The Asset Tracing and Recovery Review: Australia
The Australian legal system provides a range of options for a victim of fraud or breach of fiduciary duty who is seeking to trace the misappropriated property or recover the loss suffered.
A victim of fraud will typically seek compensation through civil proceedings.
Proceedings can be brought against a fraudster or the person who committed the breach. In addition, the victim may have claims against any persons who were knowingly involved in the fraud or breach, or against the recipient of the misappropriated property.
Where the misappropriated property can be sufficiently identified and the victim can establish a proprietary interest in that property, that proprietary interest will rank ahead of competing claims by any other creditors. Accordingly, an insolvency of the fraudster will not necessarily preclude the victim from recovering the loss.
A broad range of orders are available from the Australian courts to assist the victim. These range from orders for compensation and the return of property to orders freezing the assets or permitting the victim to search premises where evidence may be held.
Where a victim is seeking to trace assets in equity, Australian courts 'have favoured practicality over strict logic'.2 In other words, Australian courts will adopt a practical and common sense approach, and even if each link in the chain of accounts through which the money has passed cannot be connected, the court will be willing to draw appropriate inferences as to what occurred.3
The broadest range of remedies that are available to a victim arise in equity. Where fraud or theft is involved, Australian law does not require a preexisting trust or fiduciary relationship to apply to the lost assets for equitable remedies to be available.4
The causes of action and remedies that might be available to a victim arise under statute, at common law and in equity. They include both personal and proprietary claims, the latter of which will involve tracing.
Tracing is not of itself a claim under Australian law. Australian courts have approved the statement by the House of Lords in Foskett v. McKeown5 that tracing is neither a claim nor a remedy; rather, it is a process by which a claimant demonstrates what has happened to the claimant's property, identifies its proceeds and justifies a claim to those proceeds as being the claimant's property.
Legal rights and remedies
i Civil and criminal remedies
Claims against the person who commits the fraud or breach of duty
In matters such as the misappropriation of company funds and fraudulent misrepresentation in company sales or equity raisings, criminal proceedings are sometimes brought by the regulator, the Australian Securities and Investments Commission (ASIC), rather than by the police. ASIC has powers to bring criminal proceedings under legislation including the Corporations Act6 and the Australian Securities and Investments Commission Act 2001.7 While ASIC may seek compensation orders as a result of the conduct in question, its focus is often on seeking criminal sanctions (including imprisonment) or seeking civil penalty or banning orders.
The Director of Public Prosecutions (DPP) may also prosecute cases such as fraud.8 While the DPP's focus will typically be obtaining a criminal conviction, there are procedures under which, following a successful criminal prosecution, a victim can apply for compensation orders in that criminal proceeding.9
Where property is misappropriated, the victim's primary recourse will often be a civil claim against the person who committed the fraud or breach of duty. As stated above, where the relevant conduct infringes legislation administered by ASIC, ASIC can also bring civil claims.
Causes of action available to the victim include:
- misleading or deceptive conduct: where the fraud has occurred in the context of business, a claim may be available for misleading or deceptive conduct;
- breach of duty: fraudulent conduct by a company director can result in pecuniary penalty orders,10 compensation orders,11 equitable claims for constructive trust over profits, account of profits or equitable compensation. Breaches of duty by trustees can also be remedied by equitable claims;
- money had and received: where money has been taken, a claim for money had and received on the basis of unjust enrichment may be available;
- tort of deceit: where the victim suffers loss by relying on a fraudulent representation by the defendant that the defendant intended the victim to rely upon, a claim may be made for damages;12 and
- torts of conversion and detinue: where goods have been taken, claims may lie for conversion and detinue. This is likely to be most relevant where money has been taken by cheque fraud.13
The basis for a claim against the primary wrongdoer is likely to be straightforward. However, as a practical matter, civil claims are often of limited value in terms of recovering the property or obtaining damages, as assets are regularly dissipated or removed from the jurisdiction, and the wrongdoer may either disappear or file for bankruptcy.
Where a fraud has been committed by an employee in the course of doing acts that he or she is empowered to do by his or her employer in the course of employment, the employer may also be found vicariously liable for the employee's fraudulent acts.14
Claims against persons who assist in committing the fraud or breach of duty
A better source of potential recovery for the victim may be a claim against a third party who participated in, was knowingly involved in, or assisted the person who committed the fraud or breach of duty.
That type of knowing involvement claim is illustrated by Australia's longest-running piece of litigation, being proceedings brought against a syndicate of banks arising out of the collapse of the Bell group. Those proceedings concerned, in summary, claims that the directors of the Bell group companies breached their duties to those companies, and that the banks had the requisite knowledge of the breaches to be held liable as constructive trustees. Judgment was entered against the banks for A$1.75 billion.15 Set out below are potential causes of action against accessories to the breach or to the fraud.
Other claims that may be available against accessories include claims for the tort of conspiracy and the tort of negligence.
Civil accessorial liability – statute
The Corporations Act and the Australian Consumer Law (ACL)16 both contain accessorial liability provisions:
- Under the ACL, damages can be sought against both a person who contravenes the statute (e.g., by engaging in misleading or deceptive conduct) and a person involved in the contravention.17 A person is involved in the contravention if that person, inter alia, aids or abets the contravention, counsels the contravention, conspires to effect or induces the contravention, or is directly, or indirectly, knowingly concerned in the contravention.18
- Similarly, damages can be sought under the Corporations Act against persons who are involved in a contravention of that Act (e.g., breaches of directors' duties).19
A claim against an accessory involves considerations that can make it considerably more difficult to establish than a claim against the principal wrongdoer. To illustrate this, some of the issues that often arise in an accessorial liability claim arising out of a misrepresentation inducing the sale of a business at an inflated price include the following:
- the quality of the accessory's knowledge: actual rather than constructive knowledge of the falsity of the representation is required to found an accessorial liability claim. In cases of wilful blindness, an inference could be made of actual knowledge;20
- corporate knowledge: where the accessory is a corporation, whether the knowledge of a particular individual or individuals can be imputed to the corporation may be a live issue;21 and
- identifying the right parties to sue: if the misrepresentation was contained in a disclosure document, damages may be available from, inter alia, the directors of the body making the offer22 (although there are defences that may be available to the directors, such as the due diligence defence).
However, the following factors are advantageous to a person making a claim against an accessory:
- the accessory's knowledge: it is not necessary to show that the alleged accessory knew that the conduct in question (i.e., the misrepresentation to the purchaser) was unlawful. It is sufficient if he or she had actual knowledge of the essential matters of the principal's contravention, which are that a representation was made and that the representation was false;23 and
- causation: a person may be knowingly involved in a contravention and liable in damages even if that person's conduct was not causally connected with the contravention.24
Civil accessorial liability – equity
In equity, the two main heads of accessorial liability are the two limbs of Barnes v. Addy, being knowing assistance in the breach of trust or fiduciary duty, and knowing receipt of trust property.25 Knowing receipt is discussed further below. A knowing assistance claim under Australian law has three elements:26 a dishonest and fraudulent breach of duty in the sense of being morally reprehensible;27 knowledge of the dishonest and fraudulent breach on the part of the third party;28 and assistance in that breach by the third party.
To establish knowing assistance, the actions of the third-party assistant must have had some causal significance – that is, 'the plaintiffs must prove that the defendants' conduct made a difference, in the sense that it advanced the primary breach in some way',29 although English law suggests it is not necessary to establish a precise causal link between the assistance and the loss.30 The equitable remedies that are available if the claim is established are discussed below.
Criminal accessorial liability for fraud
There are also criminal consequences for an accessory to fraud. A person who, before or during the commission of an offence, intentionally encourages or assists another to commit a crime may be charged for the offence itself. To be liable, an accessory must have actual knowledge of the essential facts and circumstances of the principal offence,31 and must aid, abet, counsel or procure the commission of the offence.32
Claims against third parties who receive or transmit the proceeds of fraud or breach of duty
Where proceeds of fraud or a breach of duty have been transferred to a third party, the victim may be able to recover that property from the third party or be compensated for the loss under a range of civil remedies. Establishing a proprietary interest in the misappropriated property will enable the victim to rank ahead of all other creditors in respect of that property.
Common law remedies
The main remedies at common law against a third-party recipient of property are actions for money had and received, and for conversion and detinue.
A detailed discussion of those remedies is beyond the scope of this chapter. However, it should be noted that the common law remedies have some notable limitations. They rely on the plaintiff establishing a legal title to property that needs vindicating, which requires being able to trace title to the property at common law. There are some common forms of mixing that will result in legal title to the property no longer being traceable. For example, if a director misappropriates company funds, pays those funds to a relative and the relative mixes the funds with his or her own funds, that will end the company's common law chain of title.33
Money had and received by a volunteer will also only be recoverable to the extent that the volunteer recipient is on notice of the plaintiff's interest in the property.34 A volunteer will not be strictly liable and will have available to him or her the change of position defence, though this position has been criticised.35
Equitable remedies are broader and more flexible than common law remedies. They include declarations of ownership and constructive trust, declarations of charge, an account of profits36 and equitable compensation. There has also been some suggestion in obiter that consequential losses could be a remedy for knowing receipt.37
Equity will recognise proprietary claims, via a constructive trust or charge, in more situations than common law because equity will trace into mixed funds as well as into any property that is substituted for the original asset, including any proceeds of the sale of the property.38 Tracing is not restricted to cases involving breach of fiduciary duty (e.g., misappropriation by a director of company funds). In Black v. S Freedman & Company, the High Court recognised a right to trace funds against a thief on the basis that stolen money is held on constructive trust by the thief. The company that was the true owner was able to trace the moneys that were paid over to the thief's wife.39 It was not suggested that the thief's fiduciary relationship with the company was a necessary element to the tracing claim.
Some specific issues that might arise in a proprietary claim are as follows:
- property transferred away: the proprietary remedies consequent on tracing do not impose any personal liability. Once the property leaves the recipient's hands, the remedies are no longer available against that recipient;
- bona fide purchaser for value without notice: the remedies will not be enforceable against a bona fide purchaser for value of the property without notice of the victim's equitable interest;40
- indefeasibility of Torrens title to land: it is generally not possible to trace into land held by a registered proprietor under the Australian Torrens title system. This is because Torrens legislation gives indefeasible title to the individual recorded as the registered proprietor of land on the Torrens register. However, title is defeasible against a person who becomes the registered proprietor of the land through fraud, or any person who derives title through them who is not a bona fide purchaser for value without notice;41
- mixing and priority rules: complex apportionment and priority rules apply when tracing into a volunteer third-party recipient's hands. By way of example:
- if the recipient purchases something valuable with money withdrawn from the mixed account, the victim may be entitled to claim that property;42
- in the event the plaintiff's property is traced into a fund that mixes the plaintiff's property with a third party's property, the plaintiff and the third party will share the mixed fund in proportion to their contributions,43 with the third party having the onus to prove his or her contribution;44 and
- in the event a third party uses the plaintiff's money on improvements to the third party's own assets, the plaintiff will not be able to trace into the improved asset. The plaintiff may not, in that case, have a remedy;45 and
- tracing into overdrawn bank account: it is not possible to trace into an overdrawn bank account that remains overdrawn even after the misappropriated money is paid into it as the money has 'no identifiable existence after the payment'.46 It may be possible to trace into an account that is in credit, although occasionally overdrawn;47 however, this approach has been criticised.48
If a plaintiff establishes a proprietary entitlement to certain assets via tracing, the court has no discretion to deny a remedy,49 although it may have a discretion as to which remedy is applied.
An equitable claim that imposes personal liability on the recipient is the claim for knowing receipt under the first limb of Barnes v. Addy.50 A detailed discussion of that claim is beyond the scope of this chapter, but in summary, where a third party receives property that has been misapplied in breach of fiduciary duty with knowledge of the breach of duty, equity will hold the third party as a constructive trustee of the property; and equity will impose on the recipient of the property the trustee's personal obligation to restore property to the trust. If the trust property leaves the recipient's hands, equitable compensation may be ordered against the recipient.51
To illustrate how such a claim would work in the context of a director's misappropriation of company funds (e.g., by paying them to a relative), to establish a claim against the recipient of the funds, the company would need to show:
- the recipient received trust property. The weight of authority is that the first limb of Barnes v. Addy applies not only to trust property in the strict sense but also to property to which a fiduciary obligation attaches, for example, company property;52 and
- the recipient knows that the property is trust property and that it is being applied in breach of trust or fiduciary duty.53 The quality of knowledge the recipient must have of the breach is not conclusively settled in Australia. Recent cases suggest that mere knowledge of circumstances that would put an honest and reasonable person on inquiry is not sufficient, but that any of the following types of knowledge identified by Peter Gibson J in Baden v. Société Générale54 will suffice:55
- actual knowledge;
- wilfully shutting one's eyes to the obvious;
- wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; and
- knowledge of circumstances that would indicate the facts to an honest and reasonable person.
A third-party recipient may be criminally liable for receiving stolen property if he or she knows that the property was stolen at the time of receiving the property.56
ii Defences to fraud claims
The limitation period in Australia for statutory and common law claims is six years. However, in cases of concealed fraud, the limitation period will only run from the time the fraud is discovered.
For equitable claims, the position is more complex. There is no limitation period, but equity may apply a limitation period by analogy with an equivalent statutory claim. For example, directors owe both statutory and equitable duties to corporations. A six-year limitation period applies to a claim for breach of the statutory duty, and a time bar may be applied to an analogous claim for breach of the equitable duty.57
Seizure and evidence
i Securing assets and proceeds
In the case of fraud, there is an obvious risk of assets that would otherwise be available to meet a judgment being moved or dissipated. A party may apply to the court for a freezing order, or Mareva order,58 to preserve assets in aid of a contemplated proceeding in order to prevent abuse of the court's process.
An applicant seeking a freezing order will typically bring an ex parte application for it. To obtain a freezing order, the applicant must, inter alia:
- prove that judgment has been given in its favour or that it has a good arguable case on its claim;
- prove by evidence that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because the relevant assets might be, for example, removed or disposed of.59 The applicant does not need to provide demonstrable proof that, absent the making of an order, assets will inevitably be disposed of. Rather, the court will consider whether there is a real risk that assets will be dealt with so as to prevent the satisfaction of a judgment.60 As to evidence, in a case concerning a misappropriation of company funds by a director, evidence might be led of the director's lack of probity. Other relevant evidence might include the respondent's corporate structure, the nature of its assets, evidence of past disposals of assets and any evidence of an intention to transfer assets, and give an undertaking in damages.
Mareva orders can be made in respect of assets outside the court's jurisdiction, as long as the defendant him or herself is within the jurisdiction.61
Orders can also be sought against third parties who hold or control assets beneficially owned by a respondent (e.g., banks).
If an ex parte freezing order is made by the court, it operates only until the first inter partes return date. On that occasion, the applicant bears the onus of establishing why the order should continue, and the respondent will have the opportunity to argue as to why the order should be discharged.
Asset disclosure orders
In addition to a freezing order, the court has the power to make ancillary orders for the purpose of obtaining information about the frozen assets, or as to whether an order should be made at all. The most common type of order made is that the respondent disclose, by way of affidavit, the nature, value and location of its assets.
ii Obtaining evidence
A party seeking to preserve evidence for use in a proceeding may apply to the court to obtain a search order, also known as an Anton Piller order after the decision in Anton Piller KG v. Manufacturing Processes Ltd.62
An application for a search order is brought ex parte. To obtain a search order, the applicant must show:
- a strong prima facie case on an accrued cause of action;
- that if a search order is not made, the potential or actual loss to the applicant will be serious; and
- sufficient evidence that the respondent possesses important evidentiary material, and that there is a real possibility that the respondent might destroy that material or cause it to be unavailable for use in a subsequent court proceeding. The requirement for showing a real possibility of destruction of evidence will typically require evidence of fraud or dishonesty on the part of the respondent.
Some practical matters that arise in the context of a search order are as follows:
- the court requires that the search party must include an independent solicitor, nominated by the applicant and appointed by the court to supervise and report back on the search;
- the proposed orders must list the items to which the search order will apply. Where the premises are likely to include electronic items, it is useful to include a provision requiring that the search order cover any cloud data that is not physically held on the premises but is accessed through electronic equipment on the premises;
- the orders must also list the people who will comprise the search party. It may be necessary to include an independent computer expert who can identify, search and image electronic materials;
- the materials obtained during a search order are kept in the custody of the independent solicitor until the first inter partes return date. On the return date, the court will consider what is to be done with the seized materials and any claims of confidentiality or privilege in the materials; and
- a separate application must be brought for access to the seized materials.
The Australian courts have jurisdiction to make orders restraining a defendant from leaving the jurisdiction and requiring the delivery up of any passports.
Pre-action discovery and subpoenas
Before commencement of proceedings, evidence can also be obtained by an application for pre-action discovery from the proposed defendant.
Third parties who were somehow involved in and facilitated the wrongdoing (even innocently) can be ordered to give limited discovery for the purposes of identifying the proper defendants to a proposed action (a Norwich Pharmacal order). Where a proceeding is on foot, material can be obtained from third parties by issuing subpoenas requiring the third party to produce relevant documents to the court.
In circumstances in which ASIC is investigating a wrongdoing, it may conduct private examinations of persons it believes can give information relevant to the matter. ASIC may then give a copy of a written record of that examination, together with a copy of any related book (document), to a person's lawyer if the lawyer satisfies ASIC that the person is carrying on, or contemplating, a proceeding in respect of the matter that was the subject of the investigation.63 Subject to some limited exceptions, the record of that examination is admissible as evidence in a subsequent proceeding against the wrongdoer.64
ASIC could also supply the written record of the examination to the liquidator of a company that is discussed in the course of an examination.65
Fraud in specific contexts
i Banking and money laundering
Banks' liabilities for forged and fraudulently made payment instructions
Where a bank makes payment under the direction of a forged cheque and debits a customer's account for the amount paid, the bank will be liable to its customer for the unauthorised payment. In the absence of a genuine signature by the drawer customer, there is no valid cheque and no mandate.66 The bank will almost always be found to have paid out its own money rather than the customer's, unless the customer has failed to use ordinary care to prevent cheques being forged or fraudulently altered (e.g., by leaving gaps that enable easy alteration to figures or words), or has failed to disclose to the bank any knowledge of related forgery, or is otherwise estopped from denying the cheque's validity (e.g., by making a representation ratifying the forgery).67
In the event of a payment instruction that has been fraudulently made by an authorised signatory outside the signatory's authority, it would appear that a bank can, in limited circumstances, be found liable for paying under the fraudulent mandate even though the instruction appears to have been properly signed. Australian courts have recognised the existence of a duty to question a valid mandate in certain circumstances,68 but the precise scope of the duty is not well defined. The likely standard is that a banker should question a mandate where a reasonable and honest banker with knowledge of the relevant facts would consider that there was a serious or real possibility that the customer was being defrauded or that the funds were being misappropriated.69
The Anti-Money Laundering and Counter-Terrorism Financing Act 200670 and its related Rules71 require financial institutions to undertake customer identification procedures, perform ongoing customer due diligence and report suspicious matters. This legislation introduced heavy investigatory burdens on financial institutions. As a result, behaviour that had been sufficient to protect financial institutions from a claim for money had and received may no longer be adequate. For example, banks accepting deposit instructions from a fraudster or the fraudster's agent without first checking the title to the funds have successfully maintained a defence of adverse change of position in the past.72
The insolvency of either the fraudster or the defrauded person can lead to additional avenues for the recovery of money or obtaining information in the wake of fraud.
Where a fraudster is made bankrupt, a trustee-in-bankruptcy has extensive powers that can be used to require the bankrupt to provide information about his or her dealings, and there are a number of claims available to the trustee-in-bankruptcy to pursue against persons to whom the fraudster transferred money. For example, transfers of property for no consideration or less than market value that took place in the five years before the commencement of the bankruptcy are void as against the trustee-in-bankruptcy as an undervalued transaction.73
Where the defrauded entity becomes insolvent, extensive information-gathering powers are available to an external administrator of that entity. For example, a liquidator of an insolvent company can apply to court for leave to conduct a public examination. The court may require a person to attend court to give evidence and be cross-examined about the corporation's examinable affairs.
New Commonwealth legislation addressing phoenix activity has further enhanced a liquidator's ability to identify a creditor-defeating disposition and ASIC's powers to make credit-defeating disposition orders.74 A disposition of company property will be voidable where the following three conditions are satisfied.75 First, where the property of a company is disposed of for less than market value, or less than the best, reasonably obtainable price. Second, where the disposition has the effect of preventing or hindering that property being available to creditors in a winding-up. Third, and finally, where that disposition was made within the 12 months before the relation-back day, or within 12 months of an external administration. This new provision provides remedies against third parties who have received company property through phoenix activity. It is intended to address the issue often faced by creditors in this scenario, the original company having been made assetless by rogue directors.76
Fraud as a basis for refusing to enforce a foreign award
The International Arbitration Act 197477 provides that a court may refuse to enforce an award if it would be contrary to public policy. Unlike equivalent legislation in many other countries, the Australian statute expressly provides that fraud can render enforcement of an arbitral award contrary to public policy: the enforcement of a foreign award would be contrary to public policy if 'the making of the award was induced or affected by fraud or corruption'.78
Court relief in support of arbitral awards
Where a plaintiff is taking steps to seek to enforce an arbitral award in its favour and the defendant has assets in Australia, one of the options that the plaintiff might consider is applying to the Australian court for a freezing order in respect of those assets if there is a risk that they would otherwise be dissipated. A decision by the Federal Court of Australia in Coeclerici Asia (Pte) Ltd v. Gujarat NRE Coke Limited 79 provides an example of the Court being willing to grant a freezing order over shares owned by that company prior to enforcement of the arbitral award.
iv Fraud's effect on evidentiary rules and legal privilege
The civil standard of proof (the balance of probabilities) applies to civil allegations of fraud. However, given the seriousness of the allegations, the tribunal of fact must be reasonably satisfied before fraud can be found.80
A crime and fraud exception applies to claims for legal professional privilege in Australia, although that tag is a misnomer. As explained by the High Court in Commissioner of Australian Federal Police v. Propend Finance Pty Ltd:
Communications in furtherance of a fraud or crime are not protected by legal professional privilege, because the privilege never attaches to them in the first place. While such communications are often described as 'exceptions' to legal professional privilege, they are not exceptions at all. Their illegal object prevents them becoming the subject of the privilege.81
In determining whether that exception precludes a claim for legal professional privilege being made, relevant considerations are that it is the client's state of mind that is relevant, not the solicitor's;82 the exception is not limited to the actual crime or fraud itself and includes communications made to further an illegal purpose;83 and a mere allegation of fraud will not be sufficient, rather a prima facie case of fraud must be established by evidence.84
i Conflict of law and choice of law in fraud claims
The applicable law for a claim arising out of fraudulent conduct or breach of fiduciary duty is the law of the place of the wrong, being the place where the relevant conduct took place (subject to any mandatory statutes of the forum). If proceedings are brought in Australia in respect of such wrongs, this may mean there is no ability to serve process on an overseas defendant pursuant to the relevant court rules.85 It may also provide a basis on which an Australian court may decline to exercise its jurisdiction to hear the claim.
Determining where the wrong took place can be complex where cross-border communications are involved. The communication might be made in one country but acted on in another. The position under Australian law is that the act is committed at the place to which the communication is directed, whether or not it is acted upon there.86
ii Collection of evidence in support of proceedings abroad
Australia has acceded to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters 1970. Each state and territory has passed legislation that gives power to the relevant Supreme Court to make orders for the collection of evidence upon receipt of a letter of request from a foreign court. The types of orders that a court can make include ordering the attendance of witnesses for examination; ordering the production of documents; and ordering the inspection, preservation, detention or custody of any property.
iii Seizure of assets or proceeds of fraud in support of the victim of fraud
Where there is a sufficient prospect that a foreign court will give judgment in favour of a plaintiff in a foreign proceeding, and that judgment will be registered or enforced in an Australian court, the Australian court has jurisdiction to make a freezing order against the prospective judgment debtor and its assets in Australia.87
iv Enforcement of judgments granted abroad in relation to fraud claims
Judgments obtained abroad for matters such as fraud or breach of fiduciary duty can be enforced in Australia in the same way as any other judgment. There are, however, various criteria that must be met before a foreign judgment can be enforced in Australia.
The statutory scheme
The Foreign Judgments Act 199188 provides a statutory scheme for the recognition and enforcement of judgments from various foreign countries with which Australia has made reciprocal arrangements.89 The Australian court will register the judgment at any time within six years of its date if the following requirements are met: the judgment must be final and conclusive; the judgment must be for a sum of money (punitive damages are not excluded from registration, although judgments for taxes, fines and penalties are excluded); and the judgment cannot be registered if it has been wholly satisfied or it could not be enforced in the country of the original court.90
The common law scheme
At common law, there are four well-established requirements for the recognition and enforcement of foreign judgments in personam:
- the foreign court must have exercised jurisdiction over the judgment debtor that Australian courts will recognise;
- the foreign judgment must be final and conclusive;
- there must be an identity of the parties; and
- the foreign judgment must be for a certain sum.
Subsequent enforcement steps
Once a judgment against a corporation is entered or recognised in Australia, it is commonly enforced by issuing a statutory demand to the corporation. If the corporation fails to pay the debt or have the demand set aside, the judgment creditor is entitled to bring proceedings to have the corporation wound up in insolvency.
Possible enforcement steps against individuals include petitioning for bankruptcy, serving an examination notice, obtaining a writ of execution, obtaining a garnishee order or obtaining a charging order over property owned by the judgment debtor.
v Fraud as a defence to enforcement of judgments granted abroad
A judgment will not be enforceable in Australia if the defendant is able to establish that the judgment was obtained by fraud. The principles that the court will apply when a plaintiff alleges fraud as a basis for resisting enforcement of a judgment include the following:91
- the party asserting fraud must show that there has been a discovery of fresh facts that would provide a reason for setting aside the judgment;
- mere suspicion of fraud is not sufficient. The party asserting fraud must establish that the new facts are so material that it is reasonably probable that the action will succeed. The proof of the facts 'should be clear and cogent such as to induce, on a balance of probabilities, an actual persuasion of the mind as to the existence of the fraud';92
- proof of perjury by a witness in the original proceeding will not of itself be sufficient. The plaintiff will need to establish that the defendant knew the true state of affairs and knowing it, called a witness to give a false and perjured account;93 and
- it must be shown that the successful party was responsible for the fraud that taints the judgment under challenge.
Having regard to the public interest in finality of litigation, resisting the enforcement of a judgment on the basis of an alleged fraud is not straightforward. Further, if the alleged fraud was known at the time of the original proceedings or raised in those proceedings, it seems likely that an Australian court would hold that estoppel prevents the alleged fraud being raised at the time of enforcement.94
i Money laundering
In Australia, there is currently a particular focus on the obligations of banks in relation to their compliance with the Anti-Money Laundering and Counter Terrorism Financing Act 2006. In 2017, AUSTRAC (Australia's financial intelligence and regulatory agency) commenced proceedings in the Federal Court of Australia against a domestic bank alleging serious and systemic non-compliance with that legislation. That proceeding arose out of the use of intelligent ATMs that accept cash deposits, with the funds deposited then being immediately available for transfer. AUSTRAC highlighted the higher money laundering and financing of terrorism risks associated with that product. The proceeding focused on:
- the adequacy of the money laundering and financing of terrorism procedures put in place by the bank;
- the assessments the bank undertook and whether appropriate risk-based systems were put in place to mitigate the risks; and
- allegations of non-reporting and late reporting.
In June 2018, the Federal Court of Australia ordered what at the time was the largest civil penalty in Australia's corporate history against the bank, being a penalty order of A$700 million.95 In September 2020, this record was beaten with an agreed fine of A$1.3 billion between AUSTRAC and another bank in relation to over 23 million admitted breaches of the anti-money laundering and counter terrorism legislation.96 The contraventions included:
- failing to properly report on 19.5 million International Funds Transfer Instructions to AUSTRAC;
- inadequate record-keeping of the origin of these international fund transfers; and
- not carrying out appropriate customer due diligence in relation to suspicious transactions or monitoring risks associated with the movement of money out of Australia into known, higher risk jurisdictions.
1 Christopher Prestwich is a partner at Allens. This chapter was written with assistance from Olivia Morris, a graduate lawyer at Allens.
2 Justice Mark Leeming, 'Proprietary relief and tracing in equity' (2016) 90 ALJ 92 at 94.
3 Toksoz v. Westpac Banking Corporation  NSWCA 199; (2012) 289 ALR 577 at – (Allsop ACJ, Hoeben JA and Sackville AJA agreeing).
4 Black v. S Freedman & Co (1910) 12 CLR 105 at 110 (O'Connor J);  HCA 58.
5  1 AC 102 at 128 (Lord Millett).
6 Corporations Act 2001 (Cth).
7 Australian Securities and Investments Commission Act 2001 (Cth).
8 See, for example, Director of Public Prosecutions v. Hogg  VCC 631.
9 See, for example, the Victims Rights and Support Act 2013 (NSW) and equivalent legislation in other Australian states and territories. However, there have been circumstances where confiscation proceedings brought by the Commonwealth under criminal property confiscation legislation, including the Proceeds of Crime Act 2000 (Cth), has deprived victims of fraud from recovering compensation personally. See Natalie Skead, Sarah Murray and Tamara Tulich, 'The Futility of a “Hug” from the Commonwealth: Property Restraining Orders and the Fight for Victim Compensation under the Commonwealth Proceeds of Crime Legislation' (2020) 44 Criminal Law Journal 43.
10 Section 1317G of the Corporations Act 2001 (Cth).
11 Section 1317H of the Corporations Act 2001 (Cth).
12 See RP Balkin and JLR Davis, The Law of Torts (2013) at [23.12]–[23.42].
13 See, for example, Perpetual Trustees Australia Ltd v. Heperu Pty Ltd (2009) 76 NSWLR 195;  NSWCA 84.
14 Pioneer Mortgage Services Pty Ltd v. Columbus Capital Pty Ltd (2016) 250 FCR 136;  FCAFC 78.
15 Westpac Banking Corporation v. Bell Group Ltd (in liq) (No. 3) (2012) 44 WAR 1;  WASCA 157, which was appealed to the High Court but settled prior to judgment.
16 Formerly known as the Trade Practices Act 1974 (Cth).
17 Section 236 of the Australian Consumer Law.
18 Australian Consumer Law definition of involved (Section 2).
19 See Sections 79 and 1325 of the Corporations Act.
20 Giorganni v. R (1985) 156 CLR 473 at 507–508 (Wilson, Deane and Dawson JJ);  HCA 29.
21 See, e.g., Krakowski v. Eurolynx Properties Ltd (1995) 183 CLR 563;  HCA 68; Commonwealth Bank of Australia v. Kojic  FCAFC 186.
22 Section 729 of the Corporations Act 2001 (Cth).
23 Yorke v. Lucas (1985) 158 CLR 661 at 667–668 (Mason ACJ, Wilson, Deane and Dawson JJ);  HCA 65. However, in a different factual context, the precise essential matters of which knowledge must be established may be open to dispute: Lifeplan Australia Friendly Society Ltd v. Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1;  FCAFC 74 (that the applicant possessed the requisite knowledge was upheld in Ancient Order of Foresters in Victoria Friendly Society Ltd v. Lifeplan Australian Friendly Society Ltd  HCA 43; (2018) 92 ALJR 918).
24 HIH Insurance Ltd (in liq) v. Adler  NSWSC 633 at .
25 Barnes v. Addy (1874) LR 9 Ch App 244.
26 See Farah Constructions Pty Limited v. Say-Dee Pty Limited (2007) 230 CLR 89 at – (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ);  HCA 22.
27 See Selangor United Rubber Estates Ltd v. Craddock (No. 3)  1 WLR 1555 at 1590-1, referred to with approval by Gibbs J in Consul Developments Pty Ltd v. DPC Estates Pty Ltd (1975) 132 CLR 373 at 398;  HCA 8.
28 The High Court held in Farah Constructions Pty Limited v. Say-Dee Pty Limited (2007) 230 CLR 89 at –;  HCA 22 that the level of knowledge required is at least knowledge of circumstances that would indicate the facts to an honest and reasonable person (i.e., something short of actual knowledge or wilful blindness can be sufficient to found a knowing assistance claim in equity).
29 Nicholson Street Pty Ltd (Receivers & Managers Appointed) (In Liquidation) v. Letten  VSC 583 at  (Judd J) (reversed by the Full Court on other grounds).
30 Casio Computer Co Ltd v. Sayo (No. 3)  EWCA Civ 661; Grupo Torras SA v. Al-Sabah [No. 5]  CLC 1469 at 1667 (Mance J). See further Alison Gurr, 'Accessory Liability and Contribution, Release and Apportionment' (2010) 34(2), Melbourne University Law Review 481.
31 Giorgianni v. R (1985) 156 CLR 473 at 482–483, 486–8 (Gibbs CJ), at 494–495 (Mason J), at 500, 505–506 (Wilson, Deane, Dawson JJ);  HCA 29.
32 The precise terms used for the conduct of the accessory varies among different states and territories.
33 For a recent example involving funds that could not be traced at common law once they were gambled in poker machines, see Silversea Cruises Australia Pty Ltd v. Abellanoza  NSWCA 306 at - (Bathurst CJ); -,  (Gleeson JA).
34 Agip (Africa) Ltd v. Jackson  Ch 265.
35 See Eleanor Makeig, 'Money Had and Received – and Retained? The Role of Retention at Notice for Personal Common Law Liability' (2020) 94 Australian Law Journal 855.
36 See, for example, Ancient Order of Foresters in Victoria Friendly Society Ltd v. Lifeplan Australian Friendly Society Ltd  HCA 43; (2018) 92 ALJR 918.
37 Great Investments Ltd v. Warner  FCAFC 85 at ; Grimaldi v. Chameleon Mining NL (No 2) (2012) 200 FCR 296;  FCAFC 6 at 359  (the Court).
38 In re Diplock; Diplock v. Wintle  Ch 465 at 520;  2 All ER 318; Agip (Africa) Ltd v. Jackson  Ch 547 at 566.
39 (1910) 12 CLR 105 at 110 (O'Connor J);  HCA 58.
40 Foskett v. McKeown  1 AC 102 at 127; In re Diplock; Diplock v. Wintle  Ch 465 at 544;  2 All ER 318.
41 See, for example, Sections 42 and 118 of the Real Property Act 1900 (NSW). See further Cassegrain v. Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425;  HCA 2. However, volunteers who register their interest will enjoy indefeasible title in the Northern Territory and Queensland: Land Title Act 2000 (NT) Section 183; Land Title Act 1994 (Qld) Section 180.
42 Re Oatway; Hertslet v. Oatway  2 Ch 356; (1903) 88 LT 622.
43 In re Diplock; Diplock v. Wintle  Ch 465 at 539, 541;  2 All ER 318.
44 See Sze Tu v. Lowe (2014) 89 NSWLR 317;  NSWCA 462.
45 In re Diplock; Diplock v. Wintle  Ch 465 at 546–8;  2 All ER 318.
46 Russell Gould Pty Ltd v. Ramangkura (2014) 87 NSWLR 552;  NSWCA 310.
47 Alesco Corporation Limited ACN 008 666 064 v. Te Maari  NSWSC 469 at . See also Federal Republic of Brazil v. Durant International Corporation  3 WLR 599;  UKPC 35;  All ER (D) 21 (Aug).
48 J C Campbell, 'Republic of Brazil v. Durant and the equities justifying tracing' (2016) 42, Australian Bar Review at 32; Nadilo v. Souris  NSWSC 108 at  (Leeming JA).
49 Alesco Corporation Limited ACN 008 666 064 v. Te Maari  NSWSC 469 at .
50 (1874) LR 9 Ch App 244; Consul Development Pty Ltd v. DPC Estates Pty Ltd (1975) 132 CLR 373;  HCA 8; Farah Constructions Pty Ltd v. Say-Dee Pty Ltd (2007) 230 CLR 89;  HCA 22.
51 Grimaldi v. Chameleon Mining NL (No. 2); Chameleon Mining NL v. Murchison Metals Ltd (2012) 200 FCR 296;  FCAFC 6.
52 Westpac Banking Corporation v. Bell Group Ltd (in liq) (No. 3) (2012) 270 FLR 1; (2012) 89 ACSR 1 at – (Drummond AJA, Lee AJA agreeing);  WASCA 157; Consul Development Pty Ltd v. DPC Estates Pty Ltd (1975) 132 CLR 373 at 396–7;  HCA 8; Farah Constructions Pty Ltd v. Say-Dee Pty Ltd (2007) 230 CLR 89; (2007) 236 ALR 209 at 245;  HCA 22; Grimaldi v. Chameleon Mining NL (No. 2); Chameleon Mining NL v. Murchison Metals Ltd (2012) 200 FCR 296;  FCAFC 6; Evans v. European Bank Ltd (2004) 61 NSWLR 75 at 107;  NSWCA 82.
53 Evans v. European Bank (2004) 61 NSWLR 75 at 106–107;  NSWCA 82.
54 Baden v. Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA  1 WLR 509.
55 Westpac Banking Corporation v. Bell Group Ltd (in liq) (No. 3) (2012) 270 FLR 1; (2012) 89 ACSR 1 at – (Drummond AJA, Lee AJA agreeing);  WASCA 157; Grimaldi v. Chameleon Mining NL (No. 2); Chameleon Mining NL v. Murchison Metals Ltd (2012) 200 FCR 296; (2012) 287 ALR 22 at –;  FCAFC 6; Equiticorp Finance Ltd (in liq) v. Bank of New Zealand (1993) 32 NSWLR 50 at 103; Re Three Chimneys Pty Ltd (in liq)  NSWSC 1754; Simmons v. New South Wales Trustee and Guardian  NSWCA 405 at – (Gleeson JA).
56 Crimes Act 1900 (NSW) Section 188; Criminal Code (NT) Section 229(1); Criminal Code (Qld) Section 433; Criminal Code (WA) Section 414; Criminal Code (Tas) Section 258; Criminal Code 2002 (ACT) Section 313; Crimes Act 1958 (Vic) Section 88(1); and Criminal Law Consolidation Act 1935 (SA) Section 134(5), 134(6).
57 G E Dal Point, Law of Limitation (2016) at [13.32]–[13.39].
58 Mareva Compania Naviera SA v. International Bulk Carriers SA  1 All ER 213.
59 Frigo v. Culhaci  NSWCA 88.
60 Downer EDI Engineering v. Taralga Wind Farm Nominees No. 2  NSWSC 971.
61 National Australia Bank Ltd v. Dessau  VR 521.
62  1 Ch. 55.
63 See Section 25 of the Australian Securities and Investments Commission Act 2001 (Cth).
64 See Section 76 of the Australian Securities and Investments Commission Act 2001 (Cth).
65 ASIC, Regulatory Guide 103: Confidentiality and release of information (issued 27/11/1995).
66 See also Section 32(1) of the Cheques Act 1986 (Cth): a forged drawer's signature is wholly inoperative unless there is an estoppel against the person whose signature it purports to be, or the person has ratified or adopted the signature.
67 Marion Hetherington, 'Responsibility for Payment of Forged Cheques: Lessons from NAB v. Hokit' (1996) 7 JBFLP 313. See also Tony Damian, 'The Customer is Nearly Always Right: Banks and Unauthorised Cheque Payments' (1996) 7 JBFLP 277.
68 See Varker v. Commercial Banking Co of Sydney Ltd  2 NSWLR 967; Ryan v. Bank of New South Wales  VR 555; National Australia Bank Ltd v. Meeke  WASC 11. See also Alan Tyree, 'Questioning a valid mandate' (2012) 23(1) Journal of Banking and Finance Law and Practice 40.
69 Alan Tyree, Banking Law in Australia (2011) at 210; Lipkin Gorman v. Karpanale Ltd  2 AC 548.
70 Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). See Sections 32, 36, 41, 43, 81–84. The federal government has previously indicated it is working on extending the reforms to lawyers, accountants, trust and company service providers, real estate agents and jewellers, but it remains to be seen whether any such amendments will be made to the legislation. See, for example, Pip Harvey Ross, 'Anti-money laundering: Hung out to dry?' (2019) 39(10), The Proctor 24.
71 See Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (Cth), Chapter 4.
72 See Port of Brisbane v. ANZ Securities Ltd (No. 2)  2 Qd R 661;  QCA 158; Australian Financial Services and Leasing Pty Ltd v. Hills Industries Ltd (2014) 253 CLR 560;  HCA 14
73 Section 120 of the Bankruptcy Act 1966 (Cth).
74 Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019.
75 Section 588FDB of the Corporations Act 2001 (Cth).
76 Stephanie Bruce, 'Recent Developments: Creditor-Defeating Dispositions: A Necessary Addition to Australia's Corporate Insolvency Laws' (2020) 28 Insolvency Law Journal 205, 213.
77 International Arbitration Act 1974 (Cth).
78 Section 8(7A)(a) of the International Arbitration Act 1974 (Cth).
79  FCA 882, upheld on appeal in Gujarat NRE Coke Ltd v. Coeclerici Asia (Pte) Ltd (2013) 304 ALR 468;  FCAFC 109 at  (Allsop CJ, Besanko and Middleton JJ).
80 Briginshaw v. Briginshaw (1938) 60 CLR 336;  HCA 34. Certain state legislation now prescribes the standard of proof in civil proceedings: See, for example, Evidence Act 2008 (Vic) Section 140.
81 (1996–7) 188 CLR 501 at 556 (McHugh J);  HCA 3.
82 Baker v. Campbell (1983) 153 CLR 52;  HCA 39.
83 AWB Limited v. Honourable Terence Roderic Hudson Cole (No. 5) (2006) 155 FCR 30;  FCA 1234.
84 Attorney-General (NT) v. Kearney (1985) 158 CLR 500;  HCA 60.
85 See Traxon Industries Pty Ltd v. Emerson Electric Co (2006) 230 ALR 297 at ;  FCA 450.
86 Voth v. Manildra Flour Mills Pty Ltd (1990) 171 CLR 538;  HCA 55.
87 PT Bayan Resources TBK v. BBC Singapore Pte Ltd (2015) 325 ALR 168;  HCA 36.
88 Foreign Judgments Act 1991 (Cth).
89 As specified in the Foreign Judgments Regulations 1992 (Cth).
90 See Foreign Judgments Act 1991 (Cth) Part 2.
91 See Wentworth v. Rogers (No. 5) (1986) 6 NSWLR 534.
92 Rejfek v. McElroy (1965) 112 CLR 517;  HCA 46.
93 Benefit Strategies Group Inc v. Prider (2005) 91 SASR 544 at ;  SASC 194.
94 See M Davies, AS Bell and PLG Brereton, Nygh's Conflict of Laws in Australia (2013) at [40.65].