Yesterday, in an extraordinary postscript to the 2012 appeal case of Grimaldi v Chameleon Mining NL, the NSW Supreme Court has found the Commonwealth liable for knowing receipt of millions of dollars in unauthorised profits obtained by a de facto director Phillip Grimaldi under the first limb of Barnes v Addy, in Kupang Resources Pty Ltd v Commonwealth of Australia (No 4) [2025] NSWSC 1477. As his Honour Justice McGrath did in his judgment for consistency, I will refer to Kupang Resources Pty Ltd as “Chameleon”, per its previous name Chameleon Mining NL.

I wrote about the important decision of the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 back in 2012 (bench of Finn, Stone and Perram JJ) – see here, here and my article written for the UK Trusts and Estates Law & Tax Journal here. It has been a seminal judgment which dealt authoritatively with issues of secret commissions/bribes, directors’ fiduciary duties, de facto directors, Barnes v Addy liability and equitable remedies.

As his Honour noted in yesterday’s judgment, Grimaldi’s large unauthorised profits or “sudden influx of wealth drew the attention of the Commissioner of Taxation”. At the time of Chameleon’s success at first instance against Grimaldi in 2010 (the Chameleon Judgment), the ATO had been pursuing him for an unpaid tax debt of $36.3 million, the subject of a summary judgment in 2009. The ATO then reached a settlement with Grimaldi and his nominees for $19.5 million. The majority of that sum was first paid to the NSW Treasury in purported satisfaction of a proceeds assessment order obtained by the NSW Crime Commission under the Criminal Assets Recovery Act 1990 (NSW), before being paid to the ATO from a confiscated proceeds account. The sum was paid in tranches, the first of which was paid to the ATO on 21 October 2010, the day after delivery of the Chameleon Judgment in favour of Chameleon against Grimaldi (at [7]).

As his Honour observed at [8] –

The effect of this was that Chameleon’s victory at trial and on appeal in the Chameleon proceedings proved to be strikingly hollow. By the time the inquiry ordered to determine the amount of profits to be disgorged by Mr Grimaldi was underway, most (if not all) of Mr Grimaldi’s remaining funds had been paid to the Commissioner. Mr Grimaldi entered voluntary bankruptcy on 2 July 2014 and the inquiry was never completed.

The issues of law traversed in yesterday’s carefully reasoned judgment include the remedy of liability to account, whether personal liability for Barnes v Addy knowing receipt fixes on the conscience of the recipient and extends to cases where the claimant has no continuing proprietary interest in the subject property, whether liability in knowing receipt is extinguished by an intermediary who holds funds temporarily in a ministerial capacity, whether liability in knowing receipt extends to “downstream recipients”, and tracing.

The Court made findings of credit adverse to the only ATO witness called by the Commonwealth, an Assistant Commissioner (at [50]-[76]). Three other ATO personnel involved in the ATO’s investigations and and pursuit of Grimaldi’s tax affairs who had given affidavits in the proceedings were not called as witnesses, without explanation. The Court accepted the submissions for Chameleon on this (at [46]-[49]) and drew Jones v Dunkel inferences as to specified factual matters, including as to the knowledge of the ATO at particular points in time.

The Court held that “the ATO conducted itself with a want of probity sufficient to fix its conscience with liability for knowing receipt” (at [684]). The Court found that at the time the ATO received payments from Grimaldi under the second deed of settlement, it had actual knowledge that Grimaldi had engaged in conduct in breach of the fiduciary duty he owed to Chameleon, and that the payments it received from Grimaldi were made from the proceeds of sale of the Spotter’s Fee Securities obtained by Mr Grimaldi and his nominee as the profit from his breach of fiduciary duty. It was found that the ATO knew it received payments from the bank accounts in which those proceeds were held.

However earlier, prior to reaching that state of actual knowledge, when the ATO interviewed Grimaldi in 2009, entered into the settlement in October 2010 and received payments pursuant to it after Chameleon’s judgment against Grimaldi from October 2010, the ATO’s state of knowledge satisfied each of Baden categories of knowledge #2 (wilful blindness), 3 and 4 (at [689], see also [678]-[680]).

A quick refresher on the five Baden categories of knowledge, noting that any of categories 1-4 are sufficient knowledge for the purpose of Barnes v Addy liability-

1. Actual knowledge
2. Wilfully shutting one’s eyes to the obvious (wilful blindness)
3. Wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make,
4. Knowledge of circumstances which would indicate the facts to an honest and reasonable person, and
5. Knowledge of circumstances which would put an honest and reasonable person on inquiry (traditional ‘constructive knowledge’).

Having found that the ATO had in effect “instituted a policy of wilful blindness in relation to the claims in the Chameleon Proceedings” (at [680]), his Honour observed at [690]-[691] –

[T]he ATO’s attitude appears to have been one of “tax now, ask questions later” but in the case of Mr Grimaldi it did not even ask the later questions when it became obvious that it should do so. The investigations undertaken by the ATO demonstrate a “want of probity” in how Mr Grimaldi came to receive the Spotter’s Fee Securities. But once the ATO knew all of the findings in the Chameleon Judgment, actual knowledge of Mr Grimaldi’s conduct replaced anything that might have required for Chameleon to rely on the other Baden categories of knowledge to establish the ATO’s liability.

In essence, I am thoroughly convinced that in all the circumtstances the Commonwealth is liable for knowing receipt under the first limb of Barnes v Addy as a matter of conscience.

The Court was clear that it held little doubt as to the appropriate outcome in this case, concluding that “Chameleon has comprehensively succeeded against the Commonwealth in its claim”, and finding that Chameleon was entitled to orders –

1. that the Commonwealth was personally liable to account to Chameleon for the “trust property” (unauthorised profits obtained by Grimaldi) that it received,
2. that the Commonwealth restore the property to Chameleon together with interest calculated from the time of each receipt (12-15 years ago), and
3. that the Commonwealth pay the costs of Chameleon in the proceedings on the basis that costs follow the event of Chameleon’s success.

More to come.