Silversea Cruises Australia Pty Ltd v Abellanoza

1. [1]

   BATHURST CJ: In Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 (Fistar v Riverwood), Leeming JA with whom the other members of the Court agreed, pointed out that “there are many overlapping claims against recipients of stolen property”. This case provides an example of why it is necessary to plead with precision which of the overlapping claims are relied upon.

Factual background

1. [2]

   There does not seem to be a significant dispute concerning the background facts. The respondent’s wife, Ms Mary Ann Abellanoza (Ms Abellanoza) was for some years an employee of the appellant. She was responsible for the oversight of the appellant’s accounts department. Between 2014 and 2017, she defrauded the appellant of over $3.5 million by generating false creditor statements and false invoices and transferring company funds applied in the purported payment of those invoices into bank accounts in her name or in the joint names of her and the respondent. At the trial, payments of $299,588.90 were identified as having been made into a joint account held by the respondent and Ms Abellanoza with St George Bank Limited (St George Bank) and $511,967.63 into a joint account also held by them with the Australia and New Zealand Banking Group Limited (ANZ). The balance of the defrauded money was paid into bank accounts in the name of Ms Abellanoza or accounts in her name and that of her mother, including accounts with the National Australia Bank (NAB). Ms Abellanoza was an authorised signatory on all accounts.

2. [3]

   The appellant brought proceedings seeking to freeze the funds in the accounts referred to at [2] above and for various orders in aid of the recovery of the amount defrauded. The proceedings below were brought against Ms Abellanoza as the first defendant and Mr Abellanoza (the respondent in these proceedings) as the second defendant. Paragraph 1 of the Statement of Claim described the type of claim as “[m]oney had and received, breach of contract (employment related), breach of fiduciary duty”. The relief claimed included a claim for a declaration that all monies transferred from the appellant into the NAB, ANZ and St George Bank accounts were held on trust for the benefit of the appellant. It also sought orders that included that the respondent and Ms Abellanoza hold money on constructive trust for the appellant, an inquiry be held as to the amount of damage suffered by the appellant and equitable compensation or an account of profits for Ms Abellanoza’s breach of fiduciary duty.

3. [4]

   However, the only claim initially made against the respondent in the proceedings was in the following terms:

4. [5]

   As appears below, it emerged during the course of the trial of the proceedings that money realised from gambling on poker machines by Ms Abellanoza was paid into two bank accounts held by the respondent with the Commonwealth Bank of Australia (CBA), one of which was opened on 24 July 2017 (the July CBA account) for the purpose of paying poker machine winnings into it, and the other which had been open at an earlier time (the first CBA account). The Statement of Claim was amended to make claims against the respondent in respect of monies paid in and withdrawn from these accounts.

5. [6]

   The primary judge dismissed all claims against the respondent, including those made in respect of the CBA accounts, except for one receipt of some $1,829.08 that the respondent conceded that he had knowledge of. This appeal is brought from the primary judge’s dismissal of the claims relating to these accounts.

The course of the trial

1. [7]

   According to the appellant’s chronology, the evidence which first disclosed the existence of the CBA accounts and the fact that funds which were paid into those accounts were poker machine winnings, came from the evidence of the respondent in cross-examination. In particular, the following evidence was referred to:

2. [8]

   The reference to the CBA account into which gambling monies were paid is a reference to the July CBA account. That account was opened on 24 July 2017 and in the period between that date and 16 April 2018, there were total credits of $142,157.14. It should be noted that if the deposit of $15,401.89 made on 24 July 2017 is deducted, the total credit amounts to $127,115.25.

3. [9]

   Evidence was also tendered of gambling records of various clubs. These records which comprise some 429 pages of material were tendered without any analysis and any explanation. When the primary judge asked what use he should make of the records he received, counsel for the appellant made the following response:

4. [10]

   The records from the Lidcombe Catholic Club are perhaps the most informative. They contain monthly records of gambling and do show significant gambling by the respondent and his wife. For example, in July 2017, Ms Abellanoza played the poker machines for 4 hours and 11 minutes investing $35,350.30 and incurred a net loss of $6,014.85. Similarly in August 2017, she invested $56,475.50 for total winnings of $52,442.44 and a net loss of $4,033.06. A similar pattern can be seen from September 2017 to January 2018, the total amount invested being $198,331.32 with a net loss of $32,032.91. By contrast, in February 2018 the total amount invested was $68,399.50 with total wins of $81,867.12, resulting in a net gain of $13,467.62, whilst in April 2018, a net loss of $6,012 was incurred on a turnover of $19,335.

5. [11]

   It should be noted that no attempt was made at the trial or on the appeal to link directly any of the money used for such gambling to money withdrawn from the accounts into which the proceeds of the fraud were originally paid, whilst the only evidence that the poker machine winnings were paid into the CBA accounts came from the respondent. Nonetheless it appears not to have been disputed by the parties that the money used for the gambling came from the accounts into which the proceeds of the fraud were paid and the money which went into at least the July CBA account was what remained from gambling with these funds, taking into account the losses incurred.

6. [12]

   At the end of the second day of the trial, counsel for the appellant indicated that he wished to amend the Statement of Claim to include the monies which were paid into the CBA accounts.

7. [13]

   The Statement of Claim was amended. Paragraph 1 remained the same. Paragraph 2 was amended to claim that monies held in the accounts referred to in Annexure B were held on trust. Annexure B referred to deposits from 19 July 2013 up to 16 April 2018 and included deposits, not only made into the July CBA account but also deposits to the first CBA account, totalling $11,513.57. No evidence was led to suggest that these funds were the proceeds of Ms Abellanoza’s gambling with the defrauded monies. In the passage of cross-examination to which I have referred at [7] above, the respondent indicated that the first CBA account was used to deposit his wages.

8. [14]

   The principal amendments to the Statement of Claim are contained in paragraphs 28-38. It is convenient to set them out in full:

9. [15]

   In a written outline of submissions dated 24 September 2018 counsel for the appellant put the appellant’s case in relation to the CBA accounts in the following terms:

10. [16]

    In closing written submissions filed on behalf of the respondent, the following submissions were made:

11. [17]

    Although the respondent’s closing written submissions dealt with the other claims made against him on the basis that they were proprietary claims, this was the sole submission made in respect of the claim against the CBA accounts.

12. [18]

    Oral submissions were made on the following day. In the course of those submissions, the following interchange took place between the primary judge and counsel for the appellant:

13. [19]

    Counsel for the respondent in his written submissions maintained that there was no Barnes v Addy (1874) LR 9 Ch App 244 knowing assistance or knowing receipt type claim brought in respect of the CBA accounts. His oral submissions were in the following terms:

14. [20]

    It should be noted that the amendment to the Statement of Claim was allowed on the basis of a concession made by the appellant that all the cheques deposited into the CBA account were drawn on the clubs’ bank accounts not from any other source (see primary judgment at [58]). Further, the primary judge correctly pointed out at [134] that although the Amended Statement of Claim “referred vaguely to ‘constructive trust’ there was no clear assertion in the pleadings of ‘knowing assistance’ or ‘knowing receipt’ to satisfy [him] that any type of Barnes v Addy constructive trust ha[d] been pleaded”.

The primary judgment

1. [21]

   The primary judge noted that the relief sought against the respondent included a proprietary remedy (constructive trust) and a personal remedy (money had and received).

2. [22]

   His Honour, after referring to the uncontroversial facts surrounding the fraud and the relatively extensive international and domestic travel undertaken by the respondent, Ms Abellanoza and their family at [18], referred to the fact that on 17 September 2018, he gave leave to file an Amended Statement of Claim which included the account details of the respondent and alleged the respondent knew or ought to have known of the dishonest payments by Ms Abellanoza.

3. [23]

   The primary judge set out the relevant legal principles including those relating to the rule in Barnes v Addy at [25]-[26], money had and received at [28]-[32] and tracing of money had and received at [33]-[34].

4. [24]

   The primary judge noted at [38] that the appellant submitted that the respondent was liable for the amount of $811,565.53 as money had and received by him on the basis that at all relevant times he had the requisite knowledge that the money paid into the St George Bank account and the ANZ Bank account had been obtained by fraud.

5. [25]

   The primary judge noted at [43] that the appellant contended that the respondent was not a credible witness, contending that it was clear that the respondent knew or ought to have known that the monies that Ms Abellanoza gave him to deposit into the two CBA accounts were obtained by dishonest means.

6. [26]

   The primary judge noted that that in those circumstances, the appellant submitted that by receiving and withdrawing money from each of the CBA accounts, the respondent dealt with money obtained by dishonest means and was personally liable for those monies or alternatively, he was liable for the withdrawal of $20,000 made on 26 April 2018 at which time the respondent had notice of the proceedings brought against Ms Abellanoza.

7. [27]

   The primary judge also noted that the appellant contended that payments made to maintain mortgages held by the family were made out of the misappropriated funds and contended that the respondent was personally liable to account as a constructive trustee for the benefit received. He noted at [50] the contention by the appellant that “there is a sufficient connection between the First Defendant’s breach of fiduciary duty and the Second Defendant’s knowing assistance giving rise to a Barnes v Addy constructive trust” (citation omitted). The first defendant is of course Ms Abellanoza and the second defendant is the respondent.

8. [28]

   The primary judge noted at [53] the submission of the respondent that the only cause of action against him was a claim for money had and received. He also noted at [58] that in relation to the monies deposited into July CBA account, all the cheques were drawn from the poker clubs’ bank accounts and were intermingled with the clubs’ monies and could not be traced into any of the amounts paid out by the clubs to the respondent or Ms Abellanoza.

9. [29]

   The primary judge then extensively reviewed the evidence and reached the following conclusions:

10. [30]

    The primary judge thus concluded that irrespective of the manner in which the case was put, the respondent was not liable because he did not have notice in a relevant sense of Ms Abellanoza’s fraud or breach of fiduciary duty.

The grounds of appeal

1. [31]

   The appellant relied on the following grounds of appeal:

2. [32]

   The grounds of appeal do not contend that the primary judge erred in finding that a claim for knowing receipt of trust property in the sense discussed in Barnes v Addy was not pleaded. However, in the appellant’s written submissions on the appeal (paragraphs 2.2-2.5), reliance is placed on the principle in that case to found the claim that the respondent is liable as a constructive trustee.

3. [33]

   In written submissions, the appellant contended that the respondent was liable to account for the funds paid into the bank as monies had and received. However, the submission did not deal with the contentions raised in the Court below that because the money the subject of the CBA accounts had come from mixed funds, it could not be traced at common law from the misappropriated funds.

4. [34]

   This issue was raised by the respondent in his written submissions and in oral submissions at the hearing. No point was taken that a notice of contention to raise this issue had not been filed.

The submissions on appeal

1. [35]

   In its written submissions in respect of ground 1, the appellant stated without elaboration that the case turned on whether the respondent had actual or constructive knowledge of receipt of monies that were dishonestly obtained. The submissions noted that the claim was limited to the monies deposited in the CBA accounts.

2. [36]

   The appellant in its written submissions focused almost entirely on a knowing receipt claim based on the first limb in Barnes v Addy. However, in the alternative it contended, without elaboration, that a person who innocently receives trust property other than a bona fide purchaser for value without notice and thereafter acquires notice of the trust and deals with the property in a manner inconsistent with the trust will also be liable as a constructive trustee, citing Fistar v Riverwood at [47]. It also contended that an action for money had and received was available against an entirely innocent person who did not receive the money as a bona fide purchaser without notice, citing Barros Mattos Jnr v MacDaniels Ltd [2004] 3 All ER 299; [2004] EWHC 1188.

3. [37]

   The appellant also contended that the primary judge erred in his conclusion that the respondent did not have the requisite knowledge to affix him with liability. He relied on the following matters:

4. [38]

   The appellant did not attempt to grapple with the fact that the primary judge found that he was not satisfied that “any type of Barnes v Addy constructive trust” had been made, or the difficulty, at least at common law, in tracing the misappropriated funds into both accounts.

5. [39]

   At the hearing, counsel for the appellant contended that the pleading was sufficient to make a claim based on the so-called first limb of Barnes v Addy. He submitted that the respondent had constructive knowledge that the property was trust property because “he wilfully shut his eyes to the obvious”, particularly after 24 April 2018 when he received the summons. He accepted that the respondent was not aware that the funds that Ms Abellanoza withdrew were part of the fraudulent proceeds at the time they were withdrawn, but submitted that the frequent winnings ought to have, or did put him on notice that Ms Abellanoza had been obtaining money “by dishonest means”.

6. [40]

   Counsel for the appellant submitted that the finding by the primary judge related to the respondent’s actual knowledge and he was not bound by a “Fox v Percy constraint” in respect of his claim based on constructive knowledge: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [27]-[28]. He accepted that it had to be shown that the constructive knowledge was that the funds used for the gambling resulted from a fraud carried out by Ms Abellanoza on her employer. He accepted that the primary judge found to the contrary, but emphasised that the respondent knew that his wife was an accountant for the appellant, although he “did not know what she otherwise did”.

7. [41]

   The respondent in his written submissions contended that the money in the CBA account was not the appellant’s money or the traceable proceeds. The respondent contended that in a claim for money had and received, it was necessary to show that the money or property in the defendant’s hand was the legal property of the plaintiff. The respondent submitted that at least when Ms Abellanoza was paid her winnings in cash or by cheque out of the clubs’ bank accounts, which necessarily contained mixed funds, it lost that character.

8. [42]

   The respondent submitted that the claim also must fail because it depends entirely on the assessment of the respondent’s credibility.

9. [43]

   The respondent also submitted that the claim that the respondent was liable as a constructive trustee did not add anything because it depended on the respondent being liable to account for the monies as monies had and received. At the hearing, counsel for the respondent submitted that what was pleaded in paragraph 33 of the Amended Statement of Claim was that any money the respondent continued to hold was held on a constructive trust.

10. [44]

    Counsel for the respondent submitted that the money which went into the poker machines came from the mixed funds from one of Ms Abellanoza’s bank accounts. Counsel for the respondent submitted that the amount that the clubs paid out was not part of the funds put in by Ms Abellanoza but winnings on that amount which was “a separate and discrete item”. He accepted that the defrauded funds were held by Ms Abellanoza on a constructive trust and that the winnings resulting from the use of those funds were also held on a constructive trust. He accepted that the winnings Ms Abellanoza gave to the respondent to deposit into the CBA accounts were trust money. He accepted that the question then became whether the respondent had “the requisite degree of notice or knowledge that that was trust money at that point”. However, he stated that was not the way that the claim was put against the respondent. He seemed to accept however, that the claim was put against the respondent in that way in relation to the $20,000 withdrawn by the respondent.

Consideration

1. [45]

   It is well established that a party is bound by his or her pleaded case, unless the parties have chosen to conduct the proceedings on a different basis. The position was succinctly stated by Mason CJ and Gaudron J in Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287; [1990] HCA 11:

2. [46]

   In the present case, the respondent consistently asserted both in oral and written submissions that the case of knowing receipt of trust property had not been pleaded: see [16] and [19] above. The question asked by the primary judge, to which I have referred at [18] above, was asked in that context and counsel for the appellant accepted that proposition by the trial judge that the pleadings did not “explicitly allege in the Barnes v Addy sense, knowing receipt or knowing assistance”. The primary judge was correct in concluding that no such case had been pleaded.

3. [47]

   The pleading with respect is obscure. In contrast to the pleaded claim against Ms Abellanoza in respect of the ANZ and St George Bank accounts which alleged breach of fiduciary obligations and alleged the monies misappropriated by her were held on a constructive trust (see Amended Statement of Claim at paragraphs 42-47), the only claim made in respect of those funds against the respondent was the monies had and received claim in paragraph 28.

4. [48]

   Further, although paragraph 29 of the Amended Statement of Claim pleads that Ms Abellanoza withdrew monies from the accounts into which the defrauded payments were made “for the purpose of depositing the monies in poker machines”, there was no allegation that the winnings were the subject of a trust, constructive or otherwise, in favour of the appellant. The pleading in paragraph 32 goes no further than saying the respondent “dealt with monies that he ought to have known had been obtained by dishonest means”. So far as paragraph 33 is concerned, no facts are pleaded as to the basis on which it was said that the second defendant was personally liable to account as a constructive trustee.

5. [49]

   In these circumstances, quite apart from the concession which has been made, the claim could not be said to be one that was dependent on knowing receipt of property impressed by a trust. Rather, paragraph 32 can only be seen in these circumstances as a common law claim for money had and received and the allegation in paragraph 33 as being ancillary to that claim.

6. [50]

   The respondent, relying on what was said by this Court in Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 (Russell Gould), submitted that for a claim for money had and received to succeed it had to be shown that the money paid into the bank account was the legal property of the appellant. The respondent submitted that in the present case, the defrauded funds lost that character, at least by the time the money was withdrawn from the ANZ and St George Bank accounts and was gambled in the poker machines: see Russell Gould at [29]; see also Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572-573; Agip (Africa) Ltd v Jackson [1990] Ch 265 at 285-286.

7. [51]

   The decision in Russell Gould has been the subject of some academic criticism: see K Mason, J W Carter, G J Tolhurst, Mason and Carter’s Restitution Law in Australia (3rd ed, 2016, LexisNexis Butterworths) at [303]. Further, it must be remembered that in Foskett v McKeown [2001] 1 AC 102, Lord Millett at [128] suggested that there was “no sense in maintaining different rules for tracing at law and in equity”. However, it was not submitted that Russell Gould was wrongly decided.

8. [52]

   It must be remembered that what was said in Russell Gould was limited to cases where there is no dishonesty or breach of fiduciary duty. That was made clear in the following passage by Barrett JA (Bathurst CJ and Ward JA agreeing):

9. [53]

   In the present case, Ms Abellanoza, the fraudster, held the proceeds of the fraud on trust for the appellant: Black v S Freedman and Co (1910) 12 CLR 105 at 110; [1910] HCA 58; Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 716; Robb Evans v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [111]; Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 at [93] (Heperu); Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [255] (Grimaldi); Fistar v Riverwood at [66]; Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [143]-[149] (Sze Tu).

10. [54]

    Once it is recognised that the defrauded funds were held on trust, the equitable rules of tracing can be used to follow the trust property: see, for example, Heperu at [93]; Sze Tu at [146].

11. [55]

    In the present case, assuming the funds used to gamble at the various clubs were the proceeds of the fraud, the funds could, in my view, be traced into the winnings derived from such gambling and placed in the CBA account. So much was conceded by the respondent.

12. [56]

    Further, the respondent was a volunteer. Even if he did not know initially that the money used to play the poker machines was derived from fraud and thus impressed with the trust in favour of the appellant, he would be liable to account for the money at least from the time he was put on notice that the gambling winnings resulted from the use of the proceeds of Ms Abellanoza’s fraudulent activities: Heperu at [144] referring to Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321; Fistar v Riverwood at [45]-[47]. Further as Allsop P (as his Honour then was) pointed out in Heperu at [144], the liability can be enforced by an action at law for monies had and received.

13. [57]

    In Heperu at [74]-[75], Allsop P referring to R P Meagher, J D Heydon, M J Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (4th ed, 2002, LexisNexis Butterworths) stated that the volunteer will be taken to have knowledge of “all matters: (a) of which he would have received notice if he had made the investigations usually made in similar transactions, and (b) of which he would have received notice had he investigated a relevant fact which has come to his notice and into which a reasonable man ought to have inquired”. That is a lower threshold than that required for a knowing receipt claim: see Fistar v Riverwood at [29]; Grimaldi at [268]-[269]. It is unnecessary to explore the reason for the difference in the present case.

14. [58]

    The difficulty for the appellant is that, leaving aside the payment of $20,000 on 26 April 2018, the case was neither pleaded nor conducted as a knowing receipt type claim. There was no allegation that the money paid into the CBA account was held on a constructive trust for the appellant and that the respondent dealt with the money with knowledge of that fact. Importantly, the inquiry as to the respondent’s knowledge did not focus on what he knew or ought to have known at the time that he dealt with monies paid into the CBA account by making the withdrawals. Even if the primary judge’s finding that during the whole of the period in question, the respondent had no knowledge, actual or constructive, of the fact that the winnings paid into the CBA account were the proceeds of Ms Abellanoza’s fraud on the appellant were set aside, it would be necessary to investigate which of the withdrawals from the account were made by the respondent with knowledge, actual or constructive, that the monies in the account were derived from the proceeds of fraud. This was not something that was considered in the Court below having regard to the manner in which the case was run. It would be unjust to the respondent to determine the case on this basis.

15. [59]

    The position is different with the payment of $20,000 referred to in paragraph 34 of the Amended Statement of Claim. Paragraph 34(a) pleads that the respondent had notice that the monies were obtained by dishonest means by virtue of his receiving the summons in these proceedings. The plaintiff named in the summons was the appellant and the respondent was aware that Ms Abellanoza was employed by that company. Receipt of the summons which sought freezing orders in respect of Ms Abellanoza’s assets up to the value of $1,590,348.82, and made claims against her that the monies in the ANZ, NAB and St George accounts were held on constructive trusts and claims for damages and equitable compensation, was sufficient, in my view, to give the respondent notice of the fact that the poker machine winnings in the July CBA account may have resulted from gambling with funds obtained by fraud on the appellant. An honest and reasonable person in these circumstances would have made inquiry of the source of the funds. The respondent’s failure to do so prior to paying the $20,000 to Ms Abellanoza out of the July CBA account makes him liable to account for that amount.

Costs

1. [60]

   The appellant has had limited success in the appeal. In the circumstances, I am minded to order the appellant pay 75% of the costs of the respondent in this Court and the Court below. However, the parties should be given leave to make submissions on this issue.

Conclusion

1. [61]

   In the result, I would make the following orders:

   1. (1)

      Appeal allowed in part.

   2. (2)

      The orders made by the primary judge on 13 December 2018 are amended by the addition of the Order 1A.

   3. (3)

      If not resolved by agreement, direct the parties to make submissions as to the appropriate costs orders within 7 days.

2. [62]

   BASTEN JA: It is not in dispute that between November 2014 and December 2017 Mary Ann Abellanoza fraudulently transferred more than $3.5 million from her employer’s bank accounts to various other bank accounts in her own name or into accounts jointly held by her and her husband, Perven Salas Abellanoza, the respondent to this appeal. Most of the moneys appear to have been dissipated by Ms Abellanoza through gambling at various clubs.

3. [63]

   The appellant, her former employer, took steps to recover amounts from Ms Abellanoza and her husband. On 24 April 2018 it obtained freezing orders against Ms Abellanoza; those orders were extended to her husband on 4 May 2018. On 17 July 2018 the appellant filed a statement of claim against both persons to recover the stolen moneys. Ms Abellanoza did not defend the claim against her, but her husband did.

4. [64]

   On 19 October 2018 the trial judge, Sackar J, dismissed the proceedings against the husband, except in relation to a small account of $1,829 which appears to have been the residue held in the joint accounts. Orders were entered on 13 December 2018. [1]

5. [65]

   The present appeal challenges the refusal of the trial judge to grant relief against the respondent, with respect to amounts paid into two accounts in his name with the Commonwealth Bank of Australia (CBA). The total amount involved was in the order of $154,000.

6. [66]

   The moneys paid into the respondent’s accounts were provided to him by his wife as the product of her gambling. They were referred to in the evidence as “gambling winnings”, which no doubt they were, in the sense that they were money value of chips purchased to allow her to gamble and paid out by the gambling machines (or perhaps not used); the overwhelming likelihood is that those amounts were less than the amounts paid in. To determine whether the appellant was entitled to the amounts paid into the respondent’s accounts, it is necessary to determine (i) how those amounts should be characterised in legal terms and (ii) what beliefs or knowledge about the source of the funds the respondent had or should have had.

Restitutionary claim

1. [67]

   The funds withdrawn from the appellant’s accounts by Ms Abellanoza and paid into accounts she controlled changed their legal form and ownership. At that stage, in accordance with the principles established in Black v S Freedman & Co, [2] the possessory interests acquired by Ms Abellanoza were sufficient to create a trust of the stolen property. [3] As O’Connor J stated: [4]

2. [68]

   In Black, the money was paid into an account, first in the name of the thief (the husband) and then into an account opened by his wife. Money was later withdrawn from the account by the wife and given to the husband, who purchased “circular notes” in her name and paid for them in cash. Griffith CJ had no doubt that “those notes were bought out of the stolen money, and can be identified also.” The Chief Justice continued: [5]

3. [69]

   Broadly speaking, the only variation from the facts of Black is that in the present case the fraudster took the money from her account and gambled with it, so that the moneys were returned to her hands as gambling winnings, no doubt in reduced amounts. She asked her husband to cash in the chips and place the moneys in one of the CBA accounts opened in his name for that purpose. Unless the gambling provided a basis to distinguish Black, the appellant should succeed with respect to the amounts found in the respondent’s accounts. There is no doubt that he was a volunteer, in the sense that the money was given to him for no consideration.

4. [70]

   Black was applied by the House of Lords in the case of Lipkin Gorman v Karpnale Ltd, [6] a case in which a solicitor had withdrawn cash from the firm’s account and gambled it at a club owned by the defendant. The solicitors succeeded in an action against the club for money had and received (a restitutionary claim). The steps involved in gambling identified in that case were much the same as the steps involved in the present case. Lord Templeman adopted the dissenting reasoning of Nicholls LJ in the Court of Appeal in the following terms: [7]

5. [71]

   Lord Goff of Chieveley provided more extensive reasons, having regard to separate arguments as to (i) title to the money; [8] (ii) whether the respondents gave consideration for the money; [9] (iii) whether there was a defence of “change of position”, and (iv) if so, whether it was made out by the club. [10] Lord Goff rejected the club’s case that it was not liable in an action for money had and received. (Other members of the bench agreed with the opinions of Lord Templeman and Lord Goff.) The defences available to the club were immaterial in the present case, the clubs at which the gambling took place not being joined. Relevantly, the fraudster, Ms Abellanoza, did not acquire a better title to the stolen moneys by transferring them into another form and then reconverting them into cash.

6. [72]

   Following the fraud of the respondent’s wife the appellant was deprived of its property, but retained an equitable interest as against the fraudster. It is clear from Black and Lipkin Gorman that the former owner can trace an entitlement to the property through changes in form and maintain a claim for money had and received against the thief or a volunteer in possession of the property in changed form. The respondent, as a volunteer, is bound to account to the former owner, though he lacked notice. [11] Lipkin Gorman adopted that approach in support of a claim for money had and received. The availability of such an approach was recognised in Fistar. [12]

7. [73]

   This was not a case in which the appellant sought to recover money from the club or clubs at which the gambling took place. It follows from the reasoning in Lipkin Gorman that, if the firm of solicitors had sought to recover from the defaulting partner the value of the chips cashed in by him as a result of the gambling, he could not have resisted their claim for money had and received. The same must be true of Ms Abellanoza. On the basis, not challenged on the appeal, that her husband was a volunteer and did not give valuable consideration for the money which he recovered from his wife’s gambling and paid into his own accounts, the appellant must succeed.

Claim for knowing receipt of trust property

1. [74]

   The appeal in this Court was run primarily on the basis that the appellant had failed on an equitable claim for knowing receipt of property obtained in breach of trust. That principle, commonly referred to as the first limb in Barnes v Addy, [13] depends upon the recipient having notice of the fact that the property has been obtained in breach of obligations owed to the equitable owner. For the reasons set out above, the appellant did not need to rely on this alternative cause of action. However, as it loomed large in the appeal, it is necessary to address it.

2. [75]

   Although the judge stated that “there was no clear assertion in the pleadings of ‘knowing assistance’ or ‘knowing receipt’ to satisfy me that any type of Barnes v Addy constructive trust has been pleaded”, [14] the judge proceeded to dispose of the matter entirely by reference to such a claim. His conclusion in that regard was expressed as a lack of satisfaction that the respondent “had knowledge or constructive knowledge of receipt of the Fraudulent Payments.” [15] Accordingly, to succeed the appellant must demonstrate first, that the equitable claim was pleaded and, secondly, that it should have succeeded. The latter consideration requires a finding by this Court that the trial judge was in error in not accepting that the respondent had the relevant level of knowledge, actual or constructive, as to the fraudulent payments.

3. [76]

   In my view, the appellant should succeed on both issues.

(a) pleading of knowing receipt – judgment below

1. [77]

   While it is true that the pleading may not have reached a high level of precision and may have involved some conceptual confusion, it is clear that the judge was content to deal with the matter on the basis that there had been a claim based on the first limb of Barnes v Addy and that the case had been run in that way. That approach was consistent throughout the judgment.

2. [78]

   First, the judge commenced with a careful history of the relevant procedural aspects as they had developed, concluding:

3. [79]

   The judge then turned to a statement of the relevant “legal principles”, commencing with “the rule in Barnes v Addy”. That section was followed by a discussion of the principles in relation to “money had and received”, [16] and then principles relating to “tracing of money had and received”. [17] There followed a statement that, “[g]iven the seriousness of the allegations against the Defendants the Court must come to a comfortable satisfaction about material aspects of the case.” Reference was made to s 140 of the Evidence Act 1995 (NSW) and Briginshaw v Briginshaw. [18] These principles were expressly adopted in dealing with the evidence of knowing receipt; they were not otherwise relevant.

4. [80]

   By that stage in the reasoning, there was no hint that the issue of knowing receipt was not in play. The judge then turned to the parties’ submissions in identifying the case against the respondent (the second defendant in the trial), the judge stated (omitting references to the submissions):

5. [81]

   The judge then noted a submission of the respondent that “the only cause of action pleaded against him by the Plaintiff is a claim for money had and received, and that the Plaintiff has not pleaded with sufficient particularity any ‘knowing receipt’ or ‘knowing assistance’ claims against the Second Defendant”. [19] The summary of submissions continued by reference to evidence denying knowledge (actual or constructive) of any of the fraudulent payments. [20]

6. [82]

   The judge addressed the evidence of the various witnesses. From [118]–[132] he set out his impression of the respondent, and assessed the credibility of his evidence. He then turned to what he described as “the key question” namely, “whether he knew or ought to have known of the monies being deposited into those accounts held solely or jointly by him.” That discussion continued through [133]–[146]. Apart from the criticism already noted as to the vagueness of the pleadings (at [134]), there was no hint that the judge did not consider a case based on knowing receipt was in play. The suggestion that the appellant should fail on the basis of inadequate pleadings is difficult to maintain.

(b) content of pleadings

1. [83]

   The relevant pleadings appear in the amended statement of claim under the heading “Money had and received/constructive trust (Second Defendant)”.

2. [84]

   The pleading asserted that on particular dates Ms Abellanoza informed her husband that she had “won” money on the poker machine and asked her husband “to withdraw monies from the poker machine via the procedures in place at each gambling venue in cash (if less than $5,000) and/or by cheque (for any amount greater than $5,000).” [21] Those amounts were said to have been deposited into his CBA bank accounts. [22] Paragraph 30 identified specific matters on the basis of which it was alleged that the respondent “had knowledge that the amounts deposited in to each of the bank accounts … had been obtained by dishonest means,” namely that he had “(a) wilfully shut his eyes to the obvious; (b) wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make; (c) had knowledge of circumstances which would indicate the facts to an honest and reasonable person; or (d) had knowledge of circumstances which would put an honest and reasonable person on inquiry”. These allegations were clearly intended to reflect the five categories relevant to a claim of knowing assistance, discussed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd. [23]

3. [85]

   Paragraph 32 alleged that the respondent “dealt with monies that he ought to have known had been obtained by dishonest means and is personally liable to the plaintiff for monies had and received.” Paragraph 33 alleged that the respondent was “personally liable to account to the plaintiff as a constructive trustee for those amounts.”

4. [86]

   Although the above may have elided personal and proprietary remedies, a proprietary remedy was sought with respect to the respondent’s interest in the family’s residential property, further pleaded at pars 37 and 38, though these paragraphs were not pressed.

5. [87]

   For the sake of clarity it is often desirable that a pleading identify the cause of action and its relevant elements; however, subject to the requirements of Pt 15 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) as to particulars, it is nevertheless the factual allegations (though not the evidence for them) which are to be pleaded. Subject of course to the need to consider how the proceedings ran at trial, sufficient allegations were included to provide an adequate pleading of an equitable claim for knowing receipt of moneys which, being fraudulently obtained, were impressed with a constructive trust. Had more factual detail been required to put the defendant on notice of the claim against him, in accordance with UCPR r 15.1, that could and should have been sought.

6. [88]

   I can see no basis for rejecting the appellant’s claims on appeal on the ground of inadequate pleading at trial.

(c) legal principles

1. [89]

   Of the five categories of knowledge pleaded by the appellant, and identified in Farah Constructions, only the first four were accepted as supporting a finding of knowing assistance in a dishonest and fraudulent design on the part of trustees, under the second limb Barnes v Addy. The fifth category (knowledge of circumstances which would put an honest and reasonable person on inquiry) was treated as “constructive” knowledge and not sufficient for such a cause of action. The distinction between the fourth and fifth categories and the acceptance of the fourth category was explained as follows:

2. [90]

   Nevertheless, this case was not pleaded as one of knowing assistance, but rather as one of knowing receipt of funds, the source of which was the fraudulently obtained moneys. Constructive knowledge may be sufficient to deprive the recipient of trust funds of a defence based on a purchase in good faith for value and without notice. The respondent did not qualify as such. To the extent it is relevant, the principle was identified by the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2). [24]

3. [91]

   On the other hand, Grimaldi held that the notice requirements for the two limbs of Barnes v Addy (if one accepted that dichotomous terminology), did not differ for the purpose of imposing personal liability. [25] In circumstances where the trial judge did not distinguish between actual and “constructive” knowledge in addressing a claim for knowing receipt, it may be assumed that the latter term referred to the concept identified in category (iv).

(d) findings of fact

1. [92]

   There is no doubt that, as counsel for the appellant recognised, there is a high hurdle to be overcome before an appeal court will interfere with factual findings by a trial judge based on an assessment of the credibility of a critical witness for the successful party. The constraints are commonly expressed, in the colourful language adopted in Fox v Percy, relying on other judgments, [26] that the findings are inconsistent with “incontrovertible facts or uncontested testimony” or are “glaringly improbable”, or “contrary to compelling inferences”.

2. [93]

   However, it is not necessary, in order to uphold the appeal, to overturn the credit findings favourable to the respondent made by the trial judge. That is because the appeal should be upheld on the basis of circumstances to which the respondent turned a blind eye. It is, nevertheless, necessary to identify the circumstances from which the relevant inferences can be drawn by reference to the judge’s assessment of the evidence relating to the circumstances of the respondent.

3. [94]

   The respondent met and married his wife in the Philippines. They migrated to New Zealand in 1996 and to Australia in 2002. He undertook a TAFE course in refrigeration and air conditioning and worked as a contractor in those fields thereafter, with some breaks in his employment, until he ceased working “in May 2018 due to some health reasons.” [27] He said at first that he and his wife started gambling in 2013. [28] In cross-examination he agreed that they could have started in late 2011. [29] He said that they started gambling on weekends, “then going up to seven nights per week three years ago”. [30] The respondent was unemployed between July 2013 and some time in 2014. [31] He agreed that he enjoyed trips to Surfers Paradise, Darwin and Cairns in that period. The respondent gave evidence that “his wife had been gambling on average seven nights a week over the last few years, staying until 10:00pm on weekdays and 2:00am on weekends”. [32]

4. [95]

   The judge’s impressions of the respondent were set out in the following passages:

5. [96]

   In discussing what the respondent knew, the judge stated:

6. [97]

   Those statements, and the succeeding paragraphs, with one exception, did not address the question of the respondent’s knowledge as to moneys being deposited in his Commonwealth Bank accounts. The critical passages were the following:

7. [98]

   With respect to the first sentence in [141], it is not clear precisely to what the term “corroboration” referred, nor to what aspects of the respondent’s evidence it applied. With respect to the second sentence, it must surely be the fact that the extent and consistency of his wife’s gambling over at least three years, would itself put a reasonable and honest person on notice of the fact that she had large sums of money available to her. Contrary to the following sentence, if the respondent had knowledge of money coming out of the machines, which the judge found he had, there was a clear link with questions as to the source of the money going in. While no doubt a person may be lucky from time to time and obtain winnings, a reasonable and honest person would know that the house always wins over the longer term. His wife’s gambling was persistent over the longer term, that is years; it was not susceptible to the explanation of “luck”. The respondent was himself a gambler, although it appears at a less intense level than his wife. Even if one does not infer actual knowledge, a finding which was well open on the facts, the circumstances were sufficient to indicate to a reasonable and honest person that Ms Abellanoza had available to her very large sums of money for which neither salary, nor winnings could account.

8. [99]

   The judge also stated:

9. [100]

   With respect to [144], in my view a reasonable and honest person would have known that the source of his wife’s gambling were inexplicable because the amounts being received bore no rational relationship with the modest amounts available to her as an employee of the appellant.

10. [101]

    However, the two critical passages are the following:

11. [102]

    Accepting that the respondent did not have actual knowledge of his wife’s fraudulent behaviour, the critical question was whether he had knowledge of circumstances which would tell a reasonable and honest person that she had an unexplained source of income. In my view, such a person would not accept that years of gambling would give rise to consistent and substantial winnings, based on “luck”, without realising the obvious potential explanation of the “luck”. Further, it is relevant to assess the question of such constructive knowledge by reference to the social context. The fact that the money was being banked by the appellant for his wife, together with the fact that they had lived together and shared a bedroom for 12 years, provided every opportunity for a simple thought as to how she could afford the continual gambling. It appears that he was content to enjoy the benefits of financial comfort without questioning how they came about. That is, at best, wilful blindness or moral obtuseness. Furthermore, although the judge appears to have deprecated any significance in his educational background, depriving him of any ability to calculate the probability of winnings, he had completed part of a bachelor of electrical engineering at Cebu Technical School in the Philippines and had obtained a technical qualification over three years study at TAFE when he came to Australia.

12. [103]

    In my view, the inference that an honest and reasonable man in his circumstances would have formed a view as to his wife’s source for the moneys with which she was gambling is inescapable. The conclusions of the trial judge set out at [101] above did not expressly address that question; those passages focused on actual knowledge of the fact that she was stealing from her employer and his “trust” of her. The latter provides an explanation, not a denial, of moral obtuseness. That constituted error.

Conclusions

1. [104]

   In these circumstances, the appellant is entitled to succeed both on its claim for money had and received and on its equitable claim for knowing receipt of fraudulently obtained payments, against the respondent.

Orders

1. [105]

   I would make the following orders:

   1. (1)

      Allow the appeal and set aside orders (2), (3) and (4) entered on 13 December 2018 in the Equity Division.

   2. (2)

      In place thereof:

   3. (3)

      Order that the respondent pay the costs of the appeal.

   4. (4)

      Grant the respondent a certificate under the Suitors’ Fund Act 1951 (NSW).

2. [106]

   GLEESON JA: The facts and circumstances giving rise to this appeal are set out in the judgment of Bathurst CJ.

3. [107]

   The primary claim by the appellant, Silversea Cruises Australia Pty Ltd (Silversea), related to cheques totalling $154,030.71 in respect of gambling payouts from various clubs which Mrs Abellanoza provided to her husband, the respondent, to deposit into one of his two bank accounts with the Commonwealth Bank of Australia (CBA). The second CBA account was established by Mr Abellanoza on 24 July 2017, and the primary claim was limited to amounts paid in and withdrawn by Mr Abellanoza from his CBA accounts between 24 July 2017 and April 2018.

4. [108]

   The alternative claim by Silversea related to the sum of $20,000 withdrawn by Mr Abellanoza from his second CBA account on 26 April 2018 and given to his wife, after she had provided him on or about 24 or 25 April 2018 with a copy of the summons and supporting affidavit filed by Silversea seeking asset freezing orders against her.

5. [109]

   The essential allegation by Silversea was that Mr Abellanoza ought to have known that the moneys ($154,030.71) that his wife had provided to him to deposit into his CBA accounts had been obtained by dishonest means, namely, that she was stealing money from her employer, Silversea, to fund her gambling. With respect to the alternative claim, the essential allegation was that Mr Abellanoza knowingly dealt with the moneys obtained by dishonest means by withdrawing $20,000 from his second CBA account and giving this amount to his wife on 26 April 2018.

6. [110]

   In this Court, the written submissions of Silversea referred to the availability of equitable claims for a defaulting fiduciary’s obligation of knowing receipt and knowing assistance under the first and second limbs of Barnes v Addy (1874) LR 9 Ch App 244, and the common law claim against a volunteer for money had and received. Ultimately, Silversea put its primary claim on appeal as a knowing receipt claim based on the first limb of Barnes v Addy. Silversea contended that such a claim had been pleaded in par 33 of the amended statement of claim, as an alternative to the claim for money had and received pleaded in par 32. The relevant parts of the amended pleading are reproduced in the judgment of Bathurst CJ at [14], and the relevant submissions of the parties are referred to at [15]-[20].

7. [111]

   Whilst unduly technical pleading points are not to be encouraged, pleadings do matter, as they are important in identifying for both the parties and the Court the real issues in dispute. Differences between common law and equitable claims have continuing significance, including the rules for following and tracing of money or other assets at common law and in equity.

8. [112]

   Despite the reference in the pleading at par 33 to Mr Abellanoza being liable to account to Silversea as a “constructive trustee” for the amounts received and withdrawn from his CBA accounts after 24 July 2017, I agree with Bathurst CJ that Silversea’s case was not pleaded or conducted as a first limb Barnes v Addy knowing receipt-type case. That conclusion is based on four matters.

9. [113]

   First, whilst the pleadings are a little obscure, I agree with Bathurst CJ that the “constructive trustee” reference in par 33 of the amended statement of claim is properly understood as ancillary to the common law claim for money had and received which was pleaded in par 32. That this is the way in which Silversea put its claim at trial can be seen from its closing written submissions reproduced at [15] of the judgment of Bathurst CJ, where Silversea submitted at par 4.5 that Mr Abellanoza “is personally liable to account to the plaintiff for monies had and received or as a constructive trustee”. The remedy of a constructive trust was sought in support of the money had and received claim to the extent that any of the moneys remained in the CBA accounts.

10. [114]

    Second, given Mr Abellanoza’s closing written submissions that Silversea’s pleading did not include any Barnes v Addy knowing receipt or knowing assistance-type claim, the response by Silversea (set out at [18] of the judgment of Bathurst CJ) should be taken as a concession that no such claim was pleaded. I do not read that response as merely an acknowledgement by Silversea of the pleading point taken by Mr Abellanoza. If Silversea disputed the pleading point, it needed to say so expressly. It did not do so.

11. [115]

    Third, insofar as Silversea contended that the moneys stolen by Mrs Abellanoza could be traced into the CBA accounts of Mr Abellanoza, the authorities on tracing to which the primary judge was referred concerned tracing of moneys at common law: Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; [2014] NSWCA 310 and Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572 (Lord Goff). That is consistent with Silversea only pursuing a claim for money had and received.

12. [116]

    Fourth and although not determinative, the primary judge understood Silversea’s primary claim as being based on a claim for money had and received: Judgment at [39]-[41] and [143].

13. [117]

    In the circumstances, Silversea should not be permitted to advance on appeal a new claim that was not pleaded or pursued at trial: Metwally v University of Wollongong (1985) 60 ALR 68 at 71.

14. [118]

    As to the alternative claim by Silversea in respect of the withdrawal of $20,000 by from the second CBA account on 26 April 2018, I agree with Bathurst CJ that this claim should succeed for the reasons given by his Honour at [59] above.

15. [119]

    I agree with the orders proposed by Bathurst CJ.