Quick Action and Freezing Order in $300K Fraud Case

The Facts of Norco Co-Operative Limited v Kelly [2010] NSWSC 719

HK worked for Norco from 26 March 2001 to 10 February 2009.  In the course of her employment she fraudulently and dishonourably misappropriate amounts totaling at least $316,657.98!

These funds were used to pay off mortgages on properties she owned and also mortgages on properties she jointly owned with her life partner.

Upon discovery of the misappropriation, Norco made an urgent application for a “freezing order” which was granted on 19 March 2009.  This order prevented HK from removing from Australia or in any way disposing of or dealing with or diminishing the value of any of her assets in Australia up to the unencumbered value of $375,000.00.

Shortly before the “discovery”, HK transferred to her life partner title in one of the properties for nil consideration. His Honour Justice Lindgren found that Norco had an “equitable charge” over these properties but found the amount of the charge was limited to the amount of the misappropriated funds that had paid off the mortgage over the particular property.  It did not amount to a charge over each property for the full amount of the misappropriated funds.

Comment from Mark Streeter, Sydney Lawyer

This case uses the principle of constructive trust to “trace” the proceeds of the fraud.  As her life partner had not taken the property as a “bona fide” purchaser without knowledge and for fair value, the life partner did not have a basis for resisting a claim by Norco.

This case teaches an important lesson. Act quickly to firstly freeze and then recovery misappropriated monies or property or assets.  It may be possible to “trace” monies and obtain a secured position under an equitable charge (as illustrated by the Norco decision).




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