Undaunted by the High Court’s decision in Farah Constructions, the New South Wales Court of Appeal has breathed life into common law claims for money had and received, holding that they can coexist with claims arising in circumstances covered by the well-recognised ‘first limb’ of Barnes v Addy (knowing receipt).

Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81

Facts

This was a claim by one innocent victim of a Ponzi scheme (the Club) against another innocent victim of the same scheme (Ms Fistar).

In December 2013, Ms Fistar provided a cheque for $598,853.53 to the fraudster (Ms Repaja) purportedly for a short term investment pending Ms Fistar needing the funds in February 2014 to settle on the purchase of a property in Dolls Point. As settlement approached, only $94,971.24 of those funds remained, the rest having been dissipated by Ms Repaja.

Separately, on about 24 February 2014 the Club’s CEO transferred $800,000 from the Club’s account to Ms Repaja’s account. The CEO was found to have stolen those funds, to Ms Repaja’s knowledge.

The next day, Ms Repaja purchased a bank cheque for $599,999.99 payable to the vendor of the land being bought by Ms Fistar, using the remaining funds from Ms Fistar ($94,971.24), some of Ms Repaja’s funds ($23,839), and some of the Club’s funds ($481,189.75). Ms Repaja delivered the cheque to Ms Fistar’s solicitors who delivered it to the vendor’s solicitors at settlement.

The Club discovered the theft and sued Ms Repaja, her company, the Club’s CEO, and Ms Fistar.

In relation to Ms Fistar, the Club pleaded a proprietary claim in equity under the ‘first limb’ of Barnes v Addy (1874) LR 9 Ch App 244 (i.e. “knowing receipt” of trust property). The claim was put on the basis that Ms Repaja held the bank cheque on trust for, or subject to an equitable charge in favour of, the Club, and that Ms Fistar received the cheque as a volunteer, such that when she received it, and later title to the Dolls Point property, each was held subject to the Club’s existing equitable interest.

At trial, the Club abandoned that claim (perceiving that it was likely to fail by reason of Ms Fistar’s indefeasible title to the Dolls Point property: see Break Fast Investments Pty Ltd v Giannopoulos (No 5) [2011] NSWSC 1508 and Sze Tu v Lowe (2014) 89 NSWLR 317 at [243]).

Instead, the Club introduced a personal claim at common law for money had and received (based on the Court of Appeal’s decision in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230, which stands for the proposition that an innocent volunteer who receives stolen money may be required to restore the fund remaining in his or her hands, whether in its original form or in its traceable product, when the true position is discovered).

The trial judge found for the Club and gave judgment for $481,189.75. Ms Fistar appealed.

The issue

The primary issue on appeal was whether common law causes of action for money had and received could coexist with causes of action based on the ‘first limb’ of Barnes v Addy.

The genesis of this issue was the High Court decision of Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89. In that case, the New South Wales Court of Appeal upheld a claim based on the ‘first limb’ of Barnes v Addy and, in the alternative, a claim for restitution for unjust enrichment. The High Court allowed the appeal and was scathing of the Court of Appeal’s approach to the claim for restitution for unjust enrichment (see [130]-[158]). At [134], the High Court relevantly said:

Either the Court of Appeal is to be treated as abandoning the notice test for the first limb of Barnes v Addy, or it is to be treated rather as recognising a new avenue of recovery, which exists alongside the first limb. … If, on the other hand, the Court of Appeal is to be treated not as abandoning the notice test for the first limb of Barnes v Addy, but rather as recognising a new and additional avenue of relief, it is an avenue which tends to render the first limb otiose. That too is not a step which an intermediate court of appeal should take in the face of long-established authority and seriously considered dicta of a majority of this Court.

Ms Fistar, relying on [134] of Farah Constructions, contended that where property was received by a third party following a breach of trust, the third party could only be liable under the ‘first limb’ of Barnes v Addy. In other words, she contended that the effect of Farah Constructions was that the ‘first limb’ of Barnes v Addy ‘covered the field’ to the exclusion of other causes of action such as claims for money had and received. On that basis Ms Fistar contended that the Club’s cause of action for money had and received could not be maintained.

The judgment

The Court of Appeal rejected Ms Fistar’s contention.

Leeming JA, with whom Bathurst CJ and Sackville AJA agreed, addressed the primary issue, namely whether common law causes of action for money had and received could coexist with causes of action based on the ‘first limb’ of Barnes v Addy, at [29]-[56]. Leeming JA rejected Ms Fistar’s contention, holding that it was based on a misreading of [134] of Farah Constructions (see [52]-[53]).

Sackville AJA agreed, adding some short observations which neatly capture the point (see [90]-[93]). Sackville AJA noted the importance of the High Court’s reliance in Farah Constructions on the decision of Harper J in NIML Ltd v MAN Financial Australia Ltd [2004] VSC 449 (see e.g. [53], [62]-[63], and [74] ff), concluding (at [93]):

Significantly for present purposes, the High Court noted that NIML recognised not only that the first limb of Barnes v Addy was right but that it “operates alongside restitution-based liability” [(2007) 230 CLR 89 at [145]]. I read this comment as endorsing the proposition that restitution-based liability, applied in accordance with established common law principles, can co-exist with liability founded on the equitable principles stated in Barnes v Addy. That proposition is inconsistent with the argument advanced on behalf of the appellant (Ms Fistar).

The Court of Appeal nonetheless allowed the appeal. Having held that the cause of action for money had and received could be maintained, the question was whether the trial judge had erred by holding that Ms Fistar was a volunteer. The Court of Appeal held that Ms Fistar was not a volunteer; rather, she was a creditor, such that when her solicitors received the bank cheque, the existing and enforceable debt otherwise owed to her by Ms Repaja and/or her company was discharged.

Comment

Since this decision was delivered, the Full Court of the Federal Court has considered the issue and taken the same view as the New South Wales Court of Appeal as to the scope and meaning of [134] of Farah Constructions: see Great Investments Ltd v Warner (2016) 114 ACSR 33 at [54]-[55]. Until the High Court has occasion to revisit the issue, however, the effect of [134] of Farah Constructions will remain unclear.