Clarke v Abou-Samra

[2010] SASC 205

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

CLARKE & ANOR v ABOU-SAMRA & ORS

[2010] SASC 205

Judgment of The Honourable Justice Kourakis

20 July 2010

CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS - RIGHTS AND LIABILITIES OF PRINCIPAL IN RESPECT OF CONTRACTS OF AGENT - FRAUD AND MISREPRESENTATION - OF AGENT

EQUITY - GENERAL PRINCIPLES - EQUITABLE CHARGES AND LIENS - MONEY EXPENDED OR BENEFIT CONFERRED ON PROPERTY OF ANOTHER

EQUITY - GENERAL PRINCIPLES - UNJUST ENRICHMENT

RESTITUTION - MISTAKE: RESTITUTION ARISING FROM A PLAINTIFF'S MISTAKEN ACTIONS - RECOVERY OF MONEY PAID UNDER MISTAKE - DEFENCES AND LIMITATIONS ON RECOVERY

Third defendant was principal of company (ALC) which borrowed large sums of money from clients at high interest rates – plaintiffs delivered bank cheque for $207,518.20 to ALC believing they were loaning that amount to first and second defendants to purchase property – third defendant had arranged first and second defendant’s finance to purchase that property – first and second defendants believed bank cheque for $207,518.20 was to discharge an existing debt of $140,000 owed to them by ALC – ALC now in liquidation and third defendant a bankrupt – plaintiffs claim from first and second defendants sum of $207,518.20 plus interest – whether third defendant was authorised agent of first and second defendants for the purpose of negotiating loan – whether plaintiffs paid $207,518.20 to ALC by reason of mistaken belief that third defendant was authorised agent of first and second defendants and that payment would be made to them by way of loan – whether plaintiffs have proprietary interest in first and second defendant’s property – whether first and second defendants hold property on remedial constructive trust for benefit of plaintiffs.

Held: Third defendant not actually or ostensibly authorised by first and second defendants to borrow full $207,518.20 from plaintiffs – third defendant only authorised to borrow $67,518.20 from plaintiffs – plaintiffs did pay $207,518.20 to ALC on mistaken belief that third defendant was authorised agent of first and second defendants and that payment would be made to them by way of loan – however, first and second defendants have good defence to mistake claim to the extent that the payment discharged ALC’s pre-existing $140,000 debt to them – plaintiffs do not have proprietary interest in first and second defendant’s property reflecting the proportion that the value of the bank cheque bears to the purchase price – plaintiffs entitled to and hold an equitable charge over the property for the $67,518.20 – plaintiffs entitled to declarations of entitlement to $67,518.20.

Cheques Act 1986 (Cth) s 5, s 36, s 37, s 71, referred to.
Barclays Bank Ltd v W J Sims Son & Cooke (Southern) Ltd [1980] QB 677; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548; Black v S Freedman & Co (1910) 12 CLR 105; Aiken v Short (1856) 1 H & N 210; 156 ER 1180; Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177; Bannatyne v MacIver [1906] 1 KB 103, applied.
Blackburn Building Society v Cunliffe, Brooks, & Co (1882) 22 Ch D 61; Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57; R E Jones Ltd v Waring and Gillow Ltd [1925] 2 KB 612 (CA); R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 (HL), distinguished.
Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72; Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; Lloyds Bank Plc v Independent Insurance Co Limited [2000] 1 QB 110, discussed.
Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Co-operative Assurance Company of Australia Ltd (1931) 46 CLR 41; Watson v Russel (1860) 3 B & S 34; 122 ER 14; Foster v Green (1862) 7 H & N 881; 158 ER 726; The City Bank of Sydney v McLaughlin (1909) 9 CLR 615; Calverley v Green (1984) 155 CLR 242; Muschinski v Dodds (1985) 160 CLR 583, considered.

WORDS AND PHRASES CONSIDERED/DEFINED

"bank cheque"

CLARKE & ANOR v ABOU-SAMRA & ORS
[2010] SASC 205

Civil

1. KOURAKIS J:      The third defendant, Michael Samra (Samra), was the principal of the company ALC Group Pty Ltd (ALC).  ALC borrowed large sums of money from its clients at high rates of interest by representing that it was able to profitably on-lend that money to property developers who were not able to fully fund their projects with bank finance.  The question of whether that representation was true or was merely a cover for a “Ponzi scheme”,[1] in which the interest payments to one client are funded by the capital borrowed from another, arose incidentally in these proceedings by way of an attack on Samra’s credit.  That question cannot be conclusively decided on the evidence adduced in this trial.  It is sufficient to record that ALC is now in liquidation and Samra is a bankrupt.  The plaintiffs, Mr and Mrs Clarke, and the first and second defendants, Mr and Mrs Abou-Samra, were clients of ALC and have all suffered loss as a result of the collapse of Samra’s financial dealings.

   [1]    So named after the promoter of such a scheme in the United States, Charles Ponzi, in 1920: Stephen Greenspan, ‘Fooled by Ponzi: How Bernie Madoff Made Off with My Money, or Why Even an Expert on Gullibility Can Get Gulled’ (2009) Vol.14 No.4 Skeptic 20.

2. On 2 July 2009 Mr Clarke delivered a bank cheque, drawn by BankSA on itself, in the sum of $207,518.20 (the bank cheque) to the offices of ALC, believing that he and his wife were making a loan in that amount to Mr and Mrs Abou-Samra.  BankSA had debited the account of Mr and Mrs Clarke for the value of the bank cheque.  An employee of ALC then delivered the bank cheque to Eckermann Steinert, the conveyancers who were acting for Mr and Mrs Abou-Samra on the purchase of a residence in Medindie (the Medindie residence).  Mr and Mrs Abou-Samra had paid a deposit of $50,000 on that purchase.  They planned to pay the balance of the adjusted settlement sum of $1,005,373.60 by obtaining a loan of close to $800,000 from BankSA, recalling their investment of about $140,000 with ALC, and if necessary obtaining a small private loan for the balance.  Samra had undertaken to arrange the bank finance for Mr and Mrs Abou-Samra to purchase the home and had also undertaken to repay the money they had lent to ALC.  Mr and Mrs Abou-Samra believed that the bank cheque was deposited by ALC in discharge of its debt to them and perhaps also to provide them with a small loan to enable them to settle on the Medindie residence.  Samra had independently arranged a loan from BankSA for $748,000.  Mr and Mrs Abou-Samra subscribed to a loan agreement for that amount on or shortly after 26 June 2009 and the money was paid into Eckermann Steinert’s trust account on 3 July 2009.

3. By these proceedings, Mr and Mrs Clarke claim from Mr and Mrs Abou-Samra the sum of $207,518.20 and interest.  Mr and Mrs Clarke claim that they are entitled to that sum on several bases.

4. First, they allege that Samra was the agent of Mr and Mrs Abou-Samra for the purpose of negotiating the loan, or at least that they are estopped from denying that he was because, by their conduct, they represented him to be their agent.  The conduct on which they rely is their engagement of Samra to procure the finance for them, the “arming” of Samra with a copy of their conveyancer’s settlement statement and Samra’s own representation that he was authorised to borrow the money.  I have concluded that Samra was only actually authorised to obtain a loan for the difference between the money due on settlement and the sum of the BankSA loan and ALC’s indebtedness to Mr and Mrs Abou-Samra (the shortfall), which amounts to $67,518.20.  That limited authority did not carry with it any implied authority to borrow more than the amount of the shortfall.  It was plainly not necessary, in order to effectively discharge the agency to borrow the shortfall, to borrow an even greater amount.  Nor, in my view, did Samra have ostensible authority to do so.  By expressly authorising Samra to borrow the shortfall, and therefore to tell others that he was authorised for that purpose, Mr and Mrs Abou-Samra did not represent to others that Samra’s own description of the scope of his authority could be taken to accurately state his actual authority.  If a principal who appoints an agent to procure a specified and limited loan were to be held generally liable for whatever amount was borrowed by his agent, whether or not he received the loan or ratified the loan agreement, an unacceptable level of risk would be introduced in to the business of finance brokering.  The provision of the settlement statement does not in itself, or together with the actual authority given by Mr and Mrs Abou-Samra, add to that position; it is well known that a purchaser may procure the funds to complete a purchase from a variety of sources and from more than one lender.

5. The second basis upon which Mr and Mrs Clarke put their claim is that they paid the amount of $207,518.20 by reason of a mistaken belief that Samra was the authorised agent of Mr and Mrs Abou-Samra and that the payment was made to them by way of loan.  I am satisfied that Mr and Mrs Clarke were told by Samra that he was acting on behalf of Mr and Mrs Abou-Samra in seeking a loan in the sum of $207,518.20.  I am satisfied that Mr and Mrs Clarke advanced the sum on that basis because they believed what he said to be true.  However, by delivering the bank cheque to Samra who, through an employee of ALC, deposited it into the trust account of Eckermann Steinert, Mr and Mrs Clarke allowed ALC to effectively discharge its indebtedness to Mr and Mrs Abou-Samra.  Their debt was discharged because, objectively viewed, ALC’s depositing the bank cheque with Eckermann Steinert on account of Mr and Mrs Abou-Samra was performance by ALC of its obligation to repay them the balance of their investment in accordance with Samra’s representation to them that he would cause ALC to do so.  To the extent that the payment discharged the pre-existing debt of ALC to Mr and Mrs Abou-Samra, they have a good defence to the claim for payment made under mistake.  As to any excess, Mr and Mrs Abou-Samra can have no claim to retain the money against Mr and Mrs Clarke.  They had authorised Samra to obtain a loan for the shortfall in accumulating the purchase price and they are therefore bound by his conduct even though he exceeded their authority by purporting to borrow more than that amount.  Mr and Mrs Abou-Samra have had the benefit of the shortfall procured by their agent and cannot in equity be allowed to retain a windfall benefit by appropriating to their use money obtained for and on their behalf by Samra merely because they were ignorant of the identity of the lender.  They are estopped for denying his agency by their conduct in taking the use of that part of the proceeds of the bank cheque which funded the shortfall.

6. In the alternative, Mr and Mrs Clarke claim to have a proprietary interest in the Medindie residence reflecting the proportion that the value of the bank cheque bears to the purchase price.  They claim that their advance was very obviously not made by way of gift and that effect should be given to the presumption that Mr and Mrs Abou-Samra hold a share in the Medindie residence, proportionate to the monies advanced, on a resulting trust for them.  However, that presumption is rebutted in this case.  Mr and Mrs Clarke never intended to take a proprietary interest in the Medindie residence; it is admitted by them that they advanced the money by way of loan.  Nor, to the extent that the money effectively discharged the pre-existing debt of ALC, can the money be treated in equity as the purchase price of a proportionate share in the Medindie residence.

7. Finally, Mr and Mrs Clarke claim that Mr and Mrs Abou-Samra hold the Medindie residence on a remedial constructive trust.  I accept that Mr and Mrs Clarke are entitled to, and hold, an equitable charge over the property for the shortfall; that is, for the difference between the amount of money paid by the bank cheque and ALC’s debt to the Abou-Samras.  However, to the extent that the deposit of the bank cheque discharged ALC’s indebtedness to Mr and Mrs Abou-Samra, there is no reason in equity to hold Mr and Mrs Abou-Samra to a trust, or for that matter an equitable lien, to repay the whole of the amount provided by Mr and Mrs Clarke.  They did not cause or contribute to the Clarkes’ mistake, they had no notice of the Clarkes’ mistake when they received the money, and they have given good value for it to the extent that it discharged ALC’s indebtedness to them.

8. I elucidate my reasons for so holding below.  In the course of my reasons, I refer to the dealings of both Mr Clarke and Mr Abou-Samra with Samra.  The case was conducted on the basis that Mr Clarke and Mr Abou-Samra each had uxorial approval for their business dealings with Samra.  There is a sufficient evidential basis for me to accept that that was so.  In making my findings of fact I have proceeded on the basis that all of the witnesses, other than Samra, were, for the most part, apparently credible but that generally their testimony should not be relied upon unless it was consistent with some independent evidence or inherently probable.

   Mr and Mrs Abou-Samra

9. Mr Abou-Samra operates an electric motor repair business.  At the time of the transactions which are the subject matter of these proceedings, Mr Abou-Samra lived with his family at a house in LeHunte Street, Prospect (the LeHunte residence).  Mr Abou-Samra and his wife had borrowed in excess of $400,000 on the security of the LeHunte residence from BankSA and had invested it with ALC on the advice of Samra.

10. Mr Abou-Samra deposed that he invested $220,000 on 20 October 2008, $10,000 on 10 November 2008, $50,000 on 18 November 2008 and a further $150,000 on 21 November 2008 with ALC.  Although Mr Abou-Samra’s bank statements show withdrawals in those amounts made by way of interbank transfer, there is no record of a deposit of $10,000 on 10 November 2008 in the bank statements of ALC.  In the absence of evidence showing that Mr Abou-Samra invested money with ALC in some way other than by deposit into its bank account, I am not satisfied that the amount of $10,000 was lent to ALC.  The loans, other than the loan for $10,000, are recorded in ALC’s ledger in an account headed Mr and Mrs Abou-Samra.  In summary, the banking records and ALC’s ledger show that, as of 21 November 2008, the total amount invested by way of loan to ALC was $420,000.

11. Mr Abou-Samra deposed that he has only ever been paid $5,500 in interest.  He deposed that $220,000 of his investment with ALC was repaid on 19 December 2008 to enable the purchase of a business known as the Distill Health Bar (Distill).  The business was bought by the company Royali Pty Ltd.

12. According to the ALC ledger, on 16 February 2009 a further $40,000 was lent to ALC but soon repaid.  Mr Abou-Samra deposed that a further amount of $50,000 was repaid in April 2009 to pay for business expenses.  Banking records show that an amount of $50,000 was paid into the account of Royali Pty Ltd in March 2009.  The ALC ledger also records a withdrawal of that amount on 2 March 2009.  The resulting balance, of Mr and Mrs Abou-Samra’s investment on 2 March 2009, as recorded in ALC’s ledger and as supported by banking records, was $190,000.

13. On 25 February 2009 Mr and Mrs Abou-Samra signed a contract for the purchase of a residence at Medindie.  The contract price was $950,000.  A sum of $50,000 was payable as a deposit.  The contract was subject to Mr and Mrs Abou-Samra obtaining a loan of not less than $800,000 from BankSA at an interest rate not exceeding 6.5 per cent per annum, the loan to be approved by 11 March 2009.  Settlement was fixed for 25 May 2009.  On 25 March 2009 the contract was varied so that it became unconditional and settlement was fixed for 26 June 2009.

14. Mr Abou-Samra deposed that on 2 April 2009 he withdrew $50,000 of his investment with ALC to pay the deposit of $50,000 on the Medindie residence.  However, an entry in ALC’s ledger, in the account of Mr and Mrs Abou-Samra, records a withdrawal made on 2 March 2009.  That record coincides with a record of a payment of $50,000 into the BankSA account of C and R Abou-Samra on 2 March 2009.  It also better accords with when I would have expected the deposit to be given under the contract, although it is possible that the deposit was not paid until after the variation by which the settlement was made unconditional.

15. It appears, therefore, from the ALC ledger and the banking records that after the payment of the deposit there was an amount of $140,000 standing to the credit of Mr and Mrs Abou-Samra in the accounts of ALC.  On 17 March 2009 Samra recorded on a note which was provided to BankSA that Mr and Mrs Abou-Samra had an amount $150,000 on loan to ALC.  The difference between that amount and the $140,000 to which I have referred may be attributable to my finding about the withdrawal of $10,000 on 10 November 2008.

16. I am sufficiently assured by the banking records to find that the amounts credited to the accounts of Mr and Mrs Abou-Samra in the ALC ledger were lent by them.  I doubt that any repayments of principal would have been paid by cash.  The records are broadly consistent with Samra’s note to BankSA.  I acknowledge that there is some inconsistency about the level of ALC’s indebtedness in letters subsequently sent on Mr Abou-Samra’s behalf by his solicitors and in a file note of his instructions given to his solicitors.  I think that those statements are probably the result of either a miscalculation by Mr Abou-Samra or a mistaken appreciation by his solicitor as to whether the debt he claimed was exclusive or inclusive of interests. I find that after the payment of the deposit on the Medindie residence, the balance of the principal of the loans made by Mr and Mrs Abou-Samra to ALC was $140,000.

17. The accounts ledger of ALC also contains an account headed Distill Health.  The son of Mr and Mrs Abou-Samra, Roy Abou-Samra, deposed that the Distill Health Bar was purchased by Royali Pty Ltd.  I earlier mentioned Mr Abou-Samra’s evidence that on 19 December 2008 he withdrew $220,000 to purchase that business.  I have no evidence as to the basis on which those funds were advanced to Royali Pty Ltd.  Royali Pty Ltd operated its own account with St George Bank from 29 December 2008.  There are records of deposits made into that account which appear to match entries in ALC’s ledger under the account name Distill Health recording advances by ALC to that business.

18. On the evidence, it therefore appears that the ledger entries relating to Mr and Mrs Abou-Samra on the one hand and Distill Health on the other record transactions between distinct legal entities.  Even though the evidence does not expressly disclose the identity of the directors or shareholders of Royali Pty Ltd, I infer that the principal or principals of that company are family members.  Notwithstanding that familial relationship, there is no evidence upon which I can find that Mr and Mrs Abou-Samra had agreed to allow ALC to set off against the balance due to them any debt owing to ALC by Royali Pty Ltd.

19. It was put to Mr Abou-Samra that Royali Pty Ltd owed money to ALC.  Mr Abou-Samra denied that that was the case.  He testified that the payments appearing in the ledger under the Distill account recorded payments made by an ALC cheque in exchange for the cash takings of the Distill business.  Mr Abou-Samra claimed that that arrangement was struck because his son Roy was too busy to attend to the banking of the cash takings.  Mr Abou-Samra testified that he was informed of that arrangement by his son Roy.  I do not accept that evidence.  It is of course hearsay, but I do not accept that Mr Abou-Samra was given that explanation by his son Roy.  The explanation is so fanciful that I would reject it as the true reason for handing over the cash takings of Distill.  It is so fanciful that I cannot accept that Roy Abou-Samra would spin such a story to his father and hope that it would be believed.  It may well be that Samra was handed the cash takings of Distill, but it is fanciful to suppose that the reason was to save Roy the problem of delivering the cash to the bank.  Very little if any time would have been saved by delivering the cash proceeds to Samra instead of taking them directly to the bank.  Samra’s cheque would still have to be banked in due course.  It does not require much imagination to see that Samra, who was paying relatively high rates of interest to ALC investors, may have found it convenient to have access to cash.  Be that as it may, the answer of Mr Abou-Samra is nonetheless a denial that there was any proper basis for setting off the payments made by ALC to Distill against ALC’s indebtedness to him and his wife.  There is no evidence on which I can positively find that there was an agreement between Royali Pty Ltd, Mr and Mrs Abou-Samra and ALC to set off the amounts owing on those two accounts.

1. Mr and Mrs Abou-Samra asked Samra to organise the finance necessary to pay the balance of the purchase price after the payment of the deposit.  I am satisfied that they understood at the time of signing the contract, and subsequently when the contract was made unconditional, that Samra would arrange a loan of about $800,000 from BankSA at market rates.

2. Mr and Mrs Abou-Samra only received an offer of finance for the Medindie residence on 26 June 2009.  By that offer, BankSA agreed to advance $748,000 for the purchase.  It was a condition of the offer made by BankSA that Mr and Mrs Abou-Samra discharge the loans of about $400,000 secured by a mortgage over the LeHunte residence.  However, bridging finance was provided to enable those loans to be discharged immediately on the condition that the bridging loan was repaid on the sale of the LeHunte residence.

3. I set out below extracts from the transcript of proceedings of Mr Abou-Samra’s testimony in which he explained the arrangement he had made with Samra and his expectation of how the shortfall between the BankSA finance and the balance due at settlement would be met.  Mr Abou-Samra refers in his testimony to the balance of ALC’s indebtedness standing at $150,000 because of his evidence, which I have not been able to accept, that the $10,000 referred to in [10] above was lent to ALC on 10 November 2008.

   A.Yes, we did.  I mean there was – he said there might be a shortfall, that might occur with the money that we had and what we have to come up with at settlement.

   …

   A.No, that wasn’t the shortfall.  The shortfall is what we had with him, 150,000, and the rest of the money to make up the full amount, that was the shortfall.  Now that money, what we had in there, we were thinking in our head we had interest in there that was accumulating on top of that 150 so we didn’t really have to borrow anything from anyone but if there was a little shortfall he said ‘I’ll sort it out and when you sell LeHunte Avenue you will fix it up’.  That’s how it all happened.

   …

   A.Right.  What happened after that is on settlement date he said that we will get our money back towards the conveyancer, the fees, that finish up the thing, the actual amount and to our knowledge, what he said to us that ‘You have got 150,000 plus your interest’, he hasn’t worked it out at the time but if there was a little shortfall ‘I’ll sort it out’, there was no agreement.

   …

   Q.I understand that answer to mean this: that you realised that if there was a shortfall Michael Samra would find some short term finance for you.

   A.Well, that’s probably what is either his money, somebody’s money, Mr Peter Clarke’s money, I don’t know.

4. Mr Abou-Samra also deposed:

   [Samra] advised me that there would be a small shortfall in the purchase price of the Medindie property but that it would be ‘sorted out when we sell LeHunte’ meaning that when we sell our existing property at Prospect, the full funds needed to purchase the Medindie property would be available to us.

5. I accept, on the basis of that evidence, that Mr and Mrs Abou-Samra relied on the assurance given by Samra that the balance would, in large part, be met by a repayment from ALC of the capital of their loan.  On the other hand, I am not satisfied that Mr and Mrs Abou-Samra expected the interest to be repaid before settlement.  According to Mr Abou-Samra, the amount of interest owing had not been specified or calculated by Samra at that time.  I find that the agreement reached was that the principal would be repaid by ALC, that Samra would procure a loan to fund the shortfall needed to effect settlement and that after settlement there would be a taking of account.  If the interest payable was not sufficient to cover the money advanced by ALC over and above its repayment of the principal of the loans, Mr and Mrs Abou-Samra would be responsible for discharging the balance of the short term loan made or procured by Samra.

6. I find that Mr and Mrs Abou-Samra always intended to recover the principal owed by ALC and to apply it to the purchase of the Medindie residence.  They had obtained a letter from Samra showing the extent of that indebtedness so that they could reassure the bank that they would be able to settle and have sufficient equity in the home.  Moreover, they were borrowing a substantial amount to purchase the Medindie residence.  It is, I think, unlikely that they would have left themselves exposed to such a high mortgage on their residence.  The reference in a letter of their solicitors dated 4 December 2009 to Samra arranging a loan for the whole of the balance of the purchase price remaining after the BankSA loan is, I think, simply mistaken.  The file note of the solicitor’s instruction confirms that he had been instructed, before that letter was sent, that Mr and Mrs Abou-Samra expected that ALC would discharge its indebtedness to them to enable the settlement to proceed.

7. Nonetheless, it is plainly the case that Mr and Mrs Abou-Samra understood that there may be a shortfall between the balance required to effect settlement and the principal repaid by ALC.

8. In entrusting Samra to organise the finance with BankSA, I am satisfied that Mr and Mrs Abou-Samra expected that in the ordinary course they would be asked to execute loan and mortgage documentation for BankSA.  I am satisfied that they understood that BankSA would not advance funds without them doing so.  I acknowledge that Mr Abou-Samra telephoned the conveyancer enquiring whether settlement had taken place on the first proposed settlement date even though he must have know that the BankSA documentation had not been fully executed by him.  However, that inquiry is not inconsistent with his belief, which I am sure he had, about the need to execute the BankSA loan documentation.  It is to my mind quite understandable that he should make such an enquiry, notwithstanding his belief, simply to confirm that Samra had failed to organise the loan in the time for settlement as he had promised to do.

9. On the other hand, as to the balance needed to effect settlement, in addition to the BankSA finance and the repayments due from ALC, I find that Mr and Mrs Abou-Samra expected Samra to procure a loan for the shortfall through his lending business and understood that that loan might be procured even without the execution by them of any documents.  I so find on the basis of the nature of their own dealings with Samra.  However, I find that Samra’s authorisation was limited to borrowing the shortfall between the amount of indebtedness and the balance needed for settlement.  I find that Mr and Mrs Abou-Samra understood that that amount might be somewhere between $50,000 and $100,000.

   Mr and Mrs Clarke

10. Mr and Mrs Clarke have invested money with ALC since 2004.  Mr Clarke dealt with Samra.  Money was invested at a relatively high rate of interest.  Samra told Mr Clarke that the money which he lent to ALC was on-lent by it to builders and developers.  Mr Clarke asked from time to time about the identity of the persons to whom ALC lent money.  Samra refused to disclose their identity on the grounds that it was commercially confidential.

11. After the initial investment which was quickly repaid with interest, Mr Clarke invested substantial amounts with ALC.  The sources of the money which he lent were his superannuation fund, the funds of a family trust and the personal monies of his and his wife’s.  Both repayments of capital and interest payments were usually made by interbank transfer or cheque.  Occasionally, amounts were paid in cash.  Mr Clarke deposed that at about the end of March early April 2009 he had $3,020,000 in capital loans invested with ALC.  Those funds represented the vast majority of the net worth of Mr Clarke and his wife.

12. Mr Clarke deposed that in April and May 2009 he repeatedly asked Samra to repay $1 million of the capital amount which he had invested.  Samra evaded making any payment by promising to pay in the future and then making excuses for not doing so.  I received into evidence by consent a letter dated 11 May 2009 addressed to Samra.  However, witnesses gave evidence that the letter was delivered to Samra.  Indeed, no testimony about it was offered at all by either Mr or Mrs Clarke.  Samra denied that he had received the letter.  The letter purported to enclose loan agreements from various entities apparently associated with Mr and Mrs Clarke to ALC.  The total of the loans which were the subject of those agreements was just over $3 million.  A post script to the letter reads:

    Again a gentle reminder that the $1 million (one million), is due for repayment on 31^st [sic] June.  It is important that these funds are available on that date.

13. Apart from the erroneous reference to 31 June, the postscript is inconsistent with Mr Clarke’s evidence that he had been requesting the immediate repayment of $1 million of his investment since about April 2009.  On the other hand, it may be that the end of the financial year was the last of the repayment dates promised by Samra before the letter was sent.  There are, however, other difficulties in acting on the letter and the attached loan agreements.  The sum of the entries in extracts of the ALC ledger relating to Mr and Mrs Clarke is less than the loans covered by the enclosed agreement.  The other difficulty is that, notwithstanding the request for repayment of $1 million in the letter dated 11 May 2009, Mr Clarke advanced a further sum of $500,000 to ALC on 18 May 2009.  It is difficult to understand why Mr Clarke would have advanced an additional $500,000 in mid-May if he had been truly concerned about Samra’s continuing failure to repay $1 million of his invested capital.

14. Mr Clarke testified that the advance of $500,000 to ALC was made on the condition that the principal would be paid in weekly instalments of $50,000 from the immediately following week and that when the principal was repaid after ten weeks there would be a further payment of $50,000 by way of interest.  The effective annual interest rate secured by those terms is close to 30 per cent.  Samra gave evidence that the payments of $50,000 were not repayments of capital, but were payments of interest on the consolidated principal of all of the Clarke loans.  If Mr Clarke had $3 million invested at that time, the effective annual interest rate on that agreement is close to 100 per cent.  Samra initially denied, and then claimed not to recall, any request for repayment by Mr and Mrs Clarke at about this time.  Samra denied that Mr Clarke had threatened to recall all of his investment if ALC did not repay $1 million of the capital he had invested with him.

15. I am not satisfied with either version of the dealings between Mr Clarke and ALC in the period between April and June 2009.  I am left with the impression that the full extent and nature of the dealings between Mr Clarke and Samra have not been fully disclosed in the evidence given in these proceedings.  Nonetheless, I am satisfied, on the basis of the testimony of Mr Clarke to which I am about to refer, that Mr Clarke only agreed to provide the funds necessary for Mr and Mrs Abou-Samra to settle on the Medindie residence on the condition that the funds were provided by way of a loan made directly to Mr and Mrs Abou-Samra and were secured by first mortgage.  That is the most likely explanation for the provision of the funds by way of bank cheque made out to Eckermann Steinert instead of by electronic interbank transfer.

16. I accept that Mr Clarke attended the office of ALC on about 2 July 2009.  I am satisfied that Samra told Mr Clarke that Mr and Mrs Abou-Samra were about to purchase the Medindie residence but that they had a “shortfall” of about $207,000 because the LeHunte residence had not been sold.  I am satisfied that Samra told Mr Clarke that his loan would be repaid out of the proceeds of sale of the LeHunte residence.

17. Mr Clarke deposed that when he spoke to Samra on about 2 July 2009 he was shown a settlement statement prepared by Eckermann Steinert which showed a balance owing at settlement of $207,518.20.  The only settlement statement received in evidence before me was one dated 3 July 2009 which showed a balance due at settlement of $207,626.60.  However, there is no reason to doubt the evidence of Mr Clarke in this respect.  There was no reason to draw the bank cheque for the precise amount of $207,518.20 other than because it coincided with the calculations made by a conveyancer as to the amount due.  Moreover, the difference between the amount drawn on the bank cheque and the amount shown as due may well be attributable to an amendment of the settlement statement to reflect an additional charge by way of default interest.

18. I am satisfied that after he saw the settlement statement Mr Clarke said words to the effect that he would lend the money to Mr and Mrs Abou-Samra on the condition that the payment was made to their conveyancers and that they give a mortgage over the Medindie residence.  I accept that Mr Clarke stipulated that the term of the loan would be for a period of one month at an interest rate of 10 per cent.  When asked why he did not first obtain documentation confirming the nature of the loan and the security Mr Clarke responded that the transaction was similar to previous transactions which had not been documented.  I do not regard that answer as inconsistent with his evidence.  It was an explanation of his carelessness in failing to document the transaction and was not a concession that he had lend the money to ALC.

19. However, I find that, consistently with the assurance he had given to Mr and Mrs Abou-Samra, Samra did not intend to bind them to a loan in the amount of $207,518.20.  I find that he intended to use the bank cheque to discharge ALC’s indebtedness and to find some other way to repay Mr and Mrs Clarke.  He never intended that Mr and Mrs Abou-Samra would have to repay to him, or to Mr and Mrs Clarke, any more than the difference between the sum of $207,518.20 and the principal they had on loan to ALC.

20. I find that Mr Clarke then arranged for a bank cheque in the sum of $207,518.20 to be drawn on BankSA payable to the conveyancers Eckermann Steinert.  He delivered it to the offices of ALC.  The bank cheque was deposited into the trust account of Eckermann Steinert by an employee of ALC, Ms De Ieso, on the account of Mr and Mrs Abou-Samra.  The pay-in slip records the depositor as ALC.  That payment was notified by an email from Ms De Ieso to Eckermann Steinert dated 3 July 2009.  It is mistakenly recorded in the accounts ledger of Eckermann Steinert as an EFT receipt.

21. The evidence of Mr Clarke that he advanced the payment only on the condition that he would receive first mortgage security over the Medindie residence was challenged by the defendants by reference to statements which he allegedly made in the course of a meeting with Mr and Mrs Abou-Samra in August 2009.  By August 2009 the business of ALC had collapsed and Samra had been admitted to the psychiatric ward of a public hospital.  Mr Clarke knew that Roy Abou-Samra operated Distill.  He went there hoping to speak to Mr and Mrs Abou-Samra.

22. Mr and Mrs Clarke and Roy Abou-Samra gave evidence that before Mr and Mrs Abou-Samra arrived Roy suggested that a possible way in which Mr and Mrs Clarke might recover the amount they had lent was to sub-divide the Medindie residence.  I do not regard that statement as an implied admission that Mr and Mrs Abou-Samra were aware of facts which gave a legal entitlement to Mr and Mrs Clarke to any security over the Medindie residence.  There is no evidence that Roy Abou-Samra was in any position to speak on behalf of his parents in this respect.  The statement is far too general to infer from it that his parents had made an admission of indebtedness to him.  It is much more likely that, confronted with the revelation about the source of the funds to complete settlement on the Medindie residence, Roy Abou-Samra did no more than think out loud about the ways in which his parents might be able to repay Mr and Mrs Clarke if his parents were in fact indebted to them in the sum of $207,518.20 as they were claiming to him.

23. Roy called his parents, who then attended Distill.  They and Roy testified that Mr and Mrs Clarke never alleged in the course of the ensuing discussions that the money was advanced on the condition of a first mortgage security over the Medindie residence.  They claimed that Mr and Mrs Clarke’s only request was that Mr and Mrs Abou-Samra persuade Samra to give a mortgage over his Burnside residence to secure a loan.

24. Mr and Mrs Clarke testified that they did ask for a mortgage over the Medindie residence.  They accepted that there was some discussion about a mortgage over Samra’s Burnside residence.  Mr Clarke testified that Samra himself had raised the possibility of a mortgage over his Burnside residence when he visited him in the psychiatric ward, but that Mr Clarke had rejected the idea.  Mr Clarke’s evidence was that it was only in the course of relating Samra’s belated suggestion of a mortgage over his Burnside property that there was any discussion of that as a possibility.

25. I accept that Mr Clarke sought a mortgage over the Medindie residence at the Distill meeting.  It is improbable that he would have sought out Mr and Mrs Abou-Samra if all he hoped was that they might persuade Samra to give a mortgage over his Burnside residence.  A mortgage over Samra’s Burnside residence at that late stage was probably of no value at all.

    Agency

26. The facts which I have found in [20] – [28] above establish that Mr and Mrs Abou-Samra and Samra agreed that the latter would act as their agent for the purposes of procuring an offer of finance from BankSA for the bulk of the purchase price.  Mr and Mrs Abou-Samra on the one part and Samra on the other also agreed that ALC would clear its indebtedness to the Abou-Samras in time for the settlement.  Finally, they agreed that Samra should act as the agent for Mr and Mrs Abou-Samra to procure the shortfall in the funds required to effect settlement after the payment of the deposit, the receipt of BankSA finance and the discharge of ALC’s indebtedness.

27. Mr and Mrs Clarke, however, contend that Samra also had an implied agency which extended beyond the express authorisation which I have found.  They contend that Samra had implied authority to procure the full amount of $207,518.20 which he obtained from Mr and Mrs Clarke.  I do not accept that contention.  An agent has implied authority to do whatever is necessary for, or ordinarily incidental to, the effective execution of his express authority in the usual way.[2]  However, it was not necessary for Samra to procure a loan of $207,518.20 so that he could execute his authority to procure the shortfall in the settlement funds in the sum of $67,518.20.  Nor is there any basis from which agreement can be implied which extends beyond the actual authority appointing Samra as agent to procure the shortfall in the settlement funds.  There is no “ordinary usage” on which such implied authority can be founded.  Nor is there any basis upon which Samra could reasonably have inferred that he was authorised to procure a larger loan instead of discharging ALC’s indebtedness.  Finally, Mr and Mrs Abou-Samra were not aware of Samra’s discussions with Mr Clarke and so they cannot therefore have acquiesced in an extended agency.[3]

    [2]    Bowstead and Reynolds on Agency (18^th ed, 2006) at [3-018], [3-024], [3-039].

    [3]    Bowstead and Reynolds on Agency (18^th ed, 2006) at [2-032].

28. Mr and Mrs Clarke also submit that I should construe the authority given by Mr and Mrs Abou-Samra to Samra as an open-ended authority to procure loan finance and that the amount actually procured should be regarded as the means by which Samra discharged his function as agent.  They rely on the decision in Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Co-operative Assurance Company of Australia Ltd.[4]  In my view, the stipulation of the amount to be borrowed was a limitation on the authority of Samra.  A limit placed on the amount of money to be borrowed is fundamental to the scope of an agency to procure a loan.  A departure from the amount specified is not merely a variation in the way in which the specified amount is procured.

    [4] (1931) 46 CLR 41.

1. It is next necessary to consider the issue of ostensible authority.  Diplock LJ explained the concept of apparent or ostensible authority in these terms in Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd:[5]

   An ‘apparent’ or ‘ostensible’ authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed on him by such contract.  To the relationship so created the agent is a stranger.  He need not be (although he generally is) aware of the existence of the representation.  The representation, when acted on by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract.  It is irrelevant whether the agent had actual authority to enter into the contract.

   In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the ‘actual’ authority of the agent.[6]

   [5] [1964] 2 QB 480.

   [6]    Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503.

2. In Clayton Robard Management Ltd v Siu,[7] Kirby P explained ostensible authority as a form of estoppel by representation in this way:

   The basis of our law on ostensible authority is fundamentally that of estoppel by representation. The intermediary professes to act on behalf of the principal.  He thereby impliedly represents and warrants that he has authority from the principal to do so.  The principal must be shown to know of and to acquiesce in the intermediary professing to act on its behalf to become bound by such profession.  Thereby it impliedly represents that he had the principal’s authority to act as he does.  In these circumstances, the principle is considered to have made the representation or to have caused it to be made or ‘at any rate to be responsible for it’.[8] (citations omitted)

   [7] (1988) 6 ACLC 57.

   [8]    Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57 at 60.

3. I find that Mr and Mrs Abou-Samra did not make any representation to Mr and Mrs Clarke that Samra was authorised to procure a loan for them.  The fact that they instructed Samra to arrange the finance necessary to complete the purchase and gave Samra the necessary information to do so is not in itself a representation to third parties about the scope of his authority.  It cannot reasonably be inferred from the fact that a person appears to know something about the financial needs of another for whom he claims to be an agent that he has been given authority to bind the principal to a loan agreement.

4. In my view, the plaintiffs cannot rely on Samra’s representation as to the scope of his authority as a representation made by Mr and Mrs Abou-Samra.  Plainly enough, Mr and Mrs Abou-Samra did not authorise Samra to misrepresent the scope of his authority to borrow on their behalf.  I acknowledge that a principal may sometimes hold out an agent to be his or her spokesperson.  In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd,[9] the High Court said:

   There are circumstances where the actual representation of authority may be made by the agent but in such cases it will be found that the relevant representation is made by the principal (or by the person to whom the principal has given actual authority) either by a previous course of dealing or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that his actual representation of authority in himself is in fact correct.  It is therefore always necessary to look at the conduct of the principal (or the person to whom he has actually delegated authority).[10]

   [9] (1975) 133 CLR 72.

   [10]   Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 at 78 per Gibbs, Mason and Jacobs JJ.

5. In authorising Samra to obtain finance, Mr and Mrs Abou-Samra did not also make him, or give him the appearance of, their spokesperson.  There was no course of dealing from which it could be inferred that Mr and Mrs Abou-Samra intended to be bound by Samra’s representations of his own authority.  In the ordinary course of events, a finance broker is expected to relay an offer received on behalf of a client to his or her client for acceptance.  It follows that the appointment of a broker could not ordinarily be understood as a representation that the principal will accept liability for any amount which is said by the broker to be sought.

6. The provision of the settlement statement could not be reasonably understood as a representation that Samra was authorised to borrow all of the funds necessary to complete settlement after the making of the BankSA loan.  Prospective lenders would well know that a purchaser may fund the balance due at settlement from a variety of sources, including the purchaser’s own financial resources.  The settlement statement cannot be equated with the arming of an agent with all that is necessary to effect the contemplated transaction on behalf of the principal.  In such cases, the agent’s assertion of the terms and conditions on which he is authorised to enter into the transaction may in all of the circumstances be properly understood to be authorised by the principal.

7. In this respect, the case of Blackburn Building Society v Cunliffe, Brooks, & Co[11] can be distinguished.  In that case, the appellant building society, which had no power to borrow money, was permitted to overdraw its account with a bank because it had deposited the deeds of certain of its members as security.  The Court of Appeal held that the banks could retain the deed in equity, notwithstanding that the actions of the building society were ultra vires.[12]  The statement in Dal Pont’s Law of Agency to the effect that “[t]he circumstances in which an agent can appear to a third party to be authorised to affect the loan, and yet not have ostensible authority, are likely to be rare” was made in reference to that decision.[13]  It must be understood in the context of the particular facts of that case, whereby the building society had been cloaked with the authority which possession of the deeds implied.

   [11] (1882) 22 Ch D 61.

   [12]   Blackburn Building Society v Cunliffe, Brooks, & Co (1882) 22 Ch D 61 at 71 per Lord Selbourne LC, Jessel MR and Cotton LJ.

   [13]   G E Dal Pont, Law of Agency (2^nd ed, 2008) at [19.23].

8. It follows that Mr and Mrs Abou-Samra are not bound by the loan of $207,518.20 which Samra purported to accept on their behalf.

9. It is perhaps conceptually possible to construct from Samra’s conduct the making of an agreement to borrow only the balance of the settlement sums.  However, there is a degree of artificiality in doing so given my finding that Samra never intended to bind Mr and Mrs Abou-Samra to a loan of $207,518.20 and that Mr Clarke believed that he was lending that amount, and not the smaller amount of $67,518.20, which was the shortfall in the funds needed to settle.  For that reason, I prefer to find for Mr and Mrs Clarke on the amount of the shortfall on the basis of the rule in Bannatyne v MacIver,[14] which I discuss below beginning at [107].

   [14] [1906] 1 KB 103.

   Mistake of fact

10. The payment of money in the mistaken belief that there is a legal obligation to pay it is the most common of the recognised categories of mistake of fact.[15]  However, it is certainly not the only category of actionable mistake.

    [15]   K Mason, JW Carter and GJ Tolhurst, Mason & Carter’s Restitution Law in Australia (2^nd ed, 2008) at [411]; Norwich Union Fire Insurance Society Ltd v William H Price Ltd [1934] AC 455.

11. Money paid in the mistaken belief that the payment will secure a benefit for the payer is prima facie recoverable.  In Aiken v Short,[16] a lender, who advanced money on certain security, paid out another creditor of the debtor who had a prior charge on that security.  The property purportedly charged did not exist.  The lender brought an action against the prior chargee for money paid under the mistaken belief in the existence of the property charged to both of them.  It is now accepted that the lender’s mistake prima facie entitled him to recover, but that the action failed because the prior chargee was entitled to the money on account of a debt due to him which was paid by the lender for and on behalf of the fraudulent debtor.[17]

    [16] (1856) 1 H & N 210; 156 ER 1180.

    [17]   In Aiken v Short (1856) 1 H & N 210 at 215; 156 ER 1180 at 1182, Bramwell B said: “In order to entitle a person to recover back money paid under a mistake of fact the mistake must be as to as a fact which, if true, would make the person liable to pay the money; not where, if true, it would merely make it desirable that he should pay the money”. However, that restrictive view is now recognised to be clearly wrong: K Mason, JW Carter and GJ Tolhurst, Mason & Carter’s Restitution Law in Australia (2^nd ed, 2008) at [411].

12. In Porter v Latec Finance (Qld) Pty Ltd,[18] it was held that, even though the mistake need not be as to the existence of a legal liability, the mistake must be fundamental to the transaction.  Both Porter and Latec Finance were the victims of a fraud perpetrated by one Gill who, by forging the signature of the proprietor of land with whom he shared the same surname, mortgaged the land first to Porter and then to Latec Finance on the pretence that he was the registered proprietor when he was not.  Latec Finance paid the funds it agreed to lend Gill into the trust account of its solicitors.  Porter wrote to the solicitors stating that a certain amount, which was about half the loan made by Latec Finance, was due to him under the existing forged mortgage over the property.  Porter agreed to hand over the Certificate of Title and his Bill of Mortgage if that amount was paid.  Gill then instructed the solicitors in writing to pay Porter out of the funds lent by Latec Finance and instructed that the balance be paid to him.  Before the High Court, Porter contended that the payment of his debt was a payment made on behalf of Gill and was to be regarded as a payment by him only and not as a payment made by the respondents.  In the alternative, he argued that, if the payment of the debt was a payment by Latec Finance, it was voluntary in the sense that there was, as between the payer and payee, no legal or moral obligation to pay.  He also argued that the mistake was not fundamental.  The action proceeded by way of special case.  Barwick CJ, Taylor and Owen JJ held that the payment made to Porter by the solicitors was made on behalf of Gill and not on behalf of Latec Finance and that Latec Finance therefore could not succeed against Porter on its claim for money paid under a mistake of fact.

    [18] (1964) 111 CLR 177.

13. Barwick CJ took the view that, notwithstanding the fraud and forgeries of Gill, he was the borrower from both Porter and Latec Finance and that, in each case, there was a liability upon him to repay the sums obtained.  It was primarily on that issue that Kitto and Windeyer JJ dissented.

14. The special case expressly stated that Latec Finance had lent Gill the sum deposited in the solicitors’ trust account.  It was on that factual premise that Barwick CJ proceeded.  It followed that the solicitors who made the payment did so as solicitors acting for both Latec Finance and Gill and that they made the payment in accordance with Gill’s instruction for the purpose of discharging Porter’s indebtedness.  Barwick CJ inferred that Latec Finance, with knowledge of the existence of Porter’s registered mortgage, must have instructed its solicitors to ensure that so much of the money which it had advanced to Gill as was necessary to obtain a discharge of the encumbrance first be paid to Porter.  Barwick CJ observed that those instructions might be carried out in one of two ways.  First, by the solicitors obtaining the concurrence of Gill to the payment being made on behalf of Latec Finance to obtain a discharge of the encumbrance.  Secondly, by the solicitors seeking Gill’s authority that he pay Porter on Gill’s behalf thus clearing the way for the respondent to obtain the discharge from Porter.  On the factual premise stated by the special case, Barwick CJ found that the solicitors had chosen the second course; the solicitors obtained Gill’s authority and then paid Porter on Gill’s behalf from the loan funds in the trust account.

15. The critical question, in the view of Barwick CJ, was “on whose behalf the money was paid”, even though the money originated from Latec Finance.  Barwick CJ held that the payment to Porter extinguished Gill’s debt to Porter and procured the removal of the mortgage.  Moreover, Barwick CJ held that, even if the money had been paid on behalf of Latec Finance with the concurrence of Gill, the payment by Latec Finance would still have been made as Gill’s agent and was not a payment of its own money.  In that respect, Barwick CJ relied on the reasoning of Pollock CB from the following passage in Aiken:

    Suppose it was announced that there was to be a dividend on the estate of a trader, and persons to whom he was indebted went to an office and received instalments of the debts due to them, could the party paying recover back the money if it turned out that he was wrong in supposing that he had funds in hand?[19]

    [19]   Aiken v Short (1856) 1 H & N 210 at 214; 156 ER 1180 at 1181-2.

16. Barwick CJ would also have dismissed the claim of Latec Finance on the alternative basis, which was premised on Latec Finance making the payment on its own behalf and not as agent for Gill, because the mistake as to the true identity of Gill was not “fundamental”. Taylor and Owen JJ accepted the primary analysis of Barwick CJ, Taylor J saying:

    The critical question which arises on these facts is whether the payment made to the appellant was, in truth, a payment made by the respondent on its own account or whether it was a payment made for and on behalf of [Gill] out of monies which the respondent had been fraudulently induced to lend him.  For if it was of the latter character it is difficult to see how the appellant could have any title to relief in respect of the payment.  In other words, if the position was that the payment represented merely an application of part of the monies advanced to [Gill] then although the loan was obtained by fraud, the applicant must look to him for repayment and has no title to relief against the appellant.[20]

    [20]   Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 198. See also at 208-9 per Owen J.

17. Kitto J, however, proceeded on the basis that the fraud and forgeries of Gill had the effect that the loans between Gill and Porter on the one hand and Gill and Latec Finance on the other were loans in form only and that there was in fact no indebtedness.  Kitto J treated the mortgage given by Gill to Latec Finance and the authority given by him to the solicitors to pay Porter as void by reason of the forgery and found that they went to the very foundation of the payment which Latec Finance made to Porter.  The forgeries, in the opinion of Kitto J, spelt “the complete frustration of the purpose which the payment was intended to effectuate”.  The result was that Porter was liable to repay the monies to Latec Finance.  Kitto J expressly rejected the proposition that only a mistake of fact which, if true, would have made the payer liable in law to pay could found an entitlement to recover the payment.  Kitto J held that “a mistake of fact enables a payer of money to recover it if a mistake was fundamental to the payment, even though the payer would not have been liable to pay it if the supposed fact had existed”.[21]  Nonetheless, Kitto J accepted that the decision in Aiken supported the proposition:

    that a payment of money by A to B on behalf of C, made with C’s authority … amounts to two payments, one by A to C and the other by C to B; so that even though A made the payment under a mistake of fact he cannot recover it back from B, because the money was received by B not as A’s money but as C’s money.[22]

    [21]   Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 190.

    [22]   Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 191-2.

18. Windeyer J accepted the factual analysis propounded by Kitto J that there was no payment by Gill because the transaction was based on the impersonation by Gill of another of the same surname.  Once it was accepted that the money was paid by Latec Finance, Windeyer J treated the payment as recoverable because both Latec Finance and Porter “proceeded on the basis of a common assumption of fact so as to justify the conclusion of the correctness of the assumption was intended by both parties to be a condition precedent to the creation of the contractual obligation”.[23]

    [23]   Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 204.

19. In more recent times, the proposition that a mistake must be fundamental has been superseded.  In Barclays Bank Ltd v W J Sims Son & Cooke (Southern) Ltd,[24] Robert Goff J questioned whether the requirement was an essential element of an action for recovery of a payment made by mistake.  He held that there was a prima facie right of recovery so long as the mistake caused the payment.[25]  In David Securities Pty Ltd v Commonwealth Bank of Australia,[26] the High Court held that there was “a prima facie entitlement to recover monies paid when a mistake of law or fact has caused the payment”.[27]

    [24] [1980] QB 677.

    [25]   Barclays Bank Ltd v W J Sims Son & Cooke (Southern) Ltd [1980] QB 677 at 695.

    [26] (1992) 175 CLR 353.

    [27]   David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 376, 378, 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ. See also at 395 per Brennan J and at 402 per Dawson J.

20. The High Court has recently emphasised that unjust enrichment is not in itself a basis for the recovery of money paid.  In Lumbers v W Cook Builders Pty Ltd (in liq),[28] Gummow, Hayne, Crennan and Kiefel JJ said:

    [U]njust enrichment was identified as a legal concept unifying ‘a variety of distinct categories of case’.  It was not identified as a principle which can be taken as a sufficient premise for direct application in particular cases.  Rather, as Deane J emphasised in Pavey & Matthews, it is necessary to proceed by ‘the ordinary processes of legal reasoning’ and by reference to existing categories of cases in which an obligation to pay compensation has been imposed.[29]  (citations omitted, emphasis in original)

    [28] (2008) 232 CLR 635.

    [29]   Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 665 [85].

21. Equally, once a plaintiff has shown that a payment was made as a result of a mistake of fact, it is not necessary for the plaintiff to prove that the retention of the monies by the recipient would be unjust in all the circumstances or that it would be unconscionable for the recipient to retain the funds.  In David Securities, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ held:

    The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution.  Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust.  There can be no restitution in such circumstances because the law will not provide for recovery except when the enrichment is unjust.  It follows that the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust.[30]

    [30]   David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379.

1. It will be necessary to closely analyse the evidence to identify when and by whom the relevant payment was made in this case.  It is, however, convenient to first refer to Mr and Mrs Abou-Samra’s defence to the claim of mistake of fact if a payment made by Mr and Mrs Clarke to them is proved.  That defence is that the payment discharged the debt owed to them by ALC.

2. In Barclays Bank, Robert Goff J explained that money paid under a mistake of fact was not recoverable if:

   the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt…[31]

   [31]   Barclays Bank Ltd v W J Sims Son and Cooke (Southern) Ltd [1980] QB 677 at 695. See also David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 380 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ; at 405 per Dawson J; Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The Trident Beauty) [1993] 1 Lloyds Rep 443.

3. In David Securities, Brennan J said:

   If a defendant has a right to receive a payment, whether under a statute, in discharge of a liability owing to him or pursuant to a contract, a mistake by the plaintiff in making the payment does not convert the receipt into an unjust enrichment.  To the extent that a payment satisfies a defendant's right to receive it, the defendant gives good consideration and is not unjustly enriched.  If the defendant receives more than his due, he may be unjustly enriched to the extent of the excess and restitution may be ordered pro tanto.[32]  (citations omitted)

   [32]   David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 392.

4. The critical questions in applying the elements of the pleaded cause of action to the facts of this case are these:

   1Did Mr and Mrs Clarke make a payment to Mr and Mrs Abou-Samra either:

   a.when Mr Clarke delivered the bank cheque to Samra by leaving it at ALC’s office; or

   b.when an employee of ALC deposited the bank cheque into the conveyancer’s trust account?

   2Did the payment to Mr and Mrs Abrou-Samra, by whomever it was made, in fact discharge the debt owed by ALC to Mr and Mrs Abou-Samra?

5. I have already concluded that Samra did not have actual or ostensible authority to procure a loan in the amount of the bank cheque.  It follows that Samra did not receive the bank cheque for Mr and Mrs Abou-Samra as an agent with authority to bind them to a loan.  Mr and Mrs Clarke contend in the alternative that Samra, nonetheless, had the authority of Mr and Mrs Abou-Samra to receive the bank cheque on their behalf even though they had not made a loan agreement through his agency.

6. That contention is based on the decision in Clayton Robard.In that case, a licensed dealer representative under the Securities Industries Code, Heslop, gave investment advice to a client, the respondent, who had recently received a lump sum.  Heslop gave the respondent application forms for investments managed by the first and second appellants.  Heslop received a bank cheque for the purposes of the investments and gave the respondent a receipt for it.  The respondent did not receive a receipt or certificate of investment from the appellants.  Heslop misappropriated the bank cheque.  The respondent instituted proceedings to recover the money from the appellants.  The appellants argued that Heslop, as the investment advisor of the respondent, was his agent.  The New South Wales Court of Appeal held that Heslop was authorised by the appellants to receive investment moneys for them pending their consideration and acceptance of the investment applications made by the appellant, even though Heslop was not authorised to accept the investment proposal on their behalf.

7. McHugh JA explained that it did not matter that the authority of Heslop did not include a capacity to bind the appellants to issue the investment units:

   Accordingly, the proper conclusion is that Heslop was authorised by the appellants to solicit investments from members of the public and to receive money from them as agent of the appellants.  No doubt the receipt of money by Heslop did not bind the appellants to issue investment units in the fund.  As counsel for the appellants pointed out at the time when the money was received by Heslop, there might be no units left to issue.  But in my opinion the receipt by Heslop of moneys for investment in the funds was as much a receipt by the appellant as cheques received in the offices.[33]

   [33]   Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57 at 70.

8. It is important to consider that passage in the light of the facts which were extensively considered in that case.  In particular, the appellants, who had become aware of Heslop’s practice to accept money from potential investors made out to payees which were not specified in the prospectus they had issued, continued to accept those cheques from him.  McHugh JA found that the authorisation of Heslop to accept cheques on their behalf could be inferred from that practice:

   [I]t is difficult to accept that the long and persistent departure from the directions and the prospectuses could have occurred without their authority.  They continued to accept investments from him and pay commission to him notwithstanding their knowledge of his departure from the directions laid down.  They continued to retain him as their representative.[34]

   [34]   Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57 at 69-70.

9. There is no similar course of conduct in this case.  Nor is there any evidence that Mr and Mrs Abou-Samra authorised Samra to receive funds or cheques for them for sums greater than loans which they had actually authorised him to receive.  There is no basis on which to imply any such authority.  There could be no ostensible authority to do so for the same reasons I gave for finding that there was no ostensible authority to procure a loan in a greater amount than the balance of the settlement funds.

10. I therefore conclude that Mr and Mrs Clarke did not make a payment to Mr and Mrs Abou-Samra by leaving the bank cheque at ALC’s office.  On one view, Samra stole the bank cheque, or obtained it by false pretences, from Mr and Mrs Clarke.  On another view, if the cheque was not received by Samra as agent for Mr and Mrs Abou-Samra, it may have been delivered to him by Mr and Mrs Clarke as their agent for the purposes of conveying it to Mr and Mrs Abou-Samra by way of an advance on the conditions which they had negotiated with Samra.  In that sense, this case may even fall within the principle stated in Watson v Russel,[35] which I discuss in [100] below.  However, I need not finally decide that issue.

    [35] (1860) 3 B & S 34; 122 ER 14.

11. I pause here to observe that, if Samra had received the bank cheque as agent for Mr and Mrs Abou-Samra, the defence to the claim of mistake of fact on which they rely would not be available.  The payment to Samra by Mr and Mrs Clarke did not discharge the indebtedness of ALC to Mr and Mrs Abou-Samra.  However, the defence becomes critically important at the next stage of the inquiry, to which I now turn.

12. It is, I think, uncontroversial that the payment of the BankSA bank cheque into the trust account of Eckermann Steinert was a payment to Mr and Mrs Abou-Samra.  When it was paid to Eckermann Steinert by Samra on the account of Mr and Mrs Abou-Samra, Eckermann Steinert were bound in equity to apply it to the purchase of the Medindie residence by Mr and Mrs Abou-Samra.  Eckermann Steinert were plainly the agents of Mr and Mrs Abou-Samra for the purposes of that transaction.

13. It is convenient next to briefly discuss the nature of a bank cheque.  The expression “bank cheque” is commonly used in Australia to describe an instrument in the form of a cheque drawn by a bank upon itself.[36] BankSA was undoubtedly given value for the cheque by Mr and Mrs Clarke and, in any event, is presumed to have received value by reason of s 36 of the Cheques Act 1986 (Cth). Eckermann Steinert, as the holder of the cheque for and on behalf of Mr and Mrs Abou-Samra, are presumed to have taken the cheque for value.[37] If BankSA had refused to pay on the cheque when presented by the bankers of Eckermann Steinert, it would have been liable to compensate Mr and Mrs Abou-Samra as the holders of the cheque pursuant to s 71 of the Cheques Act 1986 (Cth).

    [36]   Fabre v Ley (1972) 127 CLR 665 at 670-1 per Barwick CJ, McTiernan, Menzies, Walsh, Gibbs, Stephen and Mason JJ; Brian Conrick, The Law of Negotiable Instruments in Australia (2^nd ed, 1989) at [13.183]. Section 5 of the Cheques Act 1986 (Cth) provides that a reference in that Act to a cheque includes a reference to a cheque that a financial institution draws on itself save for the provisions specified in s 5(2).

    [37]   Cheques Act 1986 (Cth) s 37.

14. The nature of a cheque, and in particular the BankSA bank cheque, raises difficult questions about the party who should be treated as the payer of the money to Mr and Mrs Abou-Samra.  For example, if Samra had delivered the BankSA cheque to another client, X, in purported discharge of ALC’s debt to X, and X had in turn delivered the cheque to Eckermann Steinert to settle on a property which he was purchasing, it seems to me that, even if Samra’s fraud was discovered and payment on the cheque stopped, BankSA would remain liable to honour it pursuant to the Cheques Act 1986 (Cth). Moreover, the payment of the cheque in this example by Samra to X could not be regarded as a payment made by Mr and Mrs Clarke to X. They quite simply never intended the cheque to be given to any client other than Mr and Mrs Abou-Samra. The true analysis would be that Samra passed the bank cheque to X after misappropriating it. Even though Mr and Mrs Clarke always intended the bank cheque to be delivered to Mrs and Mrs Abou-Samra, it is difficult to characterise its deposit into the trust account of Eckermann Steinert as a payment by the Clarkes because by then it had been misappropriated by Samra for the purpose of discharging ALC’s indebtedness.

15. In this case, there was at the relevant time a debt owed by ALC to Mr and Mrs Abou-Samra.  The amount of the indebtedness is disputed, but the difficulties presented in cases of forgery, which were discussed in Porter, are not present in this case.  True it is that Mr and Mrs Clarke did not intend to allow the bank cheque to be used to discharge the ALC debt, but the effect of the payment by ALC must be considered from the perspective of Mr and Mrs Abou-Samra and ALC.  In my view, it cannot be said that a payment was made by A to B unless A knows that he is making a payment to B, and B knows that he is receiving a payment from A.  When Samra caused the bank cheque to be delivered to Eckermann Steinert by ALC’s employee, he did so with the intention of discharging ALC’s debt.  He did not intend to leave Mr and Mrs Abou-Samra responsible for the repayment of the money to Mr and Mrs Clarke.  He had promised them that he would repay ALC’s indebtedness and that he would obtain a loan only for the balance of the settlement funds.  From Mr and Mrs Abou-Samra’s perspective, the payment into their conveyancer’s trust account was made by ALC in accordance with Samra’s promise to discharge ALC’s indebtedness to them.

16. In my view, the fact that Samra and ALC made the payment by breaching the trust on which the bank cheque was deposited with them and by misappropriating it for the use of ALC does not affect that analysis.  In Lipkin Gorman (a firm) v Karpnale Ltd,[38] the House of Lords considered the legal effect of payments made by a solicitor by means of a banker’s draft (bank cheque) which had been stolen from his firm.  The firm brought an action for conversion of the bank cheque and money had and received against a casino which took the cheque in exchange for gambling chips.  Cass, a partner in the solicitor’s firm, drew cheques on the firm’s trust account and had an employee cash them.  The money was then used to purchase chips in a casino.  On one occasion, Cass, acting within his authority within the firm, procured through the firm’s cashier a banker’s draft for £3,735 drawn in favour of the solicitors.  Cass then endorsed the banker’s draft to the casino and purchased chips.  Cass’s firm brought an action against the club seeking to recover the monies which Cass had stolen.  The House of Lords held that an innocent recipient of stolen money was obliged to pay an equivalent sum to the true owner where he had not given full consideration for it and had been unjustly enriched at the expense of the true owner.  The House of Lords held that the money withdrawn from the bank should be treated as the firm’s money because it represented a realisation of their property in the form of a chose in action against the bank.  The House of Lords went on to hold that the firm’s claim for the return of their money could not be resisted by the casino because it had received no good consideration; the transaction between it and Cass was void by reason of s 18 of the Gaming Act 1845 (UK).  However, the House of Lords held that the casino could properly resist the claim only to the extent that it had changed its position by actually paying out on winning.[39]  The firm were therefore entitled to the difference between the money received by the casino from the solicitor and the winning bets paid out by it.  The House of Lords also held that the club never gave value for the banker’s draft and therefore did not become a holder in due course within s 29(1)(b) of the Bills of Exchange Act 1882 (UK).

    [38] [1991] 2 AC 548.

    [39]   It was in Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 that the general defence of change of position to a claim for money paid by mistake was authoritatively recognised in England.

17. The speech of Lord Templeman is, with respect, a useful exegesis of the principles which govern the obligation of the recipient of stolen money to account for it to the true owner.  Lord Templeman held that the draft represented money derived from the solicitors which had unjustly enriched the club.  He saw no difference between the cash and the draft.  Conversion does not lie for money taken and received as currency.[40]  However, it may be recovered if the recipient of stolen money is unjustly enriched at the expense of the true owner.  No claim lies against an innocent recipient of stolen money who has not been enriched at all, for example, where stolen money is used to buy goods like a car.[41]  As a general proposition, a volunteer is obliged to repay a gift of stolen money, unless he or she has changed his or her position by making a purchase with the gift.

    [40]   Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 559E.Lord Templeman referred to the following proposition stated by Lord Mansfield CJ in Miller v Race (1758) 1 Burr 452 at 457; 97 ER 398 at 401: “So, in the case of money stolen, the true owner cannot recover it, after it has been paid away fairly and honestly upon a valuable and bona fide consideration: but before money has passed in currency, an action may be brought for the money itself”.

    [41]   Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 560B per Lord Templeman.

18. Lord Goff of Chieveley observed that the claim made by the firm related to money which had not been paid by it directly, as is usually the case when money is recoverable as having been paid under a mistake of fact.  Lord Goff continued:

    On the contrary, here the money had been paid to the respondents by a third party, Cass; and in such a case the appellant has to establish a basis on which he is entitled to the money.  This (at least, as a general rule) he does by showing that the money is his legal property, as appears from Lord Mansfield’s judgment in Clarke v Shee and Johnson.  If he can do so, he may be entitled to succeed in a claim against the third party for money had and received to his use, though not if the third party has received the money in good faith and for a valuable consideration.  The cases in which such a claim has succeeded are, I believe, very rare.  This is probably because, at common law, property in money, like other fungibles, is lost as such when it is mixed with other money.[42] (citation omitted)

    [42]   Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 572B-E per Lord Templeman.

19. Lord Goff then referred to Union Bank of Australia Ltd v McClintock[43] and Commercial Banking Co of Sydney Ltd v Mann,[44] holding that those cases:

    show that, where a banker’s cheque payable to a third party or bearer is obtained by a partner from a bank which has received the authority of the partnership to pay the partner in question who has, however, unknown to the bank, acted beyond the authority of his partners in so operating the account, the legal property in the banker’s cheque thereupon vests in the partner.[45]

    [43] [1922] 1 AC 240.

    [44] [1961] AC 1.

    [45]   Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 573D.

20. Lord Goff nonetheless found for the firm and against the casino on the basis that Cass had misappropriated the bank draft because it had been made out to the firm and not to Cass personally; the casino, not having given valuable consideration, was accordingly liable.[46]

    [46]   Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 577B-G.

21. In Black v S Freedman & Co,[47] the High Court held that money stolen by a husband and given to his wife could be recovered by the victim.  O’Connor J said:

    Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character.  If he pays it over to another person, then it may be followed into that other person’s hands.  If, of course, that other person shows that it has come to him bona fide for valuable consideration, and without notice, it then may lose its character as trust money and cannot be recovered.  But if it is handed over merely as a gift, it does not matter whether there is notice or not.[48]

    [47] (1910) 12 CLR 105.

    [48]   Black v S Freedman & Co (1910) 12 CLR 105 at 110.

22. In my view, it follows that, on the authority of Lipkin Gorman and the rule stated by O’Connor J in Black, if I am right that the payment of the proceeds of the bank cheque into the trust account of Eckermann Steinert discharged ALC’s indebtedness as to the principal of Mr and Mrs Abou-Samra’s loans, it cannot be recovered even though the bank cheque was misappropriated by Samra.  It is not necessary, in order to recover stolen money in the hands of an innocent third party, to establish that the money was “paid” by the true owner through the thief as an intermediary.  The action for money had and received is wide enough to include such a claim.

23. The facts in the case of R E Jones Ltd v Waring and Gillow Ltd[49] bear some resemblance to the facts of this case.  It is necessary to consider it closely because it appears to support a contrary conclusion to the one I have reached.  In R E Jones Ltd, one Bodenham had taken furniture under a hire purchase transaction with Waring and Gillow Ltd.  Bodenham fell into arrears and the furniture was seized.  Bodenham embarked upon a fraudulent scheme to recover the furniture.  Bodenham approached R E Jones Ltd and convinced them that he was the agent of a firm called “International Motors” which manufactured cars under the brand name “Roma”.  Bodenham persuaded R E Jones Ltd to purchase 500 cars under an agency and distribution agreement.  It was a term of the agreement that R E Jones Ltd pay an initial deposit of £5,000.  However, R E Jones Ltd were not prepared to make the cheque payable either to Bodenham or to the supposed firm International Motors.  In order to overcome the impasse, Bodenham falsely represented that one of the directors of Waring and Gillow Ltd were “behind” the venture and that the cheques could be paid to that firm.  Without further enquiry, R E Jones Ltd made out two cheques to Waring and Gillow Ltd, but the cheques were post-dated and signed by one director only and not by the secretary.  Bodenham then presented the cheques to Waring and Gillow Ltd.  An employee of Waring and Gillow Ltd telephoned an employee of R E Jones Ltd, pointed out the postdating and the omission of the secretary’s signature, and requested a fresh single cheque in the sum of £5,000.  The first two cheques were never presented for payment.  Ultimately, R E Jones Ltd sent a cheque for £5,000 directly to Waring and Gillow Ltd.  Waring and Gillow Ltd wrote to R E Jones Ltd acknowledging receipt of the cheque on behalf of Bodenham.  The letter went on to state that Waring and Gillow Ltd would give Bodenham its official receipt for the money paid on his behalf.  The cheque was banked by Waring and Gillow Ltd and the paying-in slip recorded the words “special clearance re Bodenham”.  Waring and Gillow Ltd then released the furniture to Bodenham.  Shortly thereafter Bodenham was arrested on another charge and the fraud discovered.

    [49]   R E Jones Ltd v Waring and Gillow Ltd [1925] 2 KB 612 (Court of Appeal); reversed by R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 (House of Lords).

1. The trial was heard by Lord Darling without a jury.  It proceeded on the basis of an agreement that the facts stated in the plaintiff’s opening were true and no evidence was called.  The claim made by R E Jones Ltd was put on three bases; money had and received, money paid under consideration that has failed, and money paid under a mistake of fact.  Lord Darling found for R E Jones Ltd.  Waring and Gillow Ltd appealed.

2. In the Court of Appeal, Pollock MR held that Waring and Gillow Ltd received the money on presenting the cheque for £5,000 of which they were the holder for value.  As to the first basis on which the claim was made, Pollock MR commented on the wide scope of the form of action for money had and received.  He nonetheless held that there was no relevant transaction between R E Jones Ltd and Waring and Gillow Ltd such that the money was received by Waring and Gillow Ltd to the use of R E Jones Ltd.  Indeed, Waring and Gillow Ltd had made it known that they accepted the money as money paid on behalf of Bodenham.  Pollock MR also rejected the second basis of the claim made by R E Jones Ltd because there was never any contract, nor consideration moving, between R E Jones Ltd and Waring and Gillow Ltd.  A contract was not made through Bodenham as an intermediary because Bodenham at all times purported to represent International Motors and not Waring and Gillow Ltd.  As to the third basis, Pollock MR held that the mistake made by R E Jones Ltd was not a mistake about a fact which, if true, would have entitled Waring and Gillow Ltd to the money.  Their mistake was simply as to the bona fides of the agency proposed by Bodenham.  Pollock MR continued that, even if an action for money paid under mistake of fact lay in the circumstance of this case, he would have held that R E Jones Ltd were not entitled to recover because of their negligence in providing the cheque to Waring and Gillow Ltd without enquiry.

3. Scrutton LJ applied the principle that:

   where the defendant has no legal relationship with the plaintiff but receives money which has in fact come from the plaintiff, bona fide and for valuable consideration from a third party with whom he had a legal relationship, he can keep the money so obtained from the plaintiff under a mistake of fact if he, the defendant, was not a party to that mistake and did not contribute to it.[50]

   [50]   R E Jones Ltd v Waring and Gillow Ltd [1925] 2 KB 612 at 640.

4. For that general proposition Scrutton LJ relied on Foster v Green.[51]  In that case, an illiterate person who was owed money by a bank cashier went to the bank to demand payment of the debt.  The cashier handed the illiterate person £40 of the bank’s money, asking him to sign what the cashier pretended to be a receipt for the £40.  In fact, the document was a cheque drawn by the illiterate person on the bank for the sum of £40.  The bank failed in its action to recover the £40 from the illiterate person because it had put the cashier in a position in which he was able to hand over its money and the illiterate person received it for a good consideration under a valid contract.

   [51] (1862) 7 H & N 881; 158 ER 726.

5. Scrutton LJ observed that if the cheque had been stopped, Waring and Gillow Ltd would have succeeded in a claim made on the dishonoured cheque because they were holders in due course.  However, because the cheque was paid, the only available claim was for money had and received.

6. Sargant LJ agreed with the reasons given by Scrutton LJ, but also held for Waring and Gillow Ltd on the following basis:

   In my judgment, not only does the case of Foster v Green, which Scrutton LJ has referred to, apply, but really the case comes exactly within the principle of Watson v Russell, to which Mr Jowitt referred at the beginning of his argument.  There the plaintiff had caused a sum of money to be handed to the defendant through an agent, but he only caused it to be paid on a particular condition which he expected would be communicated to the defendant: the intermediary, however, never communicated that condition at all to the defendant.  In that case it was held that nevertheless the plaintiff was not entitled to recover.  The way the matter is put in Watson v Russell is this:

   ‘If A by means of a false pretence or a promise or condition which he does not fulfil, procures B to give him a note or cheque or acceptance in favour of C, to whom he pays it, and who receives it bona fide for value, B remains liable on his acceptance’.[52]

   [52]   R E Jones Ltd v Waring and Gillow Ltd [1925] 2 KB 612 at 644-5.

7. Before the House of Lords, R E Jones Ltd relied only on the ground that the money was paid under a mistake of fact.  The House of Lords by majority overturned the decision of the Court of Appeal.  The only point of difference between the majority and the dissentients was as to whether R E Jones Ltd was estopped by its conduct from recovering the money paid.  It appears to have been common ground in the House of Lords that on the facts of that case the money was paid under a mistake of fact induced by the false statements of Bodenham and, apart from special circumstances, could be recovered.[53]

   [53]   R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 at 680 per Viscount Cave LC.

8. The first special basis on which Waring and Gillow Ltd relied was that they were the holders in due course of the cheque.  That defence was rejected because the definition of “holder in due course” under the Bills of Exchange Act 1882 (UK) did not include the original payee but referred only to a person who came to hold the cheque after it had been negotiated.  I pause here to reiterate that, pursuant to the provisions of the Cheques Act 1986 (Cth) relating to cheques, including bank cheques, BankSA was bound to honour its cheque on presentation by Eckermann Steinert.

9. The second basis upon which Waring and Gillow Ltd relied was the principle which founded the decision in Watson.  In Watson, payment of charter money was paid to the ship owners by an intermediary through which the charter of a ship had been arranged, on condition that the ship should be allowed to perform the charter.  The condition, however, was not communicated by the intermediary when he made the payment.  The defendant ship owners kept the payment and put an end to the charter.  It was held that the plaintiff could not recover the payment.  The decision in Watson was not doubted by the House of Lords in R E Jones Ltd.  It was, however, distinguished on the basis that in Watson there was no mistake by the party who had provided the money to the intermediary with instructions to pay it, on certain conditions, to the ship owners.  The mistake was not one as to the existence of any fact; it was a failure on the part of the intermediary to stipulate as a condition of payment that the charter not be terminated.  Moreover, Watson was, according to Viscount Cave LC, generally considered to be limited to cases where the payment was made to an agent.  In particular, Viscount Cave LC held that there was no agency in any real sense in the case before him and that in any event the cheque did not pass through Bodenham’s hands at all.[54]  Lord Shaw of Dunfermline limited Watson to cases where a payment is made under a condition not communicated to the receiver, a condition as to future conduct which it was hoped, expected or stipulated should follow the payment.[55]  Lord Carson explained the decision in Watson on the basis that the plaintiff had appointed an agent to deliver the cheque to the defendant only on a condition that the charter be allowed to continue.  In failing to stipulate the condition that the charter be allowed to continue, the intermediary was in the position of an agent who had disregarded a secret limitation on his ostensible authority.  The plaintiff, having given his agent ostensible authority to make the payment, he could not recover the money paid in breach of the secret stipulation.[56]

   [54]   R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 at 682.

   [55]   R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 at 687.

   [56]   R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 at 699 per Lord Carson.

10. Counsel for R E Jones Ltd submitted in argument before the House of Lords that the case of Aiken was distinguishable.  That proposition was not contested by counsel for Waring and Gillow Ltd.  Aiken is not otherwise mentioned in the report of the case.  Nor is the basis on which Scrutton LJ dismissed the plaintiff’s claim and the case of Foster discussed.  In my respectful opinion, the distinction which caused those cases to be put aside lies in the fact that in Aiken the payment was made for the purpose, and did have the effect of, extinguishing the existing debt.  So too in Foster, the cashier made the payment intending to extinguish the debt owed to his illiterate creditor and the debt was extinguished, albeit with the money stolen from the bank.  The payment by R E Jones Ltd did not have that effect because R E Jones Ltd paid the money for the purpose of securing an agency with gaining the fictitious firm “International Motors” and not to discharge Bodenham’s debt.[57]

    [57]   In The Law of Restitution (6th ed, 2002) at [4-044]-[4-046], the authors Goff and Jones draw attention to the same distinction between the facts of R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670 at 687 and Aiken v Short (1856) 1 H & N 210; 156 ER 1180 at 1182.The authors also suggest that, since acceptance of the defence of change in position, a defendant in a similar position to Waring and Gillow Ltd could now rely on that defence.

11. It must be remembered that it is the common law approach to contract, and privity of contracts in particular, which are reflected in the statements which insist that the payment by a third party will only discharge another’s debt when it is made on his behalf and is subsequently ratified.  The payment by a third party will not generally be regarded as the discharge of the contractual obligation of the debtor.  The payment by a third party can only be recognised by the law of contract as an effective discharge of the debt in either one of two ways.  First the third party may, by making the payment, contract with the creditor that the creditor will discharge the debt of the debtor.  Alternatively, the third party may be seen as the agent of the debtor, with the necessity that authorisation to pay for and on behalf of the debtor, and ratification of the payment as such, must be established.[58]

    [58]   See J Beatson, The Use and Abuse of Unjust Enrichment (1991) chapter 7 at 200-05.  See also Goff and Jones, The Law of Restitution (6th ed, 2002) at [1-018].  The proposition that a debt is not discharged unless the payment is made on behalf of the debtor and with the debtor’s authority is accepted by the authors of Restitution Law in Australia: K Mason, JW Carter and GJ Tolhurst, Mason & Carter’s Restitution Law in Australia (2nd ed, 2008) at [846].

12. Nonetheless, in my view the decisions in Aiken, Porter and Barclays Bank Ltd clearly establish that money which is paid to discharge, and does discharge, a debt to the payee by the payer, or by a third party by whom the payer is authorised to discharge the debt, is a good defence to a claim for recovery of money paid under a mistake of fact.  That position was confirmed by the Court of Appeal in Lloyds Bank Plc v Independent Insurance Co Ltd.[59]  Waller LJ explained that that defence “simply applies basic principles relating to restitutionary remedies”.  He said:

    It also seems to me that the proposition that if the debt was discharged the payee would have a defence to restitutionary claim in fact simply applies basic principles relating to restitutionary remedies.  There are, as I see it, two bases which support the fundamental proposition in restitutionary terms.  First, arguably, where the debt has been discharged the payment has been made for good consideration.  That is the basis expressed in Robert Goff J’s formulation in Barclays Bank Limited v WJ Sims Son and Cooke (Southern) Ltd [1980] QB 677. Goff and Jones, The Law of Restitution, 4^th ed, p.134 could be said not to support that basis with wholehearted conviction.  But the second basis does have Goff and Jones’s support in the same paragraph.  If a payment has discharged the debt then unless an order to return the money reinstates the debt the payee will have changed his position in no longer having a remedy against the debtor.[60] (emphasis in original)

    [59] [2000] 1 QB 110.

    [60]   Lloyds Bank Plc v Independent Insurance Co Ltd [2000] 1 QB 110 at 125-6 per Waller LJ.

13. R E Jones Ltd must, in my view, be distinguished from this case because Bodenham’s debt was not in fact discharged by the payment made by Waring and Gillow Ltd.  In this case ALC, the debtor, made the payment discharging the debt.  Samra misappropriated the Clarkes’ bank cheque by paying it into the trust account of Eckermann Steinert without disclosing the basis on which the bank cheque was provided to him and the conditions on which it was advanced by Mr and Mrs Clarke.  By failing to make those disclosures, Samra discharged ALC’s indebtedness; he delivered to Eckermann Steinert, who were the agents of Mr and Mrs Abou-Samra, a bank cheque intending to discharge ALC’s indebtedness in circumstances in which Mr and Mrs Abou-Samra understood and accepted it as a discharge of that indebtedness.

14. Whatever difficulty there may be in finding that a payment by a third party has discharged another’s debt, there can be no such difficulty where the payment is in fact made by the debtor.  The fact that the payment was made with stolen money does not, on the authority of Foster and Lipkin, preclude reliance on the defence of discharged debt where the money is paid for good consideration and received without notice.

15. I find that the debt of ALC was discharged by the payment made into the trust account of Eckermann Steinert, albeit by the deposit of a bank cheque that had been misappropriated.  No action, however, lies against Mr and Mrs Abou-Samra for recovery of the proceeds of the bank cheque because they gave good consideration in the discharge of the debt owed by ALC and had no notice Samra’s conversion of the cheque.

    The rule in Bannatyne

16. The rule in Bannatyne v MacIver[61] has been stated in these terms:

    Where, by any wrongful act of an agent, or by an unauthorised act which is not ratified, the money of the third party is obtained and applied for the benefit of the principal, the principal is liable in equity to restore such money to the extent that it has been so applied.[62]

    [61] [1906] 1 KB 103.

    [62]   Bowstead and Reynolds on Agency (18^th ed, 2006) at [8-201].

17. In City Bank of Sydney v McLaughlin,[63] Griffith CJ made the following comments regarding the rule:

    The principle stated in Bannatyne v MacIver is, we think, only an instance of the application of the larger doctrine of equitable estoppel. In such cases as Reid v Rigby and Bannatyne v MacIver the estoppel arose from the mere fact of acceptance and retention of the benefit arising from the acts of the person assuming to act as agent.  In all the cases the estoppel operated to prevent the person who enjoyed the benefit from denying his authority to enter into the transaction on his behalf, so far as it could be lawfully entered into, either in the form which it purported to take, or, if that form were ultra vires of the principal, (as in the Blackburn Case), in some other form which would have been within his competence, and would have produced substantially the same result.[64]  (citation omitted)

    [63] (1909) 9 CLR 615.

    [64]   The City Bank of Sydney v McLaughlin (1909) 9 CLR 615 at 624-5 per Griffith CJ.

18. It is the rule in Bannatyne which best fits the circumstances of this case and works a result which is just in all of the circumstances, on the premise of course that my earlier conclusions as to the limitation on Samra’s agency and the defence of discharge of debt are sound.  It is clear that Samra, who was the agent of Mr and Mrs Abou-Samra, albeit with limited authority, obtained the bank cheque by wrongful and unauthorised acts.  It is also clear that, at least as to the difference between the $207,518.20 for which the bank cheque was drawn and the $140,000 debt paid by ALC, that shortfall of $67,518.20 has been applied to the benefit of Mr and Mrs Abou-Samra.

19. I do not, however, consider that the whole of the $207,518.20 was applied to the benefit of Mr and Mrs Abou-Samra precisely because, by discharging ALC’s debt to them, they gave value for the greater part of the bank cheque.  Mr and Mrs Abou-Samra are only estopped from denying Samra’s authority to the extent that the benefit they have retained is inconsistent with their denial of agency.  There is no such inconsistency with respect to that portion of the proceeds of the bank cheque which discharged ALC’s indebtedness to them.  Mr and Mrs Abou-Samra cannot be liable in equity to restore that portion of the proceeds of the cheque in those circumstances.

20. I find that Mr and Mrs Abou-Samra are entitled in equity to stand in the same position as if they had borrowed the sum of $67,518.20 from Mr and Mrs Clarke at a rate of 10 per cent, and to an equitable charge securing that principal and interest.

    Resulting and Constructive Trust

21. There can be no resulting trust here because that presumption is rebutted by the very circumstance that the money was advanced as a loan.[65]

    [65]   Calverley v Green (1984) 155 CLR 242 at 246 per Gibbs CJ.

22. In my view, the intentions of both Mr and Mrs Abou-Samra on the one hand and Mr and Mrs Clarke on the other must be considered.[66]  It is clear that there was no common intention that Mr and Mrs Clarke would have a beneficial proprietary interest proportionate to the contribution to the purchase price by their advance.  They only ever expected to receive a charge as security for their advance and interest at the rate of 10 per cent.  It is, in my respectful opinion, not open to find that the legal owner holds property on a resulting trust where the evidence discloses that there was no actual intention to subject his or her ownership to such a trust.  There are other equitable remedies available where funds are dishonestly applied to purchase a property.[67]

    [66]   Muschinski v Dodds (1985) 160 CLR 583 at 590, 598-9 per Gibbs CJ; at 604 per Brennan J; at 612 per Deane J.

    [67]   Cf Critchley v Collins [2004] SASC 10.

23. A remedial constructive trust could not result in any different order to the one which would result from an application of the rule in Bannatyne.  A remedial constructive trust or equitable charge securing the return of the whole of the proceeds of the bank cheque cannot be imposed here because of my finding on the effect of the payment in discharging the indebtedness of ALC to Mr and Mrs Abou-Samra.

    Conclusion

24. Samra was authorised by Mr and Mrs Abou-Samra to arrange a short term loan which was to cover the shortfall of the settlement monies.  Samra did not have actual or ostensible authority to borrow the sum of $207,518.20 from Mr and Mrs Clarke on behalf of Mr and Mrs Abou-Samra to enable the settlement on the Medindie property to proceed.  Nor did Samra have actual or ostensible authority to receive the bank cheque in that amount on their behalf.  Samra received the bank cheque on trust for the purpose of providing it to Mr and Mrs Abou-Samra’s conveyancer as a loan to them on the conditions stipulated by Mr Clarke.

25. Samra misappropriated the cheque by banking it into the trust account of the conveyancers pursuant to his undertaking to pay into that trust account the principal of the $140,000 loan made by Mr and Mrs Abou-Samra to ALC and intending to discharge that indebtedness by so doing.  Mr and Mrs Abou-Samra accepted $140,000 of the proceeds of the bank cheque in discharge of ALC’s indebtedness to them.  However, Mr and Mrs Clarke are entitled to declarations reflecting my finding in [111] above on the basis of the rule in Bannatyne to the effect that they can recover the shortfall amount of $67,518.20 from Mr and Mrs Abou-Samra.

1. I shall hear the parties as to the precise form of orders.