Citibank Ltd v Papandony

Case [2002] NSWCA 375

NEW SOUTH WALES COURT OF APPEAL

CITATION:     Citibank Limited v. Papandony & Anor. [2002]  NSWCA 375

FILE NUMBER(S):
40685/02

HEARING DATE(S):    1 November 2002

JUDGMENT DATE:      21/11/2002

PARTIES:
Citibank Limited - appellant
Steven Papandony - 1st respondent
Gannemon Pty. Limited - 2nd respondent

JUDGMENT OF:        Meagher JA Heydon JA Hodgson JA   

LOWER COURT JURISDICTION:       Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):     SC 50148/01

LOWER COURT JUDICIAL OFFICER:   Gzell J

COUNSEL:
Mr. P.M. Wood for appellant
Mr. B. McClintock SC with Ms. K. Traill for respondents

SOLICITORS:
Coudert Brothers, Sydney for appellant
Christopher Levingston & Associates, Sydney for respondents

CATCHWORDS:
BANKING
BILLS OF EXCHANGE - Cheques - Conversion - Drawing procured by fraud - No concluded contract - Drawer remains true owner and entitled to immediate possession.

LEGISLATION CITED:
Cheques Act 1986 (Cth), s.95(1)

DECISION:
Appeal dismissed with costs.  Application for leave to appeal refused with costs.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40685/02
SC 50148/01

MEAGHER JA
HEYDON JA
HODGSON JA

Thursday 21 November 2002

CITIBANK LIMITED  V.  PAPANDONY & ANOR.

Judgment

  1. MEAGHER JA:  I agree with Hodgson JA.

  2. HEYDON JA:  I agree with paragraphs [3]-[66] and [69] of Hodgson JA’s reasons for judgment, leaving the issues discussed in [67]-[68] to a case in which it is necessary to decide them.

  3. HODGSON JA:  On 14 May 2002, in proceedings brought by the respondents Steven Papandony and Gannemon Pty. Limited against the appellant Citibank Limited, Gzell J gave reasons for judgment in which he indicated an intention to give judgment for the respondents for $993,792.00 plus interest, and to order the appellant to pay the respondent’s costs; and he directed the parties to bring in Short Minutes of Orders to that effect. 

  4. Before the primary judge made orders, the appellant applied to re-open certain issues dealt with in the reasons for judgment, seeking leave to lead further evidence and to cross-examine the first respondent, and also seeking an order for further discovery.  On 2 August 2002, the primary judge dismissed that application; and it appears that final orders were made in accordance with the judgment of 14 May 2002 on 5 August 2002. 

  5. The appellant appeals against the orders made on 5 August 2002, challenging certain identified aspects of the judgments of 14 May 2002 and 2 August 2002. 

    CIRCUMSTANCES

  6. I will begin by outlining the facts of the matter which are either undisputed or clearly proved. 

  7. In doing so, I will include reference to ten exhibits to an affidavit of the first respondent which were not tendered during the hearing before the primary judge.  The appellant sought to introduce these documents into the case in its application to re-open, and it challenges the primary judge’s decision on that application principally on the basis that those documents should have been admitted into evidence, and the judgment then reconsidered having regard to those documents.  It is the contention of the appellant that the case should have been determined on the basis that those…

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AGLC
Citibank Ltd v Papandony [2002] NSWCA 375
Case
[2002] NSWCA 375
Decision Date

CaseChat Overview and Summary

Citibank Ltd appealed a decision of the primary judge concerning the conversion of cheques. The respondents, drawers of the cheques, alleged that the cheques had been procured by fraud by Mr. Brachmanis, and that they remained the true owners entitled to immediate possession. They further claimed that Citibank converted the cheques by collecting their proceeds and crediting them to Mr. Brachmanis’ account. Citibank contended that even if fraud was involved, the cheques were delivered to the payees' agent, Mr. Brachmanis, making the payees the true owners. Citibank also argued that it had acted to its detriment before any purported rescission of the underlying transactions, rendering rescission unavailable.

The legal issues before the court were whether the respondents remained the true owners of the cheques, or entitled to their immediate possession, despite the alleged fraud and delivery to Mr. Brachmanis as agent. The court also had to determine whether Citibank's actions in collecting the cheques constituted conversion, and whether the respondents' right to rescind any underlying contracts was defeated by the bank's intervening actions or the passage of time. A key distinction to be considered was whether a contract had been concluded, albeit voidable due to fraud, or whether no contract had come into existence at all.

The court found that the primary judge's decision was incorrect in holding that the first respondent had not seen an agreement for a 49% interest in dealerships. However, it noted issues with the consideration provided in the Territory Reservation Agreements, which were also not always made with the correct entities. The court considered the argument that even if induced by fraud, the cheques were delivered to Mr. Brachmanis as agent for the payees, which would pass title or the right to immediate possession, citing Associated Midland Corporation Limited v. Bank of New South Wales and Midland Bank PLC v. Brown Shipley & Co. Limited. The court also noted that rescission would be unavailable if the bank had acted to its detriment, citing Bavins v. London & South Western Bank Limited and Tate v. The Wilks & Dorset Bank Limited. The court ultimately dismissed the appeal, finding that the judgment below was incorrect.

Orders

Orders of the court

Appeal dismissed with costs. Application for leave to appeal refused with costs.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

There was further contact between the first respondent and Mr. Brachmanis in November and December 1999, when Mr. Brachmanis told the first respondent that the shops would be opening shortly. However, it appears that the shops did not open, and in February 1999 the first respondent went to the police alleging fraud against Mr. Brachmanis.DECISION OF PRIMARY JUDGE Before the primary judge, the respondents claimed that the cheques had been procured by Mr. Brachmanis by fraud, that the first respondent therefore remained the true owners or entitled to immediate possession of the cheques, and that the cheques were converted by the appellant in collecting the proceeds of the cheques and crediting them to Mr. Brachmanis’ account. The appellant did not admit that the cheques had been procured by fraud; and submitted that, even if they had been, the cheques came into the hands of the payees by delivery to their agent Mr. Brachmanis, and the payees thereby became the true owners with whom the bank dealt prior to any avoidance of any avoidable transactions between the respondents and Mr. Brachmanis. The appellant submitted it had acted to its detriment before any avoidance of the transactions, so that thereafter the contracts could not be rescinded. The primary judge referred to a number of cases and statements in texts to the effect that, if a cheque has been obtained by fraud and there is no one with a better title to it, the drawer is the true owner, relying particularly on Bute (Marquess) v. Barclays Bank Ltd. [1956] 1 QB 202, Australian Guarantee Corporation Limited v. State Bank of Victoria [1989] VR 617, and Hunter BNZ Finance Ltd. v. ANZ Banking Group Ltd. [1990] VR 41. He noted a distinction drawn in the authorities:In Cundy v Lindsay (1878) 3 App Cas 459 at 461 Lord Penzance in the course of argument observed:"Is there no distinction between the case of a man who, being deceived, enters into a contract, and that of a man who, being also deceived, does not enter into a contract?"The answer was given by the Lord Chancellor, Lord Cairns, at 466:"The result, therefore, my Lords, is this, that your Lordships have not here to deal with one of those cases in which there is de facto a contract made which may afterwards be impeached and set aside, on the ground of fraud; but you have to deal with a case which ranges itself under a completely different chapter of law, the case namely in which the contract never comes into existence."That the distinction applies equally to cheques and other negotiable instruments is suggested by Lord Davey’s reference to Cundy in Great Western Railway v London and County Banking Co [1901] AC 414 at 420. It was held to apply by a Divisional Court in Tate v Wilts and Dorset Bank (1899) 1 Legal Decisions Affecting Bankers 286. In that case the plaintiff drew a cheque on its bank payable to the order of one Dixon crossed "'not negotiable" in part payment for scrap iron to be delivered. Dixon's real name was Laidman. He took the cheque to the defendant bank which opened an account in the name of Laidman to which the amount of the cheque was credited. The defendant allowed Laidman to draw upon the funds at once. The proceeds were collected in due course. Darling J concluded that there was, de facto, a contract and upon the assumption that the defendant was the agent of Laidman, the rule in Holland v Russell 4 B & S 14 (122 ER 365) applied and the plaintiff could no longer repudiate the contract. In the latter case it was said that A being only an agent, of which B was aware, and having, without notice of B's intention to repudiate the contract, paid over to his principal the amount received from underwriters, B was not entitled to recover back from A his amount of the insurance.

Ratio Decidendi

Legal Principle Established

In any event, Mr. Wood submitted, even if the transactions had been induced by fraud, the cheques were delivered to the payees and received by the payees by their agent Mr. Brachmanis; and the payees thus became the true owners and entitled to immediate possession of the cheques, even if the transaction pursuant to which the cheques had been paid were voidable. Mr. Wood submitted that this was clear in the case of the Brac companies. In the case of the cheques made payable to “Sears”, this was a trading name used by Mr. Brachmanis or Properties, as shown by the business card and other documents in evidence; and it was plainly understood by the respondents to be an entity associated with Mr. Brachmanis to which the consideration for the dealerships was payable. The cheques were delivered to Mr. Brachmanis as agent for that entity, and this was effective to pass title or right to immediate possession: Associated Midland Corporation Limited v. Bank of New South Wales [1983] 1 NSWLR 533, at 535, 544, 549; Midland Bank PLC v. Brown Shipley & Co. Limited [1991] 1 Lloyds LR 576 at 583. If there had been fraud, Mr. Wood submitted, an effective rescission would have given the respondents an entitlement to be repaid, but this did not assist them. There had been no communication to Mr. Brachmanis of an election to rescind, and no evidence that Mr. Brachmanis could not be contacted. Furthermore, the rights of third parties had intervened, specifically in that the appellant had acted to its detriment in allowing Mr. Brachmanis’ account to be depleted; and accordingly rescission was now unavailable to the respondents: Bavins v. London & South Western Bank Limited [1900] 1 QB 270 at 277; Tate v. The Wilks & Dorset Bank Limited (1899) Vol 1 Legal Decisions Affecting Bankers 286 at 289; Orix Australia Corporation Limited v. M. Wright Hotel Refrigeration Pty. Limited (2000) 155 FLR 267 at [39]-[40]. Furthermore, Mr. Wood submitted, if what the appellant did was not conversion at the time, it would not be made into conversion retrospectively: Shirlaw v. Lewis (1993) 10 ACSR 288 at 295. To the extent that a different view was expressed in Hunter BNZ Finance Limited v. C.G. Maloney Pty. Limited (1988) 18 NSWLR 420 at 439-40, that case should not be followed.DECISION The judgment below was incorrect, on the material now before us, in holding that the first respondent had not seen an agreement by which he was to acquire a 49% interest in dealerships. However, the Territory Reservation Agreements are subject to the comment that they provided illusory consideration, in that they contemplated dealing with Brac Retail Pty. Limited on the terms of any document it may decide to use; and, in relation to the Parramatta dealership, the Territory Reservation Agreement was with Brac Retail Pty. Limited, not Brac Enterprises Pty. Limited to whom the $25,000.00 cheque was made out. As regards the alleged concluded contracts concerning the 49% interest in the dealerships, these contracts required payment of $250,000.00 only to companies yet to enter into agreements for the dealerships, and in one case not named, in return for allotments of shares.