In the recent Federal Court decision of Shaw Building Group Pty Ltd v Narayan (No 2)[1],Justice Foster discussed the relevant principles for quantifying an applicant’s claim for restitution arising from the misappropriation of funds, where there has been partial repayment of the stolen funds by a respondent.

Facts

Shaw Building Group Pty Ltd (applicant), a construction company, commenced civil proceedings against its former Financial Controller, Adi Narayan, and others, to recover monies stolen by Mr Narayan between November 2008 and February 2012 totalling at least $987,005.08.

Mr Narayan misappropriated the funds by rendering false invoices to the applicant in the name of entities controlled by his friends and associates.  Mr Narayan’s friends and associates would then pay the (stolen) money received from the applicant to Mr Narayan, retaining part of the funds as a “commission” for facilitating Mr Narayan’s frauds.

As a result of the frauds, Mr Narayan was charged and convicted of five counts of obtaining property by deception, and served a prison sentence.

The applicant’s proceedings against Mr Narayan’s friends and associates had been resolved, leaving the applicant’s claim against Mr Narayan to be determined by the Court.

The applicant’s claim

The applicant commenced civil proceedings against Mr Narayan for money had and received, or in the alternative, for breach of fiduciary duty.  The Court stated that the applicant may also have intended to rely upon the tort of deceit and the tort of conversion, although this was not clearly pleaded in its Statement of Claim.

Mr Narayan had filed and served a Submitting Notice in relation to the applicant’s Statement of Claim, the effect of which was to communicate to the applicant and the Court that he did not intend to defend the applicant’s claim against him.

Issues

Notwithstanding that Mr Narayan was not entitled to defend the applicant’s claim due to the Submitting Notice, an issue arose as to whether the applicant was entitled to receive the full amount of the money misappropriated by Mr Narayan, plus interest and costs, or whether past payments made by Mr Narayan and the other respondent parties should be taken into account and deducted from the applicant’s entitlement.

Prior to this judgement, the applicant had received the following repayments from the fraudulent parties:

  • From Mr Narayan:
    • $6,000 paid in May and July 2012; and
    • $130,000 paid on 11 November 2014.
  • From the other respondents, a total sum of $504,879.39, as at 31 October 2014.

The applicant contended that it was entitled to receive the full amount of the money misappropriated by Mr Narayan that did not factor in any repayments.  The issue to be determined by the Court was therefore:

“… whether judgement should be entered against Mr Narayan for $987,005.08 or $981,005.05 as claimed by the applicant, plus interest and costs, or whether judgement should be entered for a lesser amount being that amount plus interest less the recoupments achieved by the applicant [as outlined above]… The total of these amounts is $640,879.39.”[2]

The decision

Justice Foster made the following comments in relation to an action for money had and received:

  • Money that has been stolen may be recovered from the thief in civil proceedings by commencing an action for money had and received.
  • In order to succeed in such an action, an applicant must establish that the money which a respondent has obtained was “subtracted” from the applicant.
  • The relevant remedy available to an applicant is restitution, which requires the respondent to repay to the applicant the money which he or she has stolen.
  • A victim of theft may also sue a third party who has received the stolen money from the thief without giving valuable and adequate consideration.

In relation to whether there was a breach of fiduciary duty by Mr Narayan, Justice Foster found that the evidence was insufficient to support a conclusive finding that a fiduciary relationship existed between the parties.  However, Justice Foster emphasised that even if he was persuaded that Mr Narayan owed the applicant a fiduciary duty, the remedy would be the same; Mr Narayan would be required to make restitution of the stolen funds.

Regarding the applicant’s (possible) claims in tort, Justice Foster held that it was not necessary for the Court to comment on this aspect of the applicant’s claim, due to the above findings.

Accordingly, for the above reasons, the Court entered judgement against Mr Narayan for the full amount of the funds stolen by him, $987,005.08, less the amount of $130,000 paid by him on 11 November 2014 plus pre-judgement interest as assessed by the Court.  Importantly, Justice Foster noted that:

“…notwithstanding that the applicant obtains a judgement for the full amount of the moneys stolen from it, the law forbids the applicant to recover more in total from all the respondents than the amount of its actual loss.”[3]

Accordingly, the Court added a note in the orders to record the amount already recouped by the applicant from the other respondents.  These repayments were also taken into account for the purposes of calculating the pre-judgement interest.

Key findings

This decision provides useful comments as to the relief available to a party that has been subject to a fraud.  The key points to note are:

  • Actions for money had and received and breach of fiduciary duty will generally result in the same remedy, that is, to require the respondent(s) to restore the actual money which was stolen (restitution).
  • An applicant cannot recover from the respondent(s) more than the amount of actual loss.
  • Any payments received by the applicant from the respondent(s) prior to judgement will be subtracted from the award of restitution, and taken into consideration when calculating interest

- Reena Dandan, Graduate.