Fried v National Australia Bank Ltd

[2001] FCA 907

Fried v National Australia Bank Limited [2001] FCA 907
Banking and Financial Institutions - Partnership - Contract - Equity

Fried v National Australia Bank Limited [2001] FCA 907

BANKING AND FINANCIAL INSTITUTIONS - banker and customer - wrongful debit of bank account - customer a firm - four partners listed as authorised signatories - non-listed partner effected withdrawal on firm account held in trust for named beneficiary - misappropriated funds - whether bank liable to restore funds - terms of contract between firm and bank - variation of contract - letter from managing partner adding further authorised signatories - whether effective to vary contract - effect of legislation relating to reporting of financial transactions - whether withdrawal authorised - whether fraudulent partner had actual authority to make withdrawals - ostensible authority - whether bank relied on representation of authority - whether bank knew of absence of actual authority - ratification and adoption - whether withdrawals ratified by firm or client beneficiary - whether full knowledge of all material circumstances - estoppel - duties of customer - whether customer owed bank a duty to inform it of unauthorised withdrawals - election - pursuit of alternative claims - settlement - whether election where claim settled but no judgment entered

PARTNERSHIP - agency - actual authority - withdrawal of trust funds by partner - ostensibly for investment in tax scheme - tax scheme a sham - funds misappropriated - firm had authority to effect withdrawals for transfer to investments - whether withdrawal authorised - whether for the purpose of the business of the partnership - ostensible authority - representation - whether firm represented partner had authority - whether withdrawal instructions presented as part of firm's ordinary banking round - whether bank relied on representation - whether bank knew of absence of actual authority - whether in signing withdrawal forms partner carried on in the usual way business of the kind carried on by the firm

CONTRACT - interpretation - deed of assignment of listed assets - letters purporting to repay loans listed in deed of assignment - whether letters mistakenly prepared - whether loans extinguished by letters - whether deed effective to assign claim for wrongful debit

EQUITY - trusts - rights of beneficiaries - trustee unwilling to sue - whether beneficiary can sue - whether trustee must be unable to sue - whether special circumstances required - whether distinction between common law and equitable claims

Financial Transaction Reports Act 1988 (Cth), ss 3, 18, 20A, 20

Partnership Act 1958 (Vic) s 9

N Joachimson v Swiss Bank Corporation [1921] 3 KB 110, considered

National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377, considered

National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251, applied

Taylor v Smith (1926) 38 CLR 48, cited

Marsh v Joseph [1897] 1 Ch 213, cited

Victorian Professional Group Management Pty Ltd v The Proprietors "Surfers Aquarius" Building Units Plan No. 3881 [1991] 1 QdR 487, cited

London Joint Stock Bank Ltd v Macmillan & Arthur [1918] AC 777, considered

Greenwood v Martins Bank Ltd [1933] AC 51, considered

Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80, considered

Commonwealth of Australia v Verwayen (1990) 170 CLR 394, referred to

United Australia Ltd v Barclays Bank Ltd [1941] AC 1, followed

Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727, cited

Fried v National Australia Bank Ltd [2000] FCA 910, referred to

Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70, considered

Gandy v Gandy (1885) 30 ChD 57, considered

Re Atkinson [1971] VR 612, considered

Ramage v Waclaw (1988) 12 NSWLR 84, not followed

Lidden v Composite Buyers Ltd (1996) 67 FCR 560, considered

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432, applied

Fried v National Australia Bank Ltd [1999] FCA 737, referred to

Fried v National Australia Bank [2000] FCA 604, referred to

Scott on Trusts, 4th ed. 1989

Jacobs' Law of Trusts in Australia, 4th ed. 1977

Jacobs' Law of Trusts in Australia, 6th ed. 1997

TAB FRIED AND ORS v NATIONAL AUSTRALIA BANK LIMITED AND ORS

VG 352 of 1998

GRAY J

17 JULY 2001

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 352 of 1998

BETWEEN:

TAB FRIED

FIRST APPLICANT

EVA FRIED

SECOND APPLICANT

DAVID FRIED

THIRD APPLICANT

COMPACK PACKAGING EMPLOYEE SHARE PLAN PTY LTD (ACN 062 925 393)

FOURTH APPLICANT

EVATAB INVESTMENTS PTY LTD (formerly TED Engineering Investment Pty Ltd) (ACN 006 392 972)

FIFTH APPLICANT

INVOTIN PTY LTD (ACN 006 786 394)

SIXTH APPLICANT

WINDINA PTY LTD (ACN 074 583 412)

SEVENTH APPLICANT

EVATAB LEASING PTY LTD (ACN 074 572 204)

EIGHTH APPLICANT

AND:

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

FIRST RESPONDENT

BENNI ARONI

SECOND RESPONDENT

& FIRST CROSS-CLAIMANT

ADRIAN COLMAN

THIRD RESPONDENT

& SECOND CROSS-CLAIMANT

RICHARD STARLING CORNISH

FOURTH RESPONDENT

& THIRD CROSS-CLAIMANT

MARK WOLLAN

FIFTH RESPONDENT

& FOURTH CROSS-CLAIMANT

NORMAN SAMUEL FRYDE

SIXTH RESPONDENT

& FIFTH CROSS-CLAIMANT

BRUNO JOHN CHARLESWORTH

SEVENTH RESPONDENT

& SIXTH CROSS-CLAIMANT

BRUCE DAVID JOSEM

EIGHTH RESPONDENT

& SEVENTH CROSS-CLAIMANT

EFFIE KAVADAS

NINTH RESPONDENT

& EIGHTH CROSS-CLAIMANT

TED ENGINEERING AUSTRALIA LIMITED

(ACN 006 790 067)

TENTH RESPONDENT

BENDIGO BANK LIMITED (ACN 068 049 178)

ELEVENTH RESPONDENT

AND:

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

FIRST CROSS-RESPONDENT

WF TITCHENER & CO PTY LTD

SECOND CROSS-RESPONDENT

VICTORIAN LAWYERS RPA LIMITED

THIRD CROSS-RESPONDENT

WF TITCHENER & CO PTY LTD

CROSS-CLAIMANT

AND:

BENNI ARONI

FIRST CROSS-RESPONDENT

ADRIAN COLMAN

SECOND CROSS-RESPONDENT

RICHARD STARLING CORNISH

THIRD CROSS-RESPONDENT

MARK WOLLAN

FOURTH CROSS-RESPONDENT

NORMAN SAMUEL FRYDE

FIFTH CROSS-RESPONDENT

BRUNO JOHN CHARLESWORTH

SIXTH CROSS-RESPONDENT

BRUCE DAVID JOSEM

SEVENTH CROSS-RESPONDENT

EFFIE KAVADAS

EIGHTH CROSS-RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

NINTH CROSS-RESPONDENT

VICTORIAN LAWYERS RPA LIMITED

TENTH CROSS-RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

CROSS-CLAIMANT

AND:

VICTORIAN LAWYERS RPA LIMITED

FIRST CROSS-RESPONDENT

WF TITCHENER & CO PTY LTD

SECOND CROSS-RESPONDENT

JUDGE:

GRAY J

DATE OF ORDER:

17 JULY 2001

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.       The proceeding be listed for further hearing at 10:15am on 29 August 2001.

2.       At that time the parties:

(a)       bring in minutes of orders in accordance with the reasons for judgment published on 17 July 2001; and

(b)       make submissions on the question of costs.

Note:       Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 352 of 1998

BETWEEN:

TAB FRIED

FIRST APPLICANT

EVA FRIED

SECOND APPLICANT

DAVID FRIED

THIRD APPLICANT

COMPACK PACKAGING EMPLOYEE SHARE PLAN PTY LTD (ACN 062 925 393)

FOURTH APPLICANT

EVATAB INVESTMENTS PTY LTD (formerly TED Engineering Investment Pty Ltd) (ACN 006 392 972)

FIFTH APPLICANT

INVOTIN PTY LTD (ACN 006 786 394)

SIXTH APPLICANT

WINDINA PTY LTD (ACN 074 583 412)

SEVENTH APPLICANT

EVATAB LEASING PTY LTD (ACN 074 572 204)

EIGHTH APPLICANT

AND:

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

FIRST RESPONDENT

BENNI ARONI

SECOND RESPONDENT

& FIRST CROSS-CLAIMANT

ADRIAN COLMAN

THIRD RESPONDENT

& SECOND CROSS-CLAIMANT

RICHARD STARLING CORNISH

FOURTH RESPONDENT

& THIRD CROSS-CLAIMANT

MARK WOLLAN

FIFTH RESPONDENT

& FOURTH CROSS-CLAIMANT

NORMAN SAMUEL FRYDE

SIXTH RESPONDENT

& FIFTH CROSS-CLAIMANT

BRUNO JOHN CHARLESWORTH

SEVENTH RESPONDENT

& SIXTH CROSS-CLAIMANT

BRUCE DAVID JOSEM

EIGHTH RESPONDENT

& SEVENTH CROSS-CLAIMANT

EFFIE KAVADAS

NINTH RESPONDENT

& EIGHTH CROSS-CLAIMANT

TED ENGINEERING AUSTRALIA LIMITED

(ACN 006 790 067)

TENTH RESPONDENT

BENDIGO BANK LIMITED (ACN 068 049 178)

ELEVENTH RESPONDENT

AND:

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

FIRST CROSS-RESPONDENT

WF TITCHENER & CO PTY LTD

SECOND CROSS-RESPONDENT

VICTORIAN LAWYERS RPA LIMITED

THIRD CROSS-RESPONDENT

WF TITCHENER & CO PTY LTD

CROSS-CLAIMANT

AND:

BENNI ARONI

FIRST CROSS-RESPONDENT

ADRIAN COLMAN

SECOND CROSS-RESPONDENT

RICHARD STARLING CORNISH

THIRD CROSS-RESPONDENT

MARK WOLLAN

FOURTH CROSS-RESPONDENT

NORMAN SAMUEL FRYDE

FIFTH CROSS-RESPONDENT

BRUNO JOHN CHARLESWORTH

SIXTH CROSS-RESPONDENT

BRUCE DAVID JOSEM

SEVENTH CROSS-RESPONDENT

EFFIE KAVADAS

EIGHTH CROSS-RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

NINTH CROSS-RESPONDENT

VICTORIAN LAWYERS RPA LIMITED

TENTH CROSS-RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

CROSS-CLAIMANT

AND:

VICTORIAN LAWYERS RPA LIMITED

FIRST CROSS-RESPONDENT

WF TITCHENER & CO PTY LTD

SECOND CROSS-RESPONDENT

JUDGE:	GRAY J
DATE:	17 JULY 2001
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

Introduction

1       This proceeding is now much less complex than it was when the trial began. Before going to details of the issues that remain for determination, it is appropriate to set out some facts about the parties and the way in which the litigation involving them has unfolded.

2       The first applicant, Tab Fried, was born in Budapest, Hungary, in 1939. He left Hungary in 1956 and lived for a time in London. In 1958, he came to settle in Australia. While in Hungary, he had completed part of an apprenticeship as a toolmaker. His partial qualification was recognised and he was able to complete his apprenticeship and qualify as a toolmaker in Victoria.

3       The second applicant, Eva Fried, was born in Antwerp, Belgium, in 1946. She immigrated to Australia with her family. In due course, Tab and Eva Fried married. They have three children, two sons and a daughter. The older of the sons is named David Fried and is the third applicant.

4       In the 1970s Tab Fried started his own business, making precision tools for industrial use. The business was very successful. The Fried family took over another engineering business and later merged the two. In the course of two decades, by this means, the business grew from a one-man operation to a multi-million dollar enterprise, employing more than 130 people. By the mid-1990s, the business was conducted by a public company named TED Engineering Australia Limited. Although it was a public company, all of the shares in TED Engineering Australia Limited were held by a Fried family company named TED Engineering Investments Pty Ltd. In 1996, Mr and Mrs Fried began to consider the sale of the business. After some negotiation, all of the shares in TED Engineering Australia Limited were sold by TED Engineering Investments Pty Ltd to Hawker Richardson Limited. The sale was settled on 22 November 1996. It was a complex transaction, because the intention was to separate the business aspects from the family aspects of TED Engineering Australia Limited, and to sell only the former. In effect, the business was sold for some $26,000,000. Following the settlement of the sale, TED Engineering Investments Pty Ltd changed its name to Evatab Investments Pty Ltd. It is the fifth applicant in this proceeding.

5       While Mr and Mrs Fried were running the business, it was very profitable. From time to time, sums of money from the profits were invested through the firm of Aroni Colman, solicitors. That firm had been founded originally in the 1980s by Eva Fried's brother, Benni Aroni, and Adrian Colman. In the late 1980s, a new firm under the same name was formed by the addition of two partners, Richard Cornish and Mark Wollan. In 1990, the firm moved to conduct its practice from offices at 600 St Kilda Road, Melbourne.

6       As from 1 April 1994, the firm was again reconstituted. Three new partners were admitted. They were Bruno Charlesworth, Norman Fryde and Max Green. The firm subsequently changed its location, moving to offices on Level 32 of the Rialto Building at 525 Collins Street, Melbourne. Because of the greater size of the firm, Benni Aroni was designated as managing partner. Other partners specialised in various aspects of legal practice. In particular, Mark Wollan dealt with the firm's mortgage practice, which included the investment of clients' monies on mortgages through a company called Investlaw Mortgages Pty Ltd. Max Green was the partner who specialised in taxation law.

7       In the early 1990s, Max Green practised as a solicitor and as a partner in a firm known as Shugg & Green. That firm dissolved in 1993. Mr Green then practised for a time as a sole practitioner under the name Max Green & Associates. He moved into an office in the premises of Aroni Colman in St Kilda Road. The purpose of this arrangement was to enable the existing four partners of Aroni Colman to assess whether Mr Green should be admitted to the firm. While he was a sole practitioner, Mr Green maintained four bank accounts with the National Australia Bank Limited ("the NAB"). At a branch of the NAB in St Kilda Road he kept an account styled Max Green and Associates Trust Account and an account styled Max Green and Associates General Account. Similarly, at the Carlton branch of the NAB, he kept an account styled Max Green and Associates Trust Account and an account styled Max Green and Associates General Account. For a time, the two accounts at the St Kilda Road branch were transferred to the Carlton branch. Two accounts were then closed, leaving one account at the Carlton branch styled Max Green and Associates Trust Account and one account styled Max Green and Associates General Account. Although designated as a trust account, the former of these accounts was not declared to the Law Institute of Victoria as required by the Legal Profession Practice Act 1958 (Vic) or, after 1 January 1997, to the Legal Practice Board as required by the Legal Practice Act 1996 (Vic). The account was therefore never audited as a trust account. Max Green kept the account in operation for a considerable time after he became a partner of Aroni Colman.

8       Aroni Colman kept its general trust account with the NAB. The firm also from time to time opened, operated and closed bank accounts into which the funds of individual clients were paid. By this means, the clients were able to receive interest on funds held in the accounts. In the case of a solicitor's trust account into which the funds of various clients are paid, the interest that would otherwise be received by an account holder is paid into a central fund to be used for purposes authorised by statute. The accounts into which the funds of individual clients were paid were generally styled as "Aroni Colman in trust for", followed by the name of the client. When the offices of Aroni Colman were in St Kilda Road, these accounts were generally kept with the Advance Bank, although some were kept with the Bendigo Building Society. In the years following the move to the Rialto building, greater use was made of Bendigo Bank Limited ("Bendigo Bank").

9 Bendigo Bank was the product of successive amalgamations of financial institutions, one of which was Capital Building Society. Following the successive mergers, its business was carried on as the Bendigo Building Society. On 27 June 1995, the society received a licence to operate as a bank, pursuant to s 9 of the Banking Act1959 (Cth), and changed its name to Bendigo Bank. Between that time and the dissolution of the firm of Aroni Colman, Aroni Colman maintained or opened some 263 separate accounts with Bendigo Bank. Each of these was an account in the name of Aroni Colman, with the addition of words indicating that the account was held in trust for a particular named client. These accounts included some maintained in trust for companies owned by Tab and Eva Fried.

10       On 25 March 1998, news reached Aroni Colman that Max Green had been found dead in a hotel room in Cambodia. Initially, the news suggested that he had died of natural causes. This was followed quickly by news that Mr Green had in fact been murdered. An investigation of his files in the office of Aroni Colman soon revealed that all was not well. Mr Green was found to have misappropriated tens of millions of dollars of the money of clients of Aroni Colman and of other persons. Several tax avoidance schemes proposed by Mr Green turned out to have been complete shams. Instead of applying the monies of clients and other monies received by him in the ways in which they were expected to be applied, Mr Green had applied them to his own purposes. In most cases, he had transmitted the funds overseas. In so doing, he made considerable use of his account in the name of Max Green and Associates Trust Account at the Carlton branch of the NAB.

11       On 30 July 1998, Tab, Eva and David Fried, as well as Compack Packaging Employee Share Plan Pty Ltd, Evatab Leasing Pty Ltd (formerly TED Engineering Investments Pty Ltd), Invotin Pty Ltd, Windina Pty Ltd and Evatab Leasing Pty Ltd, commenced this proceeding. Initially, they sued the NAB and Aroni Colman in its firm name. Subsequently, they amended to sue, instead of the firm Aroni Colman, its surviving partners: Benni Aroni, Adrian Colman, Richard Starling Cornish, Mark Wollan, Norman Samuel Fryde, Bruno John Charlesworth, Bruce David Josem and Effie Kavadas. The last two were salaried partners, and the applicants did not press their claims against them. In the course of the interlocutory stages of the proceeding, the applicants sought non-party discovery of documents against the Bendigo Bank. In consequence of what they learned from the documents, in May 1999, they amended their claim so as to add Bendigo Bank Limited as a respondent.

12       Prior to the commencement of the trial, the applicants entered into a settlement with Messrs Aroni, Colman, Cornish, Wollan, Fryde and Charlesworth, the surviving equity partners of the firm Aroni Colman. By that settlement, the partners consented to the entry of judgment against them in the sum of $11,000,000. They also declared that they were unable and unwilling to pursue any claim they might have as trustees for the applicants against anyone else. The applicants have not yet entered judgment in accordance with the consent.

13       Also in the interlocutory stages of the proceeding, there were filed a number of cross-claims by which the respondents sought indemnity or contribution from each other and from WF Titchener & Co Pty Ltd, a firm of accountants which audited the trust accounts of Aroni Colman during the relevant period.

14       In the course of the trial, the applicants entered into a deed of settlement with the NAB, pursuant to which the applicants were to receive $6,000,000 in settlement of their claims, interest and costs with respect to two of Mr Green's defalcations, designated as transactions A9 and A10. Thereafter, all cross-claims were settled and were the subject of orders granting leave for their discontinuance, without the payment of costs. This left Bendigo Bank as the only respondent sued, in respect of seven defalcations totalling $6,650,000 of funds, which the applicants claim belong to Evatab Investments Pty Ltd. The cause of action relied on is debt. The substance of the claim is that the Bendigo Bank wrongfully debited one account on six occasions and another account on one occasion and is liable to pay Evatab Investments Pty Ltd the sums so debited. Bendigo Bank denies wrongful debiting and relies on various defences, including ratification, estoppel, election and approbation and reprobation. It also disputes the right of Evatab Investments Pty Ltd to recover and says that, if any wrongful debits did occur, only the firm of Aroni Colman, or TED Engineering Australia Limited, could properly sue for them. Because this defence was raised, the applicants joined TED Engineering Australia Limited as a respondent to the proceeding. TED Engineering Australia Limited has played no part in the proceeding.

15       It is to these issues that these reasons for judgment relate.

Sham tax schemes

16       Before examining in detail the transactions that led to the defalcations by Mr Green, some further background is necessary. As I have said, a number of Mr Green's defalcations were disguised by bogus tax avoidance schemes which he created. Two of these are relevant to the issues remaining in the proceeding.

The gas meter leasing scheme

17       The first was a scheme proposed specifically to the Fried interests in April 1996. It concerned a proposal to purchase gas meters and to lease them to the gas utility in New South Wales. The attraction for tax purposes was that each gas meter was said to cost less than $300, so that the cost of the purchase was said to be wholly tax deductible within the year of purchase, on the basis that 100 per cent depreciation could be claimed in respect of each item of that value.

18       On 2 April 1996, Mr Green sent by facsimile direct to Tab Fried, and also to Peter Rado of Rado Accounting Services Pty Ltd (an accountant who performed accounting services for the Fried family and their companies, including the preparation of tax returns) a copy of what he described as a "summary of Gas Meter deal". The summary was in the following terms:

"SUMMARY OF INCOME TAX PLANNING PROPOSAL RELATING TO LEASING SYNDICATE IN RESPECT OF GAS METERS

Babcock & Brown Pty. Ltd., a Sydney based investment bank, has put a proposal to us for use as a tax planning vehicle by clients of Aroni Colman, in conjunction with other investors, similar to a structure which was operated during the 1993/94 tax year and in respect of which a favourable private ruling from the Australian Taxation Office (`the ATO') was obtained at the time.

1. The proposal centres around the formation of a joint venture with a
   nominee company acting as Trustee and custodian thereof for the purpose of acquiring and leasing to Australian Gas Light Company Ltd. (a partially privatised gas authority in New South Wales) a number of domestic gas meters. The cost of each gas meter is below the $300 threshold provided for in Section 55 of the Income Tax Assessment Act (`the Tax Act') and therefore the entire cost of each gas meter can be written off by the partnership in the current year of income. It is also clear from Income Tax Ruling IT 2685 that each gas meter will be treated as a separate article of plant and therefore, separately depreciable under section 55.

1. The investment required by a taxpayer is an amount of
   $500,000. This amount will then be geared on a 4-1 basis so that a taxpayer who invests $500,000 will receive a tax deduction in 1995/96 of $2,000,000.

1. In addition to obtaining the tax deduction of $2,000,000 in the first
   year, a taxpayer who invests $500,000 will receive a distribution from the joint venture of $150,000 per annum 5 years, with the firstdistribution being in the 1996/97 year of income. The amounts will be subject to tax in the hands of the taxpayer/investor.

1. The $1.5 million loan will be underwritten by the investment bank and
   paid out from the rental income payable by AGL without any recourse to the investors.

1. In order to participate in this arrangement, it is necessary to commit
   the $500,000 investment by close of business on 3rd April, 1996 so that the funds can then be forwarded to the investment bank's Solicitors in Sydney for retention in an escrow account.

1. The funds invested will be retained by the Solicitors in Sydney acting
   for Babcock & Brown (Dunhill Madden Butler) until all satisfactory document (sic) in relation to the acquisition and leasing of the gas meters to AGL and the underlying joint venture agreements have been executed AND a satisfactory private ruling has been obtained from the Australian Taxation Office.

1. In the event that the conditions referred to in paragraph 6 are not met prior to 30th June, 1996 the $500,000 together with interest from the date of payment until the date of repayment will be refunded."

19       On 3 April 1996, Mr Green on behalf of Aroni Colman sent a letter to Mr Rado in the following terms:

"I confirm my telephone advice to you this morning that your client may consider a deadline some time in the latter part of May, I suggest 31st May, 1996, but no earlier than 24th May, 1996 would be acceptable, so that if a favourable ruling has not been obtained by then your client would receive a refund of their investment funds plus interest as indicated in my summary which I forwarded to you yesterday.

I emphasise that we must be in receipt of your client's funds today by bank cheque so that the funds can be forwarded to Sydney or deposited in the escrow account prior to close of business tomorrow."

20       This proposal led to the withdrawal of $500,000 from an account maintained by Aroni Colman with the Bendigo Bank, described as "Aroni Colman in trust for TED Engineering Australia Limited"; the account number was 4225868/B101 ("the B101 account"). The withdrawal took place on 3 April 1996. The amount concerned was misappropriated by Mr Green. The transaction was designated as transaction A3 for the purposes of this proceeding. It is no longer the subject of a claim by the applicants against Bendigo Bank. It will be necessary, however, to deal with the circumstances of the withdrawal later in these reasons for judgment.

21       The gas meter leasing scheme was a sham throughout. Babcock & Brown, which is in fact a merchant bank with an office in Sydney, knew nothing about it. Neither did the Australian Gas Light Company Ltd or Dunhill Madden Butler. The escrow account, later said to be an account with the Colonial State Bank in Sydney, never existed. The scheme was used by Mr Green solely to steal funds from the Fried group.

22       Mr Green must have considered the scheme to be a reliable means for this purpose. Prior to the end of the financial year in 1996, he recommended a revised version of the scheme. By letter to Mr Rado, dated 24 June 1996, Mr Green wrote:

"Enclosed is amended executive summary of the Gas Meter leasing deal.

In view of the still favourable gearing ratio for the depreciation deduction and the fact that the ATO has given its verbal OK and the fact that we can `undo' the transactions if the favourable ruling is not forthcoming, I recommend that TED proceed."

23       The amended executive summary was in the following terms:

"GAS METER LEASING PROPOSAL

AMENDED EXECUTIVE SUMMARY

Following on from previous executive summary, which was submitted to you on 2 April 1996 and our subsequent discussions, the following is an updated summary which details some changes to the financial structure and timing of the arrangement:

These changes have occurred due to an upward movement in the final cost of each gas meter to $275.00 per unit (still well below the $300.00 per item below which the entire cost of each item can be written off fully in the year of purchase) and the requirement of the N.S.W. gas company and the lending bank that here (sic) be no more than 4 lessor participants in the deal.

Accordingly, the amended arrangements are as follows:

1. Each participant is required to invest $775,000.00 (instead of the
original $500,000) for a 3 year period. This investment will be
returned over the 3 year period together with a return of 10.5% per annum on this amount.

2. The investors will have a geared investment in the gas meters of a total
of 3:1, making a total of $2,275,000 of deductible depreciation. Due to timing issues on delivery of the total shipment of meters, this deduction will be split as follows:

$2,000,000 depreciation deduction in the year of income ending 30 June 1996

$275,000 depreciation deduction in the year of income ending 30 June 1997

The gearing will be non-recourse in the sense that the Lease payments by the Gas Company will fully repay the loan and finance charges and interest associated therewith.

3. The client investment of $775,000 will be returned in 3 annual instalments of $250,000, $250,000 and $275,000 respectively with interest on a pro rata basis. All these amounts will be assessable income to the investor in the respective year (sic) in which they are received.

However, the balance of the geared investment will not be subject to income tax in subsequent years in the hands of the investor, but will be taxed in the hands of the financier.

4. A tax ruling has been sought and, discussions have occurred earlier this month with the ATO concerning the ruling. The ATO has indicated that a favourable ruling is likely to be forthcoming, but because each investor is now to own a portion of the meters in their own right and not as part of a partnership, as previously envisaged, fresh ruling applications on behalf of each respective investor were required to be lodged. These have been lodged and an answer is expected within the next 30 days.

5. Accordingly, it is proposed that documentation of the transaction proceed with all documents and funds being held in escrow so that if a favourable tax ruling is not obtained, the transactions will, at the investor's election, not proceed and the funds invested together with interest at the agreed rate will be repaid to the investors.

6. Draft documentation has been reviewed by us and some changes are presently being made by the financier's solicitors in Sydney. Once documents have been completed, they will be executed later this week in the ACT under Power of Attorney to overcome significant Stamp Duty costs which will otherwise apply in N.S.W.

7. Please confirm as soon as possible that TED is still to proceed so that final documents can be prepared and arrangements made for the balance of the funds to be remitted."

24       By a facsimile message dated 25 September 1996, Mr Green provided Mr Rado with what was described as an "Executive Summary" of the gas meter leasing program. In the summary, Mr Green represented that there were two ten-year chattel leases. The first was said to be dated 28 June 1996 and to relate to 5,200 gas meters, delivered prior to 30 June. The second was said to be dated 31 July 1996 and to relate to 5,550 gas meters, delivered during July and August 1996. The summary stated:

"All documentation was executed under Power of Attorney in the A.C.T. and must remain there so as to avoid N.S.W. Stamp Duty on the transactions."

25       The summary also contained the following passage:

"In order to ensure that a favourable tax ruling was obtained in respect of the arrangements, it became necessary to depart from the original `non-recourse' gearing proposal.

The arrangement has now been funded by TED Investments Pty. Ltd. placing $3,100,000 on a 2 year term deposit with State Bank of New South Wales at 8% per annum. This term deposit was placed with the State Bank in instalments, so as to coincide with the drawdown dates in respect of the funding which was required to meet the payment schedule on the acquisition of the gas meters."

26       Accompanying the summary was what purported to be a copy of a letter dated 20 September 1996, addressed to TED Investments Pty Ltd at the office of Aroni Colman, acknowledging receipt by the State Bank of New South Wales of a term deposit of $3,150,000 at 8 per cent per annum for two years, maturing on 19 September 1998. The receipt was acknowledged to be "in relation to arrangements for the provision of a finance facility for the purposes of you acquiring plant & equipment to be leased to The Australian Gas Light Company." In fact, the copy letter was a false document. It had been constructed by photocopying parts of one or more genuine State Bank of New South Wales documents, so as to show the letterhead and page footer of the State Bank of New South Wales Limited, and the signature and description of Farhana Homem, Supervisor, Treasury Operations. The rest of the document was apparently composed, and added to these elements, by Mr Green. The resulting document was photocopied again, so as to obscure the manner of its construction. There never was an account opened with the State Bank of New South Wales in connection with the gas meter leasing scheme.

27       The representation that this false scheme existed enabled Mr Green to withdraw sums of money from accounts at the Bendigo Bank, apparently without arousing suspicion in Aroni Colman, by requesting bank cheques payable to Babcock & Brown, or for the purpose of "chattel leasing program". Even after the times specified in the memoranda relating to the scheme, these withdrawals continued.

The TED Engineering Australia Employee Bonus Unit Trust

28       In or about June 1996, Mr Green proposed to Tab Fried the establishment of an Employee Bonus Unit Trust Scheme for TED Engineering Australia Limited. The proposal was designed to have taxation advantages.

29       On 26 June 1996, a new company called Windina Pty Ltd was incorporated. The directors were Tab Fried and Eva Fried. In the offices of Aroni Colman, a deed was drawn up between Windina Pty Ltd and TED Engineering Australia Limited. The common seal of each of those companies was affixed to the deed. In each case, Tab Fried signed as a director and Eva Fried as director/secretary. The deed was dated 28 June 1996. It named Windina Pty Ltd as trustee of the TED Engineering Australia Employee Bonus Unit Trust.

30       In evidence were documents purporting to be the minutes of three meetings on 28 June 1996. In fact, no meetings ever took place. The minutes were drawn up, probably in the office of Mr Rado. They were signed by Tab Fried, so as to give the appearance that meetings had taken place. The first minute recorded a meeting of the directors of Windina Pty Ltd at 2.30 pm, at which Tab Fried was present as chairperson and Eva Fried was also present. According to the minute, Tab Fried tabled the Employee Benefit Unit Trust Deed. It was resolved that Windina Pty Ltd accept and undertake the office of trustee of the TED Engineering Australia Employee Bonus Unit Trust and that it execute the deed by affixing the company seal in the presence of any director. The next minute recorded a meeting of the directors of TED Engineering Australia Limited at 3.00 pm. Tab Fried was present as chairperson. Benni Aroni and Eva Fried were also present. Again, the minute records that Tab Fried tabled the Employee Benefit Unit Trust Deed and that it was resolved that the company execute the deed by affixing the company seal in the presence of any director. The minute also recorded that Tab Fried tabled the names of employees who had contributed to the profitability and growth and development of the company over and above other employees and/or directors of the company. The names were Tab Fried, Eva Fried and David Anthony Fried. The minutes record a resolution that the company, in recognition of those employees' contribution to the company, reward those employees by nominating them to acquire units in the TED Engineering Australia Employee Bonus Unit Trust. The third minute purported to record a meeting taking place on the same day at 3.30 pm. It was said to have been a meeting of the directors of Windina Pty Ltd. According to the minute, the meeting resolved to issue to TED Engineering Australia Limited one manager unit of $1. It also resolved that Windina Pty Ltd advance loans to Tab Fried, Eva Fried and David Fried to enable them to acquire employee units and issue the employee units set out opposite the employee's name. Tab Fried was allocated 480,000 units, Eva Fried 50,000 and David Fried 75,000. Each unit was valued at $1. Other resolutions recorded in the purported minutes included a resolution that Windina Pty Ltd open a bank account.

31       Again, the scheme was merely a vehicle to enable Mr Green to misappropriate money from TED Engineering Australia Limited. A withdrawal by means of a bank cheque payable to Windina Pty Ltd was unlikely to arouse suspicion.

The Impugned Transactions

32       Against this background, it is appropriate to examine the details of the seven transactions in the course of which the applicants allege that Bendigo Bank wrongfully debited bank accounts. For convenience, each transaction has been designated by a letter and a number, the particular designations having been chosen for the purposes of the pleadings in this proceeding. The designations are therefore not random, although they may appear so in the context of these reasons for judgment.

33       Although I set out in detail the course of each of the seven transactions that remain in issue, it must be remembered that these were seven among a number of transactions instigated by Mr Green as part of his systematic theft of funds from the Fried family and their companies.

34       It should be noted that, prior to the finalisation of the sale of TED Engineering Australia Limited to Hawker Richardson Limited on 22 November 1996, the B101 account was maintained by Aroni Colman for funds of TED Engineering Australia Limited. The account was entitled "Aroni Colman in trust for TED Engineering Australia Ltd". The B101 account was described as an "11 am at call account", meaning that a withdrawal from it could be effected on the same day if application for the withdrawal was made prior to 11.00 am. The account was administered through Bendigo Bank's branch at 406 Collins Street, Melbourne. This was where any record of the persons authorised to operate the account was kept. The nature of the record, and its significance, are explained later in these reasons for judgment. The usual method of making a withdrawal was by using Bendigo Bank's withdrawal form, which had provision for a signature, or signatures, required to operate the account. If a withdrawal was sought by means other than this form, for instance by a letter, the practice was for the bank officer handling the transaction to fill out a withdrawal form and to attach the application for withdrawal to that form. On the back of a withdrawal slip is a heading "signature verified by", followed by five boxes, designated respectively as "Black Light", "Plastic Card", "Drivers Licence", "Signature Card" and "Known".

Transaction A4

35       Ostensibly for the purposes of the gas meter leasing scheme, in late June 1996, Mr Green sent a written instruction to Lisa Andrews, the accounts manager of Aroni Colman, in the following terms:

"please draw $275,000 from TED Engineering Australia Limited investments either Bendigo or St George and make bank cheque payable to Babcock & Brown Pty Ltd".

36       Pursuant to this instruction, Ms Andrews, or someone in the accounts department of Aroni Colman, prepared a withdrawal slip dated 26 June 1996, seeking the withdrawal of $275,000 from the B101 account. The withdrawal slip was signed by Mr Green. On the back, it was endorsed with an instruction to the effect that the withdrawal was to be by cheque payable to Babcock & Brown Pty Ltd.

37       The withdrawal slip was presented at the Bendigo Bank at its branch at 406 Collins Street, Melbourne. There is no evidence as to who presented the withdrawal slip at 406 Collins Street. The transaction was processed on behalf of Bendigo Bank by John Lowther, who was employed as a customer service officer at the branch at that time. His evidence was that he had no recollection of the transaction, but was able to say that he had ticked the "Known" box on the back of the withdrawal slip, entered on the back of the withdrawal slip the number of the bank cheque drawn in response to the request, stamped the face of the withdrawal slip with the bank's date stamp and signed the bank cheque. Mr Lowther's evidence was that he did not know either Mr Green or Aroni Colman. He had recently arrived in Melbourne from Bendigo and was not familiar with the customers of the branch at which he was then working. All he can say is that, in accordance with his usual practice, he would have made an inquiry of another customer service officer, the agency officer who had conduct of the customer's file, or the supervisor, before ticking the "Known" box. He does not now recall to whom he made the inquiry, but would not have ticked the "Known" box without checking with someone else. The agency officer responsible at the time was Sandra Barac, who gave evidence before me, but not about this transaction. The supervisor was Paul McMahon, who was not called to give evidence.

38       The bank cheque, number 439790, was countersigned by another officer of Bendigo Bank. It was received by the accounts department at Aroni Colman, where a photocopy of it was made and endorsed "as per MG/client instructions". It was also endorsed with a receipt number. The bank cheque was never transmitted to Babcock & Brown Pty Ltd in Sydney. Nor was it ever used to place funds in an escrow account in Sydney, as contemplated by the executive summary of the gas meter leasing scheme. Instead, Mr Green paid it into the account styled Max Green and Associates Trust Account at the Carlton branch of the NAB. At the time of payment in, that account was in credit to the extent of $138.24. On the same day as the payment in, Mr Green drew a cheque on the account, payable to Sphere Business Systems Pty Ltd in the sum of $125,005. Two days later, on 28 June 1996, he drew a further cheque payable to Drewvale Investments Pty Ltd in the sum of $110,000. On 4 July 1996, he drew a further cheque payable to Drewvale Investments Pty Ltd in the sum of $15,000. In this way, most of the proceeds of the Bendigo Bank bank cheque for $275,000 were passed through Mr Green's account with the NAB. Drewvale Investments Pty Ltd was a company associated with Mr Bill Lewski, who had business dealings with Mr Green.

39       It was the practice of Aroni Colman to produce at the end of each quarter a statement of the investments of the Fried family and their companies. At the request of Tab Fried, the statement was produced in a relatively simple form, so that Mr Fried, who was in charge of the investments, could understand it. The statement was produced by Lisa Andrews, or someone under her direction. It was usually produced by taking the statement for the previous quarter and updating it. Where transactions had been undertaken on the instructions of a partner, the draft statement was sent to that partner for updating of the relevant items. Thus, Mr Green had input into the quarterly statements when he initiated transactions relating to the Fried interests.

40       The statement produced in respect of the quarter ended 30 June 1996 showed two withdrawals from the B101 account in favour of Babcock & Brown Pty Ltd. One was the withdrawal of 3 April 1996, transaction A3. The other was the withdrawal of 26 June 1996, transaction A4. Together, those withdrawals totalled the $775,000 contemplated by the amended executive summary of the gas meter leasing scheme. Although that summary had contemplated that the money would be held in an escrow account until a satisfactory private ruling of the Commissioner of Taxation was received, the quarterly statement in respect of the quarter ended 30 June 1996 did not show any investment in such an escrow account. It may have been this lack of any reference to the fate of the total sum of $775,000 that led to an inquiry on behalf of TED Engineering Australia Limited. By a facsimile message dated 19 September 1996, Ross Shilston, the internal accountant for TED Engineering Australia Limited inquired of Aroni Colman:

"Would you please arrange for confirmation that TED Engineering Australia Limited has equity of $775,000.00 in Babcock & Brown Pty Ltd to be forwarded to our auditors."

41       This facsimile message was marked for the attention of Benni Aroni. It is reasonable to assume that Mr Aroni passed the inquiry to Mr Green, who responded to Mr Aroni in a memorandum dated 27 September 1996 in the following terms:

"Attached is a copy of the Executive Summary which I prepared for Tab and Peter Rado following our meeting last Sunday.

It is correct that in the year ended 30/6/96 T.E.D. Engineering Australia Ltd. had provided $775,000 towards the acquisition by TED Investments Pty. Ltd. of the gas meters.

However, you will see from the Executive Summary that T.E.D Investments Pty. Ltd. is a subsidiary of Invotin Pty. Ltd. and not T.E.D. Engineering Australia Ltd.

Accordingly, T.E.D. Engineering Australia Ltd. does not and was never intended to have any `equity' in Babcock & Brown Pty. Ltd.

The accounts of T.E.D. Engineering Australia Ltd. should reflect as at 30/6/96 a loan of $775,000 to T.E.D. Investments Pty. Ltd.

The terms of such loan being that interest is to be capitalised at 8% per annum and the loan is to be repayable on 19 September, 1998 together with the capitalised interest.

Peter Rado should amend the accounts to accurately reflect this loan account.

By arrangement with Peter Rado I have prepared additional Directors Resolutions which reflect the loan referred to above. The drafts are with me for settling and will be faxed to Elise by next Monday morning, Melbourne time, so any amendments can be made and sent to Peter Rado for delivery to the auditors, once signed by Tab.

If you have any queries, please call or fax me."

42       No further inquiry appears to have been made by TED Engineering Australia Limited as to the use made of the funds referred to.

Transaction A5

43       This transaction again involved a withdrawal from the B101 account. Any written instruction to the Aroni Colman accounts department in respect of the withdrawal is not in evidence. A withdrawal slip dated 8 July 1996 was prepared in the accounts department. It was signed by Max Green. The sum specified was $875,000. There is no evidence as to who was involved in the presentation of the withdrawal slip to Bendigo Bank at its branch at 406 Collins Street. For Bendigo Bank, the transaction was handled by Margaret Helen Annand, who was then a customer service officer at that branch. Ms Annand ticked the "Known" box on the back of the withdrawal slip. Beneath the tick she wrote the name "Sandra Barac". Ms Barac was at that time an agency/client relations officer employed by Bendigo Bank at that branch. She had specific responsibility for Aroni Colman as a customer, and for the accounts kept by Aroni Colman.

44       Ms Annand does not now have any recollection of the circumstances in which she ticked the "Known" box and wrote Ms Barac's name beneath the tick. Her best recollection is that an employee of Aroni Colman requested the transaction. Ms Barac does not now have any recollection of how her name came to be endorsed on the withdrawal slip. Her usual practice was to sign the reverse of the withdrawal slip near the "Known" box with her initials and staff number, if she was asked to verify a signatory or to authorise a transaction. Her initials and staff number do not appear on the document.

45       On the reverse side of the withdrawal slip was an instruction that the withdrawal be by cheque payable to Babcock & Brown. Ms Annand prepared the bank cheque and signed it. It was countersigned by Ms Barac. Ms Annand entered the number on the back of the withdrawal slip.

46       A photocopy of the bank cheque, number 446735, was kept in the records of the accounts department at Aroni Colman. The cheque itself was collected by the NAB and its proceeds were paid into the Max Green and Associates Trust Account at the Carlton branch of the NAB on 8 July 1996. Prior to that, the account was in credit to the extent of $25,133.24.

47       In the quarterly statement of investments sent by Aroni Colman to Tab Fried, the amount of $875,000 was shown as having been withdrawn from the B101 account and paid to TED Investments Pty Ltd, for the purposes of the gas meter leasing program. TED Investments Pty Ltd was a company apparently formed to be the vehicle for investment in the gas meter leasing scheme. After the settlement of the sale of the shares in TED Engineering Australia Limited to Hawker Richardson Limited, TED Investments Pty Ltd changed its name to Evatab Leasing Pty Ltd. As I have said, it is the eighth applicant. The accounts did not show that amount, nor the earlier payments totalling $775,000, as an investment by TED Investments Pty Ltd.

48       Over a period of eight days, the bulk of the funds in the Max Green and Associates Trust Account were paid out by various cheques drawn on the account. On 8 July 1996 there was a cheque drawn on the NAB with the instruction "pay Aroni Colman by bank cheque", in the sum of $250,005. This resulted in a NAB bank cheque dated 8 July 1996, in the sum of $250,000 (the additional $5 being used to pay the fee for the bank cheque). That bank cheque was deposited into the Aroni Colman trust account at the NAB branch at 271 Collins Street, Melbourne, on the same day, along with other amounts. Again on the same day, a cheque was drawn on the Aroni Colman trust account, signed by Adrian Colman and by Darren Lea, the office manager at Aroni Colman in the sum of $250,000. The payment instructions were "NAB T/T T. Doyle - Bankok (sic) Public Co. Ltd". $250,000 was therefore despatched by the NAB by telegraphic transfer to the Bangkok Bank Public Co Ltd, for the credit of a specific account in the name of T J Doyle.

49       Mr Green drew other cheques against the amount standing in the Max Green and Associates Trust Account on 8 July 1996. One was to "H and S Hornstein by bank cheque" in the sum of $200,874.32. Another was to Drewvale Investments Pty Ltd in the sum of $210,000. On 12 July 1996, Mr Green drew a cheque on the account in favour of Geddeson Finance Pty Ltd, in the sum of $15,000. Geddeson Finance Pty Ltd was a company associated with Mr Green. On 15 July 1996, Mr Green drew another cheque payable to Aroni Colman by bank cheque in the sum of $12,500. On 16 July 1996, he drew another cheque in favour of Aroni Colman in the sum of $15,872. This withdrawal was by way of three bank cheques, each dated 16 July 1996 and each payable to Aroni Colman. The amounts were $5001, $4,426 and $6,440. The balance of the withdrawal was consumed by fees for the bank cheques. These amounts were paid into the Aroni Colman general account, as payments of fees due to the firm. There was also a further cheque drawn by Mr Green on the Max Green and Associates Trust Account, dated 15 July 1996, in favour of Drewvale Investments Pty Ltd, in the sum of $105,000.

50       All of these withdrawals left the Max Green and Associates Trust Account in credit to the extent of $90,881.92, at 16 July 1996. In other words, not all of the proceeds of the cheque for $875,000 had been disbursed by that time.

Transaction B3

51       By an undated memorandum addressed to "Accounts", Mr Green instructed the accounts department at Aroni Colman to transfer $500,000 that day from the B101 account to the Aroni Colman trust account. The memorandum bears a handwritten endorsement "contribution in respect of employees". This is apparently a reference to the TED Engineering Australia Employee Bonus Unit Trust. In accordance with the instruction, a withdrawal form was prepared and dated 19 August 1996. It was signed by Mr Green. On the back was an instruction that the withdrawal was to be by cheque payable to Aroni Colman trust account in the sum of $500,000.

52       Again, there is no evidence as to how the withdrawal form was taken to Bendigo Bank. It was processed on 19 August 1996, at the branch at 406 Collins Street, by John Lowther. He ticked the "Known" box on the back of the form and wrote the number of the bank cheque, which was made payable to "Aroni Colman trust account". Mr Lowther said that, in accordance with his usual practice, he would have relied on the advice of other officers of Bendigo Bank before he ticked the "Known" box. Mr Lowther was also one of the signatories of the bank cheque.

53       The proceeds of the bank cheque were paid into the Aroni Colman trust account at the NAB on 19 August 1996. Two payments out of that trust account can be attributed to those funds. The first was a withdrawal by way of bank cheque payable to Windina Pty Ltd, in the sum of $200,000, on 3 September 1996. The proceeds of that bank cheque were then collected by the NAB and paid into the Max Green and Associates Trust Account on 3 September 1996. The second payment out of the Aroni Colman trust account was by way of a second bank cheque payable to Windina Pty Ltd, in the sum of $300,000, on 9 September 1996. The proceeds of that bank cheque were also collected by the NAB and deposited in the Max Green and Associates Trust Account on the same day.

54       The deposit of $200,000 to the Max Green and Associates Trust Account was converted to US dollars and forwarded by telegraphic transfer to the Bank of New York for the credit of Y and H Awaad, pursuant to a written instruction of Mr Green dated 3 September 1996. The deposit of $300,000 was converted to US dollars and forwarded by telegraphic transfer to the Bangkok Bank for the benefit of David Lee Wolf, pursuant to a written instruction of Mr Green dated 9 September 1996.

55       The statement of investments as at 30 September 1996, sent by Aroni Colman to Tab Fried, showed a withdrawal of $500,000 on 19 August 1996 as being a withdrawal in favour of TED Investments Pty Ltd in respect of the gas meter leasing program. The statement did not mention Windina Pty Ltd.

Transaction B4

56       By an undated memorandum addressed to "Accounts", Mr Green instructed: "Please draw $400,000 from Bendigo Bank payable to Babcock & Brown the notation will be loan to TED Investments Pty Ltd re Gas Meter Leasing program". In accordance with this instruction, a withdrawal form was completed and dated 20 September 1996 (the same date as Mr Green's facsimile to Mr Rado with the false letter purporting to acknowledge receipt of the deposit by the State Bank of New South Wales), in respect of the B101 account. On the back of the form was an instruction that the withdrawal be by cheque payable to Babcock & Brown in the sum of $400,000. Mr Green signed the form. There is no evidence as to how the form came to be conveyed to Bendigo Bank.

57       At the time, Adam Hawking was employed by Bendigo Bank as a relieving customer service officer. He worked at various branches where staff were on annual leave or where there were staff shortages for other reasons. He was therefore not a regular employee at the Bendigo Bank branch at 406 Collins Street. The computer records of Bendigo Bank apparently show that the withdrawal was processed using Mr Hawking's log-on. This does not necessarily mean that he processed the transaction. It may have been that another customer service officer was at his teller position, relieving him during a break. It was not usual for a customer service officer to log off whilst being relieved, so that someone else might have processed the transaction using Mr Hawking's log-on. From looking at the back of the withdrawal form, Mr Hawking was able to say that he wrote the number of the bank cheque, by which the withdrawal was effected, on the back of that form. He was also able to recognise his signature on the bank cheque and the fact that he had written his staff number on the bank cheque. He had no independent recollection of dealing with the transaction. No initial appears on the front of the withdrawal form. It was normal for a customer service officer to stamp the front of the withdrawal form and to add his or her initials, to enable identification of the person processing the transaction. Although no such initial appears, it is likely that Mr Hawking processed the transaction, because of his involvement in the production of the bank cheque and the recording of its number. The "Known" box on the back of the withdrawal form has a tick in it. Because of Mr Hawking's lack of recollection of the transaction, there is no evidence as to what inquiries were made before the box was ticked.

58       The bank cheque in the sum of $400,000, payable to Babcock & Brown and dated 20 September 1996, was collected by the NAB and the proceeds were credited to the Aroni Colman trust account on 20 September 1996. On the same day, a cheque was drawn by Aroni Colman, signed by Mr Green and Mr Charlesworth. The cheque requested a bank cheque payable to Babcock & Brown. This instruction was complied with by the NAB on the same day. The resulting bank cheque was collected by the NAB and the proceeds deposited to the credit of the Max Green and Associates Trust Account.

59       By written instruction, again dated 20 September 1996, Mr Green requested of the NAB the transfer of $US 250,000 from the Max Green and Associates Trust Account to the Bangkok Bank for the benefit of David Lee Wolf. This resulted in a debit of $317,077.70 of the Max Green and Associates Trust Account. On 24 September 1996, Mr Green withdrew a further $60,000 from the Max Green and Associates Trust Account, by way of bank cheque payable to Geddeson Finance Pty Ltd. That withdrawal left the Max Green and Associates Trust Account in credit to the extent of more than $87,000. This was because the account had been in credit in excess of $64,000 prior to the deposit of $400,000. It is therefore difficult to attribute further withdrawals from the account specifically to the $400,000. On 4 October 1996, in accordance with a written instruction of Mr Green sent by facsimile from New York, $30,000 was transferred to a joint account that Mr Green and his wife maintained with the NAB. That amount was then withdrawn by bank cheque payable to American Express and apparently used to pay an outstanding credit card bill. On 1 November 1996, Mr Green withdrew a further sum of $20,000, by bank cheque payable to Aroni Colman. This sum was paid into the general account of Aroni Colman by way of receipt of fees.

60       The quarterly statements of investment as at 30 September 1996, sent by Aroni Colman to Tab Fried showed a withdrawal of the sum of $400,000 on 20 September 1996 in favour of TED Investments Pty Ltd, in respect of the gas meter leasing program.

Transaction A6

61       By another undated memorandum addressed to "Accounts", Mr Green instructed the withdrawal of $750,000 from the B101 account, payable to Windina Pty Ltd. The memorandum also instructed that the transaction be noted as an inter-company loan and stated that the bank cheque was needed at 2.15 pm. In accordance with this instruction, a withdrawal form dated 3 December 1996 was prepared. It was signed by Mr Green. Again, there is no evidence as to how the withdrawal form came to be presented to Bendigo Bank, other than that the presentation took place at the branch at 406 Collins Street. The transaction was processed using Mr Hawking's log-on. According to Mr Hawking's evidence, handwriting appearing on the front and back of the withdrawal slips is not his and the initial which appears on the date stamp on the front of the withdrawal slip is not his. The bank cheque was signed by two other staff members, named King and Dobelle, who were not called to give evidence. Mr Hawking has no recollection of the transaction. It is unlikely that he was involved in it and there is no other evidence as to who processed the withdrawal.

62       The bank cheque for $750,000, payable to Windina Pty Ltd and dated 3 December 1996, was collected by the NAB and the proceeds paid into the Max Green and Associates Trust Account. Prior to that deposit, the account was in credit to the extent of $7,502.47. On the same day, 3 December 1996, Mr Green gave a written instruction to the NAB to transfer $US 400,000 from the Max Green and Associates Trust Account to the Bangkok Bank for the benefit of David Lee Wolf. That transaction was carried out, resulting in a debit of $503,018.11 to the account. On 5 December 1996, Mr Green withdrew $100,000 from the Max Green and Associates Trust Account by means of a cheque payable to Geddeson Finance Pty Ltd. On 9 December 1996, Mr Green withdrew a further $100,000 by bank cheque, payable to the Aroni Colman trust account. The proceeds of that bank cheque were credited to the Aroni Colman trust account on that day. As a result of these withdrawals, the Max Green and Associates Trust Account was in credit to the extent of $54,484.36 before the amount involved in transaction A7 was paid into that account on 11 December 1996.

63       The quarterly statement of investments as at 31 December 1996, sent by Aroni Colman to Tab Fried, showed a withdrawal on 3 December 1996 from the B101 account in the sum of $750,000, in favour of Evatab Leasing Pty Ltd, described as an inter-company loan and a term deposit with the Colonial State Bank of NSW. In this statement, for the first time, there was a reference to funds in the Colonial State Bank of NSW. It appears that Mr Green had realised that the quarterly statements were not giving any indication of the existence of the escrow account contemplated by the terms of the gas meter leasing scheme. The investment was said to be in the name of Evatab Leasing Pty Ltd (the company formerly known as TED Investments Pty Ltd). The statement purported to show that, as at 30 September 1996, $3,150,000 had been held at the Colonial State Bank of NSW. The statement also showed the further deposit of $750,000 on 3 December 1996.

Transaction A7

64       This transaction took place on 11 December 1996. By that time, the name in which the B101 account was held had been changed, in consequence of the completion of the sale of TED Engineering Australia Limited to Hawker Richardson Limited. On 9 December 1996, Bendigo Bank acted on notice given to it by a letter from Aroni Colman and changed the name of the account to "Aroni Colman in trust for Evatab Investments Pty Ltd".

65       It is not clear how this transaction was initiated within Aroni Colman. Mr Green may have given an oral instruction, because a copy of the withdrawal form was retained by the accounts department of Aroni Colman, with a handwritten note reading "Term Deposit with Colonial State Bank NSW - Chattel Leasing program." The withdrawal form, signed by Mr Green, sought the withdrawal of $1,500,000, from the B101 account by bank cheque payable to Evatab Leasing Pty Ltd.

66       There is no evidence as to how the withdrawal form was conveyed to the Bendigo Bank branch at 406 Collins Street. The withdrawal was effected under the log-on of a Bendigo Bank employee called Karen Stanek, who did not give evidence in this proceeding. Mr Hawking was also involved. According to his evidence, he wrote the number of the bank cheque on the back of the withdrawal form. He also said that he wrote the words "Evatab Leasing Pty Ltd", although those words appear on the copy of the withdrawal form retained by the accounts department of Aroni Colman, apparently in place of some other form of instruction for the transaction. Mr Hawking also signed the bank cheque and marked it with his staff number. It is unlikely that Mr Hawking was the primary customer service officer in the processing of the withdrawal. At all events, the withdrawal was processed, in the form of a bank cheque payable to Evatab Leasing Pty Ltd.

67       On the same day, NAB collected the proceeds of the bank cheque and paid the sum of $1,500,000 into the Max Green and Associates Trust Account, putting the account in credit to the extent of $1,554,484.36.

68       On 13 December 1996, Mr Green sent a facsimile message to the NAB at its Carlton branch, requesting the transfer of two amounts of $US 500,000 from the Max Green and Associates Trust Account to the Bangkok Bank and the Thai Farmers Bank respectively, each transfer for the benefit of David Lee Wolf. The bank executed these transfers on the same day. The account was debited by $633,713.56 in respect of each transfer, although the second debit does not show on the statement until 16 December, because it was initially debited to the wrong account in error.

69       Also on 13 December 1996, the NAB debited the Max Green and Associates Trust Account by a further $66,000, which it transferred to its Western Branch in Brisbane, for the benefit of Asian Pacific Homes. A telephone instruction for this transaction was confirmed by facsimile message from Mr Green to the NAB on 16 December 1996. On 19 December 1996, the NAB further debited the Max Green and Associates Trust Account by $86,000, which was transferred to a branch of the Westpac Bank, for the benefit of Geddeson Finance Pty Ltd. An amount of $86,000 was deposited in the Aroni Colman trust account in cash on 18 December 1996 and paid out again on the same day by trust account cheque to Alvamart Pty Ltd, another of Mr Green's companies. The trust account cheque was signed by Mr Green and Mr Lea. The NAB collected the proceeds of this cheque and paid them into the Max Green and Associates Trust Account on 23 December 1996. It is reasonable to infer that Mr Green passed $86,000 of the money withdrawn in transaction A7 through Geddeson Finance Pty Ltd and the Aroni Colman trust account to Alvamart Pty Ltd.

70       On 23 and 24 December 1996, Mr Green drew cheques for $6,000 and $5,000 respectively against the amount standing to the credit of the Max Green and Associates Trust Account. Each cheque was payable to "National Australia Bank" and was used to purchase a bank cheque payable to "Aroni Colman". Each bank cheque was paid into the Aroni Colman general account and received by way of fees.

71       The quarterly statement of investments as at 31 December 1996, sent by Aroni Colman to Tab Fried, showed a withdrawal from the B101 account in the sum of $1,500,000 in favour of Evatab Leasing Pty Ltd. This was described as an inter-company loan - term deposit with Colonial State Bank of NSW. The statement also showed the same sum being deposited to the credit of Evatab Leasing Pty Ltd with the Colonial State Bank of NSW, bringing the total said to have been invested for Evatab Leasing Pty Ltd in the Colonial State Bank of NSW to $5,400,000.

Transaction B5

72       This transaction occurred on 9 April 1997. It differed from the other six relevant transactions in two significant respects. First, it did not relate to the B101 account, but to account number 4225868/2501, held in the name of Aroni Colman in trust for Evatab Investments Pty Ltd. Unlike the B101 account, this account was a term deposit account. Second, it involved not merely a withdrawal of part of the funds in the account, but the closure of the account.

73       By letter dated 9 April 1997, Aroni Colman wrote to Bendigo Bank at 406 Collins Street, Melbourne, referring to the account. The letter stated:

"Could you please arrange for the above account to be closed. Please make the cheque payable to Aroni Colman Trust Account.

If you need any further information, please do not hesitate to contact Lisa Andrews of our office."

The letter was signed by Mr Green.

74       Mr Green attended personally at the Bendigo Bank branch at 406 Collins Street. The transaction was dealt with by Sandra Barac. It took some time, because fifteen or twenty minutes were spent trying to get authority from a senior officer of Bendigo Bank in Bendigo for the early closure of a three month term deposit account. There was a penalty attached to such early closure. Ms Barac asked Mr Green whether he was aware that early withdrawal would incur a penalty. Mr Green indicated that he did not mind. He did not appear to mind that he was kept waiting.

75       A withdrawal form, dated 9 April 1997, was prepared. It was signed by Mr Green. Because the transaction was initiated by letter, it is probable that this form was prepared at the Bendigo Bank branch, although it may have occurred in the office of Aroni Colman. The amount of the withdrawal was inserted at the bank, because it was necessary to make a calculation of the credit balance in the account and to deduct the amount of the penalty. The withdrawal was in the sum of $2,390,964.91. Sandra Barac ticked the "Known" box. Ms Barac did this because, by that time, she understood Mr Green to have become an authorised signatory, in circumstances to which I refer later in these reasons for judgment.

76       As instructed, the withdrawal was effected by bank cheque payable to "Aroni Colman Trust A/C". The proceeds of the cheque were deposited in the Aroni Colman trust account on the same day.

77       The bulk of the deposit, namely $2,350,000, was disbursed immediately by trust account cheque dated 9 April 1997 drawn in favour of Australian Property Syndications Pty Ltd. The cheque was signed by Mr Green and Mr Lea. The cheque was accompanied by a bank cheque application, which resulted in the NAB drawing a bank cheque payable to Australian Property Syndications Pty Ltd, dated 9 April 1997, in the sum of $2,350,000. This bank cheque was then collected by NAB and the proceeds paid into the Max Green and Associates Trust Account on the same day.

78       From the Max Green and Associates Trust Account, $1,825,195.80 was paid out by means of a cheque, dated 9 April 1997, signed by Mr Green in favour of DL Wolf. This cheque was used to fund the telegraphic transfer of $US 1,420,000 to the Bangkok Bank for the benefit of David Lee Wolf.

79       Subsequently, on 17 April 1997, Mr Green drew a cheque on the Max Green and Associates Trust Account, in favour of Geddeson Finance Pty Ltd, in the sum of $420,000. On 22 April 1997, a further sum of $103,015 was withdrawn from the Max Green and Associates Trust Account on the signature of Mr Green. This amount was disbursed by three separate bank cheques for $90,000, $6,000 and $7,000, each payable to Aroni Colman. The balance of the withdrawal, $15, was used to pay the bank charges for those bank cheques. The cheque for $90,000 was deposited in the Aroni Colman trust account. The other two were deposited in the Aroni Colman general account, purportedly as the payment of fees.

80       Of the original sum withdrawn in this transaction, $40,964.91 was transferred immediately to another Bendigo Bank account in the name of Aroni Colman in trust for Evatab Investments Pty Ltd. Only the sum of $2,350,000 is claimed by the applicants in respect of this transaction, for that reason.

81       The quarterly statement of investments sent by Aroni Colman to Tab Fried in respect of the quarter ended 30 June 1997 showed that $2,390,964.91 had been withdrawn from a Bendigo Bank interest bearing term deposit account held in favour of Evatab Investments Pty Ltd on 9 April 1997, and that the account had a nil balance at 30 June 1997. The transaction was described as a loan to Evatab Leasing Pty Ltd. The statement also showed the deposit of $40,964.91, described as "Balance of Term Deposit for re-investment (3 month)". The statement showed the funds said to be deposited in the Colonial State Bank of NSW as having been augmented by a loan from Evatab Investments Pty Ltd "for interest payment" in the sum of $2,350,000.

The obligations of Bendigo Bank

The relationship of banker and customer

82       Most discussions of the relations between a banker and a customer begin with the proposition that the relationship is one of debtor and creditor. This is usually followed by the citation of a list of cases, often headed by N Joachimson v Swiss Bank Corporation [1921] 3 KB 110. In truth, as an examination of the authorities shows, this statement is not particularly helpful. The relationship between banker and customer depends primarily upon the terms of the agreement made between them. Depending upon the content of those terms, they may be supplemented to a greater or lesser degree by terms implied by law, as a matter of policy, into banker-customer contracts as a class of contracts. Once these obligations implied by law are examined, it becomes apparent that the relationship will usually differ from the ordinary relationship of debtor and creditor in a number of respects. For instance, as N Joachimson established, the usual obligation of a debtor to seek out the creditor and pay the debt is absent. Neither the banker nor the customer would ordinarily require money deposited in an account to the credit of the customer to be repaid immediately by the banker. Instead, a demand for repayment is necessary before such repayment must be made.

83       When a banker maintains an account in credit for a customer, the banker has an obligation not to debit that account without the customer's authority. If it does so, it will be regarded as having paid away its own money and will be obliged to reinstate the credit balance in the customer's account to what it would have been, but for the unauthorised debit. See National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 at 396 - 397 per Clarke JA. For this reason, bankers are usually keen to ensure that they have a written contract with each customer, specifying the circumstances in which they are entitled to debit that customer's account.

84       In one respect, the characterisation of the relationship of banker and customer as one of debtor and creditor may be useful. It makes it plain, as did Aitken LJ in N Joachimson at 127, that a banker is not ordinarily a trustee of money received from, or on behalf of, its customer. Of course, it is open to a bank to become an express trustee of money or other property or, by its wrongful act, to become a constructive trustee. The essential point, however, is that, despite the usual existence of an obligation to maintain a credit balance in a customer's account, unless the customer otherwise directs, the banker will not ordinarily be a trustee of any specific money for the customer. It will simply owe the customer that amount of money.

85       It is usual for a bank to enter into a written contract with a customer. As a matter of practice, that contract will often refer to standard terms and conditions attaching to the keeping of an account. The bank may reserve to itself the right to alter the standard terms and conditions as it sees fit. The contract may make provision for the manner in which those alterations are to be communicated to the customer. These methods are not exhaustive of those by which variations to a contract between a banker and a customer may be brought about. Even without an express provision as to the making and notification of variations, the contract may be varied by some form of notice by one party of an alteration to the terms, coupled with the continued operation and maintenance of the account by the other party.

86       The written contract between a banker and a customer will usually provide for the manner in which the customer is to operate upon a particular account. That is to say, the document will identify the person or persons upon whose signature or signatures the bank is entitled to debit the account and whatever number or combination of signatures the customer requires before the account is to be debited. It will usually contain a specimen signature of each person whose signature is or may be required, with which bank officers may compare the signature or signatures on any document presented to them containing an instruction as to the debiting of the account. Persons who have been specified as signatories, and whose specimen signatures have been provided, are generally known as authorised signatories. A document directing the bank to debit the relevant account in a particular sum, signed by the requisite number of specified persons, is often described as a mandate to the bank. A written contract of the kind I have described can be used to relate to more than one account maintained by the bank for a customer.

87       The purpose of a written contract is to protect the bank. Provided that the mandate accords with the terms of the written contract, the bank is obliged to debit the customer's relevant account in accordance with the mandate and is enabled so to debit the account without risk to the bank. By carrying out the customer's written mandate, the bank discharges its obligation to the customer and is protected from any accusation that it has wrongfully debited the customer's account, paid away its own money, and is obliged to reinstate the credit balance in the customer's account.

88       The existence of a written contract containing authorised signatories also protects the customer. If a bank debits a customer's account without having received a mandate in accordance with the contract between the banker and the customer, the bank takes the risk that it will have debited the customer's account wrongly, have paid away its own money, and be obliged to reinstate the customer's credit balance. The failure to comply with the terms of a written contract is not, however, necessarily fatal to the bank. As Clarke JA said in National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 at 396:

"It has been established for a very long time that, in the absence of a written cheque or order, or some obligation or entitlement arising out of an express or implied contract with a customer or recognised or laid down by the law, a banker is only entitled to make debits to its customer's account in accordance with the customer's authority: Price v Neal (1762) 3 Burr 1355; 97 ER 871; Kepitigalla Rubber Estates Ltd v National Bank of India Ltd [1909] 2 KB 1010; London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777; Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304 at 310."

89       With the actual authority of the customer, the bank is entitled to do with the amount standing to the customer's credit whatever the customer demands. To act outside the written contract, however, the bank needs to satisfy itself that it has the authority of the customer to debit the account. It acts at its own risk of the absence of authority when it acts outside the terms of the written contract. Thus, the presence of a written contract does not provide the exclusive means by which the bank may debit a customer's account. There are many circumstances in which customers wish to have their bank accounts debited but are not in a position to give instructions in accordance with a written contract. The authorised signatories may be dead or otherwise unavailable, or it might be impossible to transmit a document to the bank. Various examples of circumstances in which a bank would accept its customer's instructions in ways not contemplated by the written contract between them were canvassed in this proceeding in cross-examination of John Thomas Crough. He is a retired bank officer of long experience and, ultimately, high rank, who was called to give expert evidence as to banking practice on behalf of the applicants. He conceded that, as a banker, he would have accepted instructions from the bank's customer and debited the customer's account, even though the instructions did not conform to the written contract between the banker and the customer. In each case, however, he insisted that, as a matter of caution, he would have requested that the non-conforming instruction be followed by a written instruction, signed by an authorised signatory, as soon as practicable after the transaction had been carried out. In this way, Mr Crough recognised the risk undertaken by a bank in receiving and acting upon the instruction of the client in a form and by a means not contemplated by the written contract.

90       There may be circumstances in which a customer acts so as to clothe a person with ostensible authority to give instructions to the bank for the debiting of the customer's account. If that should occur, and the bank should accept that the ostensible agent of the customer has the customer's authority and is conveying it to the bank, in the absence of actual knowledge to the contrary the bank will be absolved from what would otherwise have been a wrongful debiting of the customer's account. This principle is simply a particular application of the general rule with respect to the provision of ostensible authority where no actual authority exists.

91       One further aspect of the law relating to banker and customer needs to be noted. In general, the bank is not bound to see to the proper application of the customer's money. If it acts in accordance with the customer's written mandate, or with the customer's authority, so that it debits the account in accordance with the customer's instructions, it is not bound, and indeed is not generally able, to refuse to carry out the transaction on the ground that the money is to be applied for some improper, or unwise, purpose. Subject to a limited range of exceptions, the bank has no business to inquire why the customer is debiting the account or how it proposes to use the money. Thus, although an account may be styled as being in the name of the customer but in trust for some other person, the bank is not obliged to see to the proper application of funds withdrawn, as if it were itself a trustee of those funds. The bank's customer in such circumstances is the trustee of the account. The beneficiary of the trust on which the account is held is not the customer. The principle that a bank is not responsible for the proper application of the monies held in a bank account of which its customer is a trustee was reflected in s 43(1) of the Legal Profession Practice Act 1958 (Vic) and is now found in s 175(1) of the Legal Practice Act 1996 (Vic), but was not created by those Acts.

171       The reason for the letters of demand and letters acknowledging receipt of payment remains a mystery, despite the best efforts of counsel for the applicants and counsel for Bendigo Bank to explain, or perhaps to gloss, their effect. At best, I can only surmise that Mr Meltzer was acting under a misapprehension as to the effect of the sale agreement. It is plain from the terms of cl 8 of that agreement that the loans by TED Engineering Australia Limited to Compack Packaging Employee Share Plan Pty Ltd, Invotin Pty Ltd and TED Investments Pty Ltd were intended to be assigned to TED Engineering Investments Pty Ltd by means of the deed of assignment of the unrelated assets, executed on 22 November 1996. Those loans were therefore not the subject of cl 9 of the Sale Agreement and were therefore not required to be repaid in accordance with cl 9. Clause 9 specifically excluded loans considered in calculating the unrelated assets.

172       Counsel for Bendigo Bank sought to rely on the demand for repayment to TED Investments Pty Ltd, and the acknowledgment of receipt of payment from TED Investments Pty Ltd by way of defence. The amount of $2,550,000 was the amount standing in the books of TED Engineering Australia Limited as having been lent to TED Investments Pty Ltd. The amount was the total of four withdrawals from the B101 account in respect of the gas meter leasing scheme. They included transactions A4, B3 and B4. The argument was that, as the loan amount had been acknowledged as having been repaid on 22 November 1996, TED Engineering Australia Limited had nothing to assign to TED Engineering Investments Pty Ltd, as the loan had been extinguished.

173       This argument would give to the letters signed by Mr Salthouse on 22 November 1996 a significance that they do not merit. As I have said, those letters were apparently prepared and signed in the mistaken belief that they were required for the operation of cl 9, when the loans to which they related were expressly excluded from that operation. The unchallenged evidence of Tab Fried is that no money changed hands in respect of the loans repayment of which was requested and receipt of payment of which was acknowledged. The letters simply did not accord with reality. The reality was that, on 22 November 1996, the deed of assignment of unrelated assets was executed by TED Engineering Australia Limited and TED Engineering Investments Pty Ltd. The price for the unrelated assets was paid by means of a transaction involving a bank cheque handed over by Hawker Richardson Limited to TED Engineering Investments Pty Ltd and immediately endorsed by the latter and delivered to TED Engineering Australia Limited. The price of the unrelated assets was calculated on the basis that the loan standing in the books of TED Engineering Australia Limited in favour of TED Engineering Investments Pty Ltd was included. The effect of this transaction was that the assignment of those assets listed in the deed of assignment of unrelated assets was effected. Having acted in this way in accordance with the agreement between them, the parties to the transaction cannot be taken to have destroyed the effect of their agreements and their actions by the mistaken signing of the letters of request for repayment and receipt of payment, unaccompanied by any actual payment. Any loan from TED Engineering Australia Limited to TED Investments Pty Ltd was not extinguished. It was acquired by TED Engineering Investments Pty Ltd. Similarly, the letters concerning the sum of $8,754,168.79 held in bank accounts appear to have been written and signed on the assumption that the entitlement of TED Engineering Australia Limited to these sums was not part of the unrelated assets as defined.

174       Counsel for Bendigo Bank contended that this assumption was correct and that the deed of assignment of the unrelated assets was ineffective to pass to TED Engineering Investments Pty Ltd any right which TED Engineering Australia Limited might have had in respect of the B101 account. The basis of this argument was the assertion that a claim for wrongful debit of a bank account was not covered by the terms in which the unrelated assets were defined in the deed. As a consequence, it was said, any claim to reinstatement of any amount in the B101 account was a right belonging to TED Engineering Australia Limited and not to any of the applicants. Although TED Engineering Australia Limited was joined by the applicants as a respondent to the proceeding, for the purpose of ensuring that it would be bound by a judgment in the proceeding, it has not participated in the proceeding, and has not made any claim with respect to reinstatement of any amount debited to the B101 account.

175       It is clear that the items numbered 7 and 8 in the list of assets and contracts which defined the unrelated assets, coupled with cl 6 of the deed by which the assets and contracts were assigned, was effective to pass to TED Engineering Investments Pty Ltd the entitlement to amounts which ought to have been standing to the credit of Aroni Colman in the B101 account. Those items are "Deposits with Savings Banks" and "Cash at Bank". If, on 22 November 1996, TED Engineering Australia Limited had an entitlement to have a particular amount standing to the credit of Aroni Colman in the B101 account, even though the statements of account as between Bendigo Bank and Aroni Colman did not show that amount, such an amount was aptly described as a deposit with a savings bank, or as cash at bank.

176       The submissions on behalf of Bendigo Bank tended to rely on the fact that the price paid for the unrelated assets was calculated by reference to the amounts shown as standing to the credit of Aroni Colman in trust for TED Engineering Australia Limited at the date of the assignment. Whilst the calculation of the price in this way was no doubt an attempt to arrive at an accurate valuation of the assets assigned, it could not preclude the deed of assignment of the unrelated assets from having effect according to its terms. As at 22 November 1996, Bendigo Bank was obliged to Aroni Colman to reinstate in the B101 account the amounts withdrawn in transactions A4, A5, B3 and B4. Had it fulfilled this obligation, the amount standing to the credit of Aroni Colman in the B101 account on 22 November 1996 would have been increased by the total of the withdrawals involved in those transactions. The amount of the debt by Bendigo Bank to Aroni Colman was appropriately described as a deposit with a savings bank, or as cash at bank. The fact that a total price was paid for the unrelated assets, which may have been less than their true value, does not mean that there was anything other than good consideration for the assignment. In any event, there is a question as to whether valuable consideration for the assignment was required when the assignment was by way of deed under seal. The deed of assignment of unrelated assets contained the words "EXECUTED AS A DEED" immediately prior to the clauses recording the affixing of the common seal of each of the parties to the deed. Those words were intended to, and had the effect of, making the deed operative as a deed under seal. The assignment was therefore effective even if the consideration paid was less than the total value of the assets.

177       Counsel for the applicants also argued that the right to reinstatement of amounts wrongfully debited to the B101 account was assigned by item 9 in the list of assets and contracts in the deed of assignment of unrelated assets. That item was, "Any other assets in the books of the Assignor as may have arisen after 30 June 1996 which are not employed in or in relation to the business of the Company". The use of the word "other" indicates that this item was only intended to be relied upon to cover assets not otherwise in the list. If I am right with respect to items 7 and 8, consideration of item 9 cannot arise. Item 9 is also restricted in that it contemplates assets in the books of the assignor that may have arisen after 30 June 1996. Arguably, this would exclude the wrongful debit resulting from the withdrawal in transaction A4, which occurred four days prior to 30 June 1996. It would be relevant only to the withdrawals involved in transactions A5, B3 and B4, which occurred between 30 June 1996 and the date of the deed. In view of my conclusions as to items 7 and 8, it is unnecessary for me to consider this question.

178       Notice of the assignment was given to Bendigo Bank by letter from Aroni Colman, received by Bendigo Bank no later than 9 December 1996. On that date, Bendigo Bank altered its records to show that the B101 account, and other accounts formerly described as held by Aroni Colman in trust for TED Engineering Australia Limited were thenceforth to be entitled "Aroni Colman in trust for Evatab Investments Pty Ltd". Evatab Investments Pty Ltd is the name by which TED Engineering Investments Pty Ltd has been known after 22 November 1996. The receipt of notice perfected the assignment. From 9 December 1996, Evatab Investments Pty Ltd became entitled to sue for the prior wrongful debits of the B101 account. It held the equitable interest in the debts owed by Bendigo Bank to Aroni Colman in respect of the amounts wrongfully debited.

179       Of course, the amounts withdrawn in transactions A6 and A7 were not covered by the assignment at all. They occurred after the entitlement to the deposits with savings banks and the cash at bank had been assigned by TED Engineering Australia Limited to TED Engineering Investments Pty Ltd (which then became Evatab Investments Pty Ltd). Transaction A6 took place on 3 December 1996, prior to the receipt of notice of the assignment, but the receipt of that notice perfected Evatab Investments Pty Ltd's entitlement to the amount wrongfully debited. Transaction A7 occurred after the receipt of notice, at which time Evatab Investments Pty Ltd was unarguably entitled to the balance standing to the credit of Aroni Colman in the B101 account.

Claim by the beneficiary of a trust

180       Counsel for Bendigo Bank also contended that it was not open to Evatab Investments Pty Ltd to sue to recover the amount of any wrongful debit, because Evatab Investments Pty Ltd is the beneficiary of a trust. Accordingly, it has only ever had an equitable interest in the trust property, the debt due by Bendigo Bank to Aroni Colman. The partners of Aroni Colman, as the trustees, were the proper parties to sue.

181       The deed of settlement between the applicants and the surviving former equity partners of Aroni Colman contained a recital to the effect that the partners were unwilling and unable to sue to recover any trust property on behalf of the applicants. This case therefore raises the question whether, and in what circumstances, the beneficiary of a trust is entitled to sue to assert the trustee's legal entitlement to property in which the beneficiary holds only the equitable interest.

182       In Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79, Lord Wright, delivering the judgment of the Privy Council, said:

"a party to a contract can constitute himself a trustee for a third party of a right under the contract and thus confer such rights enforceable in equity on the third party. The trustee then can take steps to enforce performance to the beneficiary by the other contracting party as in the case of other equitable rights. The action should be in the name of the trustee; if, however, he refuses to sue, the beneficiary can sue, joining the trustee as a defendant."

183       In Scott on Trusts, 4th ed. 1989, Vol IV at p. 31, appears the following passage:

"if the trustee holds in trust a contract right against a third person and the trustee improperly refuses to bring an action to enforce the contract, the beneficiaries can maintain a suit in equity against the trustee joining the obligor as a co-defendant."

As well as citing United States authority for this proposition, the learned editor of Scott on Trusts cites Gandy v Gandy (1885) 30 ChD 57. That case concerned a deed of separation of a married couple. The deed was made between the husband and trustees for the wife, because the law then prohibited a wife from suing her husband. When the trustees refused to enforce the covenants in the deed against the husband, the wife was permitted to join the trustees as party to the proceeding and thus to enforce the covenants in the deed.

184       In Re Atkinson [1971] VR 612 at 616 - 618, Gillard J refused to direct a trustee company, acting as executor of a will and trustee of the estate of the testator, to take a proceeding to recover an equitable interest in property alleged by a beneficiary to be part of the estate. His Honour permitted the beneficiary to sue directly to recover the alleged trust property.

185       It will be noted that, in the authorities to which I have referred on this question thus far, no mention has been made of either the inability of the trustee to sue, or of the need for any special circumstances to arise before the beneficiary can sue in his or her own right, provided that the trustee is joined to the proceeding. The rationale for a rule of this kind appears to be a simple one. It is of no importance at all to the person who is sued whether the party suing is the party to whom the legal obligation is owed, or the party for whom that party holds the legal obligation in trust. What is of concern to the person sued is that he or she not be vexed by more than one proceeding making the same claim. So long as all of the beneficiaries and the unwilling trustee are joined as parties to the proceeding, this concern will be eliminated. The trustee will be bound by a judgment given in the proceeding and will therefore be unable to have a change of heart and commence a proceeding as trustee. Of course, if there is more than one beneficiary of the trust, all beneficiaries would have to be joined as parties, to preclude the possibility of a multiplicity of proceedings. Where it is not yet possible to ascertain the identity of all members of a class of beneficiaries, it might be necessary to restrict the right of a beneficiary to sue in his or her own right to enforce the trust, because not all possible parties can be joined. In the absence of such a situation, there is no need to restrict the right of the beneficiary to sue, provided all necessary parties are joined.

186       Ramage v Waclaw (1988) 12 NSWLR 84 was a case similar to Atkinson. A beneficiary under a will was held entitled to sue to recover property alleged to be part of the estate of the testator when the executor of the will and trustee of the estate refused to bring the proceeding. At 91, after discussing earlier authorities, Powell J quoted a passage from Jacobs' Law of Trusts in Australia, 4th ed. 1977 at p. 531. Part of the passage quoted was as follows:

"But where a trustee refuses to institute proceedings against a debtor or to recover trust property, the beneficiary may wish to institute proceedings himself, either in his own name or in the name of the trustee. The rule here is that a beneficiary may sue in his own name only where the relief sought is in the equitable jurisdiction of the court and even then only where the circumstances are exceptional. If they are not exceptional or if the proposed action is to be commenced in the common law jurisdiction, the beneficiary's remedy is to sue the trustee for the execution of the trust and then apply for the appointment of a receiver and for leave to sue in the name of the trustee or of the receiver...

Where there are special circumstances and the relief sought is in the equitable jurisdiction of the court a beneficiary may take proceedings in his own name, the trustee and other beneficiaries being added as defendants."

The learned editors of Jacobs' did not refer in the footnotes to this passage to any of the authorities to which I have referred. Powell J in Ramage approved the passage from Jacobs' and went on to consider what might amount to exceptional or special circumstances. In the 6th ed. of Jacobs' Law of Trusts in Australia, at p. 690, Ramage now appears in a footnote as authority for the proposition that the relief sought must be in the equitable jurisdiction and the circumstances must be exceptional before the beneficiary can sue.

187       In Lidden v Composite Buyers Ltd (1996) 67 FCR 560, Finn J dealt with a case in which a trustee of a unit trust had declined to pursue a claim the result of which might have benefited the beneficiaries of the trust. Some of the beneficiaries sought to institute proceedings in their own names, joining the trustee as a respondent. The claims were under statute, at common law and in equity. At 563 - 564, Finn J referred to a passage from Jacobs' Law of Trusts in Australia, 5th ed. 1986, in similar terms to the passage in the fourth edition. His Honour also referred to Ramage. He reached the conclusion that the right of a beneficiary to claim should not be limited to equitable relief. He undertook the task of determining whether exceptional or special circumstances existed. He seems to have taken the view that that requirement was satisfied, even though there was no evidence as to the reason for the unpreparedness of the trustee to commence a proceeding. He held that it was more appropriate that the trustee be joined as an applicant than as a respondent.

188       Finally, in Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432, at 436 - 438, Cohen J referred to Ramage and to the 4th ed. of Jacobs'. His Honour pointed out that not all of the authorities seem to support the view that a beneficiary cannot sue to protect his or her interest at common law. Among the authorities he cited were Vandepitte and Lidden. His Honour concluded, at 437, that:

"the exceptional circumstances which permit a beneficiary to bring proceedings apply to claims in common law as well as those in equity."

The exceptional circumstances found to exist in that case were that the trust had come to an end, so that the trustee was no longer a trustee. His Honour pointed out that this would not prevent the trustee from bringing proceedings but, without funds and the status of trustee, it could not be expected to do so. In that case, his Honour approved the joining of the trustee as a defendant.

189       My survey of the authorities leads me to the view that, at least where the obligation owed to the trustee is a debt, an obligation under a contract, or a covenant in a deed, it is unnecessary for exceptional or special circumstances to exist before a beneficiary of the trust has the right to sue to enforce the obligation. It is sufficient that the trustee be unwilling to bring the proceeding. How the fact of unwillingness is to be established will depend upon the circumstances of the case, but there are cases in which unwillingness on the part of the trustee may be inferred from the fact that a sufficient period has elapsed since the obligation arose and the trustee has not yet sued. There is no requirement that the trustee be proved to be unable to sue. In the present case, the unwillingness of the trustees, the surviving equity partners of Aroni Colman, to sue is established by their execution of the deed which recites that unwillingness. Counsel for Bendigo Bank sought to extract in cross-examination of the two former partners who gave evidence admissions to the effect that they would be prepared to sue, particularly if offered an indemnity in respect of costs by the applicants. Even if he had been successful in this endeavour, in my view counsel for Bendigo Bank would not have defeated the proposition that the trustees (ie all of the surviving former partners) were unwilling to sue.

190       It follows from what I have said that I am of the view that no relevant distinction exists between claims at common law and claims in equity for the purposes of the rule permitting a beneficiary to sue when the trustee is unwilling to do so. If, as Cohen J suggested in Lamru, such a distinction was to be drawn in jurisdictions where legislation of the type found in the Judicature Act 1873 (UK) had not been passed, it is plainly a distinction irrelevant to this Court.

191       In case I am wrong as to the content of the rule allowing a beneficiary to sue when a trustee is unwilling to do so, and exceptional or special circumstances are required, then in my view they exist in the present case. As was the case in Lamru, the trust has come to an end. Aroni Colman ceased to act as trustee, the accounts it held with Bendigo Bank in trust for the applicants were closed and the proceeds of them were remitted to the relevant applicants before the applicants sued Bendigo Bank. As was the case in Lamru, the former trustees lack the status of trustees. They would still be entitled to sue in that capacity, but cannot be obliged to do so without an order of a court. There is no sound reason why Evatab Investments Pty Ltd cannot sue in its own name, instead of arranging for a costs indemnity and borrowing the names of the former equity partners of Aroni Colman. See Fried v National Australia Bank Ltd [1999] FCA 737 at [14] - [18]. That was the judgment given on the joinder of Bendigo Bank as a party to this proceeding. Weinberg J rejected the argument put on behalf of Bendigo Bank that the surviving equity partners of Aroni Colman, and not the applicants, were the proper parties to sue in respect of the wrongful debiting of the bank accounts held by Aroni Colman with Bendigo Bank. In doing so, his Honour held that there were special or extraordinary circumstances, such as to permit the applicants to sue in their own right.

192       Counsel for Bendigo Bank sought to argue that exceptional or special circumstances did not exist because Bendigo Bank was disadvantaged by having to face Evatab Investments Pty Ltd as applicant, instead of the former partners of Aroni Colman. The substance of this argument was that, if the former partners of Aroni Colman had been the applicants, they would have been obliged to give discovery of documents to Bendigo Bank on a broader basis than was obtained. Bendigo Bank might then have been in a better position to defend the proceeding. It would therefore be inequitable to permit Evatab Investments Pty Ltd to sue in its own name. I do not accept this argument. The former partners of Aroni Colman are all respondents in the proceeding. The Court possesses ample power to order them to make discovery of such documents as might be considered to assist the case of another respondent. If necessary, documents can be obtained by subpoena. In fact, Bendigo Bank did seek wide-ranging discovery of documents from the former partners of Aroni Colman. Its application in this respect was unsuccessful in part. See the judgment of Weinberg J in Fried v National Australia Bank [2000] FCA 604 at [81] - [88]. It cannot now claim that it would have been in a better position if it had sought discovery of documents against the Aroni Colman partners as applicants.

193       The final requirement to enable the beneficiary to sue, that all necessary parties be joined in the proceeding, has been satisfied in the present proceeding. There are no beneficiaries of the trust of the B101 account other than Evatab Investments Pty Ltd. The former partners of Aroni Colman are all respondents. I note that, in Lidden, Finn J took the view that it was more appropriate to join the unwilling trustee as an applicant. All of the other authorities to which I have referred make it clear that the requirement of joinder is satisfied if the unwilling trustee be joined as a defendant. As I have said, the purpose of this requirement appears to be to avoid the possibility of a multiplicity of suits in respect of the same claim.

194       For these reasons, I am of the view that it is open to Evatab Investments Pty Ltd to sue Bendigo Bank in respect of the wrongful debiting of the B101 account in transactions A4, A5, B3, B4, A6 and A7.

Bendigo Bank's claim for credits

195       On 30 June 1997, the sum of $1,884,787.50 was paid into the B101 account and the sum of $426,195 was paid into another account held by Bendigo Bank for Aroni Colman in trust for Windina Pty Ltd. The source of both of these accounts was the Max Green and Associates Trust Account with the Carlton branch of the NAB. Bendigo Bank claimed that any amount for which it might be found to be liable to Evatab Investments Pty Ltd in respect of wrongful debit of the B101 account should be reduced by the total of these two deposits.

196       In the findings I have made about each of the transactions still in dispute in this case, I have referred to the destination of each of the amounts withdrawn from the B101 account, to the extent to which the evidence discloses that destination. It is clear that the source of the two deposits made on 30 June 1997 was not the funds withdrawn from the B101 account in any of those transactions. The recovery by Evatab Investments Pty Ltd and Windina Pty Ltd of other monies stolen them by Max Green, and the deposits of those funds in accounts held by Bendigo Bank, cannot be relied upon by Bendigo Bank as a partial defence to the claims made by Evatab Investments Pty Ltd. When Bendigo Bank wrongly debited the B101 account, it paid away its own funds and became obliged to reinstate the balance in the B101 account to the extent to which it was depleted by each of the transactions. Bendigo Bank cannot claim that deposits by others satisfy in part its obligations to reinstate the balance in the account. It would be different if it had been possible to trace the stolen funds and to recover them, or some of them. In that case, Evatab Investments Pty Ltd would not have suffered loss as a result of the wrongful withdrawal. The withdrawn funds would have been applied to its use and benefit. That is not the case. Bendigo Bank remains liable to reinstate the balance of the B101 account to the extent to which it was depleted by the unauthorised withdrawals by Max Green.

Conclusion

197       For the above reasons, I am of the view that judgment should be entered for Evatab Investments Pty Ltd against Bendigo Bank in the sum of $4,300,000, being the total of the amounts wrongly debited to the B101 account as a result of transactions A4, A5, B3, B4, A6 and A7. I have found that the withdrawal in transaction B5 was authorised, so no obligation falls on Bendigo Bank to reinstate any balance in the term deposit account.

198       Evatab Investments Pty Ltd also claims interest. In my view, it is appropriate that interest on the amounts wrongfully debited be calculated at the rate applicable from time to time to an account of the kind that the B101 account was, namely an 11 am at call account. This is a calculation on which the parties ought to be able to agree.

199       I therefore propose to order that, on a specified date, the parties bring in minutes of orders reflecting these reasons for judgment. The proceeding will be listed for further hearing on that date, when I shall consider the terms of the final order I make. On that date, I shall also expect that the parties will make submissions on the question of costs. This will be a difficult question. One of the applicants has succeeded in part in its claim against one respondent, a claim made relatively late in the interlocutory stages of the proceeding. It has succeeded after a lengthy trial, a good part of which was occupied by opening addresses and evidence in relation to claims and cross-claims involving other parties, which were settled.

I certify that the preceding one hundred and ninety-nine (199) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray.

Associate:

Dated:        17 July 2001

#DATE 17:07:2001

Counsel for the Applicants:	Mr N Young QC with Mr J Peters and Ms J Dodds-Streeton
Solicitor for the Applicants:	Maddock Lonie & Chisolm
Counsel for the First Respondent:	Mr J Karkar QC with Ms W Harris
Solicitor for the First Respondent:	Mallesons Stephen Jaques
Counsel for the Second, Third, Fourth, Sixth and Seventh Respondents:	Mr N Fryde
Solicitor for the Second, Third, Fourth, Sixth and Seventh Respondents:	Abbott Stillman & Wilson
Counsel for the Fifth Respondent:	The Fifth Respondent appeared in person
Counsel for the Eleventh Respondent:	Mr R Garratt QC with Mr P Corbett
Solicitor for the Eleventh Respondent:	Sparke Helmore
Counsel for the Second Cross-Respondent:	Mr P Cosgrave with Mr M Black
Solicitor for the Second Cross-Respondent:	Moores Legal
Dates of Hearing:	3 - 6 October 2000
9 - 13 October 2000
17 - 20 October 2000
23 - 27 October 2000
31 October 2000 - 3 November 2000
8 - 10 November 2000
14 - 17 November 2000
20 November 2000
22 - 24 November 2000
28 - 29 November 2000
1 December 2000
5 - 8 December 2000
11 December 2000
Date of Judgment:	17 July 2001