Citation: Commonwealth Bank of Australia v Saleh & 8 Ors [2005] NSWSC 681
Court: Supreme Court of New South Wales, Equity Division
Date: 1 July 2005
Judge: White J
Background
The plaintiff bank claimed it was induced to lend $7 million to a person representing himself as "Mr Edge" to finance the purchase of shares in a company called TDM Australia Pty Ltd. The $7 million was paid to the first defendant, the alleged vendor of those shares, on 3 June 2005. Shortly afterwards, the supposed borrower disappeared, as did the first defendant, and the company's assets proved to be largely worthless. A debtor list that had been central to the transaction, purporting to show receivables of over $8 million, appeared to be substantially false.
The third defendant was the accountant for TDM Australia and had authored correspondence confirming the accuracy of the company's debtor listing. On 7 June 2005, four days after settlement, the first defendant transferred $125,000 to the third defendant's bank account. By the time proceedings were commenced, that account held a credit balance of $45,337.
The bank obtained an ex parte freezing order against the third defendant's account on 24 June 2005. At this hearing, the third defendant opposed its continuation, arguing the $125,000 payment was legitimate remuneration for accountancy and consultancy services.
Legal Issues
- Whether there was a sufficiently strong prima facie case that the third defendant participated in the fraud, so as to support tracing and a constructive trust claim over the frozen funds
- Whether there was a sufficiently strong prima facie case that the bank relied on the third defendant's representations about the debtor listing
- Whether the balance of convenience favoured continuing the injunction, taking into account the plaintiff's own conduct
- Whether there was a real risk that the funds would be dissipated if the injunction was not continued
Decision
White J declined to continue the injunction. Although the court acknowledged that the circumstances were suspicious and the competing factors were closely balanced, it ultimately found the prima facie case against the third defendant insufficient to warrant maintaining the freeze.
On the reliance issue, the court found no direct evidence that anyone at the bank had actually seen or acted upon the third defendant's letter of 20 May 2005. The bank appeared to have obtained an explanation about the debtor listing from the first defendant and his brother, not from any direct engagement with the accountant. The bank proceeded to settle without ever contacting the third defendant to verify what his letter meant or what steps he had taken to confirm the debtor figures.
On the balance of convenience, White J placed considerable weight on the bank's own conduct. The bank had been unable to establish the identity of its borrower, had not joined the person posing as "Mr Edge" as a defendant, and had pressed ahead with a $7 million transaction on the day of settlement after receiving only a verbal explanation about the debtors and making brief telephone contact with the unverified borrower. The court concluded that if the bank could not recover the $45,337, it had substantially itself to blame.
The court also noted the caution required when exercising the jurisdiction to restrain dealings with assets: such an order is not available merely to secure a plaintiff's position, but exists to prevent a defendant from rendering final relief ineffective. The risk of injustice to the third defendant, who might be unable to prove losses suffered under the undertaking as to damages if he ultimately succeeded, was a relevant consideration.
Orders Made
- The interlocutory injunction against the third defendant was not continued and was to expire at 5:00 pm on 1 July 2005
- Costs of the plaintiff's application to extend the injunction were ordered to be costs in the proceedings
- The court directed that a copy of the reasons, once transcribed and corrected, be provided to the Commissioner of Taxation
Key Takeaways
- A freezing order over a third party's assets requires a sufficiently clear prima facie case of both that party's involvement and the plaintiff's actual reliance on any relevant representations; without direct evidence of reliance, that element may be difficult to establish.
- The Supreme Court confirmed the principle from Cardile v LED Builders that the jurisdiction to restrain dealings with assets must be exercised with caution and is not available merely to provide security for a plaintiff's claim.
- Where a plaintiff's own negligence contributed materially to its loss, that negligence is a relevant factor on the balance of convenience when the court weighs where the lower risk of injustice lies.
- Suspicious circumstances surrounding a payment to a third party, including the timing of the payment and a debtor of questionable legitimacy, did not alone establish a sufficiently strong prima facie case of participation in fraud.
- In dismissing the application, the court directed that its reasons be provided to the Commissioner of Taxation, reflecting the court's concern about the tax implications of the transaction identified during the hearing.
Legislation and Cases Referenced
Cases:
- Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Legislation:
No specific legislation was cited in the judgment. The court's references to withholding obligations and tax invoice requirements appear to relate to GST and taxation administration rules, though no specific statutory provisions were named in the text provided.