Napier Keen Pty Ltd v Smith

Napier Keen Pty Ltd v Smith [2023] NSWSC 1134
Supreme Court of New South Wales
Lindsay J
Equity – the plaintiff was a solicitor corporation, of which Keen was the principal, practising from premises in the western suburbs of Sydney – Keen’s legal practice was primarily personal injury litigation with some involvement with other litigation, conveyancing, estates, and, to a lesser extent, family law – the first defendant was employed as the practice’s bookkeeper – after the bookkeeper had given notice of ceasing employment, a review by external accountants identified three payments recorded as payments to the ATO but which in fact had been paid into the same account into which the bookkeeper/s wages were routinely paid – these payments totalled just over $1million – Keen reported this to the police, and the first defendant attempted suicide and was admitted to hospital – Keen met the bookkeeper’s de facto spouse in the hospital foyer, and told him of the unauthorised transactions – Keen commenced proceedings against both the bookkeeper and her spouse – held: the plaintiff framed its primary case against the spouse on an allegation that the spouse knowingly received trust property so as to impose upon him accessory liability for the first defendant’s breach of trust according to the first limb of Barnes v Addy – the plaintiff did not allege that the spouse assisted the bookkeeper with knowledge of her dishonest and fraudulent design so as to attract the operation of the second limb of Barnes v Addy – the Court rejected the plaintiff’s primary submission that the spouse “received” stolen funds of the plaintiff when the bookkeeper deposited them in the defendants’ joint account, at all material times operated by the bookkeeper alone – where funds have been placed in a bank account of a party, that party will not be taken to have received the funds unless he, she, or it ought to have known of their presence through some fault – the Court accepted that the money the bookkeeper paid into a home loan account from the joint account could arguably be characterised as stolen funds “received” by the spouse – however, the plaintiff’s claim for a proprietary remedy in the form of a charge over the spouse’s residence must fail – the spouse lacked the knowledge of the bookkeeper’s fraud necessary to charge his property – further, trust money cannot be traced into an overdraft bank account, that is, an account recording an indebtedness to the bank, as the home loan account was – the Court was satisfied that the spouse could not be held liable, in conscience, to account to the plaintiff for any alleged “benefit” said to have accrued to him through the bookkeeper’s deployment of funds in the joint account (operated exclusively by her) at a time when he lacked all knowledge of her fraud – the first the spouse had known of the fraud was when the solicitor spoke to him in the hospital foyer – the plaintiff was therefore not entitled to a personal remedy against the spouse – judgment for the plaintiff against the bookkeeper, but plaintiff’s claim against the spouse dismissed.
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