Ria Financial Services Australia Pty Ltd v Relius International Pty Ltd

1. [1]

   These proceedings present a familiar dilemma: which of two innocent parties will bear the loss caused by the criminal activity of a third-party.

2. [2]

   Between 9.00am and 9.30am on 7 January 2021, a male person (who has never been identified) stole $196,941 in cash from the business premises of the first defendant, Relius International Pty Ltd (“Relius”), a travel agency which then carried on business in the Sydney suburb of Lakemba.

3. [3]

   The criminal did not break into Relius’ business premises. He pretended to be the employee of a cash collection agency, Authentic Security Pty Ltd (“Authentic Security”), which had been booked to pick up cash that morning from Relius’ premises on behalf the plaintiff, Ria Financial Services Australia Pty Ltd (“Ria”). It is probable that someone disclosed to a third party the arrangements made on Ria’s behalf to collect the cash that morning from the Lakemba business premises of Relius. The discloser has never been identified. The stolen funds have never been recovered.

4. [4]

   Ria now sues Relius in contract and in equity for compensation for its loss. Ria also joins Mr Mohamad Addouj as the second defendant upon his guarantee of Relius’ contractual obligations to Ria. At relevant times Mr Addouj held a financial interest in and had control of Relius. Both Relius and Mr Addouj deny liability for the losses claimed in the events which occurred and on the construction of the applicable contractual documentation governing the relationship between Ria and Relius.

5. [5]

   These proceedings were heard over three days on 5,6 and 13 February 2025 and were followed by several rounds of post-hearing written submissions which concluded on 4 April 2025. Mr J Parrish of counsel instructed by Kerrs appeared for the plaintiff and Mr B. Levet instructed by N.A. Lawyers appeared on behalf of both defendants. The Court was much assisted by the work and submissions of the legal representatives on both sides of these proceedings.

6. [6]

   These proceedings were originally commenced in the District Court. In November 2022, orders were made under Civil Procedure Act 2005, s 144(2) for their transfer to the NSW Supreme Court.

7. [7]

   The Court’s narrative of the relevant history of the interaction of these parties follows shortly. This narrative represents the Court’s findings on the matters covered, except to the extent that the context indicates that only the parties’ allegations are being recorded. For reasons of economy this narrative does not always include reference to versions of the facts that have been rejected.

8. [8]

   Before starting upon the Court’s narrative of factual findings the Court first makes some observations about the role in the contested events played by various witnesses and about their credibility.

9. [9]

   The plaintiff, Ria, read nine affidavits. Many of Ria’s witnesses came from the cash in transit operator, Authentic Security, as well as from its own personnel. Four of the deponents called by Ria were cross-examined. Between them the defendants read four affidavits and two of the defendants’ deponents were cross-examined.

10. [10]

    Mr Lucas Williams. Mr Williams is the General Manager of Authentic Security. He gave evidence on behalf of Ria by AVL from Japan. Much of the evidence Mr Williams gave was of a general nature about Authentic Security’s normal operating procedures. He came across as a competent, professional and helpful witness. He was across his corporate portfolio. His credibility was not in issue. The issues in this case could take much of his evidence for granted is the dispute was more about how those procedures operated on the ground and in the context of changing contractual documentation in this case.

11. [11]

    Mr Randolfo Cruz. Mr Cruz is the Financial Controller of the plaintiff. Mr Cruz was an excellent witness. He was helpful and thorough. His credibility was enhanced by his willingness to limit the scope of his evidence only to matters of which he was confident, and he did not generally venture his opinion beyond that point.

12. [12]

    Mr Craig Bitz. Mr Bitz is the Training and Compliance Manager of Authentic Security. Mr Bitz was a competent and intelligent witness who was trying to assist the Court. His evidence is wholly accepted.

13. [13]

    Mr Zhorez Lodhi. Mr Lodhi is the Accounts Receivable Supervisor of Ria, a position that Mr Lodhi held during the events in contest in these proceedings. He presented well at first and appeared generally to be a witness of truth. But the Court developed doubts about his credibility and his reliability. He appeared to conclude quickly that Mr Addouj must have taken the missing funds. But there were a range of possible explanations for the funds being missing before that conclusion could be drawn with confidence. He demonstrated a tendency to reach quick intuitive, but not necessarily accurate, conclusions on the evidence available to him whilst he was investigating this cash misappropriation.

14. [14]

    For instance, Mr Lodhi claimed to be able to assess Mr Addouj's credibility after conversations Mr Lodhi had with Mr Addouj about the missing funds. But Mr Lodhi does not speak Arabic and Mr Addouj does not speak English well. It is very difficult to see how Mr Lodhi could have made such an assessment reliably at the time during his investigation and the Court doubts his capacity to do so. Mr Lodhi had little insight into the organisational weaknesses in Ria’s accounts receivables section and its management of cash handling by its agents in changing circumstances and with changing contractual paperwork.

15. [15]

    Ms Caroline Parajo. Ms Parajo was a junior employee of Relius. She is the daughter of Ms Florence Parajo, the previous owner of Relius who sold it to Mr Addouj shortly before the theft. Ms Parajo was staying on to assist Mr Addouj familiarise himself with the business after its sale by explaining its systems to him. She was a helpful, direct and precise witness, who the Court assesses was trying to assist the Court with accurate evidence to the best of her ability. Her evidence is accepted.

16. [16]

    Mr Mohamad Addouj. Mr Addouj is the second defendant, and was the sole witness called concerning the events of the morning of 7 January 2021. Mr Addouj appeared to have to have reasonable business skills in relation the operation of Relius, but he did not evidence very significant insight surrounding the contested events and issues the subjsect of these proceedings. A real limitation in assessing Mr Addouj's evidence, and one which significantly affected Mr Parrish’s ability to cross-examine Mr Addouj, was his limited command of English. He gave evidence through an interpreter but interpreting the financial concepts and aspects of the contractual documentation with someone of Mr Addouj’s limited linguistic range was difficult. He also said that he had only a 60% capacity to read English.

A Cash Collection from a Lakemba Travel Agency

1. [17]

   Ria carries on business as a provider of instant money transmission services and holds an Australian Financial Services Licence. Ria transmits its customers money worldwide in exchange for a fee charged to its customers. Ria conducts its business by engaging local agents in different locations around the world to assist in collecting its customers’ money.

2. [18]

   Ria charges relatively high commissions for its services and operates its funds transmission service to destinations in South America, the Middle East, Southeast Asia and the Pacific, which are not otherwise well served by the international banking system. Ria’s contract documentation contains many provisions requiring its local agents to comply with Australian anti-money laundering and similar legislation.

3. [19]

   In accordance with its normal operating procedure, Ria enters a written “agent agreement” in a standard form containing general terms and conditions through which the local agent provides services to Ria. Ria requires the directors of the local agent to enter a guarantee and indemnity agreement to guarantee the obligations of the corporate local agent to Ria. Relius entered such an agreement with Ria. Ria says that its usual business practice, where there is a change of company officers of the local agent, requires a new agent agreement to be executed with new personal guarantees to be signed by the incoming company officers.

4. [20]

   Ria’s funds and cash collection processes can first be described general terms. Ria’s practices with respect to cash collections from its customers through Relius changed over time and are described in more detail later.

5. [21]

   But in general terms a customer of Ria wishing to transmit money locally or overseas would usually attend in person at the premises of the local agent, such as Ria, and provide the local agent with details of the intended money transfer. The local agent would then collect the customer’s money for transmission either in the form of cash or by electronic funds transfer.

6. [22]

   The local agent would inform Ria electronically of the proposed funds transfer transaction, using a point-of-sale system provided by Ria called “FX Online”, to convey that the local agent has received a customer request to transmit money and that it holds the customer’s money. After authenticating the transaction Ria would complete the transfer by making the requested amount of funds available at the recipient’s point of collection, usually at an overseas destination.

7. [23]

   Ria’s general business practice was that within one business day of the local agent receiving the customer’s money the agent was required to deposit the money received from the customer into a nominated bank account operated by Ria. As will be seen though, this customary practice changed both in timing and in content during the conduct of the commercial relationship between Ria and Relius.

8. [24]

   Between 19 December 2012 and 11 January 2021 Relius collected money from Ria’s customers, for funds transmission, by two methods, either by EFTPOS or by cash collection.

9. [25]

   As to the former, the practice was that a Ria customer would attend the premises of Relius and request an overseas money transfer, and the source of the customer’s funds would be an EFTPOS or a debit or credit card transaction. These transactions were completed by the customer at electronic terminals at the premises of Relius, which facilitated funds passing directly from the customer’s bank account to Ria’s bank account. The transaction would be instantaneously recorded and completed in Relius’ FX Online management account system with Ria, but no cash would be left at Relius’ premises.

10. [26]

    As to the latter collection method, between 19 December 2012 and 8 March 2016 the cash collection practice between Relius and Ria was as follows. Relius collected cash from Ria customers and remitted the cash to Ria by direct deposit. When a Ria customer attended the premises of Relius and requested an overseas money transfer to be carried out using cash, Relius would collect the cash from the customer and deposit it into Relius’ own bank account. Ria would then debit Relius bank account in an amount equivalent to the cash collected and deposited by Relius into its bank account.

11. [27]

    The cash handling method between Ria and Relius changed between March and September 2016. During this period Relius collected cash from Ria’s customers and remitted it to Ria by physically depositing the cash into a Bank of America bank account operated by Ria (through an ANZ Bank branch).

12. [28]

    From 28 September 2016 onwards the arrangement for Relius to handle cash changed yet again. Instead of Relius depositing Ria’s customers’ cash into the Bank of America account, Relius held the cash until it was physically collected by a cash in transit company (CIT company). The CIT company would then deposit the cash and remit its equivalent electronically to Ria.

13. [29]

    The identity of the CIT company collecting the cash under this arrangement changed from time to time. But as will be seen these various changes in cash collection practice were not followed immediately by fully corresponding changes in the standard contractual agency agreement paperwork provided by Ria to Relius. The non-correspondence of the trailing paperwork to the actual cash collection practices between Ria and Relius has unnecessarily added to the legal complexity of these proceedings and made it difficult to try to make sense of contractual provisions that do not entirely correspond with what the parties were doing on the ground.

14. [30]

    At the time of the theft in January 2021 the arrangement was that the cash was to be handed over to the CIT operator, as an agent of the plaintiff, who would then securely deposit those funds into Ria’s account. One of the issues between the parties was the agreed frequency of these cash collections.

15. [31]

    The evolution of the operation of the commercial relationship between Ria and Relius which commenced in late 2012 has been described above. This section of these reasons deals with what the parties recorded in writing about their relationship.

16. [32]

    Under the contractual arrangements between them, Ria appointed Relius as its agent to deliver, what the agent agreement described as “Money Transmission Services”. The agent agreement describes Relius receiving “trust” funds from customers and in accordance with their instructions delivering an equivalent of such funds to the beneficiary of those instructions. Relius as agent for Ria provided a foreign cash exchange and transmission service, but Ria held the appropriate Australia financial licence for that service.

17. [33]

    The parties’ commercial relationship commenced in December 2012. But by the time of the theft the parties were using a fourth iteration of their agent agreement, issued in a standard form by Ria. Despite the changes in agency practice described above, the structure of the Ria – Relius agency agreement over the 9-year period between 2012 and 2021 went through only one major change in language.

18. [34]

    On 19 December 2012, Ria and Relius first entered into an agent agreement, entitled “Appointment of Agent Agreement”. This was the first of four iterations of the agent agreement between them. It will be described as “the first agreement” in these reasons. Relius pleads in its case all four agent agreements and an addendum made between the third and fourth agency agreements. The main contractual wording changes occurred between the third and fourth agent agreements but which of these various agent agreements represented the final and binding terms of the contract between the parties was debated at the hearing.

19. [35]

    The form of the first agency agreement was relevantly reproduced through the second and third agency agreements. The second agency agreement was signed between Ria and Relius on 17 December 2013, and the third agency agreement was signed on 2 December 2014. Then, on 28 September 2016 an addendum was made to the third agency agreement. The addendum to the third agreement included a “deposit schedule” signed on behalf of Relius by its then owners, Ms Florencia Parajo and Mr Pablo Parajo. They sold the business of Relius to Mr Addouj before he executed the fourth agency agreement.

20. [36]

    The first, second and third agent agreements were in substantially the same form as the first agent agreement so only relevant aspects of the first agent agreement are reproduced here. The fourth agent agreement made on 29 July 2020, about five months before the theft in question, contained terms that were slightly different to the earlier agreements. But it is convenient to start with the first agent agreement.

21. [37]

    The key relevant clauses of the first agent agreement relevant to the issue of the allocation of risk for funds received by the agent and that endured in substantially similar terms throughout the second and third iterations of the agent agreements were the following:

22. [38]

    The definitions relevant to these provisions in the first agent agreement were the following

    1. (1)

       “‘Customer’ means any person, company or entity in Australia that uses Ria’s Money Transmission Services through the Agent.”

    2. (2)

       “‘Customer Funds’ means the cash amounts accepted by the agent from customers on behalf of Ria for money transmission service minus the Agent’s applicable commission for the cash proceeds of same to be paid a Recipient.”

    3. (3)

       “‘Deposit’ means the deposit of customer funds by the agent into Ria’s Account.”

    4. (4)

       “‘Money Transmission Services’ means the service provided or related to the process whereby the agent accepts funds from customers for Ria money transmission service and transmit same to RIA along with the RIA receipt containing payment instructions.”

    5. (5)

       “‘RIA’s Account’ means such bank accounts as RIA may from time to time notify to the Agent.”

23. [39]

    As explained earlier in these reasons, from 2012, Relius collected trust funds from customers by two methods. The first method was through an EFTPOS terminal operating at the Lakemba shop, which transferred funds directly from the customer’s account to Ria’s account. The second method was by cash collection and deposit into Relius bank account, from which Ria then made direct debit deductions, equivalent to the amount of cash Relius had collected and deposited into Relius’ account.

24. [40]

    These dual methods of collection of funds by Relius operated from December 2012 to 8 March 2016. During that period the second and third agent agreements were made, the second agreement on 17 December 2013 and the third agreement on 2 December 2014. These agent agreements were relevantly indistinguishable from the first agent agreement and are not reproduced here. The agency addresses changed through these agreements and Relius was then called A & F Pinoy Pty Ltd, its name changed about the time of the fourth agent agreement.

25. [41]

    As earlier indicated, the cash collection practice changed from 9 March 2016 to 27 September 2016. During this period Relius physically deposited the cash it collected into Ria’s Bank of America account at an ANZ Bank branch. This change in practice was not reflected in any alteration in the third agency agreement between the parties. This change in practice appears to be consistent with the definition of “Ria Account” in the third agreement, if Ria notified Relius of Ria’s Bank of America account, as the place for cash deposits.

26. [42]

    On 28 September 2016, one of the then principals and sole director of Relius, Ms Florence Parajo, received an email from Ria advising that Ria had engaged a new CIT provider, ARA Security. The email enclosed a document titled “Addendum to Settlement Form – Deposit”, a document that became known in the proceedings as “the addendum” to the third agent agreement.

27. [43]

    The email invited Ms Florence Parajo and Mr Pablo Parajo to sign the addendum and provide it back to Ria, which they did the following day. The addendum appears to operate as a written variation to the first agent agreement, which in clause 15.7 allows that agreement to be “changed or modified only by a writing expressly to that effect signed by Ria and the agent.”

28. [44]

    The addendum addressed to A&F Viva Pinoy Pty Ltd and dated 26 September 2016 provides:

29. [45]

    From the words “Office Use Only” down to “Friday” the addendum is entirely covered in a greyscale rectangle indicating that all that information might be only for office use and might not have contractual effect. The only part of the greyscale section of the form filled in with typescript is against the label “bank name”, where the words “ARA (cash in transit)” appear. This appears to signify that instead of a bank into which the agent will make cash deposits, Ria is authorising ARA to collect cash as a CIT operator.

30. [46]

    Then below that text appears the word “schedule”, against which are five boxes labelled for the five days of the business week. As can be seen above, each of the boxes before Monday, Tuesday, Wednesday, Thursday and Friday is ticked, indicating to the objective reader that each of these consecutive business days are “scheduled days” for deposits to be processed (and presumably collected).

31. [47]

    The form makes very little sense unless it is read with the greyscale section, despite that heading “Office Use Only”. A commonsense reading of the document shows that the information in the greyscale was designed to bind both parties. This is so not least because outside the greyscale box the text refers to “scheduled days provided below”, which are inside the greyscale box. And the other words outside and after the greyscale box speak of the “schedule” inside the box being integrated and incorporated by reference into the agent agreement.

32. [48]

    The 28 September 2016 email from Ria reinforces this conclusion. It explained that Ria had engaged a new CIT provider, ARA Security, to commence collecting cash from the premises of Relius. The email stated, “your scheduled pickup days have been provided on the attached forms, please sign the forms and send back”. The email attached scheduled pickup days and foreshadowed that ARA Security would soon be in contact. The email then added in large font and in red as follows: “[l]astly, for best practice ensure that you request to see Company Photo ID or Security Licence of the individual collecting cash…”

33. [49]

    At the same time the addendum was sent, Ria’s cash collection practice changed. From then on cash was collected by a CIT operator, ARA, which would remit the cash to Ria by way of its own electronic funds transfer at the direction of Ria. This changed collection practice after this date has already been described above. The addendum appears to have been designed – by the line, “Relius Bank: ARA (Cash in Transit)”– to give effect to the change to a CIT operator thenceforth being involved in the cash collection. Based on the addendum, the CIT operators were required to attend Relius’ shop every day. By all accounts, this did not happen and it certainly did not happen in December 2020 and early January 2021.

34. [50]

    The 28 September 2016 email also attached a document entitled “Direct Deposit Policy” dated “February ‘16”, which is referred to in these reasons as “the 2016 policy”. The 2016 policy is one page long and re-affirms clauses 3.1 – 3.3 of the agent agreement. It provides as follows:

35. [51]

    Ms Parajo signed the 2016 policy, dated it 28 September 2016 under the heading “the foregoing acknowledgement is hereby duly executed”, and returned it to Ria. The object of the 2016 policy seems to have been limited. In clause 1 it repeats clause 3 of the first agreement. But the effect of clause 2 was that an agent who had previously been authorised to make deposits to Ria’s Bank of America bank account must now revert to cash collection by CIT operator or EFT transfers.

36. [52]

    On 18 May 2017, Relius received an email from an employee of Ria, at “agent support” notifying it that from 22 May 2017, a new CIT operator, Prosegur, would commence. The email stated, “the pickup schedule will not change, the cash will be picked up on the same days as usual”. Prosegur was engaged as Ria’s CIT operator for Relius from 22 May 2017 to 24 July 2020. The contractual pickup schedule was still then daily.

37. [53]

    On 6 March 2020, Florence Parajo requested by email that the pick-up days change to two days, being every Monday and Thursday. It was not contested that this change did not happen.

38. [54]

    Prosegur seems to have ceased collecting cash from Relius from about 6 July 2020, although Prosegur continued to remit cash to Ria for a few weeks thereafter. In the meantime, Ria commenced using the CIT services of Linfox Armguard (“Armaguard”) from approximately 6 July 2020, after which Armaguard commenced collecting cash from the premises of Relius as the new CIT operator for Ria.

39. [55]

    On 27 July 2020, Mr Addouj purchased an interest in Relius. He acquired the two ordinary issued shares in Relius. The former owner of the business, Ms Florencia Parajo, provided affidavit evidence, which was read but she was not cross examined. She deposed that she sold her travel agency business due to reduced work stemming from the COVID-19 lockdowns and restrictions on travel.

40. [56]

    Following the sale of the business to Mr Addouj, Ms Florencia Parajo continued to attend the premises, and trained Mr Addouj to be a travel agent and how to manage the Ria transactions. Ms Florencia Parajo’s daughter Caroline continued as a staff member within the business to assist Mr Addouj. Both Ms Florencia Parajo and Ms Caroline Parajo were present at the business in late December early January, in the period leading up to the theft.

41. [57]

    A fourth and final agent agreement between Ria and Relius was made a few weeks later. The fourth agent agreement is dated both 29 and 30 July 2020 and roughly coincided with Mr Addouj acquiring his financial interest in Relius. The fourth agent agreement was accompanied by a new Deed of Personal Guarantee (“the guarantee”), signed by both Ms Caroline Parajo and Mr Addouj, reflecting his interest in the business. Ms Caroline Parajo says that at the time she signed the guarantee she was only 22, was helping Mr Addouj, and had no financial interest in the business that she was guaranteeing. This probably explains why she has not been joined as a defendant.

42. [58]

    This fourth agreement contained different language to the earlier three in some of its essential provisions. It is the agreement which applied when the theft occurred. Its relevant provisions were as follows:

43. [59]

    The fourth agent agreement contains definitions relevant to these provisions:

    1. (1)

       “Beneficiary” means the recipient of the funds transferred under the Money Transmission Service.

    2. (2)

       “Commission” means the commission paid or payable to the agent in respect of the Money Transmission…

    3. (3)

       “Customer” means any person in Australia that uses RIA’s Money Transmission Services through the Agent.

    4. (4)

       “Deposit” means the deposit of Gross Trust Funds by the Agent into the RIA Account.

    5. (5)

       “Gross Trust Funds” means all the funds received from Senders and accepted by the Agent in the Territory, including the Fee.

    6. (6)

       “Money Transmission” means a transmission of money performed when the Money Transmission Service is provided.

    7. (7)

       “Money Transmission Service” means the service provided or related to the process whereby the Receiving Agent or RIA (acting through its affiliates or agents) receives Trust Funds and payment instructions from the Sender and transmits said instructions to the Paying Agent for the delivery of the equivalent of such funds to the Beneficiary thereof in accordance with the Sender’s instructions.

    8. (8)

       “Obligations” means the contractual duties and obligations of the Agent to RIA under this Agreement.

    9. (9)

       “Paying Agent” means the person authorised to pay out the trust funds in pursuance of the money transmission service.

    10. (10)

        “Receiving Agent” means the person receiving the trust funds from the sender in carrying out the money transmission service.

    11. (11)

        “RIA Account” means the bank account set up by Agent and designated as a trust account for the benefit of RIA and into which Agent deposits the Gross Trust Funds each Business Day.

    12. (12)

        “Trust funds” means… in the context of the agent acting as the receiving agent, all the Gross Trust Funds less the applicable Commission.

44. [60]

    It is not in dispute that Ria at all material times acted in relation to the subject matter of the proceeding as a “Receiving Agent”. The cash in question had all been received from a sender and was proposed to be deployed through Ria’s Money Transmission Service to a Beneficiary.

45. [61]

    The commission that Ria charged in these various agent agreements are high by the standards of domestic funds transmission services. A flat fee of 25% applies in the fourth agent agreement. This presumably reflects the high-risk nature of some of the funds transmission operations being taken on by Ria, in countries some of which have either unsophisticated banking and financial systems or systems that may be potentially compromised by criminal activity. The agent agreements cover small country destinations including parts of South America, Asia, Southeast Asia and the Pacific not all of which are well served by the international banking system.

46. [62]

    The fourth agent agreement has attached to it a document entitled “Exhibit 1 – Deed of Personal Guarantee” which was signed by both Ms Parajo and Mr Addouj and provided as follows:

47. [63]

    Although both Ms Parajo and Mr Addouj executed this guarantee, Ria has only sued Mr Addouj in these proceedings.

48. [64]

    A degree of confusion arose for Relius from about August 2020 due to the changeover of the two CIT operators collecting cash for Ria, Armaguard and Authentic Security Pty Ltd (Authentic Security), in late 2020.

49. [65]

    Ria and Armaguard made a services agreement (“Armaguard Agreement”) dated 8 October 2020. This agreement backdated its operation to the commencement of Armaguard’s CIT services on-site on or about 6 July 2020.

50. [66]

    Ms Caroline Parajo deposed, and the Court accepts, that Armaguard (a) issued a docket book to record the cash collections and (b) provided the cash collection bags to Relius staff. The evidence does not disclose how docket books and cash bags were provided to Relius by earlier CIT operators. But even after Authentic Security took over, Relius staff continued to use Armguard docket books and cash bags for cash collection. The Court accepts that they were not issued fresh docket books and cash bags at any time by Authentic Security for on-site collection before the theft occurred. Relius staff continued to use what was available from Armaguard.

51. [67]

    After Armaguard had been providing its services for some months, Ria entered a CIT operator contract with Authentic Security. On 27 August 2020, Authentic undertook a Site Risk Assessment (SRA) of Relius’ business premises with a view to entering a CIT service agreement with Ria.

52. [68]

    Why Armaguard continued and why Authentic Security did not take over earlier as the CIT operator in the second half of 2020 was left unclear. Both these two CIT operators were contracted by Ria in the last quarter of 2020. Emails in evidence suggest that Authentic Security had completed its SRA and was ready to commence collections from Relius as early as 1 September 2020. But Authentic Security had no instructions to collect cash from Relius until 4 January 2021, a few days prior to the misappropriation.

53. [69]

    On the morning of 7 January, Relius held $196,941 in cash onsite at its shop in Lakemba. This was an unusually large quantity of cash, beyond what would ordinarily be held there. No CIT operator from either Armaguard or Authentic Security had attended the shop in approximately four weeks, despite repeated requests by Relius to Ria for cash collection.

54. [70]

    The last Armguard collection of cash from the site was on 10 December 2020. Thereafter cash had begun to accumulate. Just why Armguard was failing to collect was obscure, but as will be seen from the correspondence below this conduct seems to have led to Ria terminating Armguard’s services.

55. [71]

    Mr Cruz, Ria’s finance controller, tried to explain in evidence to the Court how Ria’s monitoring systems for cash collections worked in this case but his overall account of how the system operated still left many questions. Mr Cruz said in cross examination, and the Court accepts, that by the end of December 2020 Armaguard had failed to meet four weekly arrangements to pick up money from Relius. Mr Cruz became aware of that situation on or about 4 January when Relius contacted him by email and complained about Armaguard’s collection failures during December.

56. [72]

    Mr Cruz agreed that Relius personnel had told his “team” that they had been “trying to get hold of somebody [at Ria] by phone”. Mr Cruz agreed that this had resulted in the termination of Armaguard’s contract. Mr Cruz said, and the Court also accepts that Armaguard’s service was “bad” and that it was “not performing”, resulting in Armaguard’s termination. The Court infers from this that Ria concluded that Armaguard was sufficiently at fault for the failure to collect the cash that its services should be terminated.

57. [73]

    But Mr Cruz also denied that an email from Relius complaining “that nothing had been picked up for four weeks” and that Relius had been trying to telephone “to get somebody” had really prompted him into action. He claimed that he had acted on the fact that expected payments had not been arriving in Ria’s accounting system consistent with the collections having occurred. Ria’s own accounting system should have been good indicators of these continuing failures. Mr Cruz claimed that the Ria accounts receivable team check their systems weekly. His evidence is a basis to infer that when Ria becomes aware that a pickup has been missed the Ria accounts receivable staff will either pick that up and telephone the CIT operator, or they will receive a report from the CIT operator of “missed pickups”. Either way, the operation of Ria’s system should have reported to it, even before Relius’ complaint about the matter that Armaguard’s pickups were being missed after 10 December 2020.

58. [74]

    Just what the reason was for Armaguard’s failure to make pickups remained beyond the scope of enquiry of this litigation. Perhaps Covid restrictions with their knock-on effects on staffing may have had an effect but the Court has insufficient evidence to decide this.

59. [75]

    But parts of the evidence originating from Ria presented a different explanation for why the Armaguard pickups were not occurring.

60. [76]

    Mr Lodhi’s evidence included a screenshot of a 4 January 2021 Microsoft Teams chat message between himself and Gopinath Naidu, another employee of Ria, which provided follows:

61. [77]

    To the extent this evidence suggests that Ria only knew about the failed pick-ups by Armaguard for two weeks prior to 4 January, the Court does not accept it and prefers the accounts of Mr Cruz that Ria was aware of the failures from 10 December.

62. [78]

    This exchange also seems to suggest that Relius had been turning away Armaguard collectors in December 2020, inferring that Relius was deliberately rejecting the cash pickups. The Court does not accept this version of events for several reasons. Had that occurred there would have been no proper basis to terminate Ria’s contract with Armaguard but Ria did terminate that contract. Had Ria been given evidence in December 2020 that Relius seemed to be deliberately accumulating cash by sending away Armaguard CIT collections, Ria could have been expected to pursue an urgent and serious enquiry into what was going on. But the evidence does not indicate Ria conducted any such enquiry. Moreover, the version of events that Relius was turning away Armaguard collectors is contradicted by other Relius personnel, with direct knowledge of the company’s operations. Ms Caroline Parajo says that she did not turn any Armaguard CIT collections away. Having seen her give evidence the Court not only accepts her account, it finds it difficult to conceive that she could have taken such authority upon herself.

63. [79]

    The failure by Armaguard to collect resulted in Relius holding an unusually high amount of cash. Ria was aware of the failed collection attempts, as Mr Cruz acknowledged in cross examination. No explanation was given as to why the issue was not addressed internally at Ria. Mr Lodhi’s evidence allows the Court to infer that there must have been some communications issue within Ria, if information (of failed collections) of which it was aware, was not acted on in a timely way. Relius could not do other than it did. It could only collect the cash, as it had no authority to deal with that other than in accordance with its contractual obligations.

64. [80]

    Neither Relius nor Mr Addouj had received adequate training from the new CIT operator or Ria in relation to CIT collections. Mr Cruz’s cross examination revealed that Ria did not regard itself as in any way responsible for training its agents on the new CIT operator’s pick-up procedures and the fourth agent agreement is silent on the subject of training agents.

65. [81]

    Mr Cruz agreed that when a new agent is appointed that the new agent is, “on-boarded”, which involves been given a lesson as to how to interact with the CIT team and what to expect from the team. The new agent has shown a copy of a CIT provider’s docket, a CIT member’s identification badge and some education about the receipt and docketing systems of the CIT provider. Mr Cruz thought that some of this should be done by the CIT provider but his evidence was never clear as to whether the line of responsibility between Ria and the CIT provider.

66. [82]

    Mr Cruz understood that a site risk assessment (SRA) undertaken by a prospective CIT provider itself involves a degree of education of the prospective agency employees. Mr Cruz agreed that when there was a changeover of CIT provider that new “onboarding” occurs: “there's some sort of SRA. Each company has their own SRA onboarding.” In answer to a question from the Court Mr Cruz explained:

67. [83]

    But this account was contradicted by another of plaintiff’s witnesses, Mr Williams, a representative of Authentic Security. He provided the CIT operator’s quite different outlook on responsibility for the onboarding process, as follows:

68. [84]

    Mr Williams evidence makes clear that in a situation such as this the educational documents are sent to the head office of Ria so that Ria can do the education of the new agent.

69. [85]

    This contradictory evidence gives the court little confidence in how Relius was supposed to be trained to meet a new CIT operator such as Authentic Security. On the one hand Authentic Security seemed to regard responsibility for training the agent for the new CIT operator as that of Ria. On the other hand, Ria regarded this is the responsibility of the new CIT operator. This contradictory evidence about what was the actual procedure was not resolved in the proceedings.

70. [86]

    But on the ground, at the offices of Relius the contradiction was in fact resolved. Relius received no effective training from either Ria or Authentic Security at the time of the changeover from Armaguard to Authentic Security. It is true that Authentic Security did an SRA in September, but no one present at that SRA gave evidence on behalf of Authentic Security to explain what was done, nor did any employee of Relius.

71. [87]

    But even if Authentic Security had undertaken some training in September 2020 it was hardly likely to be effective in the circumstances of this case, where Authentic Security did not commence CIT collections until January the following year, where there was no attempt to verify that the same trained staff were still on site, and where none of the authentic Security dockets and cash bags had been delivered in advance of the first Authentic Security.

72. [88]

    The Court gained the strong impression that the staff of Ria thought that this was someone else’s problem, not theirs, and that their agent contract would take care of things if something went wrong. Their agent agreements contract says nothing

73. [89]

    In the days before the theft on 7 January 2021, and shortly before the New Year, an event took place that should in hindsight be regarded as either an attempted theft using Ria’s CIT operations, or a test run by a for what happened on 7 January.

74. [90]

    Just before the New Year (New Year’s Day was on a Friday in 2021) someone entered Relius’ premises saying, “I’ve come to collect the cash for Ria”. He was wearing casual clothes and carrying an Authentic Security ID. Mr Addouj was suspicious so he rang Ms Florencia Parajo to seek advice as to what he should do. Having recently taken over the business, he relied heavily on Ms Florencia Parajo for advice. Each of Mr Addouj, Ms Florencia Parajo and Ms Caroline Parajo, give a consistent account of Mr Addou’s call to Ms Florencia Parajo at this time, to inform her that someone had arrived at the shop, had presented an Authentic Security card to him, and had claimed to be authorised to collect the then accumulated cash.

75. [91]

    Ms Florencia Parajo directed Mr Addouj not to give the cash to the claimed CIT operator, as no one had contacted Relius for a collection. This shows that Mr Addouj and Ms Florencia Parajo Relius were cognisant of the need for caution and adhering to the rules in dealing with CIT operators. It also shows that when in doubt and conscious that he was only new to the business, Mr Addouj was prepared to contact Ms Florencia Parajo, to make use of her experience in the business for advice about what he should do. The fact that in contrast he did not seek advice like this only a week later, on 7 January 2021 supports the reliability of his other evidence that he did not notice anything suspicious with the claimed CIT collector that day.

76. [92]

    In further affirmation of Relius’ staff taking a cautious approach to CIT procedures, Ms Caroline Parajo, using the email address and name of her mother as she commonly did, at 12.38pm on Monday 4 January, 2021 notified Ria by email that “tried to pick up the funds last week, yet we told them that it was not for us and for the other Ria branch. Kindly advise us who and when will be coming for the next pickup…”.

77. [93]

    To the extent that this involved turning a CIT operator away, it was appropriate because of Ria’s failure to notify a cash collection appointment to Relius in advance. This was not an example of Relius dismissing a CIT operator will without a proper basis, and it shows diligence in writing on the first working day after the New Year.

78. [94]

    No response appears to have been received from Ria specifically addressing the issues raised in Ms Caroline Parajo’s 4 January 2021 email. Instead, correspondence opened between Ria and Armaguard, with Ria seeking an investigation. Ria also began corresponding with Authentic Security, through its Accounts Receivable clerk Mr Gopinath Naidu, in a manner which suggests that Mr Naidu had indeed requested Authentic Security to start attending this site but the correspondence is consistent with no definite collection appointment being made the previous week by Authentic Security.

79. [95]

    Importantly, Authentic Security wrote back on 4 January at 2:16 PM saying to Mr Naidu, “Hi G, we have not sent any instructions for our OPS team to attempt collection from this agent”. This should have communicated to Mr Naidu that someone may have been attempting to impersonate Authentic Security personnel, unless Relius’ story was a fabrication. After all, if Authentic Security had not given any instructions for someone to do the collection from Relius, someone else had taken upon themselves to turn up knowing that Ria had just retained Authentic Security for this site. The Court finds Relius’ account was not a fabrication. But Mr Naidu did not warn Relius that there may just have been an attempted fraud at its premises. Instead, Mr Naidu merely says that he must have missed “the previous update” and requests Authentic Security “to start servicing this agent this week onwards”. That bare instruction was the origins of the appointment that led to the theft. That may have inadvertently set Relius up for being the victim of more criminal activity. Mr Naidu did not give evidence, but his account is consistent with him believing that someone at Relius must have just made a mistake.

80. [96]

    At 6:18pm that evening, Ms Florence Parajo received an email from Ria notifying her that the new CIT operator, Authentic Security, would be attending to the overdue collection of cash on Wednesday 6 January 2021. That was then altered to Thursday, 7 January. Finally, Ms Florence Parajo received a telephone call from someone at Ria at 5.30pm on 6 January, notifying her that Authentic Security would be collecting the funds the following day, 7 January. This was indeed a genuine CIT booking but it seems to have been arranged for later in the morning.

81. [97]

    Not long after 9 am on 7 January 2021 a uniformed man, who claimed to be from Authentic Security, the CIT operator that Mr Addouj was expecting, arrived at the Lakemba shop premises. Mr Addouj was the sole Relius employee present in the shop at the time. Mr Addouj claims he asked for and viewed the assailant’s security photo card. The Court accepts that he did. Apart from Mr Addouj’s general credibility supporting this conclusion, it seems probable that a fraudster who contrived to put on a bogus uniform would also contrive a false identity card on his person.

82. [98]

    Mr Addouj says, and the Court accepts, that the cash pick up then proceeded in accordance with the standard cash handling processes that he expected. These processes included the counting of bags and the signing of the cash receipt book.

83. [99]

    Relius’ shop had CCTV security cameras installed at the time. But the theft was not recorded on the cameras. Mr Addouj says, and the Court accepts, that the shop was being repainted and renovated at the time, and the security cameras had been turned off whilst this work was taking place. Some of Ria’s witnesses saw this fact as sinister. The Court does not, in the circumstances.

84. [100]

    Two hours later the correctly scheduled and appointed CIT operators, Authentic Security, came to collect the cash from the shop. Mr Addouj told them that the cash had already been collected. When they disclaimed any knowledge of the earlier pickup, Mr Addouj realised that the earlier CIT collection was probably the work of a fraudster and alerted Ria.

85. [101]

    Mr Addouj had not received before 7 January 2021 any training, instructions or advice from Ria as to the precise paper procedures to be adopted with CIT collections for Authentic Security. This is perhaps not surprising at the level of contract, as there is nothing in the fourth agent agreement which imposes any obligation on Ria to train its agents.

86. [102]

    Mr Addouj received no instructions as to the name of the agent from Authentic Security who would be attending on the morning of 7 January 2021. He was only told that someone from Authentic Security would attend that morning to collect the funds that had accumulated. On 7 January a person presented himself at Relius’ premises as an agent of Authentic with an identity card that passed Mr Addouj’s inexpert scrutiny. Beyond checking the identity card, Mr Addouj had no other instructions on how to deal with Authentic Security or to test the authenticity of the credentials of its CIT employees.

87. [103]

    Mr Addouj provided to the “agent” who presented that morning, as he had done previously with Armaguard, a copy of the prefilled receipt docket and the cash bags. The thief then “checked” the collection of bags, standard practice with the previous CIT collections. The thief signed the docket and returned a carbon copy back to Mr Addouj. From Mr Addouj’s perspective, nothing in that interaction was different from the previous instructions he had received when dealing with Armaguard. He had no new instructions from either Authentic Security or Ria to contradict what the thief did here.

88. [104]

    There were certainly odd features in how the docket was completed by the thief. These were emphasised in cross-examination and need not be detailed further here. On an armchair analysis the docket presented to Mr Addouj would have raised questions that the “agent” may or may not have been able to answer. But understandably Mr Addouj focused on the signature, which the Court accepts appeared to him to be like that on the ID card presented to him. This was a reasonable approach to the task confronting him. That he did not do any more, indicates Mr Addouj’s lack of training rather than any lack of diligence. A more thorough check may have been desirable but unlikely to change the outcome given Mr Addouj’s training level.

89. [105]

    But Authentic Security had not delivered to Relius any docket books for recording exactly what information Authentic Security wanted recorded and signed for when the bags of cash were collected. This was probably an omission on the part of Authentic Security in engaging with a new CIT collection point, such as Relius’ premises. As a result is not surprising that Relius improvised by using dockets and bags that it had available to it. Ria did not intervene and attempt to brief Relius about the change and coordinate the delivery of fresh Authentic Security documentation and bags to Relius.

90. [106]

    As a result, confusion on Relius’s part was inevitable. It was predictable that Relius would probably attempt to improvise and use what it had, the existing Armaguard dockets and cash bags. To Mr Addouj one CIT operator, such as Authentic Security, using the cash docket of another CIT operator, such as Armguard, did not seem remarkable. Because he lacked any broader understanding of the CIT system, Mr Addouj’s lack of concern is understandable. Which docket system and company bags used during the collection did not seem important to him, provided there was a record (as there was) of what was collected. He was aware of a basic common-sense requirement that the CIT operator had to sign the docket and collect the cash in the secure cash bags. It is difficult to assess whether this was a reasonable outlook without some understanding of who was responsible for training him.

91. [107]

    Who was responsible for training Mr Addouj remained unsettled during the unsatisfactory evidence on the subject. Witnesses from Authentic Security contended Ria was responsible for training Mr Addouj. Witnesses from Ria said Authentic Security was responsible for training a new owner such as Mr Addouj. Ria submitted that Relius, the corporate entity, was unchanged throughout all the changes in CIT operators and therefore Ria, itself, did not have to worry about re-training anyone when Mr Addouj became a staff member. A difficulty with this argument is that Ria was aware of the change of control of Relius, and it obtained the fresh guarantee from Mr Addouj. But Ria did not see it as necessary to re-train him.

92. [108]

    Shortly after the theft, Mr Addouj sold his interest in the business. At the time of hearing, he was employed by the new owner.

Analysis

1. [109]

   The pleadings raise the following groups of issues. The first is what contractual obligations Relius owes Ria and whether they have been breached. The second group of issues is what trustee obligations Relius owes Ria, and whether breaches of trust occurred leading to the misappropriation, whether Relius should be excused for those breaches, and if so, to what extent. The third group of issues is whether Mr Addouj is personally liable to Ria on his guarantee for the loss of the misappropriated funds.

2. [110]

   The first question is what was the contract between these parties? The conclusions which the Court has reached on this subject do not fully accept the submissions of either party.

3. [111]

   Ria argues that when the fourth agent agreement was signed on 29/30 July 2020 clause 2.5 applied to amend and replace any prior agreement on and from that date. Ria’s argument can be accepted that Clause 2.5 has the effect that the fourth agent agreement applies to bind the parties to the exclusion of any inconsistent terms of any prior agreement. The expression “prior agreement” in clause 2.5 is not defined. But it must refer to the three prior agent agreements, and any amendments thereto prior to the fourth agent agreement.

4. [112]

   Ria points out that the fourth agent agreement only rejects inconsistent terms of the earlier agreements and otherwise will allow compatible terms of prior agreements to continue to have contractual effect. That seems to be the effect of the second sentence of clause 2.5, “the terms of this agreement apply to the exclusion of any inconsistent terms of any prior agreement”.

5. [113]

   Ria further argues that the third agent agreement had been amended by the making of the addendum in September 2016 and that that the fourth agent agreement was not inconsistent with the addendum, which continues to bind the parties. Ria contends that the cash collection arrangements reflected in the addendum therefore survived the making of the fourth agent agreement.

6. [114]

   But that submission cannot be reconciled with the definition of “Ria account” in the fourth agent agreement. That definition contemplates that the agent will set up a bank account which is “designated as a trust account for the benefit of Ria and into which the agent deposits the gross trust funds each business day”. Up to the time in September 2016, when the Bank of America account at the ANZ was operating, the definition of “Ria account”, could describe the process of the agent depositing funds into a “designated” account, because the agent was actually depositing funds into a bank account, which had been “set up by the agent”.

7. [115]

   But once the CIT operators took over and collected cash directly from Relius’ premises and took entire control of its banking there was nothing then operating between Ria and Relius that resembled a “Ria account” for that cash. There was no account “set up by the agent” to deposit that cash. There was no account “into which the agent deposits the gross trust funds”. Instead Relius gave that cash to a CIT operator who took responsibility to deal with it on behalf Ria. It makes no sense to speak of a “Ria account” in these circumstances.

8. [116]

   It can be accepted that clause 2.5 makes the fourth agent agreement dominant over inconsistent provisions of prior agreements. It can also be accepted that the addendum amended the third agent agreement and became contractually binding as part of that earlier agreement. But once the fourth agent agreement was signed, including as it did the definition of “Ria account”, it is difficult to see how the addendum could survive as an operative contractual document. The addendum represents a mode of Ria collecting cash which was inconsistent with the fourth agent agreement’s definition of “Ria account”. This inconsistency is an inescapable core part of the operation of the fourth agent agreement. Clause 3.1, creates a central responsibility of the agent, requiring the agent to “accept trust funds and promptly deposit all of those trust funds into the Ria account on the next business day”. Clause 3.1 says nothing about cash collection by a CIT operator by means other than through a “Ria account”.

9. [117]

   The plaintiff’s case never surmounted this fundamental difficulty, which is a complete answer to Ria’s contract case based at least on clause 3.1. It was convenient for Ria’s case for it to rely upon the addendum, which better reflected (although not as to the exact timing of daily cash pickups) what the parties were doing with the CIT operators. But clause 3.1 continues to make no sense when read with the addendum. To the extent of any inconsistency it is the addendum, not clause 3.1 which must give way, because of clause 2.5.

10. [118]

    But the fact that the addendum represented something like, but not exactly like, what was happening on the ground between these parties does not help the plaintiff’s case. The fourth agent agreement in clause 15.7 permits that “[t]his agreement may be changed or modified only by writing expressly to that effect signed by RIA and the agent”. But the addendum does not amend “this agreement”, meaning the fourth agent agreement. Clause 15.7 only refers to “this agreement” being “changed or modified” by conduct after the making of the fourth agent agreement. Everything pre-dating the fourth agent agreement, such as the addendum, must be a “prior agreement” within clause 2.5 and not a “change or modification” within clause 15.7.

11. [119]

    So how must the remaining provisions of the fourth agent agreement be construed if the addendum is not part of the final contract between these parties? Clause 3.2 can yet operate consistently with the addendum, although with some clumsiness of language. The idea in clause 3.2 that the agent “shall be deemed to be a bare trustee of all trust funds received by it from customers” makes sense as far as it goes, to create a relationship of bare trustee over such funds held by the agent. The termination of that obligation is “until [the agent] deposits the same”. And “deposits” is defined to mean “the deposit of those trust funds by the agent into the Ria account”. But the funds are never deposited into a “Ria account” under the new agreement. This time the inconsistency does not work against Ria. There is uncertainty as to when the bare trust obligation ends. But it undoubtedly ends when the CIT operator takes possession of the cash on behalf of Ria. That uncertainty does not extinguish the obligation created by clause 3.2. The obligation of a bare trustee is to protect and maintain the trust property: Bruton Holdings Pty Ltd (in liq) v FCT (2011) 193 FCR 442 at [12].

12. [120]

    Similarly, the characterisation in clause 3.2 of the agent as a “fiduciary” until “deposit” can still work even though there is uncertainty about when the fiduciary obligation ends.

13. [121]

    The other provisions of the fourth agent agreement relied upon by Ria can now be reconciled with this analysis. Clause 3.26 provides that the agent “is under a duty to act only as authorised under this agreement”. That provision adds nothing to clause 3.1 and subtracts nothing from clause 3.2.

14. [122]

    It is accepted that Relius is a “receiving agent” for the purposes of clauses 4.4.1 and 4.4.2. There are difficulties with the application of clause 4.4.1 for the reasons stated above in relation to deposits into “the Ria account”. But clause 4.4.2 still applies in the circumstances of this case. It provides that the gross trust funds received by the agent from the senders, “shall be at the agent’s risk and held in trust for Ria until received by Ria”. This reaffirms that Relius is a bare trustee of those funds. Thus, a few of the trustee provisions of the fourth agent agreement survive and can be relied upon by the plaintiff, namely clauses 3.2 and 4.4.2. Relius held all the “gross trust funds” it received on bare trust for Ria. The amount so held on trust is the full amount received without the deduction of commission.

15. [123]

    The parties also contested the scope of clause 7 of the fourth agent agreement. Relius argued that it was entitled to a complete indemnity for its total losses claimed by reason of the operation of either clause 7.1 or clause 7.3 of the fourth agent agreement.

16. [124]

    The indemnity in clause 7.1 gives little assistance to Ria’s case. The indemnity relates to “losses, liabilities and/or expenses” that are “caused directly or indirectly by any failure of the agent to adequately or timely perform any of its obligations” and “obligations” is defined to mean “the contractual duty and obligations of the agent to Ria under this Agreement”. The only relevant operative obligations under the fourth agent agreement that applied to Relius are those discussed above under clauses 3.2 and 4.4.2 and not clauses 3.1 and 4.4.1. Clause 7.1 is an indemnity in respect of those same “obligations”. The expression “cause directly or indirectly by any failure of the agent” does not widen the agent’s liability beyond clauses 3.2 and 4.4.2.

17. [125]

    But Clause 7.3 is expressed in different terms. Clause 7.3 provides a stronger argument for Ria. The indemnity applies to "damage, liability or loss Ria might sustain". And this indemnity is engaged whether the "damage, liability or loss" is a "direct or indirect consequence of fraud, theft or misappropriation of any trust funds".

18. [126]

    Clause 7.3 raises two important questions of construction for this case. First Ria’s various failures identified elsewhere in these reasons to train Relius, to collect cash in a timely way, and to give proper instructions in relation to the dockets to be used at the time of collection of cash raise the issue of Ria’s negligence. The first question is whether the clause 7.3 indemnity covers damage liability or loss occasioned partly due to the negligence of Ria or Relius.

19. [127]

    The parties debated the application to clause 7.3 of the well- known authorities in relation to the construction of indemnities where negligence by the indemnified party was involved in the loss: cf Smith v South Wales Switchgear Ltd [1978] 1 WLR 165.

20. [128]

    Various common approaches to the construction of indemnities had developed. For example, the existence of a realistic head of strict liability other than negligence might in some circumstances be fatal to the proferens of the indemnity clause: cf EE Caledonia Ltd v Orbit Valve Co Europe [1994] 1 WLR 1515. Yet other approaches in relation to the construction of exclusion clauses and indemnities allowed that the use of words such as “all liability” or “liability for any loss” might not be sufficient to exclude liability for negligence, whereas the use of words such as “howsoever caused” might be sufficient: cf BHP Petroleum Ltd v British Steel PLC [2000] 2 Lloyd’s Rep 277 and Rutter v Palmer 2 [1922] KB 87 and Davis v Commissioner for Main Roads (1966) 117 CLR 529.

21. [129]

    But the modern approach is to construe indemnities commercially according to their terms in their contractual context and such indemnities have been construed to cover loss partly caused by the negligence of the indemnified party even if the possibility of such negligence is not expressly referred to in the indemnity clause: cf Davis v Commissioner for Main Roads (1966) 117 CLR 529. Recent statements of the High Court have emphasised the principles of construction that should be applied to the terms of a commercial contract such as this which do not include deploying a formulaic approach to the presence or absence of certain phrases in the terms under consideration: Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; (2014) 251 CLR 640.

22. [130]

    Clause 7.3 is expressed in terms sufficiently broadly to cover "damage, liability or loss" which is "a direct or indirect consequence" of “any fraud or theft”. Damage liability or loss may be the "indirect" consequence of a fraud or theft that is occasioned even partly by the negligence or other conduct of the indemnified party. The use of the word "indirect" sufficiently signals that the indemnity applies in circumstances where the actions of different parties have contributed to the loss suffered. Moreover, the words “fraud or theft” are sufficiently broadly expressed to cover any type of event involving dishonesty which answers that description, whoever may have contributed to the occurrence of the “fraud or theft”. There was a “fraud or theft” here and Ria’s loss was at least an indirect consequence of that event.

23. [131]

    The question of assessing contribution of Ria’s conduct to the ultimate loss here was one of the issues at trial. It was clearly signalled by Relius in the way the trial was conducted by Mr Levet on its behalf. It is not necessary to speak in terms of the “negligence” of Ria, as it is doubtful that Ria had any duty of care arising out of its contractual relations with Relius. But Ria’s own conduct did substantially contribute to the loss. But notwithstanding that contribution to the loss, the language of the clause 7.3 indemnity is sufficiently broad for it to operate in the circumstances of this case.

24. [132]

    The second question concerning the construction of clause 7.3 is whether it creates in Relius an identical liability to that created in Relius as a bare trustee under clauses 3.2 and 4.4.2, or whether it creates a sui generis liability that does not derive from Relius obligations as a bare trustee.

25. [133]

    The answer to that question is in the negative. On its proper construction clause 7.3 does not depend upon a finding that Relius is a bare trustee and has breached its duties as a bare trustee. All that is required by clause 7.3 is that there is relevantly a “loss” which is at least the “indirect consequence” of a “fraud, theft…or loss” of trust funds. There is no requirement in clause 7.3 that there be a breach of trust or that the agent is any way in default of its obligations in managing the trust funds.

26. [134]

    This means that Relius is liable to Ria under clauses 3.2, 4.4.2 and 7.3 in respect of the loss of funds on 7 January 2021. The calculation of the quantum of that claim depends upon whether Trustee Act 1925, s 85 can be applied to excuse Relius from this liability either wholly or partly, which is considered below.

27. [135]

    The full quantum of the loss claimed in the Further Amended Statement of Claim was $194,723.96. By the time of the hearing that had been amended slightly to $196,941. But the Court will give the parties an opportunity to doublecheck the correct amount. Otherwise, subject to consideration of Trustee Act, s 85, on the contractual basis set out here, the Court will enter judgment for Ria against Relius in the sum of $196,941.

28. [136]

    The construction that the Court has a with respect to clause 7.3 has important consequences for the breadth of application of Trustee Act, s 85. Although Trustee Act, s 85 offers partial relief to Relius in respect of its breach of trust and Relius’ liability under clause 3.2 and 4.2.2, the section has no application to the liability created by clause 7.3, which arises independently of Relius’ role as a bare trustee. In the Court’s view, Relius is liable for the full amount claimed under the indemnity in clause 7.3 notwithstanding that Relius may be excused from liability as a trustee by the operation of Trustee Act, s 85.

29. [137]

    This leaves the question of the status of the addendum. It is not part of the agreement between Ria and Relius because it is inconsistent with the fourth agent agreement. Nor is it part of some collateral agreement between the parties, as clause 15.7 of the written fourth agent agreement declares in its written form to be “the entire agreement” between the parties.

30. [138]

    But it does have noncontractual status as a continuing representation of the standard of CIT collection that Relius could expect to take place. From daily weekday collection it seems to have been varied in practice by late November 2020 to twice-weekly collection. Such practices, evidenced in part by the addendum, were the desirable frequency standard that Ria itself was setting for collecting cash through CIT operators from Relius.

31. [139]

    By setting that standard Ria was marking out what was appropriate to minimise the risk of loss of significant amounts of cash from an agency such as that operated by Relius. Once Ria allowed that standard to be departed from in December 2020 – January 2021 Ria increased the risk of loss of cash from Relius’ agency.

32. [140]

    This analysis means the Court does not accept the submissions put on behalf of Relius that in failing to make the CIT collections in a timely way in December 2020 – January 2021, Ria was in first in breach of its contract with Relius. Relius argues that because of this prior breach that (a) all subsequent losses flowed from that breach by Ria and that (b) a consequential breach by Relius, which was linked to Ria’s failure to perform its contractual obligations should not be remedied in damages.

33. [141]

    Relius argues that it was ready and willing to perform its contractual obligations. It demonstrated this by contacting Ria about the missed collection in late December 2020 and requested a CIT operator to collect the accumulating cash. Had it not been for Ria’s failure to ensure that the cash was collected at least weekly, then Relius argues the quantum of the theft would not have been as significant as it was.

34. [142]

    Although this argument of Relius is not persuasive on a contractual basis, the circumstances to which it points are persuasive when the Court is considering excusing Relius for liability as a bare trustee, a matter considered after determining Mr Addouj’s liability under the guarantee accompanying the fourth agent agreement.

35. [143]

    The Court accepts Ria’s submissions that the personal guarantee accompanying the fourth agent agreement and executed by Mr Addouj is enforceable against him. The guarantee commits Mr Addouj to guarantee and indemnify Ria against “loss”, “including legal fees and costs” resulting from “the failure of the agent to pay or perform any obligations of the agent under the terms of the [fourth agent agreement]”. These words create a primary indemnity liability and a secondary liability in the nature of the guarantee. The words are sufficient to also render Mr Addouj liable to Ria for the sum claimed.

36. [144]

    Mr Addouj did not have any defence to the guarantee and indemnity based on any variation to the fourth agent agreement as he argued. Such contentions do not answer the claim on the indemnity. Moreover, there was no variation to the principal agreement, the fourth agent agreement, by reason of Ria’s change of the scheduling of CIT collections. The Court has found that the addendum was not part of the contract between Ria and Relius. Any variation to it would not operate to discharge Mr Addouj from liability. Judgment should be entered against Mr Addouj as well as Relius.

37. [145]

    Mr Levet of counsel rightly conceded that Relius was a bare trustee under the fourth agent agreement in respect of the cash that it held on-site at the Lakemba property pending the collection by CIT operator on the morning of 7 January 2021. The fourth agent agreement creates contractual obligations and trust obligations. The two sets of obligations can readily coexist as was affirmed in Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed) & Ors v Qantas Airways Ltd (1988) 13 NSWLR 331.

38. [146]

    The obligation of a bare trustee is to protect and maintain the trust property: Bruton Holdings Pty Ltd (in liq) v FCT (2011) 193 FCR 442 at [12]. Giving the cash to someone other than the correct CIT operator was breach of trust by Relius in its office as a bare trustee.

39. [147]

    Relius submitted that for a breach of trust to occur here, Relius must have received sufficient direction as to the new procedures that were acquired by Authentic Security when trust funds were handed over to it. Relius further submitted that such directions were never received, and that Authentic Security did not provide the basic cash bags or docket books that were necessary to follow its procedures faithfully.

40. [148]

    Relius contends that the Court should apply Trustee Act 1925, s 85 to excuse it from liability for any breach of trust. The Court’s analysis above shows that this argument may assist to excuse Relius from its liability as bare trustee under clauses 3.2 and 4.4.2, because its contractual liability under those clauses is defined by its liability as a trustee. But Relius’ liability under clause 7.3 is not so defined and therefore not amenable to being limited or reduced under Trustee Act, s 85. This means that the Court does not have to consider the arguments that were put in relation to s 85, because Relius is liable to indemnify Ria in contract under clause 7.3 for the full amount claimed in any event.

41. [149]

    This conclusion also means that the merits of Relius’ unclean hands defence do not need to be considered. Relius’ unclean hands defence is only a defence to an equitable claim, not to a claim under clause 7.3, for an indemnity grounded solely in contract. This conclusion also means that Relius’ various arguments based on the “prevention principal” which I depended upon establishing Ria’s breach of contract by failing to adhere to the collection schedule in the addendum, need not be considered.

42. [150]

    It is nevertheless useful to consider, albeit briefly, how Trustee Act, s 85 would have operated with respect to clauses 3.2 and 4.4.2 in the circumstances of this case, in deference to the arguments that were put on this issue.

43. [151]

    Trustee Act, s 85 provides:

44. [152]

    Trustee Act, s 85 expressly permits a trustee to be excused “wholly or partly” from personal liability for breach. The applicable case law shows that: full or partial relief can be given depending on the circumstances in which the breach occurred; in circumstances which must be known at the time and which must be examined to determine the extent of the relief to be granted; and the standard to be applied is that of a reasonably prudent person of business in all the circumstances and relief can be granted to trustees who make mistakes – Re D’Jan of London Ltd; Copp v D’Jan [1994] 1 BCLC 561; Re Evans (deceased); Evans v Westcombe [1999] 2 All ER 777; Arakella Pty Ltd v Paton (No. 2) [2004] NSWSC 605; and Re Sir Colin and Lady MacKenzie Trust (No 2) [2020] VSC 335.

45. [153]

    Here if the only standard that were considered in relation to Relius was in relation to its role as a bare trustee, Relius should be partially excused for losses. In the Court’s view Relius has met the s 85 threshold of acting “honestly and reasonably”, when all circumstances are considered, including the relative conduct of both parties.

46. [154]

    Ria’s arguments about Relius’ mistakes have validity, and for that reason Relius should not be wholly excused from liability. The paperwork presented to Mr Addouj when examined closely was unsatisfactory, for example with respect to the date and time of collection and other anomalous handwritten entries, and if scrutinised better may have stopped the cash collection. Relius had responsibility to train Mr Addouj properly in CIT collection practices before delegating that function to him as Ria submits. Mr Addouj seemed very relaxed about using Armaguard’s docket books for an Authentic Security cash collection as Ria submits, even though it struck him as “strange” that the Authentic Security cash collector was using Armaguard’s docket.

47. [155]

    Ria also argued that Relius should be judged as being in breach of Trustee Act s 53 by delegating to Mr Addouj the task of paying over the trust money. This argument does not need to be considered in detail in the circumstances, but Mr Addouj was not a delegate but a principal of Relius at the relevant time.

48. [156]

    But this must be balanced against Ria’s unreasonable conduct. First, the Court has found that Ria did not breach the fourth agent agreement by failing to adhere to the agreed cash collection schedule. But it did depart from its own self-set standard for a reasonable frequency of CIT collection. It may be inferred directly from the addendum that an appropriate standard of frequency for CIT collection was daily. Even twice-weekly collection (the variation to the addendum which operated in practice up to November 2020) was a far higher standard for collection frequency than what occurred after 10 December 2020. Ria’s failure to collect between 10 December 2020 and 7 January 2021, left cash uncollected for a lengthy period of almost one calendar month. That lengthy period of non-collection should not have occurred and appears to be the product of some unexplained managerial or communications failure within Ria which contributed to the loss. Ria unsuccessfully seeks to counter this by pointing out that Relius from time to time held cash in excess of $100,000 on-site and had a credit limit that permitted this, but that is not an answer to the standard set by the addendum.

49. [157]

    Secondly, that lengthy period of non-collection should never have occurred in a reasonably prudent company in Ria’s position if it wanted to reduce the risk of loss of cash to which it was beneficially entitled, even though it had set up Relius as a bare trustee by contract. But once the non-collection occurred, a reasonably prudent company in Ria’s position with a concern for its cash should have been alert to the need for special precautions for the collection of such a large amount of cash. Such precautions were even more warranted when the delay in collection was also accompanied by a change in CIT operator. Without the risk transferral to Relius through clause 7.3 of the fourth agent agreement, this enhanced-risk situation should have called for Ria, acting reasonably, to do far more than it did to assist Relius and its failure to arrange special precautions also contributed to the loss.

50. [158]

    Thirdly, Ria was not responsive to information being given to it by Relius. Ria failed to act upon Relius’ flagging to it the possible attempted theft about a week before 7 January 2021. Moreover, Ria did not respond to the many requests made by Relius for collection after 10 December 2020. It is unclear to the Court what the management problem was within Ria that led to this non-responsiveness. But greater alertness on Ria’s part to listen to and act on the information that Relius was providing to it is likely to have reduced the risk of loss on 7 January 2021.

51. [159]

    Fourthly, Relius had not long before changed its ownership structure as was clear to Ria from the execution of the fourth agent agreement. Ria did not have any reliable knowledge of how Relius staff and new owners were being trained for CIT collection. Organised training – or at least a clear communication of Ria’s CIT collection expectations in for the new owners such as Mr Addouj – may have reduced the risk of the theft occurring on 7 January 2021.

52. [160]

    Fifthly, Mr Addouj attempted to follow correct procedures within his capacity immediately prior to the CIT collection and errors on his part to pick up anomalies in the paperwork were largely the product of his inexperience with that paperwork. He was also hampered by language difficulties which were readily apparent when he gave evidence and which would have been an impediment on 7 January 2021. Whilst these deficiencies in his performance were not the responsibility of Ria, they are the kind of risk that could have been identified and neutralised through the exercise of business prudence on its part.

53. [161]

    But as Ria points and the Court has discussed, out there were failures on the part of Relius. Because of those failures the Court is unwilling to wholly excuse Relius.

54. [162]

    How would the Court have applied Trustee Act, s 85 had it been called upon to do so in these proceedings? Relius is accountable to Ria for its breach of trust in misapplying the misappropriated funds. But there should be relief granted under Trustee Act, s 85 from full liability for the breach of trust on account of the circumstances identified above.

55. [163]

    A logical basis for granting such relief would be to reduce Ria’s loss to that lesser loss which is likely to have occurred if Ria had not conducted the management of its CIT collections so unreasonably. Had Ria adhered even to a weekly CIT schedule and taken a more proactive and closer interest in reducing the risk of large cash amounts remaining on-site, even allowing for a failure in training or alertness on the part of Mr Addouj to avoid the ultimate theft on 7 January 2020, much less would probably have been stolen that day.

56. [164]

    It is reasonable to continue to hold Relius responsible for the loss of the cash that would have accumulated at Relius’ premises on the basis that Ria had successfully made a CIT collection approximately a week before 7 January 2021. In those circumstances the quantum of the maximum loss that would have been suffered if Ria had performed the agent agreement can be calculated.

57. [165]

    Ria’s “Agent Statement” for Relius sets out all the cash and other transactions between Ria and its agent between 1 January 2019 and 1 December 2021. This has enabled the Court to calculate what, had the usual processes been followed by Ria and its CIT operators, the total amount of cash would have been collected and held by Relius between final missed collection date and the misappropriation, being one collection’s worth of cash at that time.

58. [166]

    31 December 2020 is the date of the last collection, that would have been due weekly before the collection on 7 January 2021. Depending upon whether cash generated on 31 December 2020 is considered, the range of cash that might have been available for a possible collection on 7 January 2021 is in the range $29,591.66 to $33,029.66. If the outcome of this case had depended upon the operation of Trustee Act s 85, the court would have excused Ria from liability except for $33,000.

59. [167]

    But for Ria’s success in contract under clause 7.3 of the fourth agent agreement, the Court would have ordered Relius and Mr Addouj to pay to $33,000 to Ria. But the Court will enter judgment for the largest sum indicated.

60. [168]

    The Court indicated it would give the parties an opportunity to argue about costs if they wished. The Court does not by raising this issue suggest there should be any argument about costs as a result of this judgment.

61. [169]

    This matter was transferred from the District Court to the Supreme Court partly because of the trust issue. But the ultimate judgment was for less than $500,000: Uniform Civil Procedure Rules 2005 (“UCPR”), r 42.34.

62. [170]

    And the Court has discretion not to award costs, despite a party’s success in proceedings: Civil Procedure Act, s 98 (1)(a). The defence under Trustee Act, s 85 was partially successful and it occupied some considerable time during the hearing time. It would have reduced the plaintiff’s claim by over 80 per cent although the plaintiff was ultimately successful for the full amount.

63. [171]

    If the parties wish to put any argument in relation to costs this can be done orally at a time arranged with the Court.

64. [172]

    It is appropriate to limit the costs of arguing about costs. The Court will also make a maximum costs order of $2,500 under UCPR, r 42.4 with respect to any costs argument, if one takes place. The successful party on the costs argument will not be able to claim more than $2,500 for that argument from the other party.

65. [173]

    Accordingly, the Court makes the following orders and directions:

    1. (1)

       JUDGMENT for the plaintiff against the first defendant and the second defendant in the sum of $196,941;

    2. (2)

       STAY the judgment in order (1) for 28 days to allow an opportunity for the parties to put on submissions as to whether the precise judgment amount should be adjusted;

    3. (3)

       RESERVE for further consideration the issues of whether (a) the plaintiff should have an order for indemnity costs in its favour and whether there is any basis for an order other than one that costs follow the event; and (b) questions of interest on the judgment sum.

    4. (4)

       DIRECT that any submissions as to adjustment of the judgment sum and interest should be filed and served within 14 days;

    5. (5)

       DIRECT that any submissions in relation to costs should be filed and served within 14 days; and

    6. (6)

       GRANT liberty to the parties to approach the Associate to Slattery J for a date to put oral argument about any questions of costs or interest, should that be required.