Heperu v Belle [2009] NSWCA 252

In this case mortgage originator Morgan Brooks appointed Dominic Cincotta as its Double Bay agent. Cincotta stole $4 million from a Dr Landa. The fraudster arranged investment loans for Dr Landa and then pretended to be investing the proceeds with Perpetual into a fictional “offset mortgage account”. In fact the cheques provided by the doctor made payable to “Perpetual Trustees” were deposited into the fraudster’s account with Perpetual and later removed and disbursed.

Dr Landa sued Morgan Brookes who were found liable on the grounds they armed Cincotta with apparent authority to represent Morgan Brookes. The court noted that as well as having listed Cincotta as their representative on their website they also had on their website under the heading “Who we are” the following description: Morgan Brooks DIRECT is a Wholesale Non Bank lending institution providing residential & commercial mortgage loans at competitive WHOLESALE rates and an established Fund Manager within the Banking & Finance Industry.”. This case highlights the need for mortgage originators and others who appoint agents to work under their banner to ensure they hold adequate fraud insurance should their agents prove to be fraudsters.

In an attempt to recover his money the doctor also sued the fraudster’s wife (Patrice Belle) whose mortgage and credit cards had been paid off with the stolen money. However as the fraudster’s wife was unaware of the fraud at the time she received the money the doctor lost before the trial judge. The doctor appealed to the Court of Appeal and the Court of Appeal held:

  1. Ms Belle was not liable as principal in delegating the fraudster to deposit money into her account  because the fraud was beyond the scope of the authority she gave her husband;
  2. She was not liable in ‘money had and received’ because she needed to know or ought to have known through some fault on her part that she had in her possession stolen funds at the relevant time;
  3. She not liable through accessory liability because she was ignorant of the fraud at the time
  4. She might be liable as a volunteer if at least some of the payments into the mortgage accounts were referable to funds being the proceeds of misappropriated cheques the funds could be traced in equity into the property. The primary judge erred by failing to adequately address the tracing issue.

The Court then told the barristers that:

There was an obligation upon Ms Belle, touching her conscience, to recognise the entitlement of the appellants to restoration of the funds derived from her husband’s misappropriations to the extent that, as a volunteer, she retained the funds or their traceable products when she had notice of the claim.

Although the Court of Appeal took 40 pages to say this it is entirely consistent with the basic thrust of the law of Equity as a court of conscience and even a layman could guess that when a woman’s husband pays off her mortgages with money stolen by her husband she needs to give back the money back. Accordingly it is a great shame that the Mareva Injunction was allowed to lapse and the wife has now sold some or all of the properties. We will monitor this case and report to you on whether the doctor ultimately is able get his money back that went into the wife’s properties or whether the wrong decision of the trial judge has allowed this woman to abscond with the money.

Click here to read the full judgment

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