Harstedt Pty Ltd v Tomanek [2018] VSCA 84 (10 April 2018): Trustees and trust, accessorial liability, the second limb of Barnes v Addy, fraudulent breach of trust

April 15, 2018 |

The Victorian Court of Appeal in Harstedt Pty Ltd v Tomanek [2018] VSCA 84 considered the operation of the second limb of Barnes v Addy and, in particular the requirement to establish knowing assistance.

FACTS

The genesis of the action and appeal was a failed investment scheme known as a private placement program. Investors were promised profits which were to be generated by the investment of capital by a humanitarian organisation [1].

The director of Harstedt, Jeffrey Olsen, had been a stockbroker for about 15 years. In late 2006, he was approached by Noel Carter who said that he had an investment proposal. The investment was described as a ‘private placement program’ for a not-for-profit humanitarian organisation called the ‘Isaiah 61 Foundation’ which would use investors’ capital to make substantial profits under an agreement [4].  Olsen was initially not interested as it offered no capital protection .

At a conference at Carter’s office on 3 March 2007,  Olsen met Stephen Moriarty (“Moriaty”). To meet Olsen’s concerns about capital protection Moriarty  said that funds contributed by Australian investors would stay in Australia in a ‘non-depleting’ account and that the funds would not leave that account [5]. On 23 March 2007, Olsen met Mr Tomanek (“Tomanek”), as well as to Jose Lopez (“Lopez”) and Graeme Robinson (“Robinson”) at a further meeting at the Commonwealth Bank of Australia (‘the CBA’) in Bourke Street, Melbourne [6]. Lopez said the proposal as involving gearing a return of 300 per cent over a nine-month period [7]. Harstedt entered into the arrangement.

Amongst the various groups involved were. at [8]:

  • Harstedt as trustee of the Olsen Family Trust;
  • Fortuna Developments Enterprises Pty Ltd as trustee for the Fortuna Developments Trust, the directors of which were Raymond Pryor and Geoffrey Sullivan;
  • Valerosa Pty Ltd as trustee for the Lopez Family Trust, the directors of which were Mr Lopez and Mrs Lopez;
  • Aurora Development Enterprises Pty Ltd, as trustee of the Aurora Development Trust, the director of which was  Moriarty; and
  • NGS Financial Solutions Pty Ltd (‘NGS’), the directors of which were Carter and Robinson.

Tomanek was the company secretary of Apollo [9].

NGS was the facilitator of the scheme which involved:

  1. investors depositing money into an account in the name of Apollo at the CBA;
  2. the CBA  providing a standby letter of credit; and
  3. multiple confidentiality agreements [10].

On 25 April 2007:

  •  Robinson told  Olsen that Carter and NGS would receive 30 per cent commission on the profits of the scheme.
  • about 30 people attended a meeting at Moriarty’s residence where:
    • Lopez described the scheme which he said had been successful overseas.
    • Tomanek was introduced as Mr Lopez’s accountant.
    • Olsen asked several questions about the security of the arrangement and was told
      • that there would be three signatories on the CBA account — Lopez,  Tomanek and Moriarty; and
      • that the account would always be ‘a non-depleting account’.
    •  Olsen insisted on himself being a signatory on the CBA account. It was resolved that Mr Olsen’s signature would be on the CBA account.

On 30 April 2007, Olsen emailed Mr Robinson stating ‘that the Olsen Group’ (Harstedt as trustee of the Olsen Family Trust) would ‘deposit $250,000 immediately subject to everyone’s approval of this email’ with the conditions being, at [15]:

  1. All written agreements between the parties are signed off and resolutions giving that person/s the approval to sign are noted by the Olsen Group. If this is not done then the Olsen Group would have the right to seek immediate return of all funds lodged in the Apollo Trust Account.
  2. That if the first ‘trade’ is not completed by June 30th 2007 then the Olsen Group has the right to ask return of its collateral/capital contributions to Apollo ie as verbally agreed previously its intention is to ‘invest’ for the full term of the 13 months providing the undertaking that the first trade will be completed by no later than June 30th.
  3. That Apollo provides a Statement on Apollo letterhead that it is satisfied that the purpose for the investment by the Olsen Group will offer material Corporate benefit to the Olsen Group.

eg it would determine that Olsens Group percentage unit/?shareholding within Apollo. A letter would be prepared by the Olsen Group for the authorised signatory of Apollo to sign.

  1. That the CBA puts into place, as directed by Apollo, all signatory safeguards to the funds invested in the Apollo Trust Account.

On 2 May 2007, Harstedt deposited $250,000 into an AUD account held by the CBA in the name of Apollo (‘the AUD account’), using an account number which Mr Carter gave to him [16]

Olsen received a letter dated 31 May 2007 on Apollo’s letterhead addressed to Carter, described as ‘Introducer of Harstedt Pty Ltd’ which stated:

We confirm that your client Harstedt Pty Ltd has completed all pre-qualification requirements in respect to the signing of the non-circumvention, non-Disclosure Agreement and we further confirm receipt of A$250,000 from Harstedt Pty Ltd into the CBA Apollo Development Enterprises Pty Ltd Account No 3866 1010 9876 on Wednesday May 2, 2007.These funds will be held as a condition of the [private placement program], in a Non-Depleting Account for thirteen months and will be blocked and reserved and under no circumstances can the funds in the account be depleted. The CBA has agreed to these clear instructions.

The letter was signed by Moriarty ‘on behalf of the directors of Apollo Development Enterprises Pty Ltd’. and headed ‘Confirmation of Receipt of Funds from Harstedt Pty Ltd by Apollo Development Enterprises’ [17].

Olsen contacted a Mr Wilson of the CBA and informed him that he was to be an authorised signatory to the Apollo account. Wilson disagreed on the basis that he accepted instructions only from Mr Carter, Mr Moriarty or Mr Tomanek [18].

On 17 August 2007, Lopez emailed Moriarty and Tomanek a form of consent that was to be given to investors [19] stating:

I refer to our recent conversation and confirm the following.We wish to avail ourselves of opportunities that you have in private placement programs as soon as possible.

We are aware of the difficulties that have surrounded your attempts to negotiate flexible banking arrangements with the Commonwealth Bank, which would allow private placement programs to commence.

Due to the above, we are prepared to release our investor’s funds [sic] from the Apollo Development Enterprises Pty Ltd (Apollo) account and transfer the funds to another account under the following conditions.

  1. The funds are still in an account under the name and control of Apollo.
  2. All other conditions in our agreement apart from the bank that hold [sic] the account remain the same.

On 18 August 2007, NGS sent a letter to  Lopez in the form the letter was signed by Mr Carter [20]. Olsen gave evidence that he was unaware of the existence of the letter sent by NGS to Lopez & that it had not been sent with his (Mr Olsen’s) approval or concurrence [21].

Olsen discovered in late August 2007 that a decision had been made ‘to send the funds from Apollo offshore’. He emailed Robinson asking:

1. Where the funds are now; country, bank, account number

2. Under whose control: who the signatories are to the account

  1. The terms of the fund’s deposit eg do they stay for the 13 months from now or from May?

What has happened is contrary to everything I originally said to the investors ie- funds would stay in Australia

– funds would be under our (Olsen Group) control at all times – capital guarantee

– there would be a 10% penalty fee for a ‘quick’ transaction.

I have to be able to explain why all of this has changed.

Noel will understand the cause for these questions.

On 26 July 2007, the sum of AU $4,772,185.98 was debited from the AUD account [23].  On 7 September 2007, Apollo established a USD account with the CBA in the name of ‘Apollo Development Enterprises Pty Ltd’ (‘the USD account’) [24] and later that day, the sum of approximately US $4.2 million was credited to the USD account [25].

On 10 September 2007, the sum of US $4.1 million was transferred from the USD account to an account held in the name of ‘Back Away S.L. Banco Guipuzcoano’ in Spain (‘the Back Away account’). Lopez and  Moriarty signed the request for wire transfer to the Back Away account and after that the funds disappeared [26].

ASIC investigated the scheme and on 14 April 2008, Mr Tomanek was examined by the under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth). The transcript of the ASIC examination was in evidence at trial.

During the ASIC examination, Mr Tomanek

  • gave evidence that:
    • the scheme, in the form of a ‘private placement program’, was designed to raise capital overseas for humanitarian programs [28],
    • ‘if you get on at the ground level, you can get better than bank interest return’.
    • he was ‘not really au fait with practicality, how it works’ [28].
    • the scheme was in a platform overseas and that the ‘platform holder’ has ‘given us certain guarantees in writing’ in relation to the custody of the investment funds and the location of those funds [28].
  •  provided  a document which he said Lopez had sent to him which stated that the funds were ‘invested with this platform, and the thing is Back Away SL, and Apollo Development Enterprises’ [29].
  • said that a ‘Don Diago Moreno Romero’, the platform holder, has ‘given us an SKR, which is a safe-keeping receipt’ valued at €169,005,100, to guarantee repayment of the investment funds which was like a bank guarantee [29].
  • gave evidence that Apollo was incorporated in April 2007:
    • ‘so that I could basically keep a record of the money that was put in from friends’.
    • that was the easiest and most cleanest way of handling the money that goes in, and there’s always a record and control. I’ve got to legally do a tax return for it and everything else, so I felt that all the people – all parties were covered [30]
  • gave evidence that he told investors that their funds would be kept in an account held by the CBA, in the name of Apollo, and that those funds would be returned at the end of the investment period.
  • agreed that, initially, the funds were ‘sitting securely, not to be touched’.
  • said that ‘we’ve got complete control’ of the funds in the scheme while those funds were held in the AUD account.
  • stated that when the CBA said that it could no longer participate in the scheme he told  the investors that, if they wanted to leave their funds in the scheme, the moneys had to be transferred overseas [32].
  • said that in order to subscribe to the scheme AU $4.472 million had to be transferred overseas. Some investors left their funds in the scheme & others withdrew [33].
  • gave evidence that regarding the signatories of the account Moriarty & Mr Lopez and Mrs Lopez were signatories on three accounts held by the CBA but  after some time  Moriarty and Lopez changed the settings on each account so that it could be operated with the authorisation of one signatory [35].
  • said the account which held the investors’ funds was closed after those funds were transferred overseas.
  • he met with Mr Lopez monthly ‘to discuss how much money was going to be going out’ from Apollo & that he personally had prepared financial accounts for Apollo [37].
  • said the terms of the release of the investors’ funds from the private placement program was for a 13-month period [38]
  • said Lopez had been trying to negotiate with Mr Romero for the return of the investors’ funds [39]

On 28 October 2015, Harstedt brought a proceeding against:

  1. Apollo,
  2. Lopez,
  3. Tomanek and
  4. Moriarty

claiming $1,422,183.15, representing the full return on the investment, including the $250,000 deposit that it paid  based in contract and misleading and deceptive conduct [4] which was later amended to allege that:

  • by transferring the moneys Apollo had committed a fraudulent breach of trust by the implementation of a dishonest and fraudulent design;
  • Lopez and  Tomanek were liable as third parties in that design.
  • between September 2007 and September 2011, Apollo acknowledged its indebtedness to Harstedt by a series of emails.
  • a claim for $250,000 in equitable compensation from Apollo,  Lopez and Tomanek.

Apollo, Lopez and Tomanek’s amended defence was that:

  • Harstedt was not a beneficiary of the trust of which Apollo was trustee and therefore did not have any rights against it with respect to the $250,000 deposit;
  • in April 2007, Harstedt & ors entered into an agreement to participate in the investment scheme which was varied on 21 August 2007 such that Apollo, with the consent of the beneficiaries and with Harstedt’s knowledge, agreed to transfer part of the pooled capital of the investors to a bank account as directed by a trader, Romero who directed that the moneys be transferred to the Back Away account.
  • in July and August 2007, each participant was given an opportunity either to withdraw their participation in the scheme or authorise the transfer;
  • in July 2007, Harstedt caused the transfer to the Back Away account to be authorised and that the transfer was implemented with Harstedt’s knowledge;
  • an employee of Banco Guipuzcoano, or the solicitor for Mr Romero, misappropriated the funds.
  • a denial of a claim of
    • a dishonest and fraudulent design.
    • Lopez,  Tomanek and Moriarty were liable as third parties
    • that they had acknowledged any indebtedness to Harstedt.
  • maintained that Harstedt was aware of the transfer, which it said occurred with Harstedt’s prior knowledge and consent [43].

On 31 May 2017, the trial judge ordered that:

  • Apollo and Lopez pay to Harstedt the sum of $250,000, together with interest in the sum of $31,780.82; and
  •  Apollo and Lopez pay the costs of Harstedt and that Harstedt pay 25 per cent of the costs of  Tomanek [46].

on the basis that:

  • a trust was established with Apollo as trustee, Harstedt as beneficiary and the trust property as the capital sum of $250,000
  •  Harstedt participated in the scheme on the assumption ‘that the $250,000 would be held inviolate in a “non-depleting” account [47].
  • Apollo breached its obligations as trustee in parting with the $250,000 and that breach of trust was fraudulent and dishonest [48] and
  • there was requisite assistance by Lopez  as to make him liable as a third party under the ‘second limb’ in Barnes v Addy.
  • there was no consent or acquiescence on the part of Harstedt which would immunise Apollo and Mr Lopez from liability  [48].

 

The trial judge dismissed the claim against Tomanek finding that:

  • he had no ‘knowledge of the dishonesty of Apollo’s breach of trust’[49]
  • Harstedt was among the group of investors whom  Tomanek regarded as being controlled by Moriarty [50].
  • the evidence did not establish that he had knowledge of the dishonesty of Apollo’s breach of trust [52].

 

DECISION

The 4 grounds of appeal were, at [54]:

  1. The learned Judge erred in finding at paragraph [207] of his Reasons for Judgment (‘the Reasons’) that the Respondent’s evidence to the Australian Securities and Investments Commission (‘ASIC’) was or meant that he assumed that one Stephen James Moriarty (the Fourth Defendant in the County Court) (‘Moriarty’) had the consent of the investors introduced by him, including the Applicant, to the transfer of the trust moneys to an offshore account not controlled by the trustee of the trust (the First Defendant in the County Court) when in fact the Respondent had said to ASIC that he did not know what Moriarty had said to the investors introduced by him.
  2. The learned Judge erred in holding at paragraph [207] of the Reasons that the evidence did not establish knowledge by the Respondent of the dishonesty of the trustee’s breach of trust when in fact the Respondent was aware of all of the circumstances which rendered, in the absence of the consent of the beneficiaries of the trust, the transfer of the trust moneys to an offshore account not controlled by the trustee dishonest but did not think and had no reason to think that the Applicant, as a beneficiary of the trust, had consented to such transfer.
  3. The learned judge ought to have found that the Respondent knowingly assisted the trustee in the transfer of the trust moneys to an offshore account not controlled by the trustee, a transaction which, in the absence of the consent of the beneficiaries of the trust, was a fraudulent breach of trust, the Respondent not thinking and having no reason to think that the Applicant, as a beneficiary of the trust, had consented to the transaction.
  4. The learned Judge erred in holding at paragraph [235] of the Reasons that section 58 of the Supreme Court Act 1986 is not applicable to the Applicant’s claim but ought, instead, to have allowed interest thereon, under that section, from 30 June 2008 at the rates from time to time prescribed under the Penalty Interest Rates Act 1983.

 

First proposed ground of appeal: impugned finding of fact

While the Court found that Harstedt  made out its first proposed ground of appeal it stated that in order to succeed in relation to the dismissal of its claim based upon knowing assistance against  Tomanek, Harstedt had to establish each of the elements of that claim, the second and third proposed grounds of appeal [60].

Second and third proposed grounds of appeal: knowing assistance

The second and third proposed grounds of appeal were directed to establishing two elements of the same cause of action: accessorial liability under the ‘second limb’ of Barnes v Addy, liability for ‘knowing assistance’ [61]. At [64]  the Court set out the ‘second limb’ of Barnes v Addy, being:

[S]trangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

 

The court restated the two exceptions to the principle that agents of trustees are not to be made constructive trustees are :

  • the first exception is where ‘those agents receive and become chargeable with some part of the trust property’; the ‘first limb’ of Barnes v Addy.  The Court found that Tomanek had not received or otherwise benefitted in any way from the misappropriation of the trust property held by Apollo [65].
  • the second exception is where the agents of trustees ‘assist with knowledge in a dishonest and fraudulent design on the part of the trustees’;  the ‘second limb’ of Barnes v Addy. This concerns the liability of a third party who,has participated or assisted in a breach of fiduciary duty (including breach of trust) by another [66].

The court stated that the  different forms of accessorial liability for breach of fiduciary duty must be kept distinct [68] as liability is not confined to the second limb of Barnes v Addy [68] and may include:

  • as the High Court in Farah noted, a third party might be liable as an accessory to a breach of trust (being also a breach of fiduciary duty) where he or she had knowingly induced or immediately procured the trustee’s breach which is distinct from the liability of a third party who participates in that breach [68].
  • where a company ‘is the corporate creature, vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by, their breach of fiduciary duty’ and  is liable for the profits made from, and the losses inflicted by, the fiduciary’s wrong [69]
  • where the third party is not a trustee but nevertheless presumes to act as a trustee and then commits a breach of trust or profits from the position [69] the third party is liable as a trustee de son tort.

Out of an abundance of caution the Court stated that none of those situations arose in the present case.

The Court sated that in order to establish liability under the second limb of Barnes v Addy, the breach must amount to a ‘dishonest and fraudulent design’ [68] with the elements being:

(a) the existence of a fiduciary duty owed by the fiduciary (as trustee or otherwise);

(b) a ‘dishonest and fraudulent design’ on the part of the fiduciary;

(c) assistance by the third party in that design; and

(d) knowledge on the part of the third party of the circumstances constituting that design [70].

What was the breach of trust?

The court noted that there were four events that took place between 26 July 2007 and 10 September 2007 that culminated in the disappearance of the investors’ funds [73].

(a) On 26 July 2007, the sum of AU $4,772,185.98 was debited from the AUD account. It is unclear where those moneys were kept between 26 July 2007 and 7 September 2007.

(b) On 7 September 2007, Apollo established the USD account.

(c) On the same day, the sum of approximately US $4.2 million was credited to the USD account.

(d) On 10 September 2007, the sum of US $4.1 million was transferred from the USD account to the Back Away account.

The Court found that the only transaction which constituted the breach of trust was the transfer of the sum of $250,000 from the USD account, being an account in the name of Apollo, to the Back Away account [78].

Existence of fiduciary duty

It was common ground that, at the time of the transfer of the investors’ funds to the Back Away account, Apollo, as trustee of an express trust, owed a fiduciary duty to Harstedt in respect of that sum [80].

‘Dishonest and fraudulent design’

The court stated that for there be a ‘dishonest and fraudulent design’ on the part of the fiduciary means that the breach of fiduciary duty itself must be dishonest and fraudulent [81].

Knowledge

The court set out, at applicable principles as:

  • a third party will not be liable for knowing assistance unless he or she knew, or had reason to know, of the dishonest and fraudulent design on the part of the fiduciary
  • it is not necessary to show that the third party acted dishonestly
  • this liability is distinct from the liability of a third party who procures or induces a breach of fiduciary duty [84]

The 5 categories of knowledge for accessorial liability for breach of fiduciary duty were set out in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA, [85],with the first four categories endorsed by the High Court in Farah:

(a) actual knowledge;

(b) wilfully shutting one’s eyes to the obvious;

(c) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;

(d) knowledge of circumstances which would indicate the facts to an honest and reasonable person;

(e) knowledge of circumstances which would put an honest and reasonable person on inquiry [85].

The Court then relevantly noted that:

  •  third category ‘involves such a calculated abstention from inquiry as would disentitle the third party to rely upon lack of actual knowledge of the trustee’s or fiduciary’s wrongdoing’
  • the fourth category is ‘designed to prevent a third party setting up his or her own “moral obtuseness” as the reason for not recognising an impropriety that would have been apparent to an ordinary person’

In considering the facts the Court stated that:

  • proof of absence of a principal’s informed consent was not an element of establishing liability for knowing assistance [91].
  • proof of the existence of such consent may only be relied upon as a defence to a claim for knowing assistance [91]

The court stated that the starting point in any analysis is to ask whether the third party has knowledge of the essential facts constituting what is prima facie a dishonest breach of duty in which he or she is assisting [93].   If there is such knowledge  the third party will be liable with the onus then lying on the fiduciary to prove that the principal gave fully informed consent [93]. Such consent operates by way of defence only.

The Court noted that the High Court in Farah:

  • maintained the distinction between the liability of a third party who procures or induces a breach of fiduciary duty and the liability of a third party who assists or participates in that breach;
  • made it plain, in relation to claims under the second limb of Barnes v Addy, that the dishonest and fraudulent design must be on the part of the fiduciary;
  • found that it was not necessary to show that the third party acted dishonestly;
  • found that ‘knowledge’, categorised according to the Baden scale, is a necessary requirement [97]

Harstedt contended that:

  •  Tomanek had knowledge of the fact that the investors’ funds would not be held by Apollo once those funds were transferred overseas and that Apollo had acted dishonestly unless Tomanek knew or believed that the beneficiaries of the trust had consented
  • Tomanek had no knowledge or belief that the beneficiaries had consented [98].
  • Tomanek had knowledge of the dishonesty of the transfer of the investors’ funds to the Back Away account [99]
  • Tomanek knew the terms on which the investors’ funds were held on trust — that is, the funds were to be held inviolate in an account in the name of Apollo and the Court should infer that Tomanek knew that on 26 July 2007 the investors’ funds were debited from the AUD account, which was in the name of Apollo, for the purpose of transferring them overseas to an account not in the name of Apollo.
  • Tomanek knew that consent from the investors was necessary in the light of his seeking the consent of the investors whom he had introduced to the scheme to the transfer of their funds overseas.
  • the evidence given by Tomanek in the ASIC examination that the scheme was secured by a ‘safe-keeping receipt’, which was akin to a bank guarantee which, revealed a process which was part of a broader transaction involving the transfer of the investors’ funds away from an account in the name of Apollo to implement the scheme [101].

The court found that it was more probable than not that  Tomanek  had knowledge of Apollo’s dishonest and fraudulent design under the second limb of Barnes v Addy [103] with the knowledge  apparent from

(a) the evidence that Mr Tomanek gave to ASIC;

(b) the circumstances of his receiving the form of consent circulated by Mr Lopez on 17 August 2007; and

(c) his seeking the consent of the investors whom he had introduced to the scheme [105]

This gave rise to three points by the Court:

  1. Tomanek had actual knowledge that Apollo was the trustee of the investors’ funds or at least actual knowledge of the arrangements which constituted the trust relationship [106]
  2. Tomanek’s actual knowledge could be inferred from his seeking consent from the investors whom he had introduced to the scheme [107].
  3. inferred that Mr Tomanek had actual knowledge of, or at least wilfully shut his eyes to, the obvious discrepancy between the the form of consent set out in an email circulated by Lopez on 17 August 2007,  that the funds would remain in an account in the name of Apollo, and the fact that the investors’ funds would be transferred overseas to an account not in the name of Apollo [109].

Regarding “assistance” the Court noted that the authorities offer little guidance on the meaning of ‘assistance’ in a dishonest and fraudulent design[116] and that it is a question of fact where there were myriad ways in which a third party may provide assistance.  The Court distilled two principles from the authorities of circumstances constituting assistance being:

  • where, but for the action or inaction of the third party, the breach of fiduciary duty would not have occurred [117], with the example given being the role of a bank or other financial intermediary the function of which is essential to effect a transaction that amounts to a breach of trust
  • where the third party has facilitated a breach of fiduciary duty that would have occurred in any event[118]

The Court found that as Harstedt alleged active involvement by Tomanek it was unnecessary to decide whether, or when, an omission or acquiescence amounted to assistance in a dishonest and fraudulent design under the second limb of Barnes v Addy[119]

The Court found that Harstedt only established  Tomanek’s knowledge of Apollo’s dishonest and fraudulent design but not his active involvement in that design [120].  Tomanek’s knowledge, in and of itself, did not facilitate Apollo’s breach of trust and cause the loss [121].  It was insufficient to constitute assistance in the relevant sense.  To emphasise that pont the Court noted that:

  • there was no evidence that Mr Tomanek was responsible in any way for the debiting of the AUD account on 26 July 2007 or that he gave any instructions to the CBA with respect to any of the transactions on 26 July 2007, 7 September 2007 or 10 September 2007. Those instructions came from Mr Lopez and Mr Moriarty and it was their conduct was what facilitated Apollo’s breach of trust [121].
  • Tomanek’s role as secretary of Apollo, as a signatory to its bank accounts, including the AUD account, and as a promoter of the scheme did not establish assistance in the relevant sense. It is not possible to argue that a person assisted or participated in that dishonest and fraudulent design solely by reason of his or her responsibilities or role within the company, and nothing more [122].

The Court dismissed the Appeal.

ISSUE

Barnes v Addy claims are commonly pleaded in claims alleging fraud and particularly where the prime malefactors are difficult to locate or of no means.  The focus shifts to accessories, or so believed, to the fraudulent or other behaviour which caused the loss.  In my experience that commonly involves overreach.  To succeed in a 2nd limb of a Barnes v Addy action it is necessary to prove every element, in particular knowing assistance.

Knowledge of and irresponsible behaviour in the fact of fraudulent conduct does not constitute active involvement, knowing assistance, in that conduct.  Put another way being close to the action is not the same as being an accessory to whom one can attach liability.

The appellant fell at the final but critical hurdle.  The Court of Appeal has set out a very detailed process to approach Barnes v Addy claims.  It provides some clarity in quite a confused jurisprudence.

One Response to “Harstedt Pty Ltd v Tomanek [2018] VSCA 84 (10 April 2018): Trustees and trust, accessorial liability, the second limb of Barnes v Addy, fraudulent breach of trust”

  1. Harstedt Pty Ltd v Tomanek [2018] VSCA 84 (10 April 2018): Trustees and trust, accessorial liability, the second limb of Barnes v Addy, fraudulent breach of trust | Australian Law Blogs

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