April, and purportedly represented agreements to sell the machinery to the plaintiff before the plaintiff had heard of the proposition). Various representations were made, including that deposits totalling $341,000 had been paid. The plaintiff determined that it would accept the amended proposal about 24 April, and on 26 April Mr Boutayeh and the companies executed the Hiring Agreement and a Goods Schedule with various declarations about the facts; and supplied the plaintiff with account details for payment of the price of the machinery to All Purpose Machinery. Then about 30 April Mr Boutayeh supplied the plaintiff with what were purportedly the originals of the Tax Invoices, the plaintiff executed the Hiring Agreement, and paid $1,364,000 by transferring that sum through the banking system to an account with the Westpac Bank which the plaintiff had been told was the account of All Purpose Machinery. 3 The plaintiff paid a commission to a company called Australian Structured Finance Pty Ltd in respect of the transaction. 4 All Purpose Machinery Pty Ltd ABN 89062131471 is a company which carries on business at Warrandyte Victoria, buying and selling used industrial equipment, but it did not issue the invoices, had no dealings with any of the present parties and does not supply machines of the type referred to in the invoices. "All Purpose Machinery Sales and Services" is a business name which Mr Boutayeh registered on 26 April 2001 giving his own name as the person carrying on the business. The registration ceased on the same day, it may be supposed because of its resemblance to the name of the company in Victoria. So far as appears the plaintiff did not search the Business Names Register, or make any direct inquiries of the supposed supplier, or see the equipment, or take even the most rudimentary precautions for its own protection. These facts are astonishing in relation to such a large transaction and they raise consideration of whether it was material to the plaintiff whether or not the equipment and a genuine sale transaction actually existed. 5 The payment of $1,364,000 in fact went to a bank account of Mr Boutayeh, details of which had been given to the plaintiff on 26 April 2001. Forthwith on the day of receipt Mr Boutayeh transferred practically all the money to another account of his own, and then disbursed it in various directions. The plaintiff has pursued interlocutory remedies against several persons who received moneys disbursed by Mr Boutayeh. One of Mr Boutayeh's many transactions was to obtain a bank cheque from Westpac Bank dated 1 May 2001 for $60,000 payable to Joe Alexander. The fifth defendant Mr Josef Alexander received the cheque on that day and banked it to the credit of several different accounts including a Term Deposit in the names of himself and two other persons of $25,000 maturing on 1 August 2001, with other credits going to several credit card accounts which were in debit, paying off or reducing the debits and not resulting in any identifiable fund. 6 The claim in the Statement of Claim against the fifth defendant Mr Josef Alexander is to the effect that the bank cheque for $60,000 while in Mr Boutayeh's possession was subject to an equitable interest of the plaintiff in the bank cheque by reason of the equitable tracing remedy, and the $25,000 Term Deposit exists as an identifiable product of the bank cheque so that the plaintiff has an equitable interest in the Term Deposit by reason of its equitable tracing remedy. It is also alleged that Mr Alexander is liable to the plaintiff for $60,000 as money had and received and/or in restitution for unjust enrichment because, as it is alleged, he is the ultimate recipient of $60,000 being part of a payment made by the plaintiff of $1,364,000 as a result of a mistake. 7 It is not alleged in the Statement of Claim and there is no evidence offered by the plaintiff that Mr Josef Alexander was complicit in the alleged fraud or had knowledge of it or was in any way a wrongdoer. In para.64 the Statement of Claim anticipates that Mr Josef Alexander may seek to establish that he is a purchaser of value without notice, says that he bears the onus of proving that and offers a critique of the evidence which he may provide. To my reading para.64 is pleaded in support of the claim for an equitable interest in the $25,000 Term Deposit. 8 On 18 May the plaintiff applied ex parte and obtained interlocutory orders including an order with effect to 22 May restraining Mr Alexander and his bank from dealing with any part of the proceeds derived from the bank cheque for $60,000. That order was served on Mr Josef Alexander on 18 May. On 22 May, in an application on which Mr Josef Alexander did not appear the plaintiff obtained an extension of that order until further order, and some amendments to the identification of Mr Josef Alexander's bank. On 5 June, after Mr Josef Alexander had obtained copies of the affidavits on which the interlocutory injunction against him was grounded, his counsel made the present application orally, and in support read Mr Josef Alexander's affidavit of 5 June. His affidavit shows that he is the sole director of National Marketing Group Pty Ltd trading as Capital Lending Finance, that he had several years' experience working in banks, obtained qualifications and at one time worked as a bank manager with St George Bank at Circular Quay; then in 1998 commenced his own business as Mortgage Originator and Finance Broker, he became accredited with a number of major banks and lending institutions and has made introductions which had brought about many loans totalling in excess of $85M. Among the people he has met is Mr Andrew Alexander of Australian Structured Finance Pty Ltd to whom he began referring business customers about 1999. (So far as appears, the two Mr Alexanders are not related.) 9 There were transactions in which Mr Andrew Alexander took up propositions and customers referred by Mr Josef Alexander, arranged loans and was paid a commission by the Bank or financial institution, while Mr Josef Alexander charged a commission to the borrower whom he had introduced. Mr Josef Alexander first met Mr Boutayeh in September 2000, introduced him to Mr Andrew Alexander at ASF and initiated a borrowing by Hire Purchase finance for equipment for Mr Boutayeh's Function Centre at Granville for which Mr Josef Alexander was paid $20,000 commission. Mr Josef Alexander also had a part in negotiations for finance of about $1.6M for equipment for the Function Centre at Granville in December 2000; he has not yet been paid commission for this. 10 In January 2001 Mr Boutayeh approached Mr Josef Alexander to obtain Hire Purchase finance for plant and equipment at his factory at Wetherill Park; he needed approximately $1.3M. Mr Josef Alexander told him that his commission would be $60,000 and Mr Boutayeh agreed to pay the commission on settlement. Mr Josef Alexander took the business up with Mr Andrew Alexander who dealt with the plaintiff. Mr Josef Alexander had a part in preparing and completing paper work and delivering it to ASF, and attending to sign documentation; then there was a difficulty about obtaining the particular equipment. Mr Josef Alexander then says that Mr Boutayeh found another machinery supplier and Mr Andrew Alexander told Mr Josef Alexander that the loan had been approved. The next part that Mr Josef Alexander took in the events was on 26 April 2001 when Mr Andrew Alexander and Mr Boutayeh met him at his office. Whilst at Mr Josef Alexander's office, Mr Boutayeh signed loan documents and produced a cheque for $23,367.40 payable to Mr Josef Alexander's company National Marketing Group as the first instalment under the Hire Purchase agreement; it seems that at the time of the advance the plaintiff required the first instalment to be paid. Mr Josef Alexander received the cheque and gave Mr Andrew Alexander a cheque of his company National Marketing Group for the same amount; it is to be inferred that that cheque, or some other cheque representing the proceeds of it was used to pay to the plaintiff the first instalment at the time of making the advance. Then on 1 May after the advance was made Mr Boutayeh paid Mr Josef Alexander a cheque for $60,000 being commission payable on the loan. Mr Josef Alexander says on oath "At no stage was I aware of any irregularity in the loan application." 11 In submissions by the plaintiff's counsel on 5 June, before the Statement of Claim was filed, the plaintiff's counsel placed reliance among other things on observations of Lord Goff of Chieveley in Lipkin Gorman v. Karpnale Limited [1991] 2 AC 548 including his Lordship's valuable observations at 572 to 574 dealing with title to the money in question in that case. His Lordship's observations were not directed to equitable remedies or equitable tracing claims; see 572G. Counsel sought to show that Lord Goff may be cited in support of a proposition that the onus of proof is on the recipient of money to show that the receipt was a receipt in good faith and for valuable consideration. In my view that proposition is not borne out by the passage referred to, as his Lordship did not address in any clear way the question of onus and his observations at 572C-E are not inconsistent with the burden being on a plaintiff, as in principle it usually is and ought to be, to show that the plaintiff has a cause of action, including showing, if it be necessary, that money was not received in good faith or for valuable consideration or, in the more modern language at 572E, showing that for the third party to retain the money would result in his unjust enrichment. In any event his Lordship's observations at 573E-H show in my view that a claim based on tracing at law from the payment made by the plaintiff into the Westpac Bank Account into the ANZ Term Deposit of $25,000 is not available. Prima facie the Term Deposit is traceable through several stages back to the amount advanced, but it is also clear that the payment of $60,000 to Mr Josef Alexander and the credit of part of the proceeds of the bank cheque to the Term Deposit took place on 1 May, well before any event which could be thought to be a decision by the plaintiff to assert title to the proceeds of the advance to the Westpac Bank account; so that the common law tracing remedy is out of the question; see Lord Goff at 573E-H. 12 It can now be seen from the Statement of Claim that the tracing remedy claimed is an equitable claim. This could at the most lead only to a remedy in respect of the Term Deposit as there is no other identifiable fund to which the plaintiff's advance or the bank cheque can be traced. The alternative claim against Mr Josef Alexander for $60,000 paid by mistake as money had and received or in restitution for unjust enrichment is not a proprietary claim, and for that reason cannot be the basis for an interlocutory injunction, and there is no basis and none was argued for binding Mr Josef Alexander by a Mareva Order. In relation to the equitable tracing remedy I regard it as clear that Mr Josef Alexander and the Term Deposit would be free of any equitable tracing remedy if the position is that Mr Josef Alexander received the payment of $60,000 in good faith for valuable consideration and without notice of fraud by Mr Boutayeh or of any equitable claim of the plaintiff. In his affidavit, on which he was not cross-examined, Mr Josef Alexander gave a clear account of his part in the transaction in which, as he pledged his oath, he was not aware of any fraud or irregularities, he did perform services and completed what he was commissioned to do so as to be entitled to be paid, and he was paid an agreed amount of commission for his services. 13 Against this position the plaintiff's counsel made observations adverse to acceptance of Mr Josef Alexander's evidence which I find substantially reproduced in para.64 of the later Statement of Claim, where it is said to the effect that he has not provided any satisfactory evidence of the existence of the debt he claimed was paid to him because he has failed despite demand to produce any written contract evidencing the debt and has failed to produce any copy of a Tax Invoice for his commission required to be brought into existence for the purpose of GST. As Mr Josef Alexander has narrated the facts, there was no written contract; and in relation to the kind of business which he speaks I do not find difficulty in believing this. That he has not produced any copy Tax Invoice is an irregularity but not in my view reason for disbelieving the whole narration. It was also observed by counsel that the cheque was payable to Joe Alexander not to National Marketing Group Pty Ltd or Capital Lending Finance, the names used in the business. I do not regard that as an important circumstance. 14 It was also contended that "Consideration … by way of purported release of debt" which is the plaintiff's counsel's way of referring to payment, was not a consideration which should be recognised as of value because it is merely reversible book entry capable of being reversed thereby putting Mr Josef Alexander in the position he was previously in. I do not understand the attempt to dispose of a payment in this way; it was an actual payment of money by cheque, not a reversible book entry. It was said however that this argument taken with tracing the funds to fraudulent dealing by Mr Boutayeh makes it inequitable for Mr Josef Alexander to retain the funds. It was then said that it is inequitable for him to retain the funds "as on this case the funds represents commission for unwittingly assisting (Mr Boutayeh and his companies) in arranging the very transaction by which Rabo was defrauded and as between Rabo and Joe Alexander, Rabo has the better equity for the proceeds of that transaction." In my view the position implied by the cumulation of these assertions is wrong in principle. An equitable tracing claim cannot be used as a reason for notionally reversing the effect of the payment and then proceeding to the result which might have existed if there had been competing claims by unpaid claimants to a fund. There is no reason to disbelieve Mr Josef Alexander, and upon his evidence the payment was a reality. Irrespective of where the onus of proof lies, the prima facie position on the evidence favours Mr Josef Alexander's case in which he did receive the money for valuable consideration, in good faith and without notice of fraud. His case is extremely strong, while there are no factual circumstances of any weight adverse to it. 15 It was the plaintiff's counsel's contention that the onus of proof of what counsel spoke of as the defence of consideration was on Mr Josef Alexander. In connection with this counsel referred to passages in Australia & New Zealand Banking Group Limited v. Westpac Banking Corporation 164 CLR 662 pp673-674.5 (the latter being the reference to the mere reversible book entries). I do not regard these passages as relating to the facts before me. There is no proof and indeed no evidence that Mr Josef Alexander was unjustly enriched: on all the evidence, he was entitled to be paid $60,000, he did not act as agent for Mr Boutayeh, there was no payment by book entry and his dealings were genuine and honest. There was no mistaken payment to Mr Josef Alexander. Counsel also referred to passages in the judgments in David Securities Pty Ltd v. Commonwealth Bank of Australia 175 CLR 353 at 379.6 and at 384-385. These passages are not authority for the proposition which the plaintiff's success would require, in which the burden of proof is on the defendant when the plaintiff shows a basis for an equitable tracing claim. However that may be, on the present facts the material in evidence overwhelmingly favours Mr Josef Alexander's position and his exemption from any equitable remedy in respect of his Term Deposit. The plaintiff's case is not in my view of sufficient strength to warrant interlocutory protection by injunction. 16 Order:

(1) The injunction in Order 5 of the orders of 18 May 2001 extended by Order 5 of the orders of 22 May 2001 is dissolved.

(2) I order that the plaintiff pay the fifth defendant's costs of the injunction and of the application to dissolve the injunction. --------

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