*This is the second in a series of articles / case reviews I am publishing on my website from time to time, spotlighting the work of excellent junior insolvency/commercial law barristers of up to 5ish years call, practising at the Victorian Bar in Melbourne. This second entry in the series is written by a fellow member of Lonsdale Chambers, Nicole Tyson who I’ve been working with for the past few years. Nicole has been indispensable as my junior in Supreme Court proceedings involving a dispute over an asset sale agreement and allegations as to misleading or deceptive conduct. Her VicBar profile may be viewed here.

A recent judgment of the Federal Court has considered the circumstances in which a recipient of property subject to a Black v Freedman trust will be liable for dealings with that trust property – and the important question of knowledge.

Amirbeaggi as trustee of the bankrupt estate of Hanna v Hanna (No 3) [2024] FCA 1171 (Hanna) concerned various claims arising from a property development undertaken by two partners, Mr Abdalla and Mr Hanna, in Hinchinbrook, New South Wales. 

Key Facts

Hanna concerned claims arising from properties held by Mr Abdalla and Mr Hanna, who were partners in the development of 8 townhouses at a property in Hinchinbrook, New South Wales. Whilst most claims settled prior to trial, a key claim remaining was one made by Mr Abdalla against Jarvis J Pty Ltd (Jarvis). Jarvis was an entity associated with Ms Tina He, who had been involved in property projects with Ms Shonoda (the wife of Mr Hanna). 

The claim against Jarvis related to one of the townhouses at the Hinchinbrook property – Unit 16.  The legal title to Unit 16 was acquired by Jarvis in 2019 in the following circumstances:

• Following the purchase of Hinchinbrook by Mr Abdalla and Mr Hanna in 2013, 8 lots were created. By late 2016, four lots (Units 16, 17, 21 and 22) remained in the names of Mr Abdalla and Mr Hanna, as tenants in common in equal shares: [26] to [28].
• From late 2015 Mr Hanna was experiencing financial difficulties on multiple fronts. His wife Ms Shonoda, an accountant, became involved in assisting him. By early 2017 the parties were discussing ending their arrangement. Ms Shonoda was involved in these discussions: [15] to [45].
• In April 2017, the partners agreed to part ways on the basis that units 17 and 22 would be owned by Mr Abdalla and units 16 and 21 by Mr Hanna: [38].  However it appears that Mr Hanna, whose financial difficulties were worsening, was not in fact to own “his” two units. A deed of equitable mortgage was signed by which Mr Hanna and Mr Abdalla each agreed to transfer their interest in units 16 and 21 to Ms Shonoda (Mr Hanna’s wife). Mr Abdalla’s interest was to be transferred for specified consideration, of which part was still outstanding at trial: [40] and [100].
• On 11 July 2017, following issues with the Australian Taxation Office and other creditors, a sequestration order was made against Mr Hanna: [59].
• In the meantime, on 16 January 2018, a transfer was lodged which purported to transfer the legal title to Unit 16 from Mr Hanna and Mr Abdalla – not to Ms Shonoda – but to Jarvis (the company of Ms Shonoda’s associate Ms Tina He) for consideration of $650,000: [68] to [74]. However, whilst the transfer bore Mr Abdalla’s purported signature, the Court found that his signature was forged. He did not sign the transfer or approve of the sale of Unit 16 to Jarvis: [65] to [66]. Further, by agreement with Ms Shonoda (who paid the stamp duty and registration expenses), Jarvis paid no consideration for the transfer. Ms Shonoda paid the stamp duty and registration expenses: [74].
• In February 2018, Mr Abdalla’s solicitor wrote to Mr Hanna and Ms Shonoda asserting that Mr Abdalla’s signature on the transfer for Unit 16 was a forgery, noting that it had been witnessed by Ms Shonoda, and warning of potentially reporting the matter to NSW Police: [77].
• Jarvis did not retain the property. In April 2019, upon a request made by Ms Shonoda of Ms He, Jarvis transferred Unit 16 to Anthony Hanna (Ms Shonoda and Mr Hanna’s son) for nil consideration: [80].

Claim of Mr Abdalla 

Mr Abdalla claimed that the title to Unit 16 was transferred without his consent (by reason of the forgery) and his interest in it was held by Jarvis as transferee on trust for him, relying upon Black v S Freedman & Co¹ and Fistar v Riverwood Legion and Community Club Ltd². Mr Abdalla claimed that by the time of the transfer by Jarvis on to Anthony Hanna, Ms Shonoda had knowledge of the forgery, which was to be imputed to Jarvis, such that Jarvis was liable to Mr Abdalla for breach of trust (refer at [87]).

Key Findings

Mr Abdalla’s claim against Jarvis was considered by Justice Goodman at paragraphs [93] to [110]. His Honour found that Mr Abdalla held full legal title to his interest in Unit 16 in January 2018.  As to whether Jarvis then received Unit 16 as a volunteer or bona fide purchaser for value, Goodman J found that it received Unit 16 as a volunteer, noting at [96] that: 

It is [also] well-established that a person who receives trust property, otherwise than as a bona fidepurchaser for value without notice, but innocently, and thereafter acquires notice of the trust and deals with the trust property in a manner inconsistent with the trust will be obliged to account in equity for the trust property (or such as remains at the time when notice of the trust is received): see Fistar at 738 to 739 [further citations omitted].  

As to whether Jarvis had notice of the trust, his Honour found that whilst Ms He did not have notice of the forgery at the time of the initial transfer in 2018, there was a question as to whether Jarvis was on notice of the forgery before it transferred the unit on to Anthony Hanna in April 2019. His Honour was satisfied that Ms Shonoda had notice of the forgery from about 19 February 2018 [105-107].

As to whether Ms Shonoda’s notice ought be imputed to Jarvis, his Honour referred at [108] to a recent decision of the NSW Court of Appeal in July of this year in SSABR Pty Ltd v AMA Group Limited³ in which Stern JA (Ward P and Price AJA agreeing) explained that the leading authority as to the attribution of a state of mind to a company was the statement of Bright J in Brambles Holdings Ltd v Carey⁴, cited with approval by the majority in Krakowski v Eurolynx Properties Ltd⁵ as follows:

Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company.

Further passages from SSABR were also noted by his Honour, including that “in some circumstances the knowledge of the company must depend upon the knowledge of a particular person or persons who were most closely involved with the relevant transaction”⁶ and  that “the test for attribution of a state of mind to a company will always depend upon context and the purpose for which that attribution is sought”⁷. Notably for the facts of this case, given that Ms Shonoda was not a director or officer of the company Jarvis, his Honour included this passage from SSABR⁸ –

In the context of rectification in equity, the relevant enquiry is as to the actual subjective state of mind of a corporation in entering into a particular contract, namely the relevant decision-maker…that person will be the person who had the authority to bind the company to the contact, albeit that there may be circumstances where, in practice, the formal decision-maker has so deferred to the judgment of someone else that that person is in reality the person whose judgment was critical to the company entering into the agreement…

His Honour then found at [109]:

In circumstances where Ms He, the director of Jarvis deferred to Ms Shonoda in connection with that transfer and indeed made the transfer at the direction of Ms Shonoda, Ms Shonoda’s state of mind is to be attributed to Jarvis. It is not necessary that Ms Shonoda be the ultimate decision-maker on behalf of Jarvis with respect to the transfer of unit 16 to Anthony Hanna. It is sufficient that she was “so closely and relevantly connected with” that transfer that her knowledge for that transaction can be treated as the knowledge of Jarvis: see Krakowski at 582; Hoh v Ying Mui Pty Ltd [citations omitted]. Ms Shonoda was, to adopt the language used by Bathurst CJ (with whom Hoeben CJ at Common Law and Leeming JA agreed) in Gregg v R [citations omitted], the person who was responsible for Jarvis transferring unit 16 to Anthony Hanna.

In such circumstances, Mr Abdalla’s claim against Jarvis as to Unit 16 was established, with his Honour ordering a remedy equal to the value of his half interest in the property at the time of the transfer⁹.

Implications

The principles identified by his Honour as to when the state of mind of a person will be treated as that of a company are not new. It is not necessary that the person whose state of mind is attributed to a company be a director or officer of the company. That said, it is uncommon for the state of mind of someone other than a director or officer to be imputed to a company.

In that sense, the findings as to Ms Shonoda’s state of mind are unusual, as it does not appear that Ms Shonoda was a formally appointed director or officer (and nor was this a question considered by his Honour)¹⁰. However, Hanna is a useful reminder that the circumstances in which a person’s state of mind can be treated as being the state of mind of the company does not depend upon labels or titles. It is a question of context. In each case, the facts of the relevant transaction or dealing at hand must be closely analysed.  

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1. [1910] HCA 58; (1910) 12 CLR 105 ↩︎
2. [2016] NSWCA 81; (2016) 91 NSWLR 732 ↩︎
3. [2024] NSWCA 175 (SSABR)  ↩︎
4. (1976) 15 SASR 270 at 279 ↩︎
5. (1995) 183 CLR 563 (Krakowski) ↩︎
6. Citing Krakowski at 582 ↩︎
7. Citing Lord Hoffman in Meridian Global Funds Management ASIA Ltd v Securities Commission [1995] 2 AC 500 at 506-511 ↩︎
8. Citing Patten LJ in Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2012] 2 All ER (Comm) 748 at [35], [39], [41]-[43], which passage was relied upon by the primary judge ↩︎
9. At [110]. Whilst the judgment refers to Mr Hanna’s interest in this paragraph, it appears that this may be a typographical error and that the paragraph should refer to Mr Abdalla’s interest instead. ↩︎
10. The question of whether Ms Shonoda may have been a (shadow or de facto) director or officer within the meaning of s 9 of the Corporations Act (2001) was not dealt with in the judgment. ↩︎