In Perpetual Trustees Australia Ltd v Heperu Pty Ltd
 NSWCA 84, the New South Wales Court of Appeal examined
whether an investor who was the victim of fraud could recover lost
funds from the manager of a common fund.
The fraud was perpetrated by the investor's mortgage broker
who fraudulently utilised cheques given to him to invest in the
fund. Rather than using those cheques to establish a type of
mortgage off-set account, the fraudster used them for other
His fraud involved:
using an account with the fund which he had fraudulently set up
in his ex-wife's name
delivering the cheques to the fund manager for conversion into
units in the fund
arranging for those units in the fund to be allocated to the
account in his ex-wife's name, and
cashing in those units and dispersing the funds obtained.
Eventually the fraud was uncovered but the victim of the fraud
could only recover approximately $1,000,000 from the now-bankrupt
fraudster out of approximately $4,000,000 invested in the illusory
mortgage off-set account.
In an attempt to recover approximately $2,700,000 of the
outstanding funds, the victim claimed that the fund manager had
unlawfully converted six cheques.
At trial, the victim was successful. The trial judge held that
the victim was entitled to recover against the fund manager because
it had unlawfully converted the cheques. According to the trial
judge, there was unlawful conversion by the fund manager because
the mortgage broker had acted outside the scope of his
Unsurprisingly, the fund manager appealed. The Court of Appeal
overturned the trial judge's decision.
The following factors were material in the Court of Appeal's
the fund manager was unaware of the fraud
the fund manager did not receive a direct benefit from the
the cheques were clearly drawn and the fund manager was the
the fund manager dealt with the cheques properly as title to
the cheques had passed to the fund manager in accordance with the
Cheques Act 1986 (Cth), and
although the mortgage broker was not authorised to commit the
fraud, he was authorised to deliver the cheques to the fund
Undoubtedly this result was disappointing for the defrauded
investor. On balance, though, it seems to be a good result because
the fund manager was unknowingly involved in the fraud.
Although unsuccessful against the fund manager, the defrauded
investor might be able to recover some of the misused funds from
the ex-wife of the fraudster. The Court of Appeal is yet to
determine finally whether any of the misappropriated funds
innocently received by the fraudster's ex-wife can be recovered
by the investor.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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