Smith v Autore t/as Autore & Associates Solicitors & Barristers

1. [1]

   Mr Autore is a retired solicitor who acted for Mr and Mrs Smith on the sale of their Paddington home, holding $2 million of the proceeds of the sale on trust. He later transferred the money to a firm of mortgage brokers, Property and Financial Solutions Pty Ltd, which paid sums out of the funds at his direction, including $500,000 which was paid to his wife, Mrs Autore. PFS is not a party to the proceedings which were brought by Mr and Mrs Smith to recover from both Mr and Mrs Autore what remains outstanding, even though she had repaid the $500,000 to PFS.

2. [2]

   At the commencement of the hearing it emerged that the claim that Mrs Autore was a party to a loan agreement between Mr and Mrs Smith and Mr Autore was no longer pressed and that Mr and Mrs Smith and Mr Autore were close to agreement.

3. [3]

   After a short adjournment consent orders were made against Mr Autore in the sum of $998,823.13 plus interest calculated at the Reserve Bank rate plus 2%, that leaving only the question of costs to be dealt with in his case. The equitable case against Mrs Autore proceeded, Mr Autore’s part in the hearing then confined to that of a witness called in Mrs Autore’s case.

4. [4]

   During the cross-examination of Mr and Mrs Smith, however, the proceedings took another turn.

The case finally pressed against Mrs Autore

1. [5]

   The 2021 amended statement of claim had pleaded that in April 2016 Mr Autore offered to use and manage Mr and Mrs Smith’s monies and repay them on demand; that they had accepted his offer; and that the material terms of the loan contract included:

2. [6]

   Mr and Mrs Smith had each verified the amended statement of claim. In their affidavits they both, however, denied signing the 16 April 2016 irrevocable authority by which Mr Autore claimed they had authorised the transfer of the $2 million to PFS. They disputed the authenticity of the document and said that they were not aware of the transfer until November 2017, when they were first introduced to Mr Odewahn of PFS by Mr Autore.

3. [7]

   When cross-examined about the claims advanced in the amended statement of claim, Mr and Mrs Smith both denied having agreed to loan Mr Autore money, as was there pleaded. That explains the abandonment of the contractual claim against Mrs Autore. But this left an evidential conflict to be resolved between Mr and Mrs Smith and Mr Autore about how the money came to be transferred to PFS and then used by Mr Autore.

4. [8]

   The case advanced against Mrs Autore was that in April 2016, when the $500,000 was transferred to one of her accounts, she knew that in obtaining the funds Mr Autore had breached the fiduciary duty which he owed Mr and Mrs Smith. In written submissions it was submitted that an order for $519,520.38, as at 14 March 2022 would be made against her, despite the repayment of the $500,000. In the alternative it was argued that if the entire $500,000 repaid was appropriated to the sum Mrs Autore had received, that did not discharge the entire debt as interest had accrued until the repayment on 18 May 2018.

5. [9]

   In final submissions an order for only $380,000 with interest was pressed. Its calculation was explained on the basis that the $500,000 was applied to repay another drawdown made on 29 April 2016, which at Mr Autore’s direction PFS paid to the Estate of Herbert. Why this payment was made was not explained by the evidence. But on Mr and Mrs Smith’s case, that had left $381,982.23 of the funds advanced to Mrs Autore outstanding, which had attracted interest to 12 May 2022 of $116,025.32, a total of $498,007.61, which continued to attract interest.

6. [10]

   The cases which the parties advanced put in issue the credibility and reliability of Mr and Mrs Smith’s evidence, as well as the credibility of the evidence given by both Mr and Mrs Autore. Mr and Mrs Smith also called affidavit evidence from Mr Odewahn who was not required for cross-examination and whose evidence shed considerable light on these and other issues.

Conclusion

1. [11]

   For reasons which I will explain, I have concluded that the case pressed against Mrs Autore was not made out on the evidence.

The issues

1. [12]

   After orders were made against Mr Autore and the case against Mrs Autore was confined, what remained in issue was identified to be:

   1. (1)

      whether Mr Autore was Mr and Mrs Smith’s fiduciary;

   2. (2)

      whether Mr Autore breached that fiduciary duty by obtaining money that he had held on trust for them;

   3. (3)

      whether Mrs Autore knew when she received the $500,000 that it had been obtained by Mr Autore in breach of his fiduciary duty;

   4. (4)

      whether Mrs Autore repaid the $500,000;

   5. (5)

      whether there was available a claim under Barnes v Addy (1874) LR 9 Ch App 244 against Mrs Autore; and

   6. (6)

      the quantification of what Mrs Autore would be ordered to pay Mr and Mrs Smith if the claim against her was established.

The agreed facts

1. [13]

   Before the hearing the parties had identified the agreed facts to be:

2. [14]

   It was also not in issue that Mr Autore was a sole practitioner and Mrs Autore conducted her own business out of premises at Wollongong which they shared, at times providing him with various assistance. Mrs Autore took phone messages and instructions from Mr and Mrs Smith for Mr Autore from time to time.

3. [15]

   Mr and Mrs Smith frequently attended the premises during their dealings with Mr Autore, but Mrs Autore was not involved in the work he was retained to perform, although it seems at times, they also discussed their affairs in her presence. Mrs Smith had known Mrs Autore from birth.

The disputed facts

1. [16]

   Before the hearing the parties had also identified the disputed facts to be:

Credibility and reliability

1. [17]

   It is convenient first to deal with the credibility and reliability issues.

2. [18]

   In resolving credit issues, it is necessary to “engage with, or grapple or wrestle with the cases presented by each party”: Murray v Sheldon Commercial Interiors Pty Ltd [2016] NSWCA 77 at [60]. Further, such conflicts must be resolved by “reasoning so far as possible on the basis of contemporaneous materials, objectively established facts and the apparent logic of events”, as well as upon the assessment of a witness’ reliability: Hutchison Construction Services Pty Ltd v Fogg; Fogg v Les Quatre Musketeers Pty Ltd (t/as Plastamasta South Coast) [2016] NSWCA 135 at [60].

3. [19]

   In this case that requires close consideration of Mr Odewahn’s unchallenged evidence. It corroborates aspects of the evidence of Mr and Mrs Smith and contradicts that of Mr Autore in critical respects, including as to the agreement to loan money to Mr Autore. Contemporaneous documents, the veracity of which was not in issue, corroborate Mr Odewahn’s evidence.

4. [20]

   Mr and Mrs Smith are both elderly and Mr Smith in obvious ill health. That made both Mr Smith giving his evidence and cross-examining him challenging, but his evidence was responsive to questions he was asked, as well as cogent. Mrs Smith was frail but well capable of giving evidence, even though that was a new and plainly challenging experience, which she found distressing.

5. [21]

   I am satisfied that they were both honest in the evidence which they each gave, although their memories were not perfect. For example, on their evidence they first met Mr Odewahn after October or November 2017, but on his they did not meet until 2018.

6. [22]

   The affidavit evidence of Mr and Mrs Smith was to similar effect. They left the proceeds of the sale of their home in Mr Autore’s trust account, later giving directions, often to Mrs Autore, about payments to be made from trust. It was in late 2017 when Mr Autore advised them that he was going to wind up his business and needed to move their money out of his trust account, that he recommended that it be invested with Mr Odewahn of PFS. But when they met with Mr Odewahn, he told them that Mr Autore had already provided him with the $2 million and used it to settle payments which he had directed be made.

7. [23]

   It is not in issue that the money was transferred out of trust and paid to PFS in April 2016. In their affidavits Mr and Mrs Smith both said that they had not signed the irrevocable authority under which Mr Autore had transferred the funds out of trust. In cross-examination Mr Smith accepted that he could not remember signing it, but looking at the signature, it seemed that he had. He also said that he must have thought it was the right thing to do at the time.

8. [24]

   In her cross-examination Mrs Smith was adamant that there had been no offer or discussion of a loan to Mr Autore. She believed that the authority was fraudulent. She explained that it was not one they would have given at the time, given what they then intended to use the funds for, in order to help family members, for reasons which she explained. Mrs Smith also referred to the difficulties they had in obtaining a trust account statement from Mr Autore, which when eventually provided disclosed the transfer of the $2 million in 2016. The statement in evidence had a 2019 print date and that annexed to Mr Autore’s affidavit a handwritten note “Collected by Helen Smith 2/4/19”.

9. [25]

   The statement shows that the balance after the $2 million was withdrawn in 2016 was $405,998.19 and the last transaction was a payment of some $35,436.92 made to Mrs Smith on 8 December 2017, when the balance reached zero. It follows that the statement must have been provided after that date.

10. [26]

    The evidence, including that given by Mr Autore himself in cross-examination, clearly left open the possibility that Mr and Mrs Smith did sign the 2016 authority, not appreciating at the time what they were signing and only discovering later that the funds had been transferred out of trust.

11. [27]

    How it was that the amended statement of claim advanced a claim that Mr and Mrs Smith had loaned $2 million to Mr Autore was not established. From their evidence that can only have been the result of some misunderstanding. Both Mr and Mrs Smith had verified that pleading, despite immediately volunteering when taken to it in cross-examination that what was pleaded was incorrect. It simply did not accord with their affidavit or oral evidence.

12. [28]

    I am satisfied that Mr and Mrs Smith’s evidence that they had not agreed to loan Mr Autore the $2 million transferred to PFS in April 2016, when considered in light of Mr Odewahn’s evidence and even that of Mr Autore, must be accepted.

13. [29]

    There is no reason for doubting Mr Odewahn’s evidence. I have concluded that it must also be accepted, that making it impossible to accept Mr Autore’s evidence in cases of conflict.

14. [30]

    Mr Odewahn’s evidence included that:

    1. (1)

       He had 50 years’ experience in mortgage lending and banking services; had known Mr and Mrs Autore since 2007; had arranged the loan they entered when they acquired their home; and had also acted as a finance broker for Mrs Autore and her sister;

    2. (2)

       During 2015 Mr Autore told him about Mr and Mrs Smith and a joint venture he proposed to enter with them, for which he needed to raise funds;

    3. (3)

       In April 2016 he met with Mr Autore when:

    4. (4)

       Amongst other things from their discussion Mr Odewahn understood that Mr Autore would be depositing funds with PFS which belonged to Mr and Mrs Smith but had been loaned to Mr Autore and that he would be paying them interest direct. Mr Odewahn acted in accordance with that understanding.

    5. (5)

       Mr Odewahn met with Mr Autore on 16 April and was given a copy of the authority which appeared to have been signed that day by Mr and Mrs Smith, authorising the transfer from Mr Autore’s trust account. It provided:

    6. (6)

       PFS received the $2 million on 19 April and issued a receipt. Mr Odewahn sent Mr Autore an email advising:

    7. (7)

       Understanding that Mr Autore had complete authority over the funds, Mr Odewahn arranged the $500,000 transfer on 29 April to Mrs Autore as Mr Autore instructed, as well as the later transfers which it was agreed were made. On 29 April he emailed Mr Autore advising:

    8. (8)

       On 2 May Mr Odewahn emailed Mr Autore advising:

    9. (9)

       Payments made by PFS were notified by letters such as that which Mr Odewahn sent on 29 April in relation to the payment in respect of the Estate of the Late R Herbert, when he advised:

    10. (10)

        The emails Mr Odewahn sent about payments made out of the funds, were all sent to Mr Autore.

    11. (11)

        By January 2017 none of the money advanced had been repaid and Mr Odewahn came to understand that Mr Autore was not paying interest and so PFS commenced capitalising the interest accruing on the funds which remained with it.

    12. (12)

        Mr Odewahn first met Mr and Mrs Smith on or about 5 April 2018, after they had sold an investment property and wanted PFS to manage those funds, which it still continues to do.

    13. (13)

        In that meeting Mr Odewahn first discussed the $2 million deposited in 2016 with Mr and Mrs Smith. They asked for a copy of the statement and asked him who the payees other than Mrs Autore were. He told them that they needed to speak to Mr Autore about this. He then sent an email on their behalf to Mr Autore, copied to them, which said:

    14. (14)

        Mr Autore then spoke to Mr Odewahn, who advised Mr and Mrs Smith on 9 April:

    15. (15)

        On 18 May PFS was paid $500,000 by Mrs Autore, which it credited against the funds which Mr Autore had drawn. It then held $1,106,176.87. After further discussion with Mr and Mrs Smith, on 21 May $601,176.87 was transferred to them and PFS continued to manage the remaining funds for them.

    16. (16)

        On 22 May Mr Odewahn emailed Mr Autore his “updated statement for funds borrowed from Mr & Mrs Neville Smith”. On 5 June Mr Odewahn advised Mr and Mrs Smith by email:

    17. (17)

        In June 2018 Mr and Mrs Smith agreed to loan Mr Autore $80,000, which PFS paid to him. On 21 June Mr Odewahn advised Mr and Mrs Smith by email:

    18. (18)

        In September 2018 PFS issued Mr Autore with a statement for the management of the funds. He has had no further contact with Mr Autore or Mr and Mrs Smith.

15. [31]

    Accepting this unchallenged evidence it must be concluded that Mr Autore misled Mr Odewahn. Mr Autore’s own evidence supports that conclusion.

16. [32]

    I have not been able to reach favourable conclusions in relation to Mr Autore’s evidence and am thus unable to accept that Mr and Mrs Smith had agreed to lend him money from the funds deposited with PFS.

17. [33]

    Mr Autore’s evidence was in part contradictory, some aspects were inconsistent with contemporaneous documents, some parts of it implausible and the evidence of the other witnesses also contradicted aspects of Mr Autore’s evidence. In the result I have concluded that it cannot be preferred over that of any of the other witnesses.

18. [34]

    In his first affidavit Mr Autor’s evidence responded to that of other witnesses. His evidence there was that he had first suggested that Mr Smith speak to Mr Odewahn in November 2017. That accorded with the evidence of Mr and Mrs Smith but made impossible Mr Autore’s further evidence that he later received instructions to transfer the funds to PFS.

19. [35]

    The trust authority which Mr and Mrs Smith questioned was dated 16 April 2016. There is no issue that the funds were transferred that day from the trust account to PFS and then soon paid out at Mr Autore’s direction, the first payment made being to Mrs Autore.

20. [36]

    In his affidavits Mr Autore denied that the signatures on the April 2016 trust authority had been forged, or that he had doctored the document, but that Mr and Mrs Smith did not appreciate the effect or significance of the document which they signed is apparent. On Mr Autore’s evidence he was the only person present when it was signed. On all the evidence it can only be concluded that he did not give Mr and Mrs Smith the advice which he was obliged to have given them about what they were signing and what he proposed to do.

21. [37]

    It was also Mr Autore’s affidavit evidence that it was only after the money was transferred that he made application to PFS and requested a loan, having discussed with Mr Smith in late April and June 2016 his need to borrow money. He also claimed that PFS was instructed to agree to the loan, after which he directed PFS to draw on the loan sums to make payments he directed. This did not accord with Mr Odewahn’s evidence and Mr Autore also said that he had discussed with Mr Odewahn his need for funds before April. In any event, the first $500,000 payment was made to Mrs Autore in April.

22. [38]

    Mr Autore also said in his second affidavit that he received no objection from Mr and Mrs Smith to the disbursement of the funds on his direction. But their evidence that they were unaware of this must be accepted, supported as that was by Mr Odewahn’s evidence.

23. [39]

    Contrary to his affidavit, in cross-examination Mr Autore claimed that he told Mr and Mrs Smith in early March 2016 to contact Mr Odewahn, which they later indicated they had done. But that is also inconsistent with both their evidence and that of Mr Odewahn and so also cannot be accepted.

24. [40]

    In cross-examination Mr Autore also claimed that he had met with Mr Odewahn in April 2016, advised him that he would not be drawing any mortgage documents for the loan and asked him to obtain lawyers. That was not Mr Odewahn’s evidence, nor after the transfer did Mr Odewahn take instructions from Mr and Mrs Smith as Mr Autore claimed he understood. Mr Odewahn’s instructions came from Mr Autore.

25. [41]

    Mr Autore agreed in cross-examination that as at 1 April 2016 he intended to borrow money he then held on trust for Mr and Mrs Smith. He claimed that he had then advised them the money was not earning interest and that it would be best if they took it out of trust and suggested investing with a broker, mentioning Mr Odewahn and them taking advice from an accountant.

26. [42]

    Mr Autore also claimed at one point that he ended his relationship with Mr and Mrs Smith at the end of 2015, but that was also clearly incorrect. The sale only settled in March 2016, after which he held the proceeds on trust and the trust account statement reflects that he continued to hold funds until November 2017, as was their evidence.

27. [43]

    In cross-examination Mr Autore also described his difficult financial situation. He claimed that he had assets, lots of creditors and was supporting clients with little cash flow. A bankruptcy notice had been issued and he considered that the quickest way to clear the debt was to borrow, he having a million and a half dollars’ worth of work in progress, which he knew would eventually come in. There is no suggestion that he has ever been made bankrupt.

28. [44]

    Mr Autore also denied that he had breached the duty which he owed Mr and Mrs Smith, despite not informing them that they ought to obtain a lawyer to document his loan, claiming that they were fully informed by Mr Odewahn and separately advised. That also cannot be accepted, given the evidence of Mr and Mrs Smith and Mr Odewahn.

29. [45]

    Mr Autore agreed that he drew the 16 April irrevocable authority when he had already made the decision to borrow from Mr and Mrs Smith. But he claimed that the loan was not agreed until 19 April, his expectation being that Mr Odewahn would obtain instructions for approval of the loan from Mr and Mrs Smith. Mr Autore also claimed that Mr Odewahn had told him that Mr Smith had instructed that he did not wish to pay a solicitor’s fee and that they were in the regular habit of lending money without documentation.

30. [46]

    I am satisfied that this evidence also cannot be accepted.

31. [47]

    Mr Autore also denied having sought to use Mr Odewahn to protect himself from a claim of breach of fiduciary duty. When it was put directly to Mr Autore that on 16 April 2016 he did not say to Mr and Mrs Smith words to the effect, "I'm going to be borrowing this $2 million" his evidence was:

32. [48]

    I am unable to accept that this evidence was true, given Mr Odewahn’s evidence, as well as other contradictory evidence which Mr Autore himself gave.

33. [49]

    At one point Mr Autore’s evidence was that at 16 April he did not expect the $2 million to be made available to him. PFS became the trustee and he was awaiting confirmation that the Smiths had agreed for it to transfer moneys pursuant to any request that he would have made. When taken to Mr Odewahn’s emails, he said that he believed that the transactions he had directed had been approved. He also said that he believed that if Mr and Mrs Smith had not given their authority, Mr Odewahn would not have acted on his directions. He also said that Mr Odewahn had access to other funds which he could have borrowed.

34. [50]

    In the end I had to conclude that Mr Autore’s evidence was self-serving, not given entirely in accordance with the requirements of his oath and thus not reliable.

35. [51]

    There were also some difficulties with Mrs Autore’s evidence. There was some conflict between her evidence and that of Mr and Mrs Smith about the extent of her involvement in their dealings with Mr Autore, about which her evidence is supported in part by that of Mr Autore. But some of her evidence contradicted that of Mr Autore.

36. [52]

    I have concluded that Mr and Mrs Smith’s evidence must be preferred in the case of conflict. I accept that Mrs Autore’s involvement in the conduct of Mr Autore’s business and with Mr and Mrs Smith was more significant than she was prepared to concede. In the case of conflict with Mr Autore, however, given the many difficulties with Mr Autore’s evidence, I have concluded that Mrs Autore’s evidence must be preferred.

37. [53]

    Mrs Autore’s evidence was that she is not legally qualified and for some 24 years operated a settlement agency business in which she attended up to 50 settlements a day for clients such as banks and law firms, as an agent, until June 2019 when the PEXA online conveyancing system became compulsory. She then retired.

38. [54]

    Mrs Autore operated her business out of the same premises as her husband, sometimes assisting him with receptionist and clerical work, including in relation to Mr and Mrs Smith. She has known Mrs Smith since childhood but has never acted for either of them. Even on Mr Autore’s evidence, they all shared a friendship and met weekly at the office when Mr and Mrs Smith called in, even when he was not performing legal work for them.

39. [55]

    It is pertinent that none of the documents or Mr Odewahn’s evidence establish that Mrs Autore had any knowledge that the source of the funds PFS used belonged to Mr and Mrs Smith.

40. [56]

    In her first affidavit Mrs Autore said that in April 2016 she agreed, reluctantly, to Mr Autore’s request to have money which he was borrowing from PFS paid into her account. She was not provided with any documentation and knew nothing about the loan arrangements.

41. [57]

    The $500,000 was paid into a personal account and Mrs Autore later made payments out of those funds, on her evidence, at Mr Autore’s direction. She did not keep records of the payments made, but the bank records disclose them. In May 2018 she drew two cheques totalling $500,000 which were paid to Mr Odewahn’s account, the details of which Mr Autore had provided her.

42. [58]

    In her second affidavit Mrs Autore explained her understanding that Mr Autore was borrowing the $500,000 because he had not been paid by a client who had since gone into liquidation and he needed to pay money he was borrowing into her account so that it was safe from people, barristers, and others, who were threatening to bankrupt him and that he would recover what he was owed from the liquidator.

43. [59]

    Mrs Autore also said she understood the $500,000 was a loan from Mr Odewahn to Mr Autore and that she did not know that it had anything to do with Mr and Mrs Smith. She had never seen any documentation or correspondence about the loan. She complied with Mr Autore’s instructions about making payments with the money, such as barristers fees, because she thought he had borrowed it and it was appropriate to use it to pay his debts.

44. [60]

    Mrs Autore also knew Mr Odewahn, but his evidence does not suggest that she was involved in any of his dealings with Mr Autore, other than it being one of her bank accounts that the $500,000 was paid into, on Mr Autore’s direction.

Was Mr Autore Mr and Mrs Smith’s fiduciary?

1. [61]

   There was no issue between the parties that a solicitor such as Mr Autore, who is in an obvious position of influence, owes fiduciary duties to clients such as Mr and Mrs Smith, of the kind discussed in Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23.

2. [62]

   Mr Autore did not deny owing such a duty and on Mrs Autore’s evidence she was also aware that such a duty was owed. She operated a trust account in her own business.

3. [63]

   One aspect of the fiduciary relationship is that a fiduciary “is not allowed to put himself in a position where his interest and duty conflict”: Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36 at [198] citing Bray v Ford [1896] AC 44 at [51]. When a solicitor and a client enter a transaction in which the solicitor has a personal interest, that conflicts with the interest of those whom he is bound to protect at [198].

4. [64]

   While there is no duty on a fiduciary to obtain informed consent to such a transaction, the existence of informed consent goes to negate what otherwise involves a breach of duty when such a transaction is entered: Maguire at 466-467.

Did Mr Autore breach his fiduciary duty?

1. [65]

   The case advanced for Mr and Mrs Smith was that in the circumstances Mr Autore should never have organised a transaction by which their funds were transferred from his trust account to PFS, so that he could borrow them. That involved a clear conflict of interest, which would not have been addressed even if the transaction had been documented and they had been independently advised.

2. [66]

   There is no evidence that Mr and Mrs Smith were independently advised, but this approach does not seem to entirely accord with that explained in Maguire. There reference was also made to “the long-standing principle whereby those in a fiduciary position who enter into transactions with those to whom they owe fiduciary duties labour under a heavy duty to show the righteousness of the transactions” and the formulation “that, if a transaction between solicitor and client is to stand, it must be ‘open and fair, and free from all objection’, not merely ‘fair’”: at 465.

3. [67]

   What the evidence does establish, I am satisfied, is that the transaction which Mr Autore organised was neither righteous nor open, fair nor free from all objection. Mr Autore’s evidence, even if accepted, could not establish that he met his heavy duty. In cross-examination he resisted the idea that at the time that the transaction was entered he was still acting for Mr and Mrs Smith. That he was is well established by the evidence which I have discussed.

4. [68]

   That all helps explain the orders to which Mr Autore consented.

5. [69]

   That evidence also established the breach of Mr Autore’s fiduciary duty to Mr and Mrs Smith. It showed that Mr and Mrs Smith did not give their fully informed consent to the use which Mr Autore made of their funds, having arranged to have them transferred to PFS as he did. Mr Autore then using those funds as he did in the way that Mr Odewahn explained, Mr Odewahn wrongly understanding that Mr and Mrs Smith had given their consent to Mr Autore so using the funds they had already agreed to lend him.

6. [70]

   That Mr Autore had obtained Mr and Mrs Smith’s informed consent might have been shown, had he taken steps to have Mr and Mrs Smith provided with independent and skilled advice from a third party before the funds were transferred and used as they were: Maguire at 466-467. He did not. Instead, he drew the authority on which he relied, denying in his cross-examination that he was then performing legal work, as he undoubtedly was, without even himself giving them the advice they should have been given. I am satisfied that as a result of the steps Mr Autore arranged and pursued, Mr and Mrs Smith neither understood nor consented to what Mr Autore did with their funds.

7. [71]

   Mr Autore agreed in cross-examination that if he had simply transferred the funds from his trust account to his personal account, he would have been in breach of his duty. I do not believe his evidence that he understood that Mr Odewahn was arranging advice to be given to Mr and Mrs Smith. Even when asked about the loan not being documented and Mr and Mrs Smith not being legally advised, whether he honestly thought it was sufficient to accept somebody else saying that Mr Smith didn't want to pay for a solicitor, Mr Autore’s answer was:

8. [72]

   I am satisfied that this evidence also cannot be accepted. But even if it was, that would also well establish how Mr Autore breached the duty which he owed his elderly clients. Tellingly, having accepted that on 16 April 2016 he was their trustee, when it was put to Mr Autore that he did not then say to them “I'm going to be borrowing this $2 million", his evidence was:

9. [73]

   Even if true, which I do not accept this was, that would have been insufficient to satisfy Mr Autore’s fiduciary duty.

10. [74]

    In the result the conclusion that Mr Autore had breached his fiduciary duty is unavoidable.

Did Mrs Autore know when she received the $500,000 that it had been obtained by Mr Autore in breach of his fiduciary duty ?

1. [75]

   There is no issue that the $500,000 transferred to Mrs Autore by PFS in April 2016 came from the $2 million Mr Autore had transferred from his trust account.

2. [76]

   Orders under the first limb in Barnes v Addy, where property has been received in breach of fiduciary duty, is requisite knowledge of the breach, rather than mere constructive knowledge: Turner v O’Bryan-Turner [2022] NSWCA 23 at [92]. Under the second limb there is accessorial liability, including where the recipient is a participant in fraudulent and dishonest design, with knowledge of circumstances which would indicate the facts to an honest and reasonable man: at [106].

3. [77]

   While I am not satisfied that either Mr or Mrs Autore gave entirely truthful accounts in all their evidence, I am satisfied that the evidence does not establish that Mrs Autore knew that the $500,000 paid into her account had been obtained by Mr Autore in breach of his fiduciary duty, or that she used the funds for her own purposes.

4. [78]

   It was Mr Autore’s evidence in cross-examination that Mrs Autore did not know that the transfer had been made until after it was paid into her account. That was contradicted by Mrs Autore, but they both gave evidence that he told her the money came from Mr Odewahn and that she did not know about a loan from Mr and Mrs Smith. That was challenged in cross-examination.

5. [79]

   The evidence leaves no doubt, however, that Mr Autore was seeking to shelter the $500,000 from his other creditors. It appears that it was paid into an account established to receive it at a time when Mrs Autore was aware that Mr Autore was having financial problems and being chased by creditors, about whom he told her.

6. [80]

   In her first affidavit Mrs Autore said that it was before the transfer was made that Mr Autore told her that he was borrowing money from Mr Odewahn and PFS. But she did not know what the arrangements were, did not sign any documents and did not speak to Mr Autore at all about the loan. She opened the account and gave him the details and he later asked her to draw cheques and cash from the account for his business expenses. She did not use the funds.

7. [81]

   Mrs Autore also denied having any knowledge or involvement in a loan from Mr and Mrs Smith and said that the first she had heard of it was when contacted by Mr and Mrs Smith’s solicitors.

8. [82]

   In her second affidavit Mrs Autore gave a different account of what she knew about the money paid into the account which she opened. There she gave an account of a conversation in April 2016:

9. [83]

   Mr Autore also denied having discussed bankruptcy with Mrs Autore, although on her evidence that had also been discussed. Mr Autore claimed then to have had no fear of bankruptcy, given circumstances which he explained, although he acknowledged then being under a lot of pressure.

10. [84]

    In cross-examination about the opening of the account Mrs Autore said at one point that from what she recalled; the account had already been opened before the funds were received. Later, that she did not know when it was opened or how long she had had it. Then, that she did not recall opening the account for the sole purpose of receiving the $500,000, but she agreed that was the first transaction in the account. But despite her affidavit evidence, she then denied it was opened to hide the borrowings from Mr Autore’s creditors.

11. [85]

    Mrs Autore also said the address used on the account was not hers; that she had not opened the account personally and did not remember attending the bank to open it, or providing the address used, to make it more difficult for the money to be traced. At one point she suggested that the bank must have made up the address. She also said that she did not need the funds for her personal expenditure. Later, that she did not remember attending the bank herself to open the account and that she then had a small business manager.

12. [86]

    This evidence raised obvious issues as to the credibility and reliability of Mrs Autore’s evidence, which I accept also had to be approached with some caution.

13. [87]

    It is relevant that Mr and Mrs Autore remain married and that he has disposed of his interest in the family home, on Mrs Autore’s evidence, to his daughter, who had paid some of his debts. There is no suggestion that any payment was then made to Mr and Mrs Smith.

14. [88]

    Mrs Autore’s evidence was also that she was not aware that Mr Autore had taken some $1.4 million in total from Mr and Mrs Smith, or that the $500,000 deposited into her account had come from money transferred from Mr Autore’s trust account. She said that she understood Mr Autore had borrowed from Mr Odewahn but was not aware of the $2 million of Mr and Mrs Smith’s funds having been transferred to him. Mrs Autore also agreed that in 2016 she knew that Mr Autore was holding funds on trust for them but said she did not know how much.

15. [89]

    This was also in issue, given Mr and Mrs Smith’s dealings with her. But Mrs Smith’s evidence was that it was only in October or November 2017 that Mrs Autore said to her “you better be careful of your spending as there isn’t a lot left”, which was denied. Even if accepted, that does not establish that Mrs Autore was aware of how Mr Autore had come to transfer $2 million out of trust in April 2016 in breach of his duty or that those funds were used to transfer $500,000 to her account. Mrs Autore also denied asking where the money had come from, or Mr Autore telling her it was from Mr and Mrs Smith. She said that she knew Mr Odewahn and had herself dealt with him before.

16. [90]

    Mrs Autore claimed that she had been bullied by Mr Autore into agreeing to the $500,000 going into her account, which she did not want, but she had given no account in her affidavit of having been bullied, or how. Given their longstanding relationship and ongoing friendship, that Mrs Autore never discussed with Mr and Mrs Smith them having lent Mr Autore any money, despite them meeting regularly, is also consistent with her not having known that they were the source of the funds.

17. [91]

    Mrs Autore explained the $500,000 repayment made to PFS, which came from two payments made out of her trust account, after Mr Autore had caused payments from a liquidator to be paid into that account.

18. [92]

    Mrs Autore said that it was she who had wanted to repay Mr Odewahn and had used that money to make the repayment. Mr Autore had not instructed her to do so, but she believed she had an obligation to pay the money back because it was a loan, and she wanted to ensure that Mr Odewahn received it.

19. [93]

    This was corroborated by Mr Autore in his cross-examination. Mr Autore also said that Mrs Autore knew the deposit came from Mr Odewahn because there was a receipt that came through which he showed her and that she knew that Mr Odewahn was lending him money from time to time, coming to the office to deposit cheques with her when Mr Autore was in court.

20. [94]

    Mr Autore also denied depositing the money into his wife’s account so that she could use the funds and explained why he did not wish to mix them with his general account. While he said that he hoped he had always been full and frank with her, he denied having told her that he got the money from Mr and Mrs Smith.

21. [95]

    In cross-examination Mrs Autore agreed that the bank statement annexed to her affidavit had been redacted but said that had been on the advice of her solicitor and that she had not used any of the funds for her own purposes. It emerged in re-examination that an unredacted copy of the statement had been sought and provided, but it was not tendered. In the result it must be inferred that the statement would not have assisted Mr and Mrs Smith’s case.

22. [96]

    The evidence thus also does not establish that Mrs Autore used the funds for her own purposes.

23. [97]

    I am satisfied that it must also be accepted that despite the reservations which I have about both Mr and Mrs Autore’s evidence, that the evidence does not establish Mr and Mrs Smith’s case.

24. [98]

    Undoubtedly Mrs Autore knew that her husband was a solicitor; that Mr and Mrs Smith were his clients; that he owed them fiduciary duties in relation to money which he held in his trust account; that he held some of their funds in trust and from time to time funds were transferred out of trust. But that is not enough.

25. [99]

    The evidence does not establish that Mrs Autore also knew that Mr and Mrs Smith had not given their fully informed consent to Mr Autore’s transfer of the $2 million to PFS, or the use which Mr Autore then made of it, including the transfer of $500,000 of those funds to her account. Even accepting the conversation to which Mrs Smith deposed and that it established that Mrs Autore knew what amount was still held in trust in October or November 2017, that does not establish the necessary knowledge on Mrs Autore’s part of Mr Autore’s use of Mr and Mrs Smith’s funds in April 2016, in breach of his duty.

26. [100]

    Knowing that the $500,000 came from Mr Odewahn, of itself, is not a sufficient basis on which it can be inferred that Mrs Autore also had the necessary knowledge that the source of those funds was Mr and Mrs Smith.

27. [101]

    Mrs Autore’s case that the evidence was even less reliable than that advanced in Moriah War Memorial College Association v Augustine Robert Nosti [2020] NSWSC 942, has some force.

28. [102]

    There it was concluded that a Barnes v Addy claim had not been made out against the wife of the financial controller of a school who had embezzled money from its bank account and used it to increase discretionary spending such as on overseas trips, having deposited some of the funds into his wife’s bank account.

29. [103]

    There the necessary constructive knowledge was explained by reference to Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [171]-[178], where the five category classification of knowledge, actual or constructive, identified by Gibson J in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 at 575-576 was applied, namely:

30. [104]

    In Moriah Hammerschlag J explained that only categories (1) to (4), but not (5) suffice for the Barnes v Addy liability there pursued: at [91]. His Honour said that “categories (2) and (3) are often referred to as species of actual knowledge whereas categories (4) and (5) are forms of constructive knowledge, although proof of category (4) or (5) knowledge may be sufficient to allow a court to infer, in the absence in proof to the contrary, that a person had one of the subjective states of mind referred to in categories (1), (2) and (3)”: at [92].

31. [105]

    It was there concluded that Mrs Nosti did not have either actual or constructive knowledge. The same conclusion must here be arrived at. The evidence does not establish either actual knowledge; that Mrs Autore wilfully shut her eyes to the obvious; that she wilfully and recklessly failed to make such enquiries as an honest and reasonable person would have made in the circumstances; or that her knowledge of the circumstances would indicate the facts to an honest and reasonable person.

32. [106]

    In April 2016 Mrs Autore was told the $500,000 came from Mr Odewahn. That is what the bank records reflected. He was a broker Mr and Mrs Autore both knew, and they had both borrowed from him in the past. Mr Autore told his wife about the financial pressure he was under and how he intended to deal with it, having been threatened with bankruptcy, borrowing while waiting for payment from a liquidator. The payment was received, and the borrowings repaid.

33. [107]

    That a reasonable person in Mrs Autore’s position would then have thought that the funds Mr Autore was able to access must have come from Mr and Mrs Smith, rather than funds Mr Odewahn otherwise had available to lend, as he had in the past, was not established.

34. [108]

    In the circumstances, that it was their funds which PFS made available to Mr Autore was not obvious, nor indicated by what was known to Mrs Autore, it must be accepted. As must that an honest and reasonable person would not, in all of the circumstances, have made enquiries as to whether the source was Mr and Mrs Smith, and that Mrs Autore was not reckless in failing to make them.

35. [109]

    Mr Autore’s acceptance that he tried to be full and frank in his dealings with his wife, on which Mr and Mrs Smith relied, I consider is an unreliable basis either to reject Mrs Autore’s evidence that she did not know that the source of the funds was Mr and Mrs Smith, or to conclude that a reasonable person would have had cause to think that it was them, or would have been put on enquiry.

36. [110]

    Unlike Moriah and other authorities there referred to, here Mrs Autore knew the source of the funds she received in her bank account, Mr Odewahn and it was him who she repaid. I am not satisfied in the circumstances, even given what she knew about the work Mr Autore had performed for Mr and Mrs Smith and that at different times funds were transferred out of trust, that would in April 2016, either have indicated to an honest and reasonable person that Mr Autore had breached his duty, or put such a person on enquiry as to the likely source of the money he obtained from PFS being Mr and Mrs Smith.

37. [111]

    It may be accepted that Mr Autore had no moral compunction about what he so wrongly did, as was also Mr and Mrs Smith’s case. But I do not accept that this leads to the inference that he did not keep the true source of the money he had paid into her account from Mrs Autore. To the contrary, that he would not have disclosed the breach of his duty, accorded with his other conduct.

38. [112]

    His ongoing relationship with Mrs Autore, her longstanding relationship with Mrs Smith and their ongoing friendship with both Mr and Mrs Smith, could all have provided him with reasons for not disclosing the truth to his wife, his abuse of the duty which he owed. Concealing his breach of that duty and telling Mrs Autore only that he had obtained the money from Mr Odewahn, was entirely consistent with his other behaviour and no doubt to his advantage. Even at the hearing having consented to orders being made against him, that remained his stance.

39. [113]

    I am thus satisfied that Mr and Mrs Smith’s case, that the evidence establishes at least, the necessary constructive knowledge for which they contended on Mrs Autore’s part, cannot be accepted.

40. [114]

    In the result the claims against Mrs Autore must be dismissed.

The quantification of what Mrs Autore would be ordered to pay Mr and Mrs Smith.

1. [115]

   In case I am wrong about the conclusion I have reached, I should resolve the issue as to the quantification of an order against Mrs Autore.

2. [116]

   The case advanced for Mr and Mrs Smith is that as a matter of law they were entitled to appropriate the payment made to the debtors they chose, as they saw fit. Their calculation was explained to be:

3. [117]

   The interest calculation was also explained in detail.

4. [118]

   Mrs Autore’s case is that having repaid the $500,000 received from Mr Odewahn, about which there is no issue, no further order can justly be made against her. The most that she could be ordered to pay was some interest, any liability on her part, after all, being equitable. There was no guilty conscience on her part which would permit an order requiring her to repay any further sum. The claim finally pressed simply reflected a desire by Mr and Mrs Smith to misapply the money to a debt in which she was not involved.

5. [119]

   There is no suggestion that Mrs Autore was aware of any of the payments Mr Autore directed Mr Odewahn to make out of Mr and Mrs Smith’s funds, other than the $500,000 she took steps to repay. In the result I am not persuaded that justice would permit the order which was sought. I do accept that it would permit an order for interest for the period during which Mrs Autore had the use of the $500,000 which she exercised according to Mr Autore’s directions. The precise terms of that order would have to be formulated.

Orders

1. [120]

   For the reasons given, however, I am satisfied that the case pressed against Mrs Autore must be dismissed.

2. [121]

   The usual orders as to costs under the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event. That is an order that Mr and Mrs Smith’s costs be paid by Mr Autore and that Mrs Autore’s costs be paid by Mr and Mrs Smith, as agreed, or assessed.

3. [122]

   I direct the parties to confer on terms of the final orders, including as to costs. Proposed orders should be filed within 14 days, together with short submissions in the event of any disagreement.