Bildom Pty Ltd v Clement

[2019] VSC 865

59 VR 352

BILDOM PTY LTD and Others v CLEMENT and Others Supreme Court of VictoriaEfthim AsJ 16 August, 06 November 2019[2019] VSC 865Banks and Banking — Cheques — Mandate — Forged cheques — Bookkeeper engaged by plaintiff misappropriated funds of plaintiff — Defendant bank admitted debiting accounts with no mandate — Pleading — Whether open to bank to plead that plaintiff represented that first defendant was agent and officer of the plaintiff.

Practice and procedure — Pleading — Whether pleading permitted — Allegation that performance of an illegal act was within scope of agency —Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 36.04(1)(b).

The plaintiffs sued the estate of a bookkeeper alleging that, while engaged by them, the bookkeeper over a long period had misappropriated funds by forging cheques payable to himself. The second defendant, Westpac Banking Corporation (bank) sought leave to file an amended defence and counterclaim so as to include allegations that the bookkeeper was an officer and agent of the plaintiffs and that the bookkeeper’s fraudulent activity occurred while undertaking the position or role into which he was placed by the plaintiffs, with the result that the plaintiffs were liable to the bank for any losses which the bank might suffer if adjudged liable to any of them.

The plaintiffs opposed the amendment primarily on the basis that the bank’s amendment in substance pleaded that performance of an illegal act was within the scope of the agent bookkeeper’s authority, and that this was precluded by authority.

Held, allowing the amendment:

• (1)

  The amendment would enable the real questions between the parties to be determined and allow the parties to understand the case against them. [10]–[12].

  BHP Information Technology Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd[1998] VSC 113[4]–[5]; ACN 074 971 109 v National Mutual Life Association of Australasia Ltd[2010] VSC 186[28] referred to.
• (2)

  The proposed pleading of agency was primarily based on the position into which the bookkeeper was put by the plaintiffs, and his authority over a long period to prepare cheques. Although this may plead, contrary to general authority, an agent’s authority as encompassing the performance of an illegal act, the issue was open and should be resolved at trial. [21]–[28].

  Lloyd v Grace, Smith & Co[1912] AC 716; Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Cooperative Assurance Co of Australia Ltd(1931) 41 CLR 41, 46 considered.Northside Developments Pty Ltd v Registrar-General(1990) 170 CLR 146, 184 referred to.

Application

This was an application for leave to file an amended defence and counterclaim. The facts are stated in the judgment.

doi: 10.25291/VR/59-VR-35259 VR 353R G Craig with R Burd for the plaintiffs. S M Hooper for the first defendant. M B Loughnan QC with B Carew for the second defendant. Reserved judgment.EFTHIM AsJ 1On 7 June 2019 the plaintiffs filed a summons seeking orders requiring the second defendant, Westpac Banking Corporation (Westpac) to attend mediation as contemplated by the orders of Ierodiaconou AsJ made 25 February 2019. Westpac seeks, by summons dated 12 August 2019, leave to file and serve an amended defence and counterclaim pursuant to rr 36.04(1)(b) and 10.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the Rules). Westpac’s position is that the amended pleading should be filed before any mediation.2This judgment concerns the question of whether leave should be granted to Westpac to file its amended defence and counterclaim.

Background

3The proceeding concerns a claim against Peter Gretton, now deceased, who was employed by the plaintiffs to perform general bookkeeping duties and to undertake the accounts and payroll for the plaintiffs. The plaintiffs were members of a hotel group and each conducted a hotel business in the group. Each plaintiff held a cheque account with Westpac. Between the years 2002 to 2017, Mr Gretton misappropriated funds in excess of $3 million from the plaintiffs by forging cheques payable to himself. Mr Gretton was never an authorised signatory for any bank account held by the plaintiffs.4The writ was filed in December 2017 and Westpac was joined as a party to the proceeding on 9 October 2018. On 17 June 2019, Ierodiaconou AsJ made orders, which were consented to and handed up by the parties at a directions hearing, referring the matter to mediation by 17 June 2019. The plaintiffs submit that until very recently, Westpac has refused to participate in the mediation, initially expressing that it would not mediate until the plaintiffs had resolved their claims against Mr Gretton. Westpac now submits that it will mediate the matter, however its amended pleading should be filed before any mediation.

The Defence and Counterclaim

5Westpac’s existing defence filed 7 December 2018 admits that it debited the plaintiffs’ accounts when it had no mandate to do so. The plaintiffs argue that consistent with authority, Westpac is therefore liable to restore the plaintiffs’ accounts.11

National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377, 396–7 (Clarke JA).

59 VR 3546Westpac’s existing defence also pleads a claim of proportionate liability against four individuals who occupied positions as directors and secretaries of the plaintiffs, including two persons who were managers of the three hotel businesses. Westpac also alleges that another wrongdoer, Jones Hotel Group Management Services Pty Ltd (JHG) should be held liable as it had service contracts with each of the plaintiffs, pursuant to which it provided the relevant accounting and bookkeeping services through the labour of Mr Gretton (the Service Contracts).7Westpac’s proposed amended defence and counterclaim relies upon the plaintiffs’ representation of Mr Gretton as an officer of each of the plaintiffs. It alleges that diversion of funds occurred by reason of Mr Gretton’s fraudulent representations to it that cheques presented had been signed by a person so authorised by each of the plaintiffs (for each of their accounts respectively). Westpac further states that the fraudulent activity occurred in the course of Mr  Gretton performing his services, which is described in the same manner in the plaintiffs’ amended statement of claim.8The plaintiffs oppose Westpac’s application on the basis that the proposed amendments do not adequately plead the claims sought to be made.

The Law

9Rule 36.01(1) of the Rules states that:

• 36.01

  General

• (1)

  For the purpose of—

  • (a)

    determining the real question in controversy between the parties to any proceeding; or

  • (b)

    correcting any defect or error in any proceeding; or

  • (c)

    avoiding multiplicity of proceedings—

the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.

10All parties must be allowed to make such amendments so as to allow for the real questions between the parties to be determined. In ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd,2 Croft J stated:

The authorities are clear that pleadings are not an end in themselves and are, rather, a means of ensuring that real issues of controversy are raised for determination in a way that is procedurally fair, both to a plaintiff and a defendant. This allows claims and defences to be clearly articulated, granting parties an opportunity to present their case properly prepared, on clear notice of allegations and defences raised in the proceedings. On this basis, the authorities clearly establish that, absent extraordinary circumstances, leave to amend will be granted. Thus, the ‘general practice’ of Lord Justice Bramwell, in Tildesley v Harper3 was:

2

[2010] VSC 186.

3

(1878) 10 Ch D 393.

59 VR 355

to give leave to amend unless I have been satisfied that the party applying was acting mala fide, or that, by his blunder, he had done some injury to his opponent which could not be compensated for by costs or otherwise.4

Similar sentiments were echoed in the passage of Isaacs J in O'Keefe v Williams,5 extracted above. Generally, where a party can be compensated (for example, by the provision of costs or by an adjournment), amendment will be allowed.6

11I also note that in BHP & Information Technology Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd,7Ashley J stated:

The strike out order is sought on the footing that the statement of claim in its present form may prejudice, embarrass or delay the fair trial of the proceeding: R 23.02(c). Mr Collins of counsel pursued the defendants’ attack upon the statement of claim with his customary skill and in considerable detail. The gravamen of the complaint was that the statement of claim does not disclose to the defendants the case that they are called upon to meet.

It was common ground that in considering the defendants’ complaint the following passage from the judgment of Saville LJ in British Airways Pension Trustee Ltd v Sir Robert McAlpine & Sons Ltd8 is apposite:

The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party to properly prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it. Pleadings are not a game to be played at the expenses of the litigants, nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing. Each case must of course be looked at in the light of its own subject matter and circumstances.9

The Plea of Agency

12Westpac in its proposed amended defence, in response to para 4 of the plaintiffs’ amended statement of claim, admits that from around April 2002 until his resignation on 16 October 2017, Mr Gretton was employed to perform general bookkeeping and to undertake the accounts and payroll for each of the plaintiffs and their associated hotels, and at all relevant times was an officer of each of the plaintiffs within the meaning of s 9 of the Corporations Act 2001 (Cth) (the Act).13Westpac in response to para 9 of the amended statement of claim, admits that:4

Ibid 396–7.

5

(1910) 11 CLR 171, 204–5.

6

Ibid [28].

7

[1998] VSC 113.

8

(1995) 11 Constr LJ 365.

9

Ibid [4]–[5].

59 VR 356

• (a)

  Mr Gretton had the capacity to affect significantly the plaintiffs’ financial positions and/or the presentation of those positions; and

• (b)

  that the directors of the plaintiffs were accustomed to act in accordance with Mr Gretton’s recommendations,

in consequence of which Mr Gretton was an officer of the plaintiffs within the meaning of s 9 of the Act.

14Westpac has a plea of agency in paras 22 to 28 of its proposed amended defence. In para 22 it pleads that Mr Gretton was an officer of the plaintiff when carrying out the services referred to in para 37 of the proposed amended defence.15Paragraph 37 of the proposed amended defence provides that JHG, of which Mr Gretton was an employee, entered into the Service Contracts with the plaintiffs. The terms of those contracts were that JHG would supply the labour and Mr Gretton who would provide the services of bookkeeping, management of cheque payments to suppliers and management of cheque books for each of the accounts, and provide services for the preparation of financial reports and statements to the plaintiffs and services of reconciliation of the plaintiffs’ bank accounts. These activities were referred to as ‘the Services’.16Paragraph 23 of the proposed amended defence refers to the representations that are relied upon by the first defendant. It pleads that three accounts held by the plaintiffs with Westpac were carried out by Mr Gretton falsely representing to Westpac that each of the cheques presented for drawing on the accounts, and the subject of the plaintiffs’ claim, against Westpac had been signed by a person authorised by the plaintiffs to sign the cheques.17Paragraphs 24 and 25 plead that Mr Gretton made the representation of the performances of the Services and did so as agent of each of the plaintiffs insofar as the representations related to such plaintiff.18Paragraph 26 pleads that induced by the reliance on the representations, Westpac debited the relevant accounts.19Paragraphs 27 and 28 plead that in the event that Westpac is adjudged liable to any of the plaintiffs as alleged in the amended statement of claim, Westpac will have suffered loss and damage by reason of the conduct of Mr Gretton and that the plaintiffs are liable to Westpac for any losses Westpac might suffer if adjudged liable to any of them.20The plaintiffs allege that this pleading should not be allowed. They say that:

• -

  the pleading is defective because Westpac has pleaded an agent’s authority encompasses an illegal act, which is not permitted;

• -

  the pleading does not make it clear whether Westpac is claiming

59 VR 357

• -

  actual or ostensible authority;

• -

  Westpac has not pleaded that Mr Gretton was authorised to make the representations;

• -

  the plea of reliance does not disclose any causal connection between the representations and the debiting of the accounts;

• -

  no material facts and no particulars are provided in support of conclusions that Mr Gretton made the representations in the apparent performance of his services, or that he made representations as agent for each of the plaintiffs;

• -

  the particulars in support of the representations are insufficient as they do not identify the signatures that were forged and when those signatures were relied upon;

• -

  there are no particulars in relation to paras 24, 25 and 26 of the proposed amended defence; and

• -

  there is no legal foundation to claim damages.

21The major attack on the pleading is that an agent’s authority cannot encompass the performance of an illegal act. The plaintiffs rely on Dal Point’s Law of Agency10 in support of this proposition. The learned author stated:

The scope of an agent’s authority cannot, in any case, exceed that vested in the principal; otherwise the principal could through the vehicle of agency expand his or her own authority.11 Nor can an agent’s authority encompass performance of an illegal act; any authority given for this purpose is void.12 As explained by Cotton LJ in Re Parker13 in the context of statutory illegality: ‘If any Act of Parliament makes anything that is ordinarily done illegal the ordinary authority will not give the agent authority to do it’. Actual authority can also be restricted in its scope by the terms of a statute.14

22In support of its pleading, Westpac relies on Lloyd v Grace, Smith & Co.15 In that case, a firm of solicitors was held responsible for a fraud committed by the managing clerk of the firm in the course of his employment. Lord MacNaghten, in his judgment, referred to the case of Barwick v English Joint Stock Bank16 and said:

Lord Blackburn’s view of the judgment in Barwick’s Case requires no explanation. It is clear enough. After referring to Barwick’s Case he expresses himself as follows: ‘I may here observe that one point there decided was that, in the old forms

10

G E Dal Pont, Law of Agency (LexisNexis Butterworths Australia, 3rd ed, 2014).

11

Cripps v Lakeview Farm Fresh Ltd[2006] 1 NZLR 238 at [22] per MacKenzie J.

12

See, for example, Mitchel v Reynolds (1711) 1 P Wms 181 ; 24 ER 347 (power of attorney constituting an unreasonable restraint of trade held void).

13

(1882) 21 Ch D 408, 420. See also at 418–19 per Brett LJ.

14

Dal Pont, n 10, [7.2].

15

[1912] AC 716.

16

(1867) L R 2 Ex 259.

59 VR 358

of English pleading, the fraud of the agent was described as the fraud of the principal, though innocent. This no doubt was a very technical question’; and then come these important words: ‘The substantial point decided was, as I think, that an innocent principal was civilly responsible for the fraud of his authorized agent, acting within his authority, to the same extent as if it was his own fraud.

That, my Lords, I think is the true principle. It is, I think, a mistake to qualify it by saying that it only applies when the principal has profited by the fraud. I think, too, that the expressions ‘acting within his authority’, ‘acting in the course of his employment’, and the expression ‘acting within the scope of his agency’ (which Story uses) as applied to an agent, speaking broadly, mean one and the same thing. What is meant by those expressions is not easy to define with exactitude. To the circumstances of a particular case one may be more appropriate than the other. Whichever expression is used it must be construed liberally, and probably, as Sir Montague Smith observed, the explanation given by Willes J. is the best that can be given.17...

The only difference in my opinion between the case where the principal receives the benefit of the fraud, and the case where he does not, is that in the latter case the principal is liable for the wrong done to the person defrauded by his agent acting within the scope of his agency; in the former case he is liable on that ground and also on the ground that by taking the benefit he has adopted the act of his agent; he cannot approbate and reprobate.18

23Westpac could not point to any pleading in Australia where an agent’s authority encompassed performance of an illegal act. The plaintiffs submit that in Australia there is authority which prohibits this pleading. They rely on Northside Developments Pty Ltd v Registrar-General,19 where Brennan J said:

A company cannot give authority to fix a false seal and it is difficult to envisage a case in which there would be ostensible authority to write a false signature. It is possible that a company would be estopped from denying that a forgery in the strict sense is binding upon it, but such cases would be exceptional and would depend upon a representation that the company was bound by the forgery.20

24Westpac submits that it does not matter if the authority was actual or ostensible. If Westpac had to rely on one or the other, it would be ostensible authority. It says Mr Gretton was actually authorised to manage the payment of suppliers and draw cheques.25In Lloyd v Grace, Smith & Co, a managing clerk of a law firm was authorised to conduct the conveyancing business of the firm but not authorised to commit the fraud causing loss to the widowed plaintiff. The firm was held responsible for the fraud.26Mr Gretton was put in the position by the plaintiffs to provide services for the plaintiffs for some 12 years. It may be an exceptional circumstance that he could continue his fraud for such a long period. It may be a circumstance 17

Lloyd v Grace, Smith & Co [1912] AC 716, 735–6.

18

Ibid 738.

19

(1990) 170 CLR 146.

20

Ibid 184.

59 VR 359in which Brennan J said it may be possible for a company to be estopped from denying that a forgery is binding upon it. I do note that here there is no representation that the plaintiffs were bound by the forgery.27The plaintiffs conceded that Westpac could rely on vicarious liability for a cause of action, but submit that the pleading of vicarious liability would need to be repleaded. The same facts in demonstrating whether there has been vicarious liability will also be relied upon by Westpac to determine whether or not there has been agency. It would not add significant extra time to the hearing of this proceeding if agency was allowed to be relied upon by Westpac.28I will allow the pleading in relation to agency to go to trial. The plaintiffs may ultimately succeed but based on Lloyd & Grace, Smith & Co, Westpac should be given the opportunity to raise agency. This issue should go to trial. The plaintiffs understand Westpac’s case.

29The plaintiffs submit that if a pleading of agency is allowed, then at the very least the pleading needs to plead how it is that the representations were in the scope of the authority. I note that in Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Cooperative Assurance Co of Australia Ltd,21 Duffy CJ and Starke J said:

Still we apprehend that one is liable for another’s tortious act ‘if he expressly directs him to do it or if he employs that other person as his agent and the act complained of is within the scope of the agent’s authority’. It is not necessary that the particular act should have been authorised; it is enough that the agent should have been put in a position to do the class of acts complained of — Barwick v English Joint Stock Bank; Lloyd v Grace, Smith & Co.22

30Here Westpac appears to be pleading that Mr Gretton has been put in the position to do the acts complained of. Westpac in the proposed amended defence pleads that Mr Gretton was responsible on behalf of the plaintiffs for the following:

• -

  bookkeeping;

• -

  the preparation of financial reports and statements;

• -

  the preparation of cheques for the payment of supplier invoices from the accounts, with such cheques to be signed by a person authorised by the plaintiff to sign cheques;

• -

  the reconciliation of bank accounts including the accounts;

• -

  was not an authorised signatory for any of the accounts, or any bank account held by any of the plaintiffs; and

• -

  was not authorised to make payment by cheque to himself.

21

(1931) 46 CLR 41.

22

Ibid 46.

59 VR 36031Westpac has admitted what Mr Gretton was authorised and not authorised to do. It relies upon the plaintiffs’ allegations regarding Mr Gretton’s position as an officer of each of the plaintiffs and the fraudulent diversion of funds he made while occupying those positions. Westpac’s pleading relies on the matters pleaded in the plaintiffs’ pleading. The plaintiffs must understand what is being relied upon. If that is not enough then Westpac will fail in its defence.32The plaintiffs submit that the plea of reliance does not disclose any causal connection between the representations and debiting of the account. They say it is insufficient to plead the fact of inducement and reliance without pleading the basis on which Westpac so relies. The plaintiffs submit that they are entitled to know the following by way of example:

• -

  in what way did Westpac rely on the representations?

• -

  did Westpac rely on each and every forged cheque, and if not, on which cheques did they rely? and

• -

  which of Westpac’s employees rely on the representations?

33Counsel for the plaintiffs stated:

Well, they need to set out particulars of reliance is my point because if the — having regard to the sheer volume here, there are going to need to be detailed particulars of how it is said that Westpac relied on the face of these documents — who relied, when they relied, what the process they adopted was.

34Mr Gretton presented 1,200 cheques to Westpac over approximately 12 years. To provide each and every particular of every cheque is oppressive and incapable of being provided. Westpac’s case is simple. They say they have honoured a cheque that did not have a signature on it by an authorised signatory, which was prepared and presented to them by Mr Gretton. The plaintiffs know the case they need to meet.35The plaintiffs submit that the pleading in relation to loss and damage is defective. In para 27 of the proposed amended defence, Westpac pleads that if it is adjudged liable to any of the plaintiffs as is alleged in the amended statement of claim then Westpac shall have suffered loss and damage by reason of the conduct of Mr Gretton. In the counterclaim, at para 90, it repeats the agency allegations and again claims loss and damage.36The plaintiffs state that Westpac’s amended pleading is silent about the legal foundation, being the cause of action that gives rise to the entitlement on the part of Westpac to recover damages. They say that they do not know whether this is a negligent misrepresentation case or whether it is a deceit case. Here the cause of action is the fraud alleged against Mr Gretton. The pleading of damages relates to the plaintiffs being vicariously liable for Mr Gretton’s fraud and also liable in an agency context. There is no need to plead anything further in regard to damages. This pleading is again, easily 59 VR 361understood and can be pleaded to.37Paragraphs 29 to 32 plead vicarious liability. Paragraph 30 of the proposed amended defence simply pleads that Mr Gretton made the representations in the apparent performance of his employment which was the occasion for making the representations. Here the plaintiffs submit that the allegation presents a bare conclusion drawn from unstated facts. They further submit that no attempt is made to articulate, either by reference to facts or particulars, how it is that Mr Gretton made the representations in the apparent performance of his employment. It is said that the pleading does not identify any circumstances to support the conclusion that Mr Gretton’s actions were done in the course and the scope of his employment.38Westpac conceded that they have made an omission after para 30 and that needs to be rectified. Westpac should plead how they were induced by those representations.39In New South Wales v Lepore,23 Gleeson CJ stated:

An employer is vicariously liable for a tort committed by an employee in the course of his or her employment. The limiting or controlling concept, course of employment, is sometimes referred to as scope of employment. Its aspects are functional, as well as geographical and temporal. Not everything that an employee does at work, or during work hours, is sufficiently connected with the duties and responsibilities of the employee to be regarded as within the scope of the employment. And the fact that wrongdoing occurs away from the workplace, or outside normal working hours, is not conclusive against liability.24

40The plaintiffs submit that in accordance with New South Wales v Lepore, it is necessary to plead vicarious liability arising from some identified misconduct. In my view Westpac should amend the pleading to make it clearer.41In summary, Westpac will be allowed to plead agency. In relation to the pleading of vicarious liability, this can be pleaded but with some modifications. Westpac will be given leave to file an amended defence and counterclaim, but not in its current form. Overall, the pleading must be understood by the plaintiffs so they could reply to it if they so desired.Orders accordingly. Solicitors for the plaintiffs: Holding Redlich. Solicitors for the first defendant: Belbridge Hague. Solicitors for para: Norton Rose Fulbright Australia. L C HOGANBARRISTER-AT-LAW 23

(2003) 212 CLR 511.

24

Ibid [40]