IN THE COURT OF APPEAL OF
THE REPUBLIC OF VANUATU
Civil Jurisdiction
APPEAL CASE No. 9 of 1998
BETWEEN:
LINDSAY DAVID BARRETT
and ADRIAN SINCLAIR
lantllants
AND:
JOHN GILBERT McCORMAC
Respondent
CORAM: Acting Chief Justice Vincent Lunabek; Justice
Bruce Robertson; Justice John von Doussa; Justice Daniel Fatiaki
NG: April 21-23,1-23, September 27-29, 1999
COUNSEL: Mr D L Williams and Mr J Ozols for the Appellants;
Mr R W White SC and Mr M Hurley for the Respondent
CASE NOTE
JUDGMEUDGMENT
This is an appeal from a decision delivered in the Supreme Court at
Vanuatu on 2 October 1n a claim by the respondent against
the appellants for a su a sum of
US$135,000 together with interest and costs. The claim was essentially under the second
limb of Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 CH App 244 and alleged that there was knowing
assistance in a dishonest and fraudulent activity by a trustee.
Four fundamental issues were raised on appeal.
First, whether there was a trust in respect of funds paid by the
respondent?
Secondly, if there was a trust, were the trust funds disbursed in breach
of the trust?
Thirdly, did the appellants assist in that breach?
Fourthly, was the appellants’ assistance dishonest?
The respondent Mr McCormack is a resident of Australia. He is an
investor who at times operated through a company he controlled
called Axbridge Pty Ltd. In
February and March 1994 the company, at the direction of Mr McCormack, made three payments
totalling US $135,000 to McCullen & Suarez Ltd in Vanuatu to purchase shares in
Mexigulf Sealand Inc. The first payment
was banked by McCullen & Suarez Ltd on 1 March
1994. The other two payments were banked later in March 1994. As it transpired
the
promotion of shares in Mexigulf Sealand was a scam which was revealed by the authorities
in Vanuatu shortly after the
payments were made, and Mr McCormack lost the purchase price.
The appellants, Messrs. Barrett and Sinclair are partners in an
accounting firm here in Port Vila. Their involvement in the circumstances
now before the
Court commenced after a person calling himself Michael Kennedy, made contact in May 1993
with Mr Sinclair.
On 28 June of that year, acting on instructions given by Michael
Kennedy in the name of what he described as McCullen & Suarez
Inc., an overseas
corporation, McCullen & Suarez Ltd, was incorporated in Vanuatu. Nominee companies
which were under
the direction and control of the appellants became the directors of
McCullen & Suarez Ltd. Bank accounts for that company
were opened at the ANZ Bank in
Port Vila. From 5 July 1993 to April 1994 deposits into the bank accounts, and payments
out were supervised by Messrs. Barrett and Sinclair, who were signatories to the accounts,
and by employees in their accounting
firm. From time to time instructions were given by Mr
Kennedy to the appellants to transfer funds to a variety of places around
the world.
All Axbridge Pty Ltd payments to acquire Mexigulf Sealand shares went
into the US dollar account of McCullen & Suarez Ltd
at the ANZ Bank in Port Vila which
was operated by the appellants. From various clients, around one million dollars in
Australian equivalent was received into the account and disbursed from it.
The appellants assisted in the receipt and banking of funds and
transfer of funds as directed in writing by Mr Kennedy. They
were involved
administratively in obtaining telephone connections, post office box numbers, an office
area, and dealing
with requirements for work permits. From time to time they completed
fund summaries in respect of receipts and payments.
In September 1994 prosecutions were successfully brought against
certain persons who had acted as salesmen in this scheme. They
were convicted and
imprisoned for having contravened the Prevention of Frauds (Investment) Act and the Penal
Code: Criminal Case No 37, Public Prosecutor v Narendra Singh & Ors (1994). On
13 January 1995 Mr McCormack commenced these proceedings against the appellants.
Following a hearing which extended over more than 7 days in July 1998,
in a reserved decision delivered on 2 October 1998, the
learned trial Judge found for Mr
McCormack.
The Judge first found that the moneys which had been paid by Axbridge
Pty Ltd at the plaintiff’s direction for the purchase
of shares in Mexigulf Sealand
Inc. were held on trust for the plaintiff. He found that there was a constructive trust.
Counsel for the appellants, Mr Williams who appeared with Mr Ozols
submits that the Judge erred in his assessment of the facts
and his appreciation of the
law in finding the existence of a trust. It is submitted that this was an ordinary
vendor/purchaser
transaction where Mr McCormack paid money for assets which he received.
Certainly once he had been issued with the share certificates
(which he undoubtedly was)
the appellants’ argue that no question of trust could arise. The essence of the fraud
established
on the evidence was that the shares were less valuable than they were
represented to be but that does not create a trust situation.
Mr Williams argued that the Judge failed to focus properly upon the
nature of a trust. Until the third day of the hearing the
allegation was that there was an
express or implied trust. The pleadings were then amended with leave to allege that the
Court should find that there was a constructive trust.
Mr McCormack having abandoned the argument that there was an express or
implied trust (which would have arisen because of the
intention of the parties) the issue
is whether there was a constructive trust because of the nature of the transaction and the
arrangements between the parties being such that the law imposed it notwithstanding any
particular intention.
The trial Judge found:
"The trust was a constructive trust. It existed between the
Plaintiff and McCullen & Suarez Inc both as principle
[sic] and/or broker. McCullen
& Suarez Limited were, I find, incorporated as a vehicle to facilitate the brokerage
service. Indeed it was intended by Michael Kennedy that McCullen & Suarez Limited
should have shares in McCullen &
Suarez Inc."
And subsequently he said:
"There is suggestion that the Plaintiff was buying McCullen
& Suarez Inc shares in the Mexigulf Sealand Inc. as the
Defendants would lead this
Court to believe is not correct. The shares were clearly shares in Mexigulf Sealand Inc
and clearly McCullen & Suarez Inc representing itself in Vanuatu as McCullen &
Suarez Ltd were both brokers and principal
and I so rule. I rely on the authorities of Ex
parte Cook In re Strachan [1876] UKLawRpCh 327; (1986) LR 4 Ch D 123 and Quistclose Investments Limited v Rolls
Razor Limited (1970) AC 567."
It is submitted that the failure by the Judge to determine whether the
shares were sold by McCullen & Suarez Inc or McCullen
& Suarez Ltd as a principal
or as a broker was fatal to the decision making as it argued that this fundamental
question
needs first to be determined before any other issue can be determined. It was
agreed that the authorities referred to in the
quotations do not assist in the
determination of the principal broker dichotomy. Even more importantly it is contended
that there was no proper evidential basis for any finding on the facts except that
McCullen & Suarez Ltd were selling shares
as a principal to Mr McCormack. It is
submitted that the Judge instead of concentrating on the particular transaction was
influenced by evidence about other matters which were of no relevance and no probative
value in determining the true legal
position of Mr McCormack.
We acknowledge that Mr Williams is correct when he submits that in
various places in so much of the evidence as is available
to us, Mr McCormack accepted
that he was purchasing shares from McCullen & Suarez. He eventually conceded in
cross-examination
that all of the shares he purchased in Mexigulf Sealand were shares
which he was told were owned by McCullen & Suarez.
It is therefore argued that there could be no basis for a finding that
McCullen & Suarez were acting as an agent or broker.
This was an owner of shares
selling its own shares to Mr McCormack. The fact that he was sold shares that turned out
to
be worthless, or certainly not worth anything like what he paid for it, is simply a
consequence of anyone who involves themselves
in trading of any sort and particularly
speculative trading as Mr McCormack must have known purchasing Mexigulf Sealand shares
was. In a word Mr McCormack made a bargain with the owner of shares to acquire shares. It
was a bad bargain but the appellants
submit that no trust relationship arose and therefore
the matter cannot proceed further.
Particular complaint is made about the fact that the case having been
commenced and run for a couple of days on one basis there
was a shift in direction and the
granting of leave by the trial Judge to permit a significant amendment mid-trial, meant
that there was a substantial miscarriage of justice.
The appellants submit that even if it cannot be shown that the exercise
of discretion in permitting the amendment of the proceeding
was clearly wrong, it is
submitted that the Judge was in error when he concluded that a constructive trust could be
imposed
upon the relationship. It is argued that before that could occur the Judge had to
carefully analyse what was the subject matter
of the fraud, who were acting fraudulently,
and the capacity in which they were acting. It is the appellants’ case that
a
constructive trust situation could only occur if the Judge could find the proper basis for
concluding that there was
a sufficient fiduciary relationship between Mr McCormack and
McCullen & Suarez to give rise to the equitable right to trace
property (Agip
(Africa) Ltd v Jackson (1991) Ch 547 at 566).
At the heart of this part of the appellants’ argument is the
contention that the subject matter of the fraud was the obtaining
by Michael Kennedy of Mr
McCormack’s money for shares not worth the money he paid for them. In other words, it
was
a sale and purchase of shares induced by a fraudulent misrepresentation as to their
worth but that is a vendor purchaser matter
not a fiduciary relationship.
It is submitted that the Judge did not undertake the necessary and
proper analysis as to the nature of the fraud which he found
was established or the impact
of it upon the appellant. The Judge adverted to the criminal case No 37 Public
Prosecutor v Narendra Singh & Ors (1994) but it is argued that this could have no
effect on the present situation. Mr Barrett and Mr Sinclair were not parties
to such
criminal activity or tainted by it and cannot become implicated because of it.
It does appear that the learned trial Judge may have taken the view
that because three people were convicted of criminal activities
in respect of the actions
of McCullen & Suarez Ltd in Port Vila, the moneys paid by Axbridge were moneys
obtained by
fraud and therefore equity would impose a constructive trust on a fraudulent
recipient. It is argued that the Judge makes a
leap of faith because he failed to focus
upon the nature or essence of the fraud which was perpetrated against Mr McCormack
and
failed to appreciate that there was a lack of fiduciary relationship between McCullen
& Suarez and Mr McCormack.
The Judge indicated that there were four matters which he considered
"overwhelming" evidence of fraud:
First, that the first time Michael Kennedy instructed Barrett and
Simclair he used the letterhead for McCullen & Suarez
Inc showing an address in Panama
but never wrote another letter on this particular stationery.
Secondly, a letter dated 16 July sent by McCullen & Suarez Inc to
investors indicating that they were offering a full service
brokerage facility.
Thirdly, transcripts of conversation which were apparently available
for sales representatives of McCullen & Suarez to
use as a prompt when approaching
clients.
Finally, an invoice confirming the purchase by the respondent of 50,000
shares in Mexigulf Sealand for the sum of US $112,500.
It is argued that these matters are not supportive of the existence of
a constructive trust. The first matter is said to be a
non sequitur. In respect of the
second there is no evidence that the respondent ever received such a letter. Thirdly,
there
was no evidence that words of the sort contained in the prompt sheet were ever used
in any discussion with Mr McCormack. Finally,
the invoice merely proves a matter which was
not in contention and said nothing about the issue of a fraud, the existence of
a
fiduciary relationship or may equitable remedies.
It is accordingly argued that the Judge in the Court below found that
there was a constructive trust because he misunderstood
the true subject matter of the
fraud which was proved and found a fiduciary relationship when there was no evidence
supportive
of such conclusion.
Mr Williams argued that the true position in the relationship was as
demonstrated in the cross-examination of Mr McCormack in
the following particulars:
(a) He knew Mexigulf Sealand to be an offshore holding company;
(b) He knew that it did not even trade in South America or Central
America;
(c) He knew there would be no prospectus;
(d) He was unable to get any comfort as to the bona fides of the shares
from his own inquiries;
(e) He had never visited the offices of McCullen & Suarez;
(f) He had never met its principal or employees;
(g) He knew that Mr Raftery with whom he had dealt was both a principal
of McCullen & Suarez and a director of Mexigulf
Sealand;
(h) He knew he was being offered shares owned by McCullen & Suarez
in a company in which Mr Raftery had a personal interest;
(i) He foresaw making fantastic returns possibly in excess of $600,000
on his $135,000 investment within 6 months;
(j) He had never met, talked to or had even heard of Mr Barrett or Mr
Sinclair or any of their employees.
In those circumstances it is said that the imposition of a constructive
trust which gives Mr McCormack rights ahead of other
unsecured creditors of McCullen &
Suarez is neither justified nor just. Mr McCormack is portrayed by the appellants as a
man
who had acted in utter disregard for his own interests by entering into this transaction
which it was submitted was
driven but his own carelessness and greed, and that no
substantial justice (as required under the Constitution of the Republic
of Vanuatu)
emerged from the Courts coming to the aid of such a person who has foolishly and
foolhardily entered into a
transaction of this sort and had suffered what might be seen to
have been almost the inevitable consequences of his own ill
considered and unwise
involvement in the purchase.
The appellants accept that a constructive trust might have been
imprinted on the funds up until the time that the share scrip
was supplied to Mr McCormack
in return for his payments made. However once he received the share scrip it ceased to
exist.
The fact that he had been "conned" about their value was not a reason to
create a safety net for him in equity.
Mr White SC who appeared with Mr Hurley for the respondent, on the
other hand argued that the Judge below had correctly found
there was a constructive trust
because of the application of the principle that equity imposes a constructive trust upon
the fraudulent recipient of property obtained by fraud and that such property is
recoverable and traceable in equity (Westdeutsche Landesbank Girozentrale v
Islington London Borough Council [1996] AC 699 at 716).
Alternatively it is argued that a trust also arises where a recipient
knows that the money was paid by mistake or through fraud,
or in such other circumstances
where it cannot conscientiously be retained (Nestle Oy v Lloyd’s Bank Plc
[1983] 2 Lloyd’s Rep 658, cited with approval by the Privy Council in Re Goldcorp
Exchange Limited [1995] 1 AC 74).
The respondent contends that there was overwhelming evidence that there
was a fraud perpetuated by McCullen & Suarez and
that the actions of Mr Kennedy and
those about him were much more than a fraudulent misrepresentation about the value of a
share but a skilfully and cleverly manufactured lie about something which never existed at
all. Examples of this include
the fact that McCullen & Suarez Inc was not incorporated
until October 1993 which is after the dates of various newsletters
which had been issued
by Mr Kennedy to induce investors to buy shares in the company. Its letterhead described
it as being
founded in Scotland in 1891 and in Chile in 1898, whereas in fact it was
incorporated on 8 July 1992. There was no evidence
that McCullen & Suarez in reality
did any of the things which were described in newsletters and brochures it sent to Mr
McCormack about its activities. Counsel submits that the only inference to be drawn from
the totality of the available
material was that McCullen & Suarez was a vehicle
specifically constructed and operated to defraud potential investors.
It should be noted
that some of this material was gathered by the authorities in Vanuatu under search
warrants, and was
not known to the appellants at the time. There was no truth or basis in
the representations made in newsletters and other promotional
material by the company that
there was a market for stock in Mexigulf Sealand. The claim that it would be pursuing
property
developed in Mexico was fictitious and that the incorporation of the company was
for the sole purpose of obtaining share certificates
and perhaps opening a bank account
into which moneys could be paid but all as a means of advancing the fraudulent scheme.
The respondent’s position therefore is that the contract for the
sale of Mexigulf Sealand shares by McCullen & Suarez
Inc whether as vendor or not was
a contract induced by fraud. It was a transaction which the vendor never intended to
perform
because the share certificates which were delivered were mere pieces of paper and
did not represent any marketable commodity.
Accordingly the money paid by Mr McCormack
through Axbridge Pty Ltd remained his money in equity. In those circumstances it
is argued
that McCullen & Suarez Ltd acted in breach of its fiduciary duty to Mr McCormack in
mingling the funds received
from Axbridge Pty Ltd for the specific purpose of obtaining
shares in Mexigulf Sealand with other funds of McCullen & Suarez
Ltd and then
disbursing them at the direction of Mr Kennedy. The respondent accordingly argues that it
was unnecessary
for the trial Judge to decide whether the shares were sold by McCullen
& Suarez as principal and not as a broker. The issue
was irrelevant because the
transaction was totally permeated with fraud.
Although there are competing evidential strands it is submitted for the
respondent that the Judge in the Court below was correct
to conclude that McCullen &
Suarez Inc had the role of both broker and vendor with regard to the dealings with Mr
McCormack.
Before this Court Mr McCormack accepts that if the relationship between
the parties was that of vendor and purchaser the moneys
would not be held on an express
trust for the benefit of Axbridge Pty Ltd or Mr McCormack but there would still be a
constructive
trust. The entire transaction having been a sham with fraud stamped all over
it, there was a total failure by the vendor to
meet its obligations under the contractual
arrangement. Consequently the money which it received was subject to a constructive
trust
and Mr McCormack remained beneficially entitled to the funds. It is submitted that
McCullen & Suarez owed a fiduciary
obligation to Mr McCormack because they acted and
held themselves out as being Mr McCormack’s broker, but if that it is
not the correct
conclusion and McCullen & Suarez Inc were merely the vendor, the purchase price of the
shares was obtained
by fraud. It is submitted that it is wrong to treat the matter as
being a situation where the shares in Mexigulf Sealand Ltd
were simply worth less than
asserted or promised. There were in reality no shares. The Court should recognise that the
process was a scam tainted with fraud from beginning to end and that the equitable
interest in the funds expended by Mr McCormack
through Axbridge remained beneficially his
at all times.
In response to the argument that it was unjust for the trial Judge to
grant leave to amend the statement of claim and permit
the introduction of the allegation
of the existence of a constructive trust part-way through the trial, counsel submits that
it is always appropriate for amendments to be allowed to ensure that the real matter in
controversy is decided between
the parties. That principle was enunciated in Cropper v
Smith [1884] UKLawRpCh 91; (1884) 26 Ch D 700 and recently reaffirmed in Gale v Super Drug Stores
Plc [1996] EWCA Civ 1300; [1996] 1 WLR 1089. Counsel notes that by the nature of the defence advanced Mr
Barrett and Mr Sinclair had put in issue whether the activities
of McCullen & Suarez
and its alter ego Mr Kennedy were fraudulent. The amendment to include the allegation of a
constructive
trust did not introduce any new factual issue into the case beyond that which
was already covered in the pleadings and particulars
provided. No prejudice could have
arisen in the circumstances. It was therefore a proper exercise of discretion.
We are advised that the plaintiff in the Court below had opened on the
basis that even if the relationship between McCormack
and McCullen & Suarez Ltd was
not that of principal and broker or agent, McCullen & Suarez Ltd in any event held
money it received on trust because it was obtained fraudulently and even if the parties
dealt as principals, the consideration
for the contract had wholly failed.
We do not consider error has been demonstrated in the way in which his
Lordship exercised his discretion to allow the late amendment.
The question whether
McCullen and Suarez Ltd acted as principal or as broker was not a new issue raised by the
amendment.
The allegation that the company was acting as principal in the transaction with
Mr McCormack was a central feature of the appellants
defence. That line of defence
necessarily gave emphasis to the importance of the alternative plea in paragraph 18 of the
statement of claim as amended on 22 July 1997 (about one year in advance of the trial).
That paragraph alleged that breaches
of trust which had caused the loss of Mr McCormack
were part of a dishonest and fraudulent design on the part of McCullen and
Suarez Ltd. To
allow a further amendment in the course of the trial to raise the issue of a constructive
trust was only
a minor departure from the previous pleadings which was not likely to cause
prejudice to the appellants at trial. Before this
Court, the appellants have not sought to
identify actual prejudice in any respect.
We are satisfied that a constructive trust arises in the total
circumstances which were disclosed in the evidence before the
primary Judge.
In Westdeutsche Bank v Islington London Borough Council (supra)
Lord Browne-Wilkinson noted at 716:
"I agree that the stolen moneys are traceable in equity. But
the proprietary interest which equity is enforcing in such
circumstances arises under a
constructive trust, not a resulting trust. Although it is difficult to find clear
authority
for the proposition, when property is obtained by fraud equity imposes a
constructive trust on the fraudulent recipient: the
property is recoverable and traceable
in equity. Thus, an infant who has obtained property by fraud is bound in equity to
restore it: Stocks v Wilson [1913] UKLawRpKQB 46; [1913] 2 KB 235; R Leslie Ltd v Sheill [1914] UKLawRpKQB 92; [1914] 3 KB 607. Moneys
stolen from a bank account can be traced in equity: bankers Trust Co v Shapira [1980] 1
WLR 1274; see also McCormick v Grogan (1869) LR 4 HL 82.
In Stocks v Wilson [1913] UKLawRpKQB 46; [1913] 2 KB 235, Lush J stated at 244:
"The equitable liability depends, not on the validity of the
contract, but on the fact that the defendant while an infant
obtained goods from the
plaintiff by a false and fraudulent representation. Now if the defendant still had the
furniture
in his possession I should have felt no difficulty in holding that he must
restore it, and that, if necessary, the bill of
sale should be cancelled. This is in my
opinion covered by authority to which I will refer in a moment.
The cases in which the principle has been applied are (1) cases where
the infant by his fraud has obtained possession of property
which he still retained at the
time the suit or action was brought, and (2) cases where the infant has obtained money by
fraud."
And further at 245:
"The same remedy was recently held by a Divisional Court to be
open to a plaintiff from whom the defendant when an infant
had obtained payment for goods
part of which he never supplied at all and as to the remainder of which he supplied
worthless goods: Cowern v Nield [1912] UKLawRpKQB 79; [1912] 2 KB 419."
In Bankers Trust Co v Shapira (supra) Lord Denning had noted at
1282:
"It is a strong thing to order a bank to disclose the state of
its customer’s account and the documents and correspondence
relating to it. It should
only be done when there is a good ground for thinking the money in the bank is the
plaintiff’s
money – as, for instance, when the customer has got the money by
fraud – or other wrongdoing – and has paid
it into his account at the bank. The
plaintiff who has been defrauded has a right in equity to follow the money."
There is authority to like effect in Australia. In Black v S
Freedman [1910] HCA 58; (1910) 12 CLR 105 at 110 O’Connor J said:
"Where money has been stolen , it is trust money in the hands
of the thief, and he cannot divest it of that character.
If he pays it over to another
person, then it may be followed into that other person’s hands."
Applying that clear principle to the circumstances of this case we are
left in no doubt that the funds which were forwarded by
Axbridge Pty Ltd at the direction
of Mr McCormack were stolen. They were fraudulently converted to a use different from that
for which they were expended and in our judgement they were subject to a constructive
trust.
This is in accordance with the approach in Nest Oy v Lloyd’s
Bank Plc (supra) which was cited with approval by Lord Mustill in Re Goldcorp
Exchange Limited (supra) being referred to as authority for the proposition that a
proprietary interest can arise when consideration for the
purchase price has totally
failed. In Nest Oy, the payer’s proprietary interest arose because the payee
had knowledge that no performance at all could take place under
the contract at the time
the payment was made. Mr White in his submissions argued that Nest Oy and Re
Goldcorp Corporation are authority for the principle that a trust also arises where
the recipient knows that the money was paid by mistake or through
fraud, or in such other
circumstances where it cannot be conscientiously retained. We are not persuaded that is
the situation
and that the authority of Nest Oy as approved by the Privy Council in
Goldcorp is as stated above, namely, a knowing total failure of
consideration at the time payment is made.
We make these findings with regard to a constructive trust
notwithstanding the submissions of Mr Williams that there was an absence
of fiduciary
relationship. A fiduciary relationship is not inevitably the necessary basis for finding a
constructive trust.
There are a variety of circumstances in which the common law has
recognised the existence of a constructive trust. (See R P Austin
"Constructive Trusts" in Essays in Equity edited by P D Finn (Law Book Co, 1985)
at page 196). One such category
is property obtained by fraudulent conduct. For further
discussion see Dal Pont and Chalmers (1996) Equity and Trusts in
Australia and New Zealand 690, and Jacobs Laws of Trusts in Australia (sixth
edition) 603 and following.
The type of conduct attracting constructive trusts have been
vicariously referred to as evidencing a want of probity, conduct
amounting (or equivalent)
to equitable fraud, or conduct which is unconscionable. Austin has observed
that the instances in which constructive trusts have been imposed have little in common
and as was noted by
Edmund Davies LJ in Carl Zeiss Stifung v Herbert Smith
(No 2) [1969] 2 Ch 276, 300-301, the boundaries of the constructive trust "have
been left perhaps deliberately vague, so as not to restrict the court by technicalities in
deciding what the
justice of a particular case may demand." In Muschinski v
Dodds [1985] HCA 78; (1985) 160 CLR 583 at 616 Deane J, citing Austin, said that the operation
of the constructive trust was not confined to cases where some pre- existing fiduciary
relationship
can be identified.
It is unhelpful to seek to provide exhaustive check lists in an area
such as this and unnecessary where the evidence before the
primary Judge disclosed such a
carefully contrived and sophisticated issue of deception and fraudulent conduct.
The appellants have tried to downplay the kind of fraud involved in the
present case. They submit that McCullen & Suarez
is only guilty of fraudulently
misrepresenting the true value of shares in Mexigulf Sealand, in an arms length
vendor-purchaser
transaction. As such, the respondent only has a contractual remedy
against McCullen & Suarez and there is no basis for the
imposition of a constructive
trust which awards the respondent with the superior remedy of a proprietary right that
takes
priority to claims of the unsecured creditors of McCullen & Suarez.
The evidence however, discloses fraud of a different variety. The fraud
here goes to the heart of the contract resulting in a
total failure or absence of
consideration. The appellants in essence provided nothing in exchange for the
respondent’s
money. The shares in Mexigulf Sealand were a scam. This amounted to
theft, the taking of something for nothing in return. The
taking of something without
anything in return, not qualifying as a gift or some other lawful assignment, is the very
basis
for the imposition of constructive trusts in the above cases of Nest Oy, Cowern,
Stocks and Bankers Trust (supra). In Nest Oy, the payee
receive money when it knew it could not perform the contract. Likewise, the payee in Cowern
provided the payer with nothing in return as the goods the payee supplied were worthless.
Further, Cowern, like Stocks, are cases involving infants who could not at
law contract for non-necessities. The promises of infants were not legally enforceable
against them by the other party. Thus, these infants provided no consideration at the
formation of executory contracts
where consideration is the exchange of legally
enforceable promises. There was an absence of consideration as the party contracting
with
the infant received nothing in exchange for its promise to provide and subsequent
provision of property. The infants
in Cowern and Stocks had
fraudulently misrepresented their age. The fraud of the infants in Cowern and Stocks
went to the heart of the contract as it concerned their ability to contract and provide
consideration. In like fashion,
though McCullen & Suarez had fraudulently
misrepresented the true value of the shares in an arms length vendor-purchaser
transaction, their fraud went to the heart of the contract, resulting in the total failure
or absence of consideration.
McCullen & Suarez was getting something for nothing. In Bankers
Trust, the fraudulent parties had defrauded the bank with the use of forged cheques.
Again, there was the taking of something without
something in return. In every case, a
proprietary remedy was appropriate. The fraud of McCullen & Suarez was no different
from outright theft in the guise of a contract.
The second issue is whether if there was a trust were the funds
disbursed in breach of trust. The answer we have reached in respect
of the first issue
virtually answers that matter.
The contractual arrangement between Mr McCormack and McCullen &
Suarez was that he would receive shares in Mexigulf Sealand.
Undoubtedly he received
pieces of paper that described themselves as share scrip but they were merely pieces of
paper and
nothing more. We agree with the conclusion of His Lordship in the Court below
that there was a disbursement of the funds contrary
to the trust which was imprinted upon
them. We of course accept the argument that if a person enters into a transaction and
does
not get something which is as valuable as he thinks it is going to be, there is no reason
why the seller cannot use
the funds in any way he sees fit. That is not what occurred in
this case. The seller agreed to provide shares in a company which
it was at some pains to
describe. That company was a sham and accordingly the appropriation of the funds was
contrary to
the trust imposed upon it.
Counsel for the appellants complained that the Judge "starts to
confuse the parties who are in breach of trust as a result
of fraud." It is noted
that the Judge said "this is sufficient to hold that McCullen & Suarez were in
breach
of trust and so were the defendants" and later he said, "as such I hold
and now rule that McCullen & Suarez and
the defendants for that matter and for reasons
which will follow were and are in breach of trust."
Although there may be some criticism made of that means of expression
it does not alter the fundamental issue that the trust
funds were disbursed improperly and
in breach of the trust because there was never the provision of that which it was
bargained
should be received. As the present transaction was a scam from its inception,
the money remained on trust and could not be disbursed
at all, save for repayment to Mr
McCormack on whose behalf the money was held. Thus the money was disbursed in breach of
the constructive trust.
The third issue can be disposed of pre-emptively. The question to be
determined here is whether Messrs. Sinclair and Barrett
assisted in that breach.
Again complaint is made that the Judge appears to have not tightly
focused his attention on the various steps which need to be
undertaken. He noted in his
judgment:
"There can be no doubt from the facts as shown in the evidence
before the Court that the defendants assisted in the setting
up of the fraudulent scheme
of Michael Kennedy: thus making them liable in law for assisting in breach of trust."
We accept the submission that there must be a relevant nexus
established and we do not differ from the approach enunciated by
Ungoed-Thomas J in Selangor
United Rubber Estates Ltd v Craddock (1968) 2 All ER 1073 where he said:
"In Gray v Johnston (1868) LR3 HL1 a bank paid a cheque
for about 800 pounds drawn by an executrix on the state bank account in favour of a
partnership, which she entered into in place of her husband on her husband the
testator’s death. The cheque was paid
into the partnership account in the same bank
and imprint against the partnership overdraft. No balance was struck and the
account
continued to operate as before. It was held that the will beneficiaries were not entitled
to have the money
replaced by the bank. The relevant nub of the decision for present
purposes appears to be that, in the circumstances, payment
of the cheque was perfectly
consistent with there being no breach of trust, with the result that the bank had no
knowledge
or notice of breach at all. Lord Cairns, LC, summarised the authorities (at page
11):
‘I say that the result of those authorities is clearly this: in
order to hold a banker justified in refusing to pay a
demand of his customer, the customer
being an executor, and drawing a cheque as an executor, there must, in the first place,
be
some misapplication, some breach of trust, intended by the executor, and there must in the
second place, as was
said by Sir Jon Leach in the well known case of Keane v Robarts
(1819) 4 NADD at page 357, be proof that the bankers are privy
to the intent to make this
misapplication of the trust funds.’"
From this it is argued by the appellants that the assistance nominated
by the trial Judge which included the incorporation of
companies, the provision of nominee
companies as directors and shareholders, signatory functions on bank accounts, receipt of
cheques and banking, installation of telephone and fax lines and post office box,
disbursement of moneys from bank account
on instructions from Mr Kennedy were at most
peripheral and none of these activities assisted in any real sense McCullen &
Suarez
in making their fraudulent misrepresentations. With respect to counsel in our judgment
that is to misunderstand
the situation too. There is an issue to be asked as to whether
the appellants assisted in the breach of trust. The breach of
trust was the appropriation
of funds which were obtained by a fraud and in respect of which the respondent received
nothing.
Counsel for the appellants want to hark back to the issue that it was merely a
case in which somebody got a less valuable commodity
than that which they anticipated. In
our judgment that is not the position on the evidence. The bargain was never performed
at
all by the vendors. It may be that there were points in the judgment at which whether
there was assistance became intermingled
with the much more difficult issue of whether
there was dishonest assistance, but we are satisfied that assistance was provided
and is
correctly enumerated in the submissions for the respondent in the following form:
(a) the incorporation of McCullen & Suarez Ltd as an international
company on 2 July 1993;
(b) the incorporation of Consolidated Services Ltd as a local company on
12 January 1994 to carry on the business of McCullen
& Suarez Ltd in Vanuatu
(c ) the opening of bank accounts for those companies;
(d) the appointment of nominee companies of the appellants as directors and
shareholders of McCullen & Suarez Ltd, and Consolidated
Services Ltd
(e) the appellants becoming signatories to the bank accounts;
(f) leaving the management of the affairs of the companies to Michael
Kennedy notwithstanding that their nominee companies assumed
the office of directors.
There was no resolution by the nominee companies as directors pursuant to Rule 33(3) of
the International
Companies (Model Constitution) Order No 13 of 1993 to entrust and confer
upon Kennedy, as an officer of McCullen & Suarez
Ltd, and as an officer and director
of Consolidated Services Ltd, the powers exercisable by the directors. Therefore allowing
Michael Kennedy to conduct the affairs of the company was an act of assistance. (The fact
that it was the appellants’
nominee companies who were the directors is also a
significant circumstance on the last issue, that is, in determining whether
they acted as
honest men in their position would act);
(g) receiving cheques for banking and banking the funds;
(h) instructing the ANZ Bank to withdraw the moneys out of the bank
accounts;
(i) preparing funds summaries;
(j) arranging for the installation of telephone and fax lines and post
office box for McCullen & Suarez Ltd;
(k) employing the local office manager, Janet Feast;
(l) negotiating with the ANZ Bank for arrangements to enable withdrawal of
funds from the accounts of McCullen & Suarez Ltd
before cheques or transfers of funds
had been cleared; and
(m) installing telephone and fax lines for Consolidated Services Ltd and
arranging the office accommodation for that company.
That is all evidence of assistance of the breach of trust. The above
list catalogues the ways in which the appellants directly
and indirectly facilitated the
subsequent disbursement of the respondent’s money. For instance, by being signatories
to the accounts, the appellants had to have approved the disbursement of the
respondent’s money. The trust required
that the funds paid for non existent shares
would not be disbursed at all, except to Mr McCormack.
That leads to the fourth and most difficult question posed in this
appeal, namely, whether it has been established that the assistance
provided by Mr
Sinclair, Mr Barrett, and those persons and entities which they controlled and for which
they were responsible,
was in law dishonest assistance in the breach of trust.
We are told that in the Court below, and certainly in this Court, the
position of the respondent is that the appellants are liable
solely on the basis of
objective dishonesty as discussed in Royal Brunei Airlines SDN BHD v Philip Tan Kok
Ming [1995] UKPC 4; (1995) 2 AC 378, an approach consistent with that adopted in Agip (Africa) Ltd
v Jackson (1991) Ch 547 and Cowan de Groot Properties Ltd v Eagle Trust Plc (1992)
4 All ER 700.
At its very point of essence as the Privy Council made clear in Royal
Brunei, carelessness, imprudence, negligence, unconscionability, are all
insufficient. Dishonesty is required before a person providing
assistance is liable in
respect of a breach of trust. Lord Nicholls of Birkenhead, delivering the opinion of the
Board,
at 389, said:
"Whatever may the position in some criminal or other contexts
(see, for instance, Reg. v Ghosh [1982] EWCA Crim 2; [1982] Q.B. 1053), in the context of the accessory
liability principle acting dishonestly, or with a lack of probity, which is synonymous,
means simply not acting as an honest person would in the circumstances. This is an
objective standard. At first sight
this may seem surprising. Honesty has a connotation of
subjectivity, as distinct from the objectivity of negligence. Honesty,
indeed, does have a
strong subjective element in that it is a description of a type of conduct assessed in the
light
of what a person actually knew at the time, as distinct from what a reasonable
person would have known or appreciated. Further,
honesty and its counterpart dishonesty
are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness
is not
dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety.
However, these subjective
characteristics of honesty do not mean that individuals are free
to set their own standards of honesty in particular circumstances.
The standard of what
constitutes honest conduct is not subjective. Honesty is not an optional scale, with
higher or
lower values according to the moral standards of each individual. If a person
knowingly appropriates another’s property,
he will not escape a finding of dishonesty
simply because he sees nothing wrong in such behaviour.
In most situations there is little difficulty in identifying how an
honest person would behave. Honest people do not intentionally
deceive others to their
detriment. Honest people do not knowingly take others’ property. Unless there is a
very
good and compelling reason, an honest person does not participate in a transaction if
he knows it involves a misapplication
of trust assets to the detriment of the
beneficiaries. Nor does an honest person in such a case deliberately close his eyes
and
ears, or deliberately not ask questions. lest he learn something he would rather not know,
and then proceed regardless."
The Judge completed his review of the legal principles to be applied on
this limb of the case by citing that part of the headnote
of the report of Royal
Brunei which reflects the above passage. The Judge then posed the following
question for his decision:
"Could the Defendants have known as reasonable men in the
circumstances that they were participating in a fraudulent scheme?"
His Lordship answered the question by saying:
"The Court draws the inference that they knew and turned a
blind eye to it. I draw this inference from the following facts
as seen from the
documentary evidence:…."
And his Lordship then referred to six topics. After discussing them he
said:
"Therefore for the forgoing reasons and other admitted evidence
on record which is overwhelming, I conclude that the Defendants
knew that they were
participating in a fraudulently scheme and I so rule."
In the course of discussing the legal principles his Lordship had
commented that the evidence before the Court showed that the
appellants had benefited from
the fraudulent conduct of McCullen & Suarez Ltd because they received professional
fees
for the work they performed. It does not appear that this observation constituted one
of the reasons upon which his Lordship
found that the appellants were liable for a breach
of the constructive trust. The topic is not one of the six to which he made
reference. At
no stage was Mr McCormack’s case at trial based on the first limb of Barnes v Addy
[1874] UKLawRpCh 20; (1874) 9 Ch. App 244. Before this Court counsel for Mr McCormack eschewed any reliance upon
the fact that the appellants received professional fees
for work performed by them (there
being no evidence that the fees were other than usual fees) as an indication of
dishonesty.
The six topics expressly discussed by his Lordship as leading to the
inference that the appellants knew that they were participating
in a fraudulent scheme
were:
(a) In the first contacts between Mr Sinclair and Mr Kennedy instructions were given in
a faxed letter that was not typed and
not written on letterhead of McCullen & Suarez
Inc. His Lordship considered a reasonable and honest man in the circumstances
would
question why, if a company is in good standing, a letter purportedly written on its behalf
was not typed and
not written on proper letterhead, and would also have questioned the
authority of Mr Kennedy to act on the company’s
behalf;
(b) The second contact between Mr Sinclair and Mr Kennedy was made by telephone on 28
June 1993 and subsequently confirmed
by formal letter. On this occasion Mr Kennedy wrote
on official letterhead of McCullen & Suarez Inc, but did not indicate
his position in
the company. The letterhead indicated that the company was founded in Scotland in 1891 and
in Chile
in 1898. The letterhead also stated, by way of description of the company,
"Mineral and Land Agents". His Lordship
considered that a reasonable and honest
person in the circumstances would have known that McCullen & Suarez was holding
itself
out as land agent, and would have known that any monies received in relation to the
purchase shares in Mexigulf
Sealand would be monies held on trust for that purpose by the
company;
(c) On 2 July 1993 the appellants banked A$5947.95 into the Victo Australia Dollar
Trust Account operated by the appellants
at the ANZ Bank, Port Vila. This was done on the
instructions of Mr Kennedy who had supplied the funds. On 5 July 1993 Mr
Barrett wrote to
the Bank with instructions to deposit the money but on the same day instructions were also
given by
Mr Barrett to the Bank to close the deposit and pay $3500 to "SA and FB
Stevens" in Sydney. His Honour considered
that a reasonable and honest man in the
circumstances would realise that the monies were trust monies from the name used in
the
account, yet the appellants turned a blind eye to that fact and caused and procured the
transfer of funds to Australia.
His Lordship observed that this was not a purchase of
shares in Mexigulf Sealand. His Lordship considered this indicated that
a blind eye had
been turned by the appellants to the interests of the beneficiaries of the trust money;
(d) A number of newsletters, apparently promulgated by McCullen & Suarez were
admitted into evidence which extolled the
virtues of buying Mexigulf Sealand shares. Mr
Barrett in interrogatories admitted that he was shown a newsletter promoting
Mexigulf
Sealand as a "good buy", and other evidence showed that on 15 March 1994 Mr
Barrett wrote to accountants
in New Zealand stating that:
"Ultimately, the product being sold is, we believe, offshore real
estate or shares in offshore companies which own real
estate…."
His Lordship concluded that the appellants knew that shares were
being sold and therefore that most of the monies coming into
McCullen & Suarez between
28 June 1983 and 30 April 1994 were monies held in trust for that purpose. With that
knowledge they turned a blind eye to the manner of the disbursement of the monies.
(e) The appellants did not know the identity of Michael Kennedy or the full nature of
his companies’ activities, yet they
did not bother to inquire into those matters,
claiming a defence of confidentiality under the provisions of the Companies Act [CAP. 191]
and the International Companies Act No. 32 of 1992. His Lordship concluded that reasonable
men in the circumstances would have made inquiries and that the claims
to confidentiality
were without substance;
(f) There was an abundance of evidence showing that Mr Kennedy frequently instructed
the appellants, and their office manager
Ms Thomson, to effect transfers of funds
immediately after funds were received. His Lordship considered that an honest and
reasonable person in the position of the appellants would have had suspicions and asked
why this was happening. The
appellants did not do so and were simply indifferent to it
all. His Lordship considered this indifference explained why the
appellants did not call
Mr Barrett or any of their employees as witnesses as to do so would have seriously
effected
the defendants case.
The appellants strenuously criticise the conclusions which his Lordship
drew from his discussion of these topics. Counsel contended
that the matters of fact
identified could not lead to the inference of dishonesty. It was contended that his
Lordship failed
to direct himself to the requisite onus of proof where fraud is alleged,
and failed to insist on convincing proof.
Of the six topics identified, in our view the first two are entitled to
little weight, and we agree with counsel for the appellants
that his Lordship appears to
have misunderstood the significance of the use of the appellants’ Vitco Trust Account
pending the establishment of banking facilities in the name of McCullen & Suarez Ltd.
The remaining topics, if viewed in
isolation from other events and the balance of the
evidence, at first sight do not appear to be matters of great significance.
However there
was other evidence, and whilst his Lordship has not recounted it, otherwise than by
reference to "other
admitted evidence on record" that evidence adds much colour
to Mr Barrett’s admission about a newsletter, the absence
of inquiry about the
identity of Michael Kennedy and the activities of his companies, and the immediate
clearance of funds.
Before turning to that other evidence, it is necessary to deal with a
number of other matters. The trial judge in his reasons
for judgment has not discussed the
evidence given by Mr Sinclair, the only witness called by the appellants. Mr. Sinclair was
the partner with primary responsibility for the McCullen and Suarez files. Mr. Sinclair
gave evidence over three days.
He was closely questioned about the many facts evident from
documents from the appellant’s file which counsel for Mr. McCormack
contended showed
that the activities of McCullen and Suarez were not legitimate, or which called for
inquiry by the appellants.
Mr. Sinclair denied that any of these matters, or at least
those of which he was aware, caused him to be suspicious. He denied
any knowledge of the
fraudulent nature of Mr. Kennedy’s operation, and denied dishonesty on his part. It
followed
from his evidence that dishonest knowledge by Mr. Barrett, who was less involved
with Mr. Kennedy, was also denied by the appellants.
The ultimate finding that the
appellants knew they were participating in a fraudulent scheme, by inference means that
His
Lordship rejected Mr. Sinclair’s evidence in this respect. It is unfortunate in a
case of so much importance to the professional
reputations of the appellants that Mr.
Sinclair’s evidence was not the subject of discussion and that reasons for express
findings on credit were not given. Nevertheless as the Judge has obviously rejected Mr.
Sinclair’s evidence, this
Court must consider the appeal on that footing.
The rejection of the evidence of Mr. Sinclair does not prove positively
the reverse of his evidence. The rejection of his denial
cannot prove actual knowledge by
the appellants or either of them of participating in a fraudulent scheme. Such a finding
can only be upheld if there is other evidence that can reasonably lead to that conclusion.
The other evidence discussed later in these reasons in our view
contains clear indicators of possible fraud of some sort that
called for inquiry, yet none
was made by the appellants, nor, it must be assumed in the absence of evidence of the
topic,
by Ms. Thomson. The disregard of indicators of possible fraud may be so extensive
as to warrant the conclusion that the appellants
and those of their staff for whom they
are responsible deliberately closed their eyes and ears, or deliberately did not ask
questions in case they learn something they would rather not know. Indeed the trial judge
made findings to this effect
in the course of his reasons. Such a conclusion would lead to
a finding of dishonesty according to the objective test postulated
in Royal Brunei,
that is that the appellants failed to act as honest people would act in the circumstances.
That would be a finding of
constructive dishonesty sufficient to impose accessory
liability for the breaches of trust which occurred, but would not be
a finding of actual
knowledge that the appellants were participating in a fraudulent scheme. Whilst there is
cogent evidence
that many warning signs were disregarded, there is no evidence that either
of the appellants had actual knowledge of Mr. Kennedy’s
fraudulent schemes. In our
opinion the finding of actual knowledge cannot be supported.
The function of this Court on hearing an appeal is laid down s. 26 (2)
of the Courts Act [CAP. 122] which provides:
"On every such appeal the procedure and the findings, whether
of fact or law, of the court appealed from shall be subject to
review by the appellate
court which shall be entitled to substitute its own judgment or opinion thereon save that
the
appellate court shall not interfere with the exercise by the court appealed from of a
discretion conferred by any written
law unless the same was manifestly wrong."
Where the Court of Appeal concludes that a particular finding of fact
cannot be supported on the grounds given by trial judge,
or at all, it does not follow
that the judgment must be set aside. If the Judgment also rests on other findings which
are
supported by the evidence, it will not be set aside. Moreover, the Court of Appeal is
empowered to substitute its own judgment
or opinion based on the evidence led at trial. In
considering that evidence the Court of Appeal will recognise the advantage
that is enjoyed
by a trial judge who sees and hears the witnesses giving oral evidence. The Court of
Appeal ordinarily
will not interfere with findings as to credit made by the trial judge.
See S.S.Hontestroom v S.S.Sagaporack [1927] AC 37 at 47. Where there are primary
facts established by evidence which the trial judge has accepted or which are not in
dispute,
the Court of Appeal is in as good a position as the trial judge to draw
inferences from that evidence, and to determine the
appeal according to those inferences.
See Warren v Coombes[1979] HCA 9; (1979) 142 CLR 531.
In the present case the evidence of Mr. Sinclair must have been
rejected. It is not suggested that it was not within the province
of the trial judge to do
so. Mr. Sinclair’s evidence cannot therefore be relied on by the appellants as
positive evidence
denying dishonesty. However the respondent can rely on his evidence in
so far as it is helpful to his case.
Most of the evidence about the appellant’s conduct is to be found
in documents from the appellant’s file. It is this
evidence which the Judge referred
to as the "admitted evidence on record". The Court of Appeal is required in the
exercise of its function to consider this evidence and to draw whatever inferences are
appropriate from it. If these inferences
lead to a conclusion of constructive dishonesty,
then the Judgment below will be upheld.
The appellants contend that in reaching the ultimate finding of actual
knowledge by the appellants, His Lordship erred in concluding
that the failure to call Mr.
Barrett and employees of the appellants’ firm could be used as positive evidence that
the uncalled witnesses knew of the fraud. His Lordship’s comments on the failure to
call witnesses are not entirely clear,
but we think it is unlikely that the failure was
used in this way. However, as we propose to consider the primary evidence for
ourselves,
and then to consider whether the failure to call these witnesses is significant, there is
no need to further
consider the meaning of His Lordship’s comments.
It is also to be noted that the amended statement of claim specifically
pleads the knowledge and involvement of Ms Thomson as
an employee as a person who assisted
in the breach of trust: see paragraphs 21 to 25. It is expressly pleaded that the
appellants are vicariously liable for the conduct of Ms Thomson in the course of her
employment: see paragraph 26. If Ms Thomson
was guilty of dishonest conduct in the Royal
Brunei sense, the appellants are vicariously liable for her dishonest assistance in
the breach of trust: Agip (Africa) Ltd v Jackson [1991] Ch 265 at 296, and on
appeal [1991] Ch 547 at 570 and Lloyd v Grace Smith & Co [1912] AC 716 at 738.
The other evidence is to be understood in light of this plea.
We turn to the other evidence. Mr Kennedy came to the appellants firm
without introduction. His background and that of McCullen
& Suarez Inc was unknown. No
inquiry was made about the standing of Mr Kennedy or McCullen & Suarez Inc. Ms Thomson
was informed by Mr Kennedy on about 14 July 1993 that the business of McCullen &
Suarez was the selling of shares in
a real estate company. Thereafter the appellants, and
Ms Thomson in particular, knew that many cheques sourced from Australia
were being
received from a variety of individuals and companies. The appellants also understood that
the business of McCullen
& Suarez was "telemarketing" in Australia. They
knew of no other commodity apart from shares that were being marketed.
Documents admitted
into evidence obtained from the files of the appellants included correspondence which
accompanied cheques
from Australia on 23, 26, 27 and 30 August 1993, 5 September 1993, 12
October 1993, 5 November 1993, 9 December 1993, 21 January
1994, 9 March 1995 which
indicated that the cheques were in respect of the purchase of Mexigulf Sealand shares. The
inevitable
inference is that this correspondence came to the attention of Ms Thomson who
was handling the files, if not to the appellants
themselves.
Mr Sinclair admitted in evidence that he thought from the outset that
Mr Kennedy’s motive for opening accounts in Vanuatu
was to keep confidential the
movement of funds.
The disbursement of funds from the McCullen & Suarez accounts under
the control of the appellants was significant. From as
early as 5 July 1993 instructions
were received by the appellants or Ms Thomson to clear funds as soon as possible after
they were received, and to disburse them in accordance with instructions received from Mr
Kennedy. In the early months these
instructions came by handwritten note from Mr Kennedy
whose address was not indicated. His contact point, the file suggests,
was a fax number in
Australia. Payments instructed to be made, after paying a number of obvious operating
expenses of a
company (for such things as rent, advice, secretarial services, and
telephone expenses) had the effect of substantially clearing
the account soon after
significant amounts were banked into it. Initially, payments were for substantial sums for
"pick
up" in Australia at banks by "Pennutt Paea". Such payments for
collection by Pennutt Paea included:
9 July &nbbsp;& 1sp;&nb93 $3p; $3000
16 July &nnbsp;
& $bsp;$2000
GNTIFY"ulFY"uly &nbssp; 1793 $/p00
2FY">27 Jul7 July & 1993 $293 $2000 ALIGNTIFY">4 August& 1993 $8000
9 August &nbs; 19p; 1993 $293 $2500
17 t 19900
18 August 1993 $2000<2000
/p>
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