Background
Kupang Resources Pty Ltd, formerly Chameleon Mining NL, obtained an earlier judgment establishing that its de facto director, Phillip Grimaldi, had breached his fiduciary duties by obtaining shares and options as an undisclosed “spotter’s fee.” Grimaldi sold those securities at a substantial profit. More than $15 million traceable to the sale proceeds was later paid to the Australian Taxation Office under settlements of his tax liabilities.
The Supreme Court of New South Wales found the Commonwealth liable under the first limb of Barnes v Addy for knowing receipt of trust property. The primary judge found that the ATO knew both that Grimaldi had obtained the profits through a breach of fiduciary duty and that its payments came from those profits. Judgment was entered for Kupang for $15,139,745.67, together with agreed prejudgment interest of $20 million calculated to 18 December 2025. The Commonwealth appealed.
The Court’s Holding
The Court of Appeal unanimously dismissed the appeal. Bell CJ, with Ward P and Griffiths AJA agreeing, held that profits obtained through a fiduciary’s breach of the duty of loyalty are held on trust for the principal from the moment of the breach. That principle extends to newly acquired property that the principal never previously owned. Because Grimaldi’s sale proceeds belonged in equity to Kupang, they were “trust property” for knowing-receipt purposes.
The earlier orders requiring Grimaldi personally to account for the profits did not extinguish Kupang’s proprietary interest or prevent recovery from a knowledgeable third-party recipient. The ATO’s relevant knowledge findings were substantially unchallenged, and the Commonwealth enjoyed no special immunity because it received the money while administering tax laws.
The Court also refused to entertain the Commonwealth’s new argument that the Commissioner’s statutory tax-collection duties prevented the ATO’s conscience from being affected. That argument had not been pleaded or run at trial, and Kupang might have pursued additional evidence, discovery, and cross-examination had it been raised. In any event, Australian knowing-receipt liability turns on the established categories of knowledge and does not require a separate finding of “want of probity.”
Key Takeaways
- Unauthorized profits obtained through a breach of fiduciary loyalty are held on trust for the principal as soon as the breach occurs, including profits represented by newly acquired property.
- A personal order requiring the fiduciary to account does not, without more, eliminate the principal’s proprietary interest or release a knowing third-party recipient from liability.
- Government revenue authorities have no special protection from knowing-receipt liability when they accept trust property with the requisite knowledge.
- An appellate court may reject a new argument where its absence at trial deprived the opposing party of opportunities to gather evidence or test the case.
Why It Matters
The decision confirms that Australian equity treats fiduciary gains as trust property independently of a later court declaration. That preserves tracing and knowing-receipt claims against third parties even when the original judgment against the fiduciary granted a personal account-of-profits remedy rather than expressly declaring a proprietary remedy.
It also makes clear that statutory tax-collection functions do not automatically displace equitable liability. Public authorities receiving funds with knowledge of their fiduciary provenance may be required to account for them on the same principles that apply to other recipients.