Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Toksoz v Westpac Banking Corporation [2012] NSWCA 199
• Hearing dates: 19 June 2012
• Decision date: 03 July 2012
• Before: Allsop ACJ at [1]; Hoeben JA at [32]; Sackville AJA at [33]

Decision

1.Appeal allowed in part.

2.Orders 1(1) and 1(3) made by the Supreme Court on 25 February 2011 and entered 1 March 2011 be varied by replacing the amounts of "$868,655.33" and "$742,836" respectively with "$801,664" and "$666,830.56" respectively.

3.Appeal otherwise dismissed.

4.The appellant pay the respondent's costs of the appeal.

5.Subject to rescission or variation upon receipt of any submissions by the appellant to the Court (such submissions and any affidavit in support to be filed and served within seven days) and the subsequent reconsideration of the question by the Court, direct the Registrar of the Court of Appeal to forward this judgment and the judgment of the primary judge to the relevant Minister of the Commonwealth of Australia administering social service benefits for single parents, to the Australian Taxation Office and to the Crime Commissions of New South Wales and the Commonwealth.

6.Grant leave to the parties to apply within 14 days for any special costs order or any order regarding the freezing of any property of the appellant.

7.Subject to rescission or variation upon receipt of submissions by the appellant to the Court (to be filed and served within seven days) and the subsequent reconsideration of the question by the Court, publication of any matter relating to these proceedings to the extent that it might tend to identify persons who are or were customers of the respondent bank by name or unique identifiers in relation to such persons be prohibited.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: FRAUD - tracing of proceeds - sufficiency of proof - husband of appellant defrauded bank of over $1m - large unexplained sums in appellant's bank accounts - appellant's only income a single parent pension - no evidence of legitimate or honest source of moneys - inference as to source of funds; CONSTRUCTIVE TRUSTS - knowing receipt - evidence that female voice was necessary to one of the frauds - matching telephone records - evidence of appellant's address used in frauds - inference of actual knowledge
• Cases Cited: Barnes v Addy (1874) LR 9 Ch App 244; Black v S Freedman & Co [1910] HCA 58; 12 CLR 105; El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717; Foskett v McKeown [2001] 1 AC 102; Harford v Lloyd (1855) 20 Beav 310; 52 ER 622; Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; R v Powell (1837) 7 Car & P 640; 173 ER 280; Robb Evans v European Bank Ltd [2004] NSWCA 82; 61 NSWLR 75
• Texts Cited: L D Smith, The Law of Tracing (Clarendon Press, 1997)
• Category: Principal judgment
• Parties: Gulay Toksoz (Appellant); Westpac Banking Corporation (Respondent)
• Representation: G C Lindsay SC, P G Bolster (Appellant); A G Bell SC, P Kulevski (Respondent); Allied Lawyers (Appellant); Henry Davis York (Respondent)
• File Number(s): 2008/277888

Decision under appeal

• Citation: [2010] NSWCA 1509
• Date of Decision: 2010-12-23 00:00:00
• Before: Palmer J
• File Number(s): 2008/277888

Judgment

1 ALLSOP ACJ: This appeal concerns the sufficiency of proof to attribute civil liability to the wife of a thief, who stole over $1m from a bank by identity theft, in respect of over $600,000 of funds controlled by the wife for which money there is no explanation.

2 The appellant, Mrs Gulay Toksoz, was at all relevant times married to Ersever Toksoz. The unchallenged findings of the primary judge were that Mr Toksoz was directly and actively involved in frauds on 27 victims who were customers of Westpac. The frauds were carried out by a method that, with some variations, involved the following. Mr Toksoz, or an accomplice, would telephone Westpac armed with knowledge of a customer's details and apply to have the owner's access code and password changed. The security questions would be answered. It is thought that Mr Toksoz had assistance from someone inside the bank. Once details had been changed, new cards with new personal identification numbers would be issued. The customer's account could then be the subject of depredation. For present purposes, it is unnecessary to recount in detail what happened to each account. In respect of some accounts, addresses and mobile phone details were changed to locations and numbers that had an apparent personal or family connection to Mr or Mrs Toksoz. Some accounts had cash removed, some had cash transferred to other accounts, including to one in the name of Gino Versace, being a name used by Mr Toksoz. Some accounts had purchases fraudulently made to them.

3 It was impossible to trace with exactitude the movement of money from the defrauded account directly or through a chain of transactions to Mrs Toksoz's accounts. Rather, all the surrounding circumstances were said to point inexorably to the conclusion that Mrs Toksoz received and possessed at the time the claim was made upon her sums and value totalling $666,830.56.

4 The claim was put on two bases:

(a)That she was a volunteer and these funds were held by her when put on notice of the bank's claim. As a volunteer, the money having been proved to be the product of the thefts should be disgorged: Black v S Freedman & Co [1910] HCA 58; 12 CLR 105; and Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230.

(b)That she received the moneys with the requisite knowledge for her to be accountable as a trustee under the first limb of Barnes v Addy (1874) LR 9 Ch App 244.

5 The claim was put principally upon (a), which does not depend upon proof of any state of knowledge at the time of receipt. For the reasons that follow, the primary judge was correct to conclude that the elements of (b) were also satisfied.

6 The following facts which are not challenged should be borne in mind in assessing Mrs Toksoz's position:

(a)She did not give evidence.

(b)She was not present at the trial when the identity of a female participant was in issue.

(c)No explanation was proffered of (a) or (b).

(d)Only an accountant was called in her case.

(e)She does not dispute that during the relevant period unexplained deposits were received by her totalling over $1m, comprising sums in the order of:

(i)$886,000 into bank accounts in her name;

(ii)$53,575 into a joint account held with her husband;

(iii)$93,000 in bank cheques purchased by her husband and given to her.

(f)No evidence was led by her as to any legitimate or honest source of those moneys. After a Mareva injunction in 2008, there was no evidence that Mrs Toksoz sought to explain the presence of the money.

(g)During the period of the frauds she received 105 unexplained deposits. From the time of the Mareva order she received no sizeable deposit.

(h)Mrs Toksoz claimed in an affidavit filed in connection with the Mareva injunction that her only source of income was social services benefits of $1,300 per fortnight for a single parent pension.

7 Before turning to what the evidence disclosed and the arguments put on behalf of Mrs Toksoz, it is helpful to refer to the legal principles involved. Tracing has been said not to be a right or remedy, but a process of demonstration or proof of what has happened to property: Foskett v McKeown [2001] 1 AC 102 at 128; Robb Evans v European Bank Ltd [2004] NSWCA 82; 61 NSWLR 75 at [133]. This expression of the matter can be accepted. The legal consequences of this approach and any qualification to it, especially by reference to restitutionary principle, need not be explored.

8 Money can be traced notwithstanding an inability of the follower to connect each link in the chain of accounts. Commonsense and reasonable inference play their part, especially if there is fraud involved and if there is a lack of explanation, when the circumstances cry out for honesty to be explained, if it can be.

9 A number of cases reveal a sensible robust approach to the tracing of moneys from theft: R v Powell (1837) 7 Car & P 640; 173 ER 280; Harford v Lloyd (1855) 20 Beav 310; 52 ER 622; Black v S Freedman & Co [1910] HCA 58; 12 CLR 105; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717; and see the discussion in L D Smith, The Law of Tracing (Clarendon Press, 1997) at 263 and the other cases there cited. The expression "tracing by exhaustion" is sometimes used. Where the facts as proved are sufficient to permit the inference that moneys have been received or property bought without there being an honest source available to explain the wealth and the sums or value can be seen as referable to the following party's property wrongfully obtained, such that the inference is open that the wrongfully obtained funds were the source of the wealth, the funds can be so treated. One does not need to be able to show every link in the chain of accounts from and through which the money passed. Inferences will be more easily drawn, as here, in circumstances where the funds were stolen, the person who is said to have provided the funds was one of the thieves who stole money from the follower, when the recipient has an apparent close relationship with the thief, which recipient gave no value for it, has no personal source of income and gives no explanation as to the source or circumstances of the receipt of the money or any honest source of it.

10 None of this is the expression of a principle of law. It is the expression of the available approach to fact finding in the presence of fraud and lack of explanation when plainly called for.

11 The critical paragraphs of the primary judge's reasons challenged by the appellant were [139]-[141] and [149]-[150] as follows:

"[139]In determining whether any of the proceeds of Mr Toksoz's frauds on the Bank were received into Mrs Toksoz's accounts I must draw inferences. I have regard to the following facts:

- neither Mr Toksoz nor Mrs Toksoz had, at the relevant time, any disclosed sources of income or other assets which could have explained the very large deposits into Mrs Toksoz's accounts;- Mrs Toksoz had been married to Mr Toksoz during part of the relevant period, the marriage being dissolved in early 2007, but there is no evidence as to when, or if, they ceased cohabitation or as to nature of their relationship at all material times;- Mr and Mrs Toksoz had both given their residential address as 4 Granville, which was an address used in a number of the frauds;- substantial sums of money came into Mrs Toksoz's accounts directly from Mr Toksoz and from accounts in the name of Gino Versace;- Mrs Toksoz opened a Commonwealth Bank account giving 2 Pendle Hill as her address - an address used in a number of the frauds on the Bank.- Mr Toksoz's sister, Cansever, also gave 2 Pendle Hill as her address in leasing PO Box 98, Pendle Hill, which was used in a number of the frauds;- LL474, a telephone number registered in the name of Mrs Toksoz, was used to change fraudulently the banking details of victim RB;- Mr Williams found a high correlation between the amounts taken from the victims' accounts and amounts deposited in the accounts of Mr and Mrs Toksoz.

I have no hesitation in drawing the inference that Mrs Toksoz was the recipient of proceeds of Mr Toksoz's frauds on the Bank.

[140] In determining whether Mrs Toksoz received proceeds of Mr Toksoz's frauds with knowledge that they were derived from frauds on the Bank, I have regard to the following facts:

- very substantial deposits were made during the relevant period into accounts in the name of Mrs Toksoz and she was the sole signatory of those accounts and effected transactions on those accounts;- statements for Mrs Toksoz's bank accounts were sent to the addresses which she nominated to the Banks and there is no evidence that she did not receive those statements;- there is no evidence from Mrs Toksoz that she did not know that substantial deposits were made into her accounts during the relevant period;- there is no evidence from Mrs Toksoz that she did not know that her addresses were used in Mr Toksoz's frauds;- there is no evidence from Mrs Toksoz which could suggest that the receipts by her were derived from sources unconnected to Mr Toksoz's frauds on the Bank's customers;- there is no evidence of any inquiry made by Mrs Toksoz as to the source of the funds deposited into her accounts by Mr Toksoz.

[141] In those circumstances, I have no hesitation in drawing the inference that Mrs Toksoz had actual knowledge that the funds she received into her accounts were derived from Mr Toksoz's frauds on the Bank. Accordingly, Mrs Toksoz knew the facts constituting the funds which she had received as trust funds in the hands of Mr Toksoz and as trust funds in her own hands when she received them from him: see Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at [111]-[113] and the authorities there cited.

...

[149] Accordingly, although the whole of the unrecovered proceeds of the frauds, $868,655.33, can be recovered from Mr Toksoz as damages, $125,819 of that sum cannot be traced into the hands of Mrs Toksoz. It follows that only $742,836.33 of the misappropriated unrecovered funds in the form of cash can - possibly - be traced into the hands of Mrs Toksoz through deposits into her bank accounts.

[150] It is clear that more than $742,836 has been deposited into Mrs Toksoz's accounts from unexplained sources. The evidence shows that, at least as at 10 April 2008, Mrs Toksoz had remaining assets to the value of $769,543, comprising cash in her accounts and real estate acquired by use of cash in her accounts from time to time. It may be that some of the cash in Mrs Toksoz's accounts came from sources other than funds misappropriated from the Bank by Mr Toksoz. It may be that Mrs Toksoz used her own money, as well as the Bank's money, in making deposits, withdrawals, discharging her home loans and acquiring property. However, what is clear is that $742,836.33 of the deposits in Mrs Toksoz's accounts is unexplained and could have come from the frauds against the Bank's customers. In the absence of explanation otherwise, I infer that money totalling that sum was indeed the proceeds of Mr Toksoz's frauds against the Bank and was therefore held by Mrs Toksoz on a resulting trust for the Bank."

12 The appellant submitted that on the evidence the relevant inferences were not available. Indeed, Mr Lindsay SC, who, with Mr Bolster, appeared for the Mrs Toksoz, accepted that he had to demonstrate the lack of a prima facie case, given the unexplained failure of Mrs Toksoz to give evidence explaining how she came to have the assets she did.

13 In the light of this fundamental submission, the most coherent approach is to identify the scope of the evidence against Mrs Toksoz. I will do so using the structure of argument of Mr Adam Bell SC, who, with Mr Kulevski, appeared for the respondent.

14 First, prior to the institution of the frauds against the respondent, Mr and Mrs Toksoz had relatively modest assets, being two houses at Granville and Merrylands with substantial mortgages and otherwise a combined debt (other than the mortgage debt) of a little under $40,000.

15 Secondly, the evidence consisting of tax returns and answers to interrogatories showed that during the relevant period Mrs Toksoz had no income, other than social service benefits, and Mr Toksoz had a very modest income.

16 Thirdly, at the time of the freezing order in 2008, the Toksozs had assets that were summarised by the primary judge at [126]-[127] of his reasons, as follows:

"[126] On 25 March 2008, the Court made asset freezing orders against Mr and Mrs Toksoz and required them to file affidavits disclosing their assets. Mr Toksoz's affidavit, dated 11 April 2008, disclosed assets of $40 in cash and no other asset of any value.

[127] Mrs Toksoz's affidavit, dated 10 April 2008, disclosed the property 4 Granville as owned by her, unencumbered, which she had just sold for $510,000, from which, after deducting sale expenses, she would receive $495,000 on completion of the sale. Mrs Toksoz's proportion of the nett proceeds of sale attributable to unexplained deposits is $179,917.69: see Mr Williams' report 1 December 2010, Appendix 3. Mrs Toksoz also disclosed:

- a deposit of $80,000 paid by her in respect of the purchase of a property at Glenwood;- $45,000 to the credit of an account in her name at Commonwealth Bank;- three accounts at Westpac with credit balances of $90,000, $46,370 and $29,056;- an ANZ bank account with a credit balance of $297,000;- credit card liabilities totalling $64,000."

Her net assets therefore totalled a little over $1m.

17 Fourthly, there was evidence that Mr Toksoz gave money to Mrs Toksoz as follows: from an account in the name of Gino Versace (proved to be an alias of Mr Toksoz); the making over of his share in the sale proceeds of the Merrylands property sold in June 2006; and the giving of two bank cheques of $18,010 and $75,000 by Mr Toksoz to the appellant in April and July 2007, which cheques were proved to be funded from moneys stolen from the respondent.

18 Fifthly, there was a large number of sizeable deposits into accounts in the name of and controlled by the appellant. The primary judge referred to this at [130]-[131] of his reasons, as follows:

"[130] During the period from February 2005, when the frauds began, to March 2008, just before the asset freezing order was obtained, there were 114 unexplained deposits into the bank accounts of Mrs Toksoz, totalling $886,268.10, and fourteen unexplained deposits into the joint account of Mr and Mrs Toksoz, totalling $53,574.23. A bank cheque for $18,000 dated 12 April 2007 was purchased by Mr Toksoz and made out in favour of Mrs Toksoz, and a bank cheque for $75,000, dated 16 July 2007, was also purchased by Mr Toksoz and made out in favour of Mrs Toksoz.

[131] In total, Mrs Toksoz received $1,032,860.33 during the relevant period. Of that amount, the Bank claims that $868,655.33 came from the frauds committed by Mr Toksoz against its twenty-seven customers - the difference between that amount and the total received by Mrs Toksoz, i.e. $164,205, is clearly from sources other than the frauds committed against the Bank's customers but the sources of those funds are not explained."

19 Some emphasis was placed by Mrs Toksoz in submissions that there was a larger amount of deposits than could be proved to have been stolen from the relevant customer accounts. Thus it was said there were large deposits unexplained on any version of the facts. This, it was said, militated against any inference that any amounts that were received were referable to the frauds. I cannot agree. Relatively huge sums of money were deposited into the account of a person with no source of income. A sum equal to a large proportion of that in value was stolen from the respondent bank by the husband (of modest income) of the person with no source of income. The size of the excess beyond the amount deposited into Mrs Toksoz's accounts that is equivalent to what was stolen by her husband from Westpac is not explained. It could be partly explained by the otherwise conservative approach taken by Mr Williams in assessing what could be proved against Mr Toksoz. It could partly reflect large amounts of money illegitimately or legitimately derived. The person who could have assisted in this, Mrs Toksoz, chose not to give evidence. The discrepancy does not deny the probative force of the fact that there were deposited into Mrs Toksoz's accounts sums of money that are unexplained at least equivalent to the amounts stolen by her husband from the respondent.

20 Sixthly, there was an apparent correlation between amounts stolen and moneys deposited into the appellant's accounts over a significant period of time during the relevant period. This is a matter of reasonable perception, not expert evidence, from the evidence of Mr Williams, in particular the material in his last report of 8 December 2010 in Blue Vol 7 pp 3213-3214.

21 Seventhly, though no claim for recovery was made against Mrs Toksoz as a participant in the fraud, evidence was led and a case made that the appellant had actual knowledge of the fraud, including by her participation in the fraud. There was a body of evidence which admitted of an inference that the appellant played a part. One victim was a woman. There was evidence of a woman's voice impersonating the victim to the respondent over the phone. The logging for the telephone account of a telephone in Mrs Toksoz's name coincided with the time of a call to the respondent. That call appears to have resulted in the Bank changing the victim's details. A number of the victims had their addresses changed to the Pendle Hill and the Granville addresses, the latter owned by the appellant, the former nominated by the appellant on different occasions as her residence. One can infer that, at least for a time, bank correspondence of a number of apparent strangers was sent to those addresses.

22 Eighthly, the pleading of the presumption of advancement. For the purposes of the conclusions which follow, I put this to one side.

23 The above material taken together was, in my view, a clear prima facie case that the appellant was given large sums of money by her husband that were the product of his depredations upon the respondent, that she received the sums stolen and that she had knowledge of it. What other possible explanation was there? Only the appellant could supply the answer to that question. That is not to reverse the onus of proof. There was a clear basis to infer that the appellant received the stolen funds in the amounts claimed.

24 These inferences are not destroyed or made illegitimate by the matters put by Mrs Toksoz, including:

(a)the unexplained excess beyond the amounts stolen (for the reasons expressed earlier);

(b)the lack of clarity as to when the Toksozs separated or ceased cohabitation (if they truly did);

(c)the fact that the frauds involving the Granville and Pendle Hill address were short in time. There may or may not have been bank statements sent; and

(d)the fact that the participation of Mr Toksoz's sister involved Pendle Hill. It is possible that the sister impersonated the appellant, but the inference that the appellant opened the Commonwealth Bank account is open notwithstanding some differences in signature.

25 The factual material should be looked at, and assessed, as a whole. Overall, it raised prima facie cases that Mrs Toksoz received moneys the product of the frauds on the respondent and that she knew of the fraud.

26 Those inferences could and should comfortably be drawn to the appropriate degree of persuasion given her choice not to give evidence.

27 The respondent accepts that there was an accounting error and the judgment sum against the appellant should be reduced to $666,830.56. A similar error affected the judgment against Mr Toksoz, such that the judgment against him should be $801,664. He has not appealed. Nevertheless the Court's orders should reflect the accurate sum.

28 The circumstances of the appellant's receipt of large sums of money (on her submissions not the product of fraud) at the same time as receiving social services benefits raise the question whether this judgment and all relevant papers should be forwarded to the relevant Commonwealth Minister and the Australian Taxation Office. In my view, they should and a direction should be given to the Registrar accordingly. There is also a question as to whether this judgment and all relevant papers should be referred to the New South Wales and Commonwealth Crimes Commissions given the large amounts of unexplained deposits received by Mrs Toksoz, apart from those proved to be attributable to frauds on Westpac. The appellant should have an opportunity to put submissions on these questions.

29 The Court raised the issue of orders protective of the personal identification information concerning the customers of Westpac that can be found in the evidence and appeal books. The respondent has suggested a form of order that appears satisfactory. Submissions can be put on this also.

30 I would hear the respondent on any special costs order. Subject to the existing terms of the freezing order, I would restrain any use of frozen accounts until any costs order has been paid.

31 The orders that I would make are:

1.Appeal allowed in part.

2.Orders 1(1) and 1(3) made by the Supreme Court on 25 February 2011 and entered 1 March 2011 be varied by replacing the amounts of "$868,655.33" and "$742,836" respectively with "$801,664" and "$666,830.56" respectively.

3.Appeal otherwise dismissed.

4.The appellant pay the respondent's costs of the appeal.

5.Subject to rescission or variation upon receipt of any submissions by the appellant to the Court (such submissions and any affidavit in support to be filed and served within seven days) and the subsequent reconsideration of the question by the Court, direct the Registrar of the Court of Appeal to forward this judgment and the judgment of the primary judge to the relevant Minister of the Commonwealth of Australia administering social service benefits for single parents, to the Australian Taxation Office and to the Crime Commissions of New South Wales and the Commonwealth.

6.Grant leave to the parties to apply within 14 days for any special costs order or any order regarding the freezing of any property of the appellant.

7.Subject to rescission or variation upon receipt of submissions by the appellant to the Court (to be filed and served within seven days) and the subsequent reconsideration of the question by the Court, publication of any matter relating to these proceedings to the extent that it might tend to identify persons who are or were customers of the respondent bank by name or unique identifiers in relation to such persons be prohibited.

32 HOEBEN JA: I agree with Allsop ACJ and the orders which he proposes.

33 SACKVILLE AJA: I agree with Allsop ACJ and the orders which he proposes.

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Decision last updated: 03 July 2012