Heperu Pty Limited & Ors v Perpetual Trustees Australia Ltd
[2010] HCATrans 128
[2010] HCATrans 128
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S105 of 2009
No S26 of 2010
B e t w e e n -
HEPERU PTY LIMITED (ACN 001 517 719)
First Appellant/First Applicant
KIRISI HOLDINGS PTY LIMITED (ACN 003 010 106)
Second Appellant/Second Applicant
BARRY SAMUEL LANDA
Third Appellant/Third Applicant
DRUMMOYNE ADMINISTRATIVE SERVICES PTY LTD
Fourth Appellant/Fourth Applicant
and
PERPETUAL TRUSTEES AUSTRALIA LTD (ACN 000 431 827)
Respondent
FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 27 MAY 2010, AT 10.00 AM
(Continued from 26/5/10)
Copyright in the High Court of Australia
__________________
FRENCH CJ: Yes, Mr Burton.
MR BURTON: May it please the Court, I just need to hand up a supplementary index to that bundle that was handed up after 2 o’clock yesterday which should go in the front of the bundle or on the cover.
FRENCH CJ: Yes, thank you, Mr Burton. Yes, Mr Walker.
MR WALKER: Thank you, your Honours. Your Honours, if I may, I wish to start this morning by going to evidence, it is evidence chiefly to do with the conversion claim but it also, as to part of it, will relate to the defence we offer against the money had and received claim.
HAYNE J: With a view to demonstrating a particular factual proposition, Mr Walker? Is there something that we should know before we trawl through the particular facts?
MR WALKER: Yes. It would be useful were I to frame it first. The investment contract was actually made, actually performed in part satisfactorily from Dr Landa’s point of view. It involved as to part him borrowing money secured on his real estate in order to lend – that word is perhaps not used technically by him – in order to lend or invest it unsecured, circumstances which she understood to produce the possibility of the margin, the arbitrage. The processes on his part involved therefore cheques, be they personal or bank, which identified in accordance with the contract only Perpetual as the destination of the funds, and I refer back to what I opened with yesterday, because the contract permitted any account at Perpetual so long as it served the purpose of the investment required under the investment contract and positively obliged Mr Cincotta or Morgan Brooks to attend to what was necessary in relation to documentation accordingly.
On the other side or one of the other sides of the transaction to which I will be coming there are the procedures at Perpetual. The framework I wish to put some flesh on includes the stipulations with which your Honours are already familiar concerning the way in which cheques were requested – I stress “requested” – to be made out, what in practice occurred in relation to application forms. That will then lead to a matter which has been much relied upon, certainly in answer to the money had and received defence by the appellants, namely, what I will call negligent conduct on Perpetual’s part.
I am going, as argument, to put that that is not open in this Court, in this hearing, for reasons I will seek to demonstrate but that, in any event, there are findings unchallenged to the contrary and that when one goes to the cross‑examination of the experts to which extensive reference was made yesterday by my friends, there is a mismatch between the relevant situation they were asked to comment on and that which was actually found to be the case in relation to Dr Landa and, in particular, the experts were asked to comment on what would occur in relation to a disparity between cheque and the case where an account was expected to be opened for the payer in a particular name and that, of course, is totally at odds with that which was found and not challenged in paragraph 20 of the Court of Appeal reasons to which I went yesterday.
Necessarily in response to some matters raised by the Bench yesterday with my learned friends, I wish, having dealt with these matters of fact, shown, in effect, in response to something Justice Gummow inquired of me yesterday, in part, perhaps in whole, the money trail that is relevant to this framework. I need to deal with a matter to which there is no reference, about which there was no argument at any level below, which has been raised in this Court. I hope in order to satisfy your Honours that though the statutory trust, as I shall call it, is a matter of law, it exists, the statute operates, it does not affect the way in which the parties chose to frame the issues below and will not affect, ultimately, the outcome of the present dispute between them.
That does not mean it is unimportant in an analysis and understanding of what happens because of this money trail, particularly in relation the possibility of some resulting trusts, but as it happens, it particularly calls up the position of Ms Belle or Mrs Cincotta. I apologise in advance if I use those names interchangeably. The situation in relation to her is obviously not in issue between these parties. Then finally in relation to the framework, the propositions I wish to make seek to make good on the basis of the facts I am going to, there is the conduct in and out of Court in relation to the investment contract to which I referred yesterday and the way in which that bears upon, separately, the conversion claim and the money had and received claim. I hope that provides a framework in order to look at this factual material.
Could I start, please, your Honours, in volume 1 of the appeal book, with the first of the borrowings by Dr Landa. Perhaps I will show you one and give you the references to the others. Page 349, a perpetual company, Perpetual Trustees Victoria Ltd, agrees to lend to Dr Landa – and one sees at page 351, line 30, “is to be applied by You wholly or predominantly for business or investment purposes”.
GUMMOW J: Is that company a trustee company under Victorian legislation?
MR WALKER: I do not think so, your Honour, no.
GUMMOW J: Well, someone had better look at the Victorian Act and tell us whether it is in the schedule or not.
MR WALKER: Yes. I am bound to say, your Honour, the name looks as if it would be, but I am instructed not. I shall have that checked.
FRENCH CJ: This is a credit provider?
MR WALKER: This is providing the money. This is lending money to Dr Landa. At page 351 line 30 one sees the stipulated purpose of the borrowing and at page 353 one sees that the extent of the borrowing, the maximum extent of the borrowing, is $305,000 and one sees a reference to some initial rates. At page 355 there is the accompanying security by way of registered mortgage over property of Dr Landa. That is for the $305,000 on the 27 September 2001. There was also $345,000 borrowed on the same day.
GUMMOW J: The document is undated.
MR WALKER: Your Honour is referring to the mortgage or to the ‑ ‑ ‑
GUMMOW J: I am looking at page 349. Can you see a date anywhere?
MR WALKER: No, your Honour. The inference of the date comes from the date stated on the accompanying mortgage at 355, line 32 or thereabouts. The security being that which is stipulated on ‑ ‑ ‑
FRENCH CJ: There is some sort of code on the bottom which says “23/08/2001”.
MR WALKER: There is the 27 September 2001 date at 355, line 32 for the mortgage which is that which is stipulated in the schedule of the loan agreement at page 353, line 35. The third later borrowing was $1 million borrowed on 20 December 2002, which one finds referred to at page 394 in volume 1 of the appeal book, only by way of the mortgage. One otherwise goes to the affidavit to which all of these exhibits of Dr Landa, at page 341 line 15, paragraph 11, he refers to each of the loans referred to in 7, 8 and 10, and in paragraph 10 at the foot of page 340 to the top of page 341, he exhibits the mortgage and then the last sentence reads “The amount secured by this loan is one million dollars”, presumably meaning the amount secured by this ‑ ‑ ‑
GUMMOW J: Where are you reading from, Mr Walker?
MR WALKER: The top of page 341, about line 15, your Honour, in paragraph 10 of that affidavit. The cheques you have already seen as to, I think, part. Rather than take you to all of them, could I, for example, in relation to ‑ ‑ ‑
GUMMOW J: If I could just interrupt you for a minute and do the work that those assisting you should have done, Perpetual Trustees Victoria Ltd is shown as a trustee company in the second schedule to the Trustee Companies Act 1984 (Vic).
MR WALKER: Your Honour, I do not think that however will affect the fact that it was a lender ‑ ‑ ‑
GUMMOW J: Maybe not.
MR WALKER: ‑ ‑ ‑ commercially to Dr Landa. It did not receive moneys otherwise than by way of repayment from Dr Landa. The cheques – and this is in response to Justice Gummow’s question yesterday – which are in question in this case are not all of the investments that Dr Landa or his companies made. The ones in question in this case start with the personal cheque for $351,000 that you see at volume 2 of the appeal book, 944 – I think you have been shown this yesterday – $351,000 by cheque drawn on 21 August 2001, and as you have been told before ‑ ‑ ‑
GUMMOW J: Is there any discussion at any stage in the evidence of the interrelation when these what appear to be related companies conducting this range of current financial activities?
MR WALKER: No, that I can find, and the position about which you were informed yesterday, whereby the joined party takes responsibility for the position brought about by the actions of its related corporations might explain why that does not appear in the record. That is, no point of any kind is taken in favour of my client by reference to the different corporate entities which are involved, but I stress ‑ ‑ ‑
GUMMOW J: Or the differential impact of the Corporations Law upon those lenders in this group.
MR WALKER: Yes, your Honour, that is right. I will come to the perhaps statutory trust question later, but I am bound to say that what Justice Gummow said is right. No point was ever taken of any kind. There was a bank cheque which was the next one, that is the bank cheque for $342,857 of 27 September 2001 that you find at page 950 of volume 2 of the appeal book and you will note the slight difference between that amount and the $345,000 borrowed to which I have already drawn attention. Some expenses have slipped off obviously.
GUMMOW J: Now what is all this showing, some round robin of some description? What is going on?
MR WALKER: Not a round robin but what it shows is what he calls in paragraph 22 of his written submissions in this Court, “part performance” his expression, performance is another way of putting it, by him under the investment contract. Not performance by way of obligation, he is not obliged to put money in but he is taking an action which he asserts brings in its train contractual obligations on the part of Morgan Brooks. These are the payments to Morgan Brooks by way of investment to be arranged by Morgan Brooks at Perpetual, to use the language of the conversation at the coffee shop, which carries in its train Morgan Brooks obligation that those investments produce the eight per cent and the shares, 1000 shares per million dollars invested.
What these steps show are the steps which, in the proceedings, including in the claim against Morgan Brooks on the contract formed pursuant to the ostensible authority of Mr Cincotta on behalf of Morgan Brooks, these are the steps by which he made investments at Perpetual.
HAYNE J: Gave money to Perpetual, yes.
MR WALKER: Well, there was investment and there was return.
HAYNE J: To Dr Landa, no.
MR WALKER: Yes, to Dr Landa. This is a case about a balance, an unsatisfied balance of obligation by Morgan Brooks. This is not a case where there was never any return under the investment contract. That, in our submission, is critically important to appreciating both for the conversion case, principally, but also for the change of position case, that what happened here as this money trail demonstrates, as reflected in the position taken forensically by Dr Landa was that he did make payments.
Now, I am going to elaborate that to make the proposition that these were authorised deliveries of cheques through the conduit of Mr Cincotta who never came to own the cheques of course but was authorised on behalf of Dr Landa to deliver them to Perpetual.
HAYNE J: For account of Mrs Cincotta?
MR WALKER: No, for account of whatever Mr Cincotta arranged in order to produce a return and it is clear, I stress ‑ ‑ ‑
GUMMOW J: There might be some sliding going on there, Mr Walker.
MR WALKER: Your Honour, there is no sliding except by the rogue and the fraud and it is key that this was, as it were, a back slide. Like many of these scams and crimes they involve, that is part of the false confidence engendered by such people involves performance.
HAYNE J: Yes, Mr Madoff’s clients saw a lot of money come back.
MR WALKER: Ponzi schemes very often produce more satisfied customers than dissatisfied customers.
FRENCH CJ: You are not saying, are you, that under the investment contract evidenced by the conversation in the coffee shop, Mr Cincotta could do what he liked with the money so long as Dr Landa got eight per cent and ultimately his money back?
MR WALKER: No, I did not. I made it clear yesterday it had to be invested at Perpetual.
FRENCH CJ: Yes.
MR WALKER: It had to be invested at Perpetual.
GUMMOW J: The question is, what do you mean by invested at Perpetual?
MR WALKER: The Court of Appeal, with respect, asks the same question.
GUMMOW J: Invested for whom?
MR WALKER: For the benefit of Dr Landa – there is no question about that – but not in Dr Landa’s name, not in any of his companies’ names. It might have been but need not have been, and as the evidence to which I will take you shows, he did not expect it to be.
GUMMOW J: You are saying there need not have been any beneficial ownership by Dr Landa of the investment that was procured by Mr Cincotta.
MR WALKER: That is correct.
FRENCH CJ: Right. So to vary the proposition I put to you before, Mr Cincotta was free to deal with the money as he wished, provided he placed it with Perpetual, provided Dr Landa got eight per cent and, ultimately, his money back.
MR WALKER: That is right.
GUMMOW J: But eight per cent from whom?
MR WALKER: From Morgan Brooks.
GUMMOW J: I see.
MR WALKER: The Court of Appeal – and this is not challenged, as we understand it – said of Morgan Brooks that they did not hold the cheques or the money on trust. It was a contractual promise, obligation sounding in contract
HAYNE J: You say there is a fraud. Where is the fraud? He is entitled to do what he has done at Perpetual ‑ ‑ ‑
MR WALKER: The fraud is in taking the money for his own benefit, which is what he did. Perhaps it is useful if I can step ahead to something I was going to come later but it is relevant to this. Mrs Cincotta, Ms Belle, was also sued, at first instance sued for knowing receipt failed on the factor of knowledge. There the matter rests because she succeeded on appeal in that. You will have seen a reference to the appeal, which ought to have been heard together, said their Honours, but was heard later, at the beginning of the reasons in this case.
The one difference between first instance and appeal for Mrs Cincotta was that at first instance she won completely for failure of any proof against her as a volunteer that there were traceable proceeds held by her. The one difference in the Court of Appeal is that the matter was, as it were, stood over for further consideration – we are not party so we cannot be definitive about this – in case there were moneys which could be traced to her as volunteer so as to provide some recovery in favour of Dr Landa. I will give your Honours a reference to that appellate judgment with that loose end at its end, as I have just described, in the Australian Law Reports when it comes to hand.
FRENCH CJ: There is no finding – and it reflects, perhaps, the fact there is no pleading – that Mr Cincotta had the intention at the time of entering into the investment contract of ‑ ‑ ‑
MR WALKER: Of never performing it.
FRENCH CJ: ‑ ‑ ‑ dealing with the money for his own benefit.
MR WALKER: No.
FRENCH CJ: The most we know is that he dealt with it for his own benefit. Is it your position that the earliest time at which we can identify a fraud is the point at which he dealt with the money for his own benefit?
MR WALKER: Yes. It is wholly unlikely in what I will call a psychological sense that that was the first moment he went bad, but in terms of ‑ ‑ ‑
FRENCH CJ: In terms of the findings.
MR WALKER: In terms of what is available on the face of findings, yes. That is why it is, in our submission, in terms of the framework involved, both for conversion and for money had and received, in the following ways it is critical to ask the question of this money trail, this actual money borrowed, and we say actually paid – I will come back to that – to ask, how can a conversion case fit in and, alternatively, how can a money had and received case fit in?
GUMMOW J: You need a notice of contention for that, do you not?
MR WALKER: All of these are raised, including by notices of contention, in the manner we have explained in our written submissions. May I just break the sequence that I announced in answer to Justice Hayne’s request in order to try and pull those threads together now so as to put further context to explain these facts, including money trail and administrative procedures to which I want to come.
If we are right about the reality and the subsistence of the investment contact – that is, it is not illusory, indeed, so far from being illusory, it is sued on as a binding contract successfully against Morgan Brooks in the same proceedings by Dr Landa – then as to the conversion claim the only question is delivery in the technical sense, because if the cheques were delivered to Perpetual, then it will not be conversion for them to have acted as they were entitled upon delivery.
We can further specify, the only issue therefore as authority because there was no constructive delivery, it was actual delivery if delivery be though of in physical terms. The legal characteristic, the legal component of authority is necessary in order to make that handing over delivery in the legal sense and, as your Honours have seen, we put our case in two ways alternatively. One, which is the contention point, is that that there was actual authority to complete the delivery as it was completed with respect to each of these six cheques, that is, the actual authority of Dr Landa for Mr Cincotta, his agent in this regard, to deliver those cheques to Perpetual.
Of course, as this and all the cited cases about voidable title when delivery has been induced by fraud show, there is no question of Dr Landa having authorised Mr Cincotta to deliver cheques for the eventual purpose of taking his money away from him by the device of putting it into account on which he was a signatory and by the wickedness of then actually taking the money and rather than giving it to Dr Landa, taking it for himself.
GUMMOW J: Mr Walker, do you challenge the first sentence of paragraph 121 of the Court of Appeal’s reasons?
The cheques were, however, paid to Perpetual by the respondents being induced by fraud to do so.
MR WALKER: Yes, your Honour. That is what I just said, your Honour. The delivery was clearly induced by fraud, just as the contract, as I said yesterday, was induced by fraud if one takes the step, which as I have told the Chief Justice would require more than one ‑ ‑ ‑
GUMMOW J: That being so, why does it matter that to some degree the fraud was not fully manifested by complete misapplication of all these moneys?
MR WALKER: Why it matters is ‑ ‑ ‑
GUMMOW J: I think Justice Hayne raised this with you yesterday.
MR WALKER: Yes, and the matter has been raised also in questioning of my learned friends as well. The delivery which Dr Landa intended to occur of these cheques, including those funded by his borrowings, his secured borrowings, the delivery to Perpetual, though induced by fraud, cannot and does not on the authorities cease to be a delivery unless, before it is too late, as is obviously possible, the cheques are taken back by the principal, Dr Landa, if he becomes disabused of the agent’s perfidy. Second, unless there is an avoidance in time of either the underlying contract or, in this case, of that which, while the money remains in Perpetual, is the relationship between Dr Landa and Perpetual. That is why on the authorities ‑ ‑ ‑
GUMMOW J: Does this hold good for money had and received?
MR WALKER: What I am talking now about goes to conversion.
GUMMOW J: I thought so.
MR WALKER: That is why they are alternative, and that you can ‑ ‑ ‑
GUMMOW J: The acts of the money had and received fixes on the receipt.
MR WALKER: Quite.
GUMMOW J: Not in any anterior contract. That is the beauty of the action.
MR WALKER: Quite so. That is our point about the investment contract. Going back to where I was, if we are right about conversion, namely, that the cases show that there is no conversion simply because the delivery which was authorised was delivery by an authority itself induced by fraud, then the cause of action is for money had and received. Timing is obviously important because depending upon timing and events, that may bring up a defence of a conceptually different kind from those available in answer to conversion, namely, change of position, to which I will come.
HAYNE J: But a necessary step in this conversion analysis is that the deposit to the account of Mrs Cincotta was authorised by Dr Landa, is it not?
MR WALKER: Yes, your Honour.
HAYNE J: Even though we know for a fact, do we not, that in the case of some deposits there was withdrawal to the advantage of Mr Cincotta the next day?
MR WALKER: I do not know that we can say that of these deposits, but generally speaking, yes.
HAYNE J: So we are to determine this case, are we, on the assumption that Dr Landa authorised Mr Cincotta to deposit it to an account in the name of another, under his control, that is Cincotta’s control, alone?
MR WALKER: Yes, your Honour.
HAYNE J: When in fact we know that Cincotta used that device to abstract the money to his own advantage?
MR WALKER: Your Honour, what I have said yes to is that the investment contract not merely permitted but called for Mr Cincotta to do everything necessary and, in our submission, though it is obviously imprudent on the part of Dr Landa, there is nothing inconsistent or contradictory of the investment contract being for his benefit in requiring or permitting this trusted agent, Mr Cincotta, to carry out everything necessary to have an investment with an economic return at Perpetual with the benefit to be funnelled back to Dr Landa, or at his direction, certainly not to be shared, except as to the stipulated excess over eight per cent with Mr Cincotta or Morgan Brooks.
But the very fact that this is a contract which has that highly peculiar possibility, namely, that you can make a return at Perpetual and keep anything over and above a stipulated return, only goes to show the plausibility in this admittedly very odd situation – none of which is known to Perpetual of course – the plausibility of the actual authority extending to the account being in Mr Cincotta’s name, Morgan Brooks’ name, or any account, new or pre‑existing, capable of being operated by Mr Cincotta for Dr Landa’s benefit, and the capable of being operated point is actually required by Dr Landa under the investment contract.
Mr Cincotta is to do what is necessary. Morgan Brooks’ promise through the offices of Cincotta to do what was necessary obviously bestows authority to do it and the authority to do what was necessary to have an account, some of the return from which will go to Dr Landa and some of it left over may go to Mr Cincotta or Morgan Brooks, that authority, in our submission, of course extends to going into an account just for Mr Cincotta.
KIEFEL J: But is it part of the agreement with Morgan Brooks that Dr Landa would eventually have his investment capital returned to him?
MR WALKER: Yes.
KIEFEL J: How is part of his actual authority then to have the investment capital put out of his reach?
MR WALKER: Your Honour, it is out of his reach as soon as he contemplates and, indeed, expects Mr Cincotta to arrange an account not expecting to be in his name. To put it another way, he has the same control at all times as one every principal has over an agent or every beneficiary has against a trustee, that is, one can compel the proceeds to be held, in this case according to what has been regarded as the contract, the obligation standing in contract between Dr Landa and Morgan Brooks.
It is not the case that Mr Cincotta or Morgan Brooks were only ever authorised to open an account that Dr Landa himself could control in the sense of the legal relations between Dr Landa and Perpetual. That would have been, with respect, the only prudent way for it to have been invested – I am going to come to that aspect of things later – but it is clear on the face of this contract that that is not was stipulated and it is startling that it was not stipulated, but it is also startling clear that it was not from the material to which I will come.
Could I simply give your Honours the references in relation to these cheques, some of which are bank cheques, as you know, some of which are personal cheques. It is to be recalled that the not negotiable marking on the bank cheques includes one which was added subsequent to the events in question by us. Of all of the cheques it can be said they are bearer cheques, though of course – and I make this clear less we be misunderstood – we do not say that Mr Cincotta ever became a bearer. Indeed, it is my thesis that I have been trying to develop this morning that he was only ever an agent for delivery, but of course my point is he was an agent for delivery.
That was what the contract called for and it is what, in fact, Dr Landa has said in his litigation in these proceedings he said has happened, “I had these cheques delivered, you now must pay me the investment return under the contract, you, Morgan Brooks.” The only way in which one can make that claim is by asserting and proving – and he got a judgment on this – that there was delivery and, in our submission, that involves the proposition that what Mr Cincotta did by delivering to Perpetual was in fact authorised. I stress, these are only the balance unsatisfied cheques or investments. I will come to that proposition in a moment.
The references for the cheques after the first personal one is – then there is the $342,857 bank cheque of 27 September at 950 to which I have taken you; there is $302,875, which obviously relates to the $305,000 borrowing on the same day, of 27 September at volume 2 of the appeal book, 956. There is $502,070 personal cheque that I think you have been shown already of 23 November 2001, volume 2, 962. There is $250,000, call it a personal cheque, it comes from Drummoyne Administration Services, drawn on 9 August 2002, volume 2 of the appeal book, 968, obviously an account so designated for the convenience of Dr Landa. Then there is the bank cheque that relates to the $1 million borrowed and that is a bank cheque for $995,452.50 drawn on 19 December 2002, which seems to be the day before the borrowing, at volume 2 of the appeal book, page 974.
Those are what I might call real actions; real borrowings, real cheques and, we assert, real delivery. Now, commences the fantasy which is material from which one can infer onset of fraud. Dr Landa was reassured by documents supposedly emanating from Morgan Brooks but obviously under the control of the fraud Cincotta. In volume 1 of the appeal book at page 397 one sees a so‑called statement of account issued to Dr Landa and one sees payments, at page 404, another statement of account, again showing payments and if one goes to page 416, one finds the direct debit authority between Morgan Brooks and Dr Landa that he was notified of.
The expression “mortgage offset account” about which your Honours have heard in relation to this so‑called investment product that is said never to have existed, appears in one of these documents that you will see at page 418 on Morgan Brooks’ letterhead signed by Mr Cincotta. The account type is called “Mortgage Offset” and there is a reference to “your mortgage offset account”. The language of that title appears to reflect the notion that, as Dr Landa says he understood, he was borrowing secured obviously with a commensurate risk rating for the interest and lending or investing unsecured again with a different commensurate risk rating for the interest, or at least that is one tries to spell out from that language on that document.
Then in Dr Landa’s affidavit one sees at page 342, line 25, the fact that what we are talking about in this case is a balance rather than the whole, “As a result of my borrowings . . . and the investment of other funds”. Now, that expression “the investment of other funds”, however bland, involves actual payment, perhaps by delivery of cheques because we can exclude cash for these amounts, actual payment by delivery of cheques to Perpetual, an assertion of authorised delivery rather than a denial of it. As a result, he says, of that, “The first plaintiff has invested the sum” – has invested the sum – “of approximately $2.2million”, which is more than the total of the funds, “and the second plaintiff has invested approximately $880,000”. So it is over $3 million in total.
Your Honours, can I interpolate before I forget, I said I would give a reference to the appellant judgment with respect to Ms Belle, Mrs Cincotta. It is (2009) 258 ALR 727 and as to the aspects of it that I wanted to draw to attention, could I simply give you a reference to paragraphs 80 and 170; 80 in relation to liable as a volunteer only, that is, no knowing receipt, and 170 as to the possibility of liability as a volunteer subject to further investigation.
Now, we know that the investment contract in terms of repayment, including of capital, was performed, to use the language of paragraph 22 of the appellant’s written submissions, in part – see volume 1 of the book at page 451, paragraphs 5 and 6 between lines 27 and 32. That, I think, in answer to the question Justice Gummow asked me yesterday, exhausts what the records shows about the mixture of actual and fake record of money in this case. What can therefore be said in relation to that side of the dealing, which is Dr Landa’s conduct, what is the relevance of this legally? Well, it certainly has to do with the authority or agency question which is either actual as we contend, or ostensible or apparent as the Court of Appeal held.
Of course, there is no actual authority to Mr Cincotta to put money into Mr Cincotta’s pocket, but there was, so the Court of Appeal held, ostensible authority to give money by way of delivery of the cheques to Perpetual. That is what is necessary and is all that is necessary in order to defeat the conversion claim. If my cheque is dealt with as I want it to be dealt with, as I will it to be dealt with, by delivery, it being a bearer cheque with a named payee and my agent for delivery, as I believe him to be, gives it to that named payee who deals with it accordingly, in our submission, preferably, that is actual authority, alternatively, for the reasons the Court of Appeal gave, plainly I have clothed that person with apparent authority to do what I ask to be done, namely, give it to the named payee.
HEYDON J: Can I just ask you this. Does your analysis accommodate the fact that in Dr Landa’s affidavit he said he was introduced to Mr Cincotta by Anne Landa, Clara Sendro and Tom and Anne and Clara had told him over many years that they had invested money with Perpetual Trustees Australia Ltd through Morgan Brooks and they were satisfied, and it was invested at call and Mr Cincotta said, “I will invest it for you at Perpetual as I am doing with Anne and Clara’s”? Now, you do not invest money if you give it to a financial institution whom you have already deceived in relation to your wife’s account and whom you are shortly to deceive again by getting the money back out into your own pocket. Just concentrating on actual authority, was not the actual authority to give it to Perpetual for a proper investment?
MR WALKER: Yes, but the authority, and we adopt here with respect to the way in which the Court of Appeal puts it on the basis of the cited authority, one concentrates on, in answer to conversion, what the true owner has done with the cheque because it is clear that there cannot be a claim in conversion if that which is said to constitute conversion is exactly what the owner wanted to be done. So far as the receiver of the cheque is concerned, it being a stranger to the nefarious project that occurs later and outside its control and beyond its knowledge, what matters is that there is a cheque delivered.
So the question about authority is about the authority to deliver rather than of course the self‑answering question, is there authority to cheat? Of course there is not. It is for those reasons that I hope that what we have put is intended, yes, to accommodate the fact which, though clear, we accept bears repetition, that this was an investment for the benefit of Dr Landa which he thought he was obtaining, and was obtaining. By the investment contract he made it was certainly not a mere device for the enrichment, criminally, of Mr Cincotta.
HAYNE J: How do any of those propositions stand with your repeated acceptance of the first sentence of paragraph 121 of the Court of Appeal?
MR WALKER: Of course the Court of Appeal is there – that is a paragraph in which they say there is no conversion.
HAYNE J: No, the first sentence.
MR WALKER: Yes, I appreciate that, your Honour, but this is a stage in their reasoning where having held no conversion because of apparent authority – your Honours will see that, paragraph 121, about line 18 on page 1464, following “That assumption is not without its difficulties”, they start:
There has been no conversion by Perpetual.
That is what they have already reasoned. That is because of the authorised, ostensibly – we say actually – delivery. Then in relation to money had and received, of course, and we say this is true for all aspects of the case:
The cheques were paid . . . being induced by fraud to do so.
There was a mistake produced by a fraud.
HAYNE J: The mistake being that the funds were to be invested on account of, or held by Perpetual to the account of, Dr Landa or relevant company? What is the mistake?
MR WALKER: No, “to the account of” is unfortunately, on the facts of this case, an ambiguous expression that needs to be spelled out. Yes, of course, “to the account of” in the sense of for the benefit of, but no, emphatically no, to the account of in terms of an account title or in such a way as to give Dr Landa direct legal rights against Perpetual ‑ ‑ ‑
GUMMOW J: Mr Walker, the primary judge accepted the pleading as to what the contract was. He accepted it at paragraph 85 of his reasons and that what he accepted was the pleaded “Contract” which appears at paragraph 14 of his Honour’s reasons, which was:
for the purpose of Morgan Brooks investing that money with Perpetual on Dr Landa’s behalf ‑ ‑ ‑
MR WALKER: Yes. That does not mean in his name.
FRENCH CJ: It means on his behalf.
MR WALKER: Absolutely, your Honour, but that can be done. That could have been done by an account in Morgan Brooks’ name – indeed, perhaps should have been.
HEYDON J: It cannot be done by an account in the name of the wife of the dishonest man.
MR WALKER: Not because she is the wife of a dishonest man, with respect ‑ ‑ ‑
HEYDON J: Because he has so arranged things that that account is totally under his control ‑ ‑ ‑
MR WALKER: Yes, your Honour. That is how the crimes were perpetrated. I accept that. My point is that that authority was granted in terms that of course do not embrace “Please, cheat me”, but they do embrace “You do what is necessary”, and there is no question that an account in Mrs Cincotta’s name, wholly controlled by Dominic Cincotta, was a means by which there could have been, not partial, but complete performance of the investment contract. It is the dishonest extraction of funds via that account and his forged authorisation to operate it - that is what causes the loss eventually - but it happens that an account in anyone’s name, including his wife’s name, is a means by which the investment contract can be performed. It would require, for example, honestly to accept the trust involved.
HEYDON J: I think if Dr Landa had followed Mr Cincotta to the institution that day and it had been handed over and suddenly Mr Cincotta had told Dr Landa what was going to happen from now on, and Dr Landa had gone to the relevant officer and said, “He has just told me what is going to happen”, does that correspond with the way you carry on your affairs? They would have said, “No, it does not”, would they not? That is not the way investment is conducted in our business.
MR WALKER: No, but the notion that there can be a cash management trust account in a person’s name who owes contractual and/or trust obligations to other peoples in relation in relation to those funds is unremarkable and, indeed, would be the case for quite a few such accounts.
GUMMOW J: Would the investment have been on Dr Landa’s behalf in the circumstances Justice Heydon has just been putting to you in terms of the contract? Answer: unless…..to mention, no.
MR WALKER: Your Honour, this is why one must, in our submission, beware hindsight. In hindsight ‑ ‑ ‑
GUMMOW J: I am looking also at paragraph 11 of the primary judge’s findings, and he said:
Dr Landa borrowed substantial sums from Perpetual Trustees Victoria Ltd (“PTV”) in order to invest . . . with Perpetual pursuant to an investment scheme, called an “offset mortgage account” . . . The “offset mortgage account” scheme did not exist: it was an illusion fraudulently created by Mr Cincotta.
So the whole thing reeked of fraud from the first moment.
MR WALKER: Your Honour says the whole thing.
GUMMOW J: Yes, the introduction of the notion of a mortgage offset account.
MR WALKER: Investment at Perpetual, which is the words of the contract, is what happened.
GUMMOW J: All right.
MR WALKER: That is what this money trail reveals.
GUMMOW J: You are lucky Lord McNaughton is not here I think, Mr Walker. He gave a famous judgment about this sort of activity.
HEYDON J: Or Lord Justice Scrutton. Just to clear one little bit of colour, if that is what it is, out of the scene, you have talked about relying on words others have used. The contract being partly performed when the million was paid, but that was really after Dr Landa had picked up Mr Cincotta by the heels and shaken him a bit, was it not? The money did not come out of any Perpetual account, it came from Hong Kong.
MR WALKER: Probably so, your Honour.
HEYDON J: It is not as if the investment was going jolly well. After all, a million dollars is a lot of money. It was just a bit of a problem that the other two and a half million did not come through.
MR WALKER: Your Honour, the fact is we are being sued for a balance left over by reason of breach of the investment contract. It is said, we say inconsistently with the assertion of an investment contract and breach of it, that the delivery of the cheques necessary for there to be an investment to which obligations could attach which, in turn, might be breached – it is said that never occurred. There was conversion. It was not delivery pursuant to the contract to which contractual obligations attended, it was us acting in breach of his rights to immediate possession of the cheques.
The point we seek to make which, in our submission, is clear on the framework shown by the way Dr Landa acted at the time and the way he acted both before and during the litigation. He is, as it were, seeking to have his cake and eat it. I am going to come to the way in which an election is sought to be delayed. In our submission, it is the wrong election. This is a case where, on the basis of the fraud involved as held, we say, beyond the pleadings – I have already pointed out the limitations of the pleadings. On the basis of the fraud referred to by the Court of Appeal there were certainly some voidable transactions, one of which was the investment contract. An election arose out of court to avoid it. It was exercised so as to affirm it by suing on it. You cannot sue without prejudice to your contention that it is not binding.
It is for those reasons, in our submission, that when one comes to examine the conversion question the proper inquiry is was the delivery in question, notwithstanding the authority was itself induced by fraud to be given, was it delivery pursuant to the authority? It is at that point that the way in which the Privy Council on appeal from Jamaica in Dextra Bank & Trust Company Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193 dealt with the matter. There was delivery, as the hapless principal thought, for one purpose alone to a hapless recipient who thought – induced by fraud for another purpose, purchase.
It was delivery per agency of the very frauds in question. You see them named: Beckford, Phillips and Wildish, at the end of paragraph [8] on page 196. The fact that Phillips did not follow the instructions, which limited the authority generally with respect to the transactions in question – see paragraph [10] on the next page – a matter which is at the heart of their Lordships’ reasoning – see paragraph [15] on page 198 and then picking up the reasoning at page 199, paragraph [19] is a reference back to the relevant Bills of Exchange legislation.
Subsection 21(2) is printed on the same page at letter b and, of course, makes crucial the same issue in that case as was crucial in this case: delivery. Therefore, it was the authority to deliver, in that case as in this case, which was critical to the question whether what was done upon delivery amounted to conversion or not. If there was no delivery in the proper sense of an authorised handing of a bearer cheque to the named payee, if there was none then one conclusion would follow in relation to conversion. If there was delivery then the opposite would flow, leading to a different kind of remedy to be pursued.
Then one sees, exactly analogously with what has been raised with me by your Honours this morning, the obvious proposition being raised against the notion of authorised delivery in that case, but this was delivery – the only delivery that was authorised was for the proper purpose to which this draft was to be devoted, not for the criminal theft which was in course. One sees that in paragraph [20] commencing “Argument in the appeal focused”, and a reference to the strong argument that delivery –
was not made by it or under its authority as drawer because delivery was in fact made by –
and this is a point which is not analogous with our case – a particular person not authorised – and I may summarise the reasoning on that point by saying that, in effect, their Lordships said, it would not matter if it was a postman. But then one comes back to the notion of the fraud having induced matters. At the end of paragraph [20] on page 200, about letter a:
Nor did it make any difference that Phillips, as an agent authorised –
their Lordships said –
to make delivery -
Now, we know that Phillips is a crook. He is undertaking delivery whether he uses Beckford or not. He is undertaking delivery for his own criminal purposes, but he was in fact actually authorised, not ostensibly, actually authorised to deliver it for proper purposes. That means he was authorised to deliver it. The authority by which somebody does something vis-à-vis an innocent third party such as Perpetual in this case surely cannot involve knowing the unknowable, namely that this delivery is in order to fund a loan transaction as opposed to a purchase transaction, for example.
HEYDON J: We were talking for a long time about express authority, and I thought we still were, but now we are moving to imply to ostensible, apparent?
MR WALKER: No, this is a reason why one concentrates on authority for delivery rather than authority for an overall transaction of which delivery is but part. In relation to the cheque, the cause of action being for conversion of cheque - it is not a cause of action for interfering with the contractual or relations or property interests of the plaintiff by participating in a nefarious scheme. The cause of action is simply converting the cheque. The proper inquiry about authority is authority to deliver the cheque, because if the cheque was delivered it was not converted.
HEYDON J: So if there had been any conversion, at what point would it have taken place?
MR WALKER: We think, picking up on the discussion yesterday, we respectfully suggest that the conversion would have been at the point in the process of presentation for collection to the paying bank, at which it would be not possible for the hypothetical fish hook to reach into the banking chamber.
KIEFEL J: In what capacity would Perpetual Trustee have presented the cheque for collection?
MR WALKER: As payee.
KIEFEL J: Only?
MR WALKER: As payee and the person to whom it had been delivered. That is, with great respect, an excellent reason for anyone to present a cheque; that they are named on the face of it as the person to whom its proceeds are to be paid and it has been given to them. In fact one might say it is the best reason.
KIEFEL J: I understand that. I just wondered if there was a potential for a dual capacity given that there is an application form in the name of Mrs Cincotta, that it is also trustee.
MR WALKER: I apologise, your Honour, I misunderstood your question. In terms of presenting the cheque as a cheque, my answer is simply they are the named payee and that the cheque has been delivered to them. In terms of dealing with the proceeds of the cheque, and to pick up on something I hope I will be able to use it to my advantage rather than against me as my friends did, of course dealing with it as trustee, and I will come back to that in a moment.
Paragraph [22] in Dextra, the matters to which they draw attention are exactly analogous to the circumstances of this case, picking up on what I have just said to Justice Kiefel:
the cheque [was] payable to the BOJ. The cheque was regular and complete on its face. Dextra entrusted this cheque to Phillips –
Now, I remind you, he is one of the crooks –
whom it authorised –
Their Lordships do not jib at the notion you cannot authorise a crook to do something, it is the delivery that is relevant when one is asking about a conversion of cheque case:
Such authority was circumscribed by conditions relating to the obtaining of a promissory note, but subject to those conditions delivery was authorised. It is plain –
and we have stressed that because, in our submission, it would be unfortunate if this Court’s decision stood against what their Lordships regarded as plain –
(and not, as it is understood, contested) that if Phillips had personally delivered the cheque –
Now, their Lordships are there dealing with that argument about the interposition of Beckford –
to the BOJ, although without observing or notifying to the BOJ the conditions to which his authority to deliver was subject –
that is, of course, our case –
the BOJ would have acquired good title to the cheque provided it gave value and had no notice of Phillips’ limited authority.
The value here, of course, is it is dealt with by acceptance of the obligations imposed upon banking of the money pursuant to the application form. There is the value. The fact that the value is given in favour, in effect, as my friends put it, of the crook itself does not prevent that from being the case. Their Lordships cite exactly what the Court of Appeal cites going back, as we have put it in our submissions, to 1862 and the good title is obtained, in our submission, precisely because there was an authority to deliver, albeit either the giving of the authority had been induced by fraud or fraudulently it was subject to limits unknown to the recipient of the cheque which limits were being breached.
It is for those reasons, in our submission, that it is not simply a matter of saying that fraud dissolves all and prevents there from being delivery and thus good title when the crook takes a cheque and doing what the gulled person intends to happen, that is, takes the cheque to the destination the gulled person intends to be the destination, does so, as we know in hindsight, for the uncommunicated, nefarious purpose of stealing the funds.
HAYNE J: Does Dextra stand for any proposition wider than that valid negotiation of a negotiable instrument does not make the person to whom the instrument is negotiated a converter?
MR WALKER: Yes, it specifically stands for a named payee having delivered to it a cheque unaware of the limits or conditions on the authority to deliver derives good title.
HAYNE J: In particular, does Dextra trench in any respect upon what Lord Atkin said in Midland Bank v Reckitt about standing at the counter, as Justice Heydon indicated to you?
MR WALKER: No, of course, it does not. That is because we are talking, after all, about authority and there is no suggestion of an irrevocable authority either in the sense of a promise not to revoke or somehow a bar on revocation being valid and like all authorities, it can be revoked, there and then. It could be revoked at the counter. It could be revoked and the mythical fishhook employed up until the time at which, in the process between the banks, the collecting and paying banks, the cheque ceased to be a negotiable instrument with a face value and became simply an historical voucher.
It is for those reasons, in our submission, that proper concentration as the Privy Council’s analysis illustrates in Dextra, on what which the relevant authority concerns, namely delivery, as opposed to that which is unthinkable, namely cheating and defrauding, defeats a conversion claim in this case for reasons which, subject to our addition of actual as opposed to ostensible authority, are those employed by the Court of Appeal.
FRENCH CJ: Mr Walker, forgive me for a moment if I just go back to the question of locating findings about fraud and the timing of fraud. Just briefly, at 1361 in his discussion of actual authority in paragraph 43, the primary judge is referring to Mr Cincotta’s actual license from Morgan Brooks and the proposition that he had no authority to enter into or offer the kind of “product” that was offered at the coffee shop, and then says:
I accept that the use which Mr Cincotta made of Morgan Brooks’ name in order to solicit funds from Dr Landa was just as much a fraud on Morgan Brooks as it was on Dr Landa.
In other words, he had no authority to do this. He is giving the impression he does, and they proceed on that. Then look forward to paragraph 121 in that first sentence, and I am wondering whether, absent any other explanation, the fraud that the Court of Appeal is there referring to is that fraud, that is to say, a representation that he has authority to do something on behalf of Morgan Brooks which he does not.
MR WALKER: That is a fraud which can be said truly to lie at the inception of things ‑ ‑ ‑
FRENCH CJ: Yes.
MR WALKER: ‑ ‑ ‑ because that exists at the time of the coffee shop conversation, and as your Honours ‑ ‑ ‑
FRENCH CJ: Yes, I am just wondering whether that is fraud at 121 on your submission.
MR WALKER: Otherwise the Court of Appeal is going outside the pleadings in a way that was not signalled and would have been wrong. That is a reading which, with respect, reconciles the pleadings and the findings below with the reference to “fraud” in the first sentence of paragraph 121.
HAYNE J: Is the fraud to be understood in the light of 116 of the Court of Appeal, that is, by reference to the fundamental mistake of fact which underpinned each of the payments, namely a belief that Dr Landa would receive an investment for his or its benefit in the cash management fund and it did not.
MR WALKER: The short answer is no, your Honour, because of paragraph 120. I referred to that yesterday.
HAYNE J: Yes.
MR WALKER: I took your Honours to the pleading yesterday, whether it be mistake or the one reference to fraud about what I will call the fate of the money. It is a pleading both as to mistake and fraud as to what would happen. The word “would” is used – it “would” be invested in such and such a way. In 116, that is a paraphrase, a very close paraphrase of that pleading. You see, in fact, the word “would” there – “the belief that the respondent would receive” et cetera.
Bearing in mind that their Honours have already noted what the contact was, paragraph 20, it did not require – Dr Landa did not expect that there would be something in his name, under his control. Then in paragraph 120, and your Honours have seen that we rely upon this in our written submissions, in paragraph 120 on page 1463, their Honours say of the pleaded beliefs I showed you yesterday, “were not reflected in the contract entered with Morgan Brooks”. It is a rejection of the premise for the “money had and received” claim that is found in paragraph 39 of the pleading.
HEYDON J: Paragraph 120 does not strictly contradict paragraph 116. Paragraph 116 is much narrower than paragraph 120.
MR WALKER: Yes. In any event, paragraph 116 is a paraphrase of how a claim is put. It is not a finding at all. The claim was put at follows – and then they say what the claim is. Paragraph 119, of course, shows the Court of Appeal accepting an argument – one that we put in this Court as well – that there has been an affirmation of the investment contract by it being sued on. As their Honours say, in paragraph 119, “the payments were made under the contract that exists”. It was not part of that contract that there would be accounts in the name of the respondents or that the funds would be held on trust and not mixed. No terms said as such.
The investment was in, or with, Morgan Brooks and only 8% per annum was required to be paid (irrespective of any return from the Perpetual investment).
In our submission, when one puts 116 through to 121 together, one finds their Honours proceeding on the basis that the pleaded mistake, and we add we know that is in the same terms as the pleaded fraud, was not made good by the contract as found. In other words, “You, Dr Landa, did not believe what you pleaded in paragraph 39. That is not what you said you expected”. There is a plain failure of proof – it did not come up to proof – of the pleaded belief.
That is the meaning of the non‑reflection in the contract entered with Morgan Brooks in light of the differences between his evidence‑in‑chief and his cross‑examination referred to in paragraph 19, going back to paragraph 20 of course, earlier in their Honours’ reasons.
FRENCH CJ: Incidentally, those statements you took us to earlier with the mortgage offset account, they preceded some of the payments made by Dr Landa, did they not?
MR WALKER: Yes, your Honour, but part of the ‑ ‑ ‑
FRENCH CJ: That is another, sort of, element of fraud in that ‑ ‑ ‑
MR WALKER: Unquestionably. I think that is what the “con” means in “conman”, your Honour. It engenders confidence.
FRENCH CJ: Yes.
HAYNE J: Can I just understand this, Mr Walker? Do you say that the Court of Appeal proceed on the basis that it is not proved that there was no investment for or for the benefit of the Landa interests?
MR WALKER: No, I do not say that at all, your Honour. Perhaps I need to go to 118, which is what 119, 120 and 121 ‑ ‑ ‑
HAYNE J: Leave aside whose name this account was in.
MR WALKER: I am sorry, your Honour, yes. That was the point I was going to make.
HAYNE J: The commercial root of it is was there an investment for the Landa interests.
MR WALKER: Quite.
HAYNE J: Was there?
MR WALKER: No. It was taken. Partly, he benefited, but it was taken.
HAYNE J: It was taken, but was there an investment? At the point of investment, was there an investment for the Landa interests?
MR WALKER: Yes. In law, under the investment contract, could he have said to everybody in control of that account “That is mine. You cannot account it to anybody else”. The answer is yes, he could have. The investment contract which exists – which he in fact insisted was entered into by Morgan Brooks, successfully insisted – entitled him to say of any account into which his money went at Perpetual “You cannot deal with that except in my favour. That is for my benefit”. He would be right. By promise of Morgan Brooks, by the agency ostensibly of Mr Cincotta, that is exactly the position of that account. If you are asking me in fact was it held for the benefit in the sense that it only ever went to his benefit, no of course not, that is why we are all here. Your Honours, one can steal from a trust account without it being said that the trust account is not for the benefit of the named beneficiary. Indeed, that is how thefts from trust accounts constitute a crime ‑ ‑ ‑
HEYDON J: That is a false analogy, Mr Walker.
MR WALKER: With respect, not, your Honour. It does not say that a trust account is not for the benefit of the person named as the beneficiary, that it has been administered by a person who has set it up in such a way – for example, with authorised withdrawal signatory rights – intending in due course to decamp the jurisdiction with the balance of the funds. That does not mean it was not for the benefit of the beneficiary. It may mean that there was an uncommunicated and wicked nefarious intention in relation to it, but of course it is for the benefit. At any time, both in law and in equity, depending whether it was contract or trust, that would be the situation.
The same is true here. How could Morgan Brooks or, if it matters, Dominic Cincotta, possibly have been heard in any legal forum to say “In fact, these moneys are not held for Dr Landa’s benefit. They are held for mine, Dominic Cincotta’s, or my wife’s, Ms Belle’s benefit”. That would be absurd. It would be just as absurd as Morgan Brooks saying “Actually, no, it is ours beneficially”.
FRENCH CJ: So one unwinds from the original coffee shop conversation, the kind of golden thread of authority which takes us to the point of delivery.
MR WALKER: Your Honour, I feel nervous agreeing with it in such rhetorical terms ‑ ‑ ‑
FRENCH CJ: It is too elaborate for fraud I was going to say.
MR WALKER: ‑ ‑ ‑ but the truth is, yes, that is the chain of title. I hope we have made it clear in writing, I hope I have emphasises it in address. Of course we depend upon the investment contract as a source of authority. It is said against us that cannot be so, but nothing is more natural than the investment contract that says, deal with my money in the following way, has been the source of the authority to deal with my money in that way. That is, in our submission, a simple but not simplistic proposition. Authority, one would expect, will emerge relatively clearly from such circumstances and its precisely what the Privy Council was doing Dextra. There is authority notwithstanding there was on foot a sting operation. The whole thing was rooted in crime.
HEYDON J: Bank of Jamaica was not a trust institution, it was a trading bank.
MR WALKER: I accept that entirely, your Honour. I have to deal with that.
HEYDON J: Mr Burton put a lot of effort into contending that the line of cases from 1862 is perfectly correct in its proper domain, but its domain does not extend to trust institutions. What is your answer?
MR WALKER: May I try to deal with that now then. Holding for someone else or required to hold for someone else or never for self are ways of describing the matter forcefully put by my learned friend, Mr Burton. First of all as to the factual or legal premise of it all, of course Perpetual stands here today to say it received the funds never for itself beneficially, and it can be seen from the evidence that it never thought it received it beneficially. Notwithstanding of course it can receive money beneficially, this was never it. So one would be looking for a case where the innocent – I stress, the innocent – recipient named as the payee, who is, as my friend puts it, intrinsically never going to hold for self in the beneficial sense, is treated less favourably than a person who would be receiving it for themselves when it comes to questions of conversion, because my learned friend is addressing with respect to conversion.
There is no reason in policy why that should be so. Why should somebody who is going to hold on trust be in a more fragile position in relation to the legal title in question than somebody who is going to have an unseparated legal and beneficial title? If anything, the policy of the law would tell the other way; it would be more jealous than the security of a trustee’s legal title.
HEYDON J: Trustees are supposed to be watchful of the interest of beneficiaries and Dr Landa was a beneficiary.
MR WALKER: Exactly so. Your Honour, it is going to be a long answer because I have got to tease out the various trusts and I am obliged to your Honour for raising that matter now. Yes, one of the ways this case might have been analysed – I do not think it was, but might have been analysed – was that there was a resulting trust in favour of Dr Landa, either of the cheque itself or of its proceeds. But when we talk about, as my friend puts it, Perpetual intrinsically receiving, it being its business to receive money for others, to hold for others, not for self, we are of course talking about it as the statutory trustee governed at the time by section 601FC. We are talking as well about the express trust with all its financial investment style obligations, managed investment style obligations, created by, as Perpetual believed it would be, the acceptance of an application accompanying supplied funds or, to use the statutory expression, that there would be a statutory trust, a trust imposed by statute for the members of the funds so held.
Now that, of course, is different from the resulting trust. It gets worse and more complicated, not worse for Perpetual in our submission, better for Perpetual in its present position because when one considers and I stress that none of this was done below, it is really in answer to some matters that Justice Gummow has raised yesterday that I want to go to this. When one contemplates the notion of the statutory trust upon which Perpetual intrinsically, says Mr Burton, in the course of its business, says Mr Burton, receives such funds, it is for the members.
Now, immediately in this case, one asks some pretty odd questions and I stress again they were not asked or answered below: what, Mrs Cincotta is a member? Surely Mr Cincotta is not, that would be outrageous. Mrs Cincotta is the name on the application. The statute is surely concerned with members in terms of the way in which one comes to be named on registers and records rather than uncommunicated other arrangements be they contractual or trust about which the statutory trustee could never know anything.
Then there are all the obligations imposed in relation to managed investments under Chapter 5C which one can see picked up in 601FC of a kind that reflect the general law concerning trustees acting honestly, degree and skill of commensurate person, acting in the best interest, avoiding conflict and, of course, holding on trust. Under section 601MA members have a right to sue for contravention.
Now, in our submission, though the way which the issues were framed below never called for this to be resolved and it really perhaps should not be resolved in this hearing, particularly as not all the parties are present, it may be, I say this tentatively, that because the statute must operate on the face of actual records, that Mrs Cincotta would be a member for the purposes of what I will call the statutory trust, the trust compelled by statute and not arising by the doctrines of equity, the doctrines of equity being called up by analogy by the terms of the statute but the statute imposing what it calls a trust.
HAYNE J: That would require close examination of definition of “member” in section 9 of the Corporations Act and paragraph (a), I would have thought, (a)(i) of the definition of “managed investment scheme”, in particular whether Mrs Cincotta was among the class described as people contribute money or money’s worth as consideration for, et cetera.
MR WALKER: Your Honour has anticipated me. There are major difficulties, those that Justice Hayne has raised plus whether it can be said, by looking at the definition of “interest”, a word used in the definition of “member”, whether Mrs Cincotta could be said, or the statute should be understood as comprehending Mrs Cincotta within a class who holds a right to benefits produced by the scheme.
Now, there are real difficulties caused because, not surprisingly, the statute does not have a provision that shows explicit consideration of what might be called dummy applications, fake or forged applications, or applications made without any knowledge and thus without any authority - we can leave ratification aside - of the person named as the applicant. If somebody opens an account in my name, am I a member?
These questions were not ventilated below. Not all the proper parties are before the Court to enable them to be resolved here, but, in our submission, one way through is to say, well, this money must be held for someone and there is a statutory trust said, there either is a member or not with respect to this money. There are two possibilities. It falls right outside the statutory scheme and is simply held on the resulting trust that I referred to earlier when starting my answer to Justice Heydon, and that might be satisfying. Another possibility is to say, no, the statute operates regardless of the artificiality. But then Mrs Cincotta would, of course, hold on trust for ultimately Dr Landa.
GUMMOW J: Sub‑trust situation.
MR WALKER: I am sorry, your Honour.
GUMMOW J: It is a species of sub‑trust.
MR WALKER: Yes, exactly. Her rights, which are in the nature of this statutory trust, are themselves held on trust imposed by the general law because of the provenance of and the tracing of the money in question. Either of those methods see justice done. Mrs Cincotta is of course not gratuitously enriched and these are second and third ways in which the money, if it would otherwise go back to Dr Landa, would go back, apart from her receipt as volunteer which is left open by the appellate judgment against her.
Coming back then to the major plank in the case against us that there is a distinction between cases where a named payee may hold for self and where a named payee will not hold for self, in our submission, in fact none of the cases specified in paragraph 8 of the appellant’s written submissions, none of those cases resemble essentially, that is, in essential characteristics, this case, largely because in each case the named payee is party to the fraud; is either the fraud or is knowingly involved in the fraud.
If we go to some of the other cases that my learned friend added, as it were, in explication of this proposition, The Chartered Bank Case [1929] 1 KB 40, the passage at 56 shows, unlike anything that applied in this case, there is nothing in this case resembling the notice of a man’s employment and the amounts in question exceeding what might have been salary. As to the Midland Bank v Reckitt Case, to which reference has been made several times and upon which my learned friend relied in this regard [1933] AC 1, the person in Dr Landa’s position had nothing to do with putting the cheque into circulation. It was the rogue who procured the cheque to be put into circulation.
So none of those cases deal at all with the essential relations of parties that can be seen in this case schematically as follows. The victim, if I may call Dr Landa that, means to deliver investment funds by means of a cheque to Perpetual who he knows, and it is the fact, must bank that cheque into their own account – proceeds held on trust, of course – in order for the investment to be carried out. He draws a cheque which permits that to be done without any negotiation whatever. He names the payee. For good measure, if it matters, he adds “or bearer”. He gives it to Cincotta, not as bearer or in any other status in relation to the cheque itself, but simply as the delivery boy. The boy delivers in accordance with what Dr Landa intends and wills, and if all had gone well, as it appears to have in some regards, that delivery is, as we have seen from his pleading against Morgan Brooks, an essential part of authorised conduct entitling him to performance of the investment contract and its benefits.
Perpetual, of course, as Dr Landa intended, receives the money not for itself. I interpolate that the facts are so exiguous in relation to the contract and the representations about it and the expression “investment” is so vague that it need not have been so, that is, it may well have been if it was a simple loan. It was not, we know, but if one just looks at the contract and ignores the managed investment scheme framework, of course, if one is investing by lending to somebody, you do intend them to take the money for themselves. It will become their money, they will be subject to contractual promise to repay and to pay interest.
We do not go that far in this case, but it is worth pointing out that investment does not of itself bespeak that the organisation at, to use the preposition of the contract, at which the investment is being made will necessarily be receiving payments on behalf of somebody else. In this case, that was the statutory requirement. It was also the arrangement that Perpetual had, as it were, at its counter with its application form.
It is for those reasons, in our submission, that one can see that the taking by Perpetual to hold for somebody, ultimately for Dr Landa’s behalf – that is the key which, in our submission, links together the passages 116 to 121 in the Court of Appeal reasons – ultimately for Dr Landa’s behalf is precisely what did happen. Whether it was Mr Cincotta, Mrs Cincotta, Heperu, if he had opened it in Heperu’s name, or Morgan Brooks’ name, none of those people could ever have been heard to say this was not ultimately for Dr Landa’s behalf.
Thus, one can see that none of the authorities speak to that situation at all and, not surprisingly, because what I have just traced through is an exercise by which Dr Landa got what he wanted at the point of receipt by Perpetual and banking by Perpetual, that is, by presenting for collection by Perpetual of his cheques, including the bank cheques.
HAYNE J: What is the difference you point to between the facts of this case and those considered by Lord Justice Scrutton in Lloyds Bank [1929]
1 KB 40 where the cheques in question were payable to the defendant bank, Chartered Bank of India?
MR WALKER: Yes. The first thing to say about all the Bank Cases, of course, is that they need to be approached in their application to this case, understanding that we are not a banker with the expectations of knowing a customer.
HAYNE J: I understand that.
MR WALKER: Having made that by preface ‑ ‑ ‑
HAYNE J: The Lloyds Bank Case concerned, as appears from line 4 on page 55, 19 cheques made payable to Chartered Bank of India.
MR WALKER: Yes.
HAYNE J: So the recipient bank is the payee held liable in conversion, is it not?
MR WALKER: Yes, because of the notice they had, your Honour.
HAYNE J: Being as Lord Justice Scrutton pointed out at page 57 that the only authority to use them for the benefit of Lawson, the rogue, cheques which on their face had no connection with Lawson, was the fact of the signature by Lawson, himself. Is that right?
MR WALKER: No. At the foot of page 56, perhaps halfway down:
In my view it is established that a third party, dealing in good faith with an agent acting within his ostensible authority, is not prejudiced by the fact that as between the principal and his agent the agent is using his authority in such a way that the principal can rightly complain that the agent is using his authority for his own benefit and not for that of his principal.
That is this case.
Probably the plaintiff bank could not successfully sue the Imperial Bank of India for honouring these cheques signed by persons who had ostensible authority to sign, because in fact one of them was using his ostensible authority for his own benefit. But it is otherwise where the third party has notice of irregularity putting him on inquiry as to whether the ostensible authority is being exceeded. Now in the present case a subordinate official of a bank is steadily paying cheques -
The 19 cheques –
of a bank by which he is employed, made payable to the collecting bank, into his own account at that collecting bank. They are not cheques which on their face have any relation to Lawson, except that he is one of the officers signing; and their amounts are such that they cannot be payments of salary.
That, in our submission, is an understanding of the decision in that case, which easily permits it to be reconciled with the thesis we put concerning actual or ostensible authority to effect delivery of these cheques to a named payee for a purpose of investment called for by the investment contract under which those cheques were made available, and given to Cincotta for that physical, statutory, legal delivery. Would your Honours just forgive me while I pick up the threads.
FRENCH CJ: The golden threads.
MR WALKER: I think that is a presumption of innocence, your Honour.
FRENCH CJ: Yes.
MR WALKER: Your Honours, I would like to complete, if I may, the facts concerning Dr Landa’s side of things. This really is important to the question of authority. Could I take you in volume 1, please, to page 103. There is one of the components of his understanding of the deal he was making. Page 103, about line 35:
It was clear to me it was 8% per annum and for every million dollars invested the investor would receive 1,000 Perpetual shares, but I don’t know of the rounding off -
Over to page 107, line 20, and bearing in mind what I said earlier about “loan” as opposed to “trust”, it is interesting Dr Landa was not fussed about the difference. Line 20:
Q. Did you have some understanding of what a thousand shares would be worth?
A. Well, I took it that Cincotta said it would go for, the loan would be in the vicinity –
He is using the word “loan” there interchangeably with “investment” –
of a 12% return, which was 8% plus the share, but I didn’t look at the share price.
Q. Is it fair to say that you were leaving it up to Mr Cincotta to perform on his promise to issue the shares accordingly?
A. Yes.
You do not ever get to learn much more about this promise concerning shares. In relation to Cincotta’s reward, if I can call it that, that is, the legitimate one, page 105, line 38:
Q. What was your understanding, if any, as to what Mr Cincotta or his company was to get out of the transaction? Did you assume he was going to get some fees somewhere from someone, possibly Perpetual or the like?
A. Yes.Q. Is it the case that you didn’t inquire as such or ask, “What are you getting out of it?” You left that up to him, that is, Mr Cincotta?
A. Yes.Q. Is that correct?
A. Correct.Q. So it is fair to say that you did not expect him to be telling you necessarily what fees or benefits he may be getting from Perpetual. He told you what you would get and that was enough for you?
A. Yes.
In relation to the engendering of false confidence one can go to page 109 at about line 28. At the top of the page he is talking about the million dollar subsequent investment:
Q. Up until this time, is it consistent with your recollection that the investment and the borrowing was performing as represented by Mr Cincotta?
A. Yes.Q. So you were making the 2% difference between the loan and the investment, correct?
A. Correct.Q. And you were getting that every month?
A. I presume so.Q. On top you were getting shares, correct?
A. Correct.Q. So you were satisfied with that and decided to invest more, is that fair?
A. After that -
et cetera. His complacency in relation to accounting to him, page 115, picking up at about line 48:
right up until December 2003 you never saw any Perpetual statements of account, correct?
A. I don’t know what you mean. I mean, each statement had Perpetual offset -
That is the reference that I drew to your attention this morning. That was the so‑called dollied‑up Morgan Brooks documents.
Q. One issued by Perpetual, with a Perpetual letterhead or logo, indicating a statement of account held in a Perpetual account?
A. Only the share certificates.Q. And it is the case, is it not, that you never asked Mr Cincotta for any statement of account with Perpetual, issued by Perpetual?
A. Yes.
I think that is an agreement.
Q. So you agree with what I am saying to you?
A. I never asked for a statement of account from Perpetual.Q. It is the case, is it not, that you never completed any Perpetual application form?
A. Correct . . .never asked Mr Cincotta to give you a copy of any application form . . .
A. Yes.never asked to see any prospectus . . .
never followed up with any documentation . . .
it was also for Mr Cincotta to decide the form of the account or the style of the account. That’s fair, isn’t it?
A. I’m not sure what you mean.Q. I am suggesting to you . . . Mr Cincotta was free to decide, firstly, the precise form of account, cash management, this type or other type.
A. No, that’s not my perception at all. My perception is investing the money with Perpetual Trustees on behalf of me or my companies, as the rest of my family was.Q. What I want to suggest to you is that you didn’t have an expectation that Mr Cincotta would necessarily open an account in the plaintiff’s name. You were just leaving it up to him to do what he thought was necessary?
A. That would be – yes, I think‑‑Q. You would agree with that?
A. Yes.
Then there is the reference to what Justice Heydon noted earlier, at the top of page 117, concerning the previous example of Anne and Clara drawn to his attention by Mr Cincotta. Page 118, about line 17:
Q. And, as you understood, is it fair to say that when it comes to discerning the precise corporate entity that may go under the name of Morgan Brooks, that you were really, in terms of trust, looking for entity that Mr Cincotta was responsible for and controlling; is that correct?
A. In respect of Morgan Brooks?Q. Yes.
A. Yes.Q. That is, in terms of who you were trusting was Mr Cincotta?
A. Yes, as a director of Morgan Brooks.
So he intended that Mr Cincotta would be in control by doing everything that was necessary and being in control of the Morgan Brooks entity, whatever that meant. In relation to the faith upon which he made the payments, page 122 at about line 26:
Q. . . . you handed over those six cheques to Mr Cincotta, and tell me if this is right or wrong, essentially on the faith of his oral promise to repay you in accordance with his word?
A. Yes.
Q. That’s the sum total of it, isn’t that right, Dr Landa?
A. Yes.
Q. So that you took no steps to investigate the ability of Mr Cincotta to repay the money; isn’t that right?
A. No.
GUMMOW J: What is being said at 122 perhaps has to be read with 115, about line 38.
MR WALKER: Yes, your Honour.
GUMMOW J: The beginning of line 30, actually, “The money is on call at Perpetual.”
MR WALKER: Yes.
GUMMOW J: The bank cheques:
Q. You caused the settlement proceeds to go direct to Cincotta?
A. No, to go to Perpetual Trustees of Australia Ltd.
MR WALKER: Yes, it does, your Honour. Then as to his what I will call commercial understanding, page 123, about line 21, “He”, that is Cincotta:
He always gave the impression he had a very close relationship with Perpetual, that he attended Perpetual conferences and meetings, and he had extraordinary – writing all those mortgages through Perpetual. When I organised the first mortgage, I made an inquiry of Perpetual Trustees of Victoria to find out the relationship was . . . therefore, I felt that I was borrowing from the right hand of Perpetual, giving to the – right hand unsecured giving it to the left hand unsecured –
I think he probably intended – he must have misspoken, as the Americans say – I think he probably intended to draw the distinction between secured and unsecured –
because at that stage I didn’t know Perpetual Trustees of Victoria was anything less than Perpetual Trustees of Australia.
in terms of the companies –
I mean, it is like when I go into Westpac –
et cetera. Then page 124, about line 13, perhaps in an understatement of this whole case:
Q. . . . you did not pay sufficient regard or exercise sufficient due diligence about t this investment because you did not proceed to go further than what you have described to the court in investigating the abilities . . .
A. In hindsight, yes.
GUMMOW J: He seems to have been saying that he thought he was dealing with Perpetual in its various capacities.
MR WALKER: I am so sorry, your Honour?.
GUMMOW J: He seems to be saying he was borrowing from Perpetual on the one hand and investing it back with Perpetual in the other.
MR WALKER: That is certainly what 123 says, including his analogy with Westpac, yes. There is no doubt about that. Now, your Honours, on the other side literally of the counter we have what the evidence reveals concerning Perpetual.
HEYDON J: You said that this Dr Landa evidence was very important for some purpose. What is the purpose?
MR WALKER: Authority. This shows crystal clear, we submit, that he wanted Mr Cincotta to take these cheques one way or the other to Perpetual and had no expectation that they would be necessarily invested in his, Dr Landa’s name.
GUMMOW J: The last step just puzzles me really.
MR WALKER: It is a finding, your Honour, it is not challenged. It could not be challenged in our submission.
GUMMOW J: A finding by whom?
MR WALKER: It is noted by the Court of Appeal, your Honour. It is made by the Court of Appeal, paragraph 20.
GUMMOW J: By the primary judge?
MR WALKER: Your Honour, I do not think so, is the short answer.
GUMMOW J: Made by the Court of Appeal?
MR WALKER: Yes, your Honour.
GUMMOW J: One might say, so what? Made by the primary judge. We have as much material as the Court of Appeal.
MR WALKER: But in order for your Honours to do something differently there would need to be a ground of appeal for which special leave has been sought and having been sought has been granted, that is not refused, to challenge that finding and there is none.
FRENCH CJ: Where is the finding in the Court of Appeal?
MR WALKER: Paragraph 20, your Honour. This needs to be read with 21. That of course is what is being referred to by their Honours in paragraph 120 to which I referred earlier, 1463. Paragraph 120 is about his belief, 21 is about the effect of discussions with Mr Cincotta.
HAYNE J: The steps in your proposition seem to be, do they not, paragraph 20, there was no understanding, using that as broadly as I can, that what was done at Perpetual would necessarily be done in my name. Step two, something that occurs at Perpetual is not done in Dr Landa’s name. Is that right?
MR WALKER: That is right, yes.
HAYNE J: Step three, that is, therefore, authorised regardless of whether Cincotta did it for the purposes of fraudulent abstraction?
MR WALKER: Your Honour, I want to split my answer here.
HAYNE J: You want to split hairs, I think, Mr Walker, and that is the difficulty.
MR WALKER: No, not at all, your Honour. No, it is about parties, your Honour. So far as the claim against Morgan Brooks is concerned, Dr Landa says these payments in question in the claim in conversion against us by cheque were payments to which the obligations, which produced obligations on the part of Morgan Brooks which they have breached. That involves necessarily, indeed explicitly, the proposition that these are, to use his language, investments made by him at Perpetual pursuant to the contract, see paragraph 22 of their written submissions.
Now, that is the first part of my answer to Justice Hayne. It says it is Dr Landa who says these are payments which reached Perpetual in such a way as to be investments upon which I am to get the stipulated return. He is not saying these are payments outside the ambit of and exciting no obligations under the investment contract, he is saying the very contrary. As for us – and this is not splitting hairs, this is pointing out difference of parties and cause of action – we know nothing about the investment contract and we know nothing about it having been made, query, induced by fraud, not least because the proceedings did not allege that when the contract was made Mr Cincotta had no intention of performing it at all or, perhaps more precisely, had the intention from time to time of tickling the till.
GUMMOW J: No, but you do know where the moneys have come from and where they are meant to be going back to, do you not?
MR WALKER: We do not have any doubt about that, your Honour. We do not doubt the proposition that this is money which, under the investment contract, must produce economic benefit by way of repayment of capital, interest and shares for Dr Landa.
GUMMOW J: No. Your client was wearing two hats. Perpetual Victoria was wearing one hat.
MR WALKER: I am sorry, yes – the lender.
GUMMOW J: The funds were flowing out and flowing back.
MR WALKER: The lending transaction is not shown to and has never been said to involve any knowledge on our part – and I accept that the difference between the entities does not matter. It was never suggested that we knew about the investment contract at all, let alone Mr Cincotta’s delinquencies. Going back to try to answer Justice Hayne’s question, in the utterly distinct cause of action against a completely distinct party with no connection, namely against Perpetual for conversion of the cheques, what matters is the authority to have delivered the cheques.
It is at that point that there is a link, entirely because of the way Dr Landa has acted out of court and in court, between his separate claim against Morgan Brooks and his separate claim against Perpetual for conversion of the cheques because he says, and he cannot say this differently at the same time, that these are payments which were made by cheque by way of investment under the investment contract. We say quite the investment contract imparts the actual authority for the delivery of the cheques, which delivery is critical to your proposition that the contract which you have deliberately affirmed, though it was voidable, is one which called for a return on those investments in accordance with its terms.
The vagueness of the language, both in‑chief and in cross‑examination, in our submission ought to be understood as the generality of the confidence expressed in Mr Cincotta to do everything that was necessary, accurately paraphrased by the Court of Appeal for their holding in paragraphs 20 and 21 of their reasons.
FRENCH CJ: Paragraph 20 was not a holding. That was a statement of what Dr Landa said in agreeing with certain propositions put to him. That of course is quite at odds with what his evidence in‑chief was in paragraph 19.
MR WALKER: The holding is in paragraph 21.
FRENCH CJ: Yes. It is not clear what that holding is. It says:
they can be taken to inform the context, and reveal the effect of ‑
Does that mean there is a rejection of the evidence in‑chief at 19?
MR WALKER: Yes, that the effect of the discussion revealed by those answers in cross‑examination is that it did not matter what name, and that Mr Cincotta was to do the needful. Then see also paragraph 121.
FRENCH CJ: You are only referring to these as his subjective understanding. In paragraph 21, these propositions are a subjective understanding.
MR WALKER: Paragraph 21, though, goes on past subjective understanding to treat that as revealing the effect of the discussions, that is, for the objective theory of contract, what passed between Cincotta and Landa at the coffee shop.
FRENCH CJ: So we can read that as saying, we do not accept that Dr Landa said, “I expect these funds to be invested in the name of the drawer of the cheque”?
MR WALKER: That is right. The final part of my answer to Justice Heydon, the significance of this material is that it shows the authority; we stress the actual authority, but certainly the ostensible authority.
FRENCH CJ: How does that line up the trial judge’s findings in relation to the evidence referred to in paragraph 19?
MR WALKER: The trial judge at no point, as it were, rejects or discards the concessions by Dr Landa noted in paragraph 20 in the Court of Appeal. So there is no conflict between them. It takes the evidence further. There is, as your Honours, with great respect, by your difficult questions to me – it is critical, central to my proposition and we will stand or fall on it in relation to conversion, it is critical as to whether there was authority to deliver. It may or not be critical as to whether the account needed to be in the name of Dr Landa. All that matters, we submit, is that there was authority actually to deliver to the named payee.
Why I have been at pains to stress the openness of the contract in relation to the name of account is we perceive, at least, that there is more strength to our argument concerning actual authority if we can say that what happened, namely, delivery of the cheque and, in effect, any name on an application form, is that which was permitted by and, in a sense, I have sought to explain, acquired by the investment contract itself and I add, for good measure, regardless of what might have been, and there has not been a finding, but regardless of what might have been his wicked intent at that point, that is, the various points where the cheques were brought to the counter. Neither he nor Morgan Brooks, having been held liable on the contract, nor Perpetual, nor for that matter could Ms Belle be heard to say that this was not to be held for the benefit of Dr Landa.
HEYDON J: One small point you made in relation to paragraph 20, you said there was nothing in the notice of appeal about this, they lost in the Court of Appeal on conversion only on the apparent authority point. They did not lose on express authority. So what is there to appeal against?
MR WALKER: That is a contention point by us in this Court, I accept. I think we have made that clear.
HEYDON J: Does that not mean you have to withdraw your submission, your complaint about it not being in the notice of appeal?
MR WALKER: No.
HEYDON J: You said it was an unchallengeable finding and, anyway, it had not been challenged in the notice of appeal.
MR WALKER: I am trying to think of the most concise way of putting it. The finding against them on apparent authority concerns the arming of Mr Cincotta with these cheques drawn to this payee without an applicant, that is, without a name for the account on the cheque. That is something which, in our submission, integrally involves the proposition there did not have to be a name because he was not stipulating. The contract did not call for there to be a name, let alone a Landa name, on the cheque. So it is part and parcel of the ostensible authority case. It is not confined only to an actual authority case. That is why, at least at present, I could not withdraw that submission, no.
HEYDON J: If the material in the notice of appeal challenging the Court of Appeal on conversion is an inadequate notice of appeal, we are going to have to put up with very, very, long notices of appeal. They join issue ‑ ‑ ‑
MR WALKER: May I give consideration to that, your Honour, over the adjournment as to whether or not, appropriately understood, there is a notice of appeal which encompasses a challenge to the finding, as I characterise it, in the combination of 20 and 21. May I just defer a further response to that?
HAYNE J: In connection with the claims that were made against Morgan Brooks, is the present state of play recorded in the orders at first instance at pages 1403 and following or have matters advanced beyond the noting of no intention to make an election until appeals, et cetera?
MR WALKER: The answer is this represents the extent of our knowledge and for reasons I am about to come to, that is probably in the nature of these highly peculiar things. As it happens I was going to come directly to 1403, may I do so immediately? For a slightly different, but I will deal with the rest of Justice Hayne’s inquiry now. One other response is, of course, there cannot be, and is not fresh evidence, but all we know is what is here. Could I come directly to what it is on 1403, 1404, that leads me to answer Justice Hayne in that fashion? By what is called an order, 9, it is said:
That the following orders 10 and 11 against the first defendant –
Morgan Brooks –
will take effect only in the event that the plaintiffs –
Dr Landa –
are unsuccessful in their proceedings against the fifth defendant –
my client, Perpetual –
but successful in their proceedings against the first defendant –
Morgan Brooks –
once all avenues of appeal are exhausted.
Your Honours are, of course, the last avenue of appeal within the meaning of these orders. Orders 10 and 11 on page 1404, and for that matter, 12, is judgment on the contract.
HAYNE J: For damages to be assessed. It is interlocutory judgment apparently postponed.
MR WALKER: Postponed in two senses: it is postponed as to it “taking effect” and it is postponed as to any money ‑ ‑ ‑
HAYNE J: But interlocutory judgment for damages I can understand.
MR WALKER: Quite, so order 12, yes. The second part is unremarkable, if inconvenient, but the first part is perhaps remarkable. One needs to then go back to the opening part of the orders at 1403. The reason why we say this is of some significance is that whatever else this is doing, effectively or purportedly, one thing it is not doing is permitting someone to affirm a contract in relation to which they have an election to avoid it because it was induced by fraud, without prejudice. So this is not the impossible beast of an election without prejudice.
It starts with a note at about line 14 that the plaintiffs do not intend to make an election to take judgment, so what follows is not language in relation to the affirmation of the contract. We say the contract was affirmed by suing on it, perhaps the most solid way in which one can make an ASL v Sargent election.
Rather, there is here a different election in relation to the conversion claim against Perpetual Trustees and a contract judgment against Morgan Brooks. This speaks after the point, long after the point, there has been an election to affirm that contract, for which after all they sought actively, judgment, and obtained this curious creature.
Then there is a further note that although there is no intention to make an election until all avenues of appeal in these proceedings are exhausted, nonetheless, there is what is called at line 19 a present intention to elect, the legal significance of which is unclear to us. The present intention to elect, to take it against Perpetual rather than against Morgan Brooks, and again we note that whatever else is being done here, it is (a) too late and (b) of its nature incapable of undoing the plain affirmation at general law out of court constituted by the election to sue Morgan Brooks on the contract, though it was a voidable contract. Then you have against us orders starting in No 4 at about line 23 of page 1403 saying that they:
take effect only in the event that the plaintiffs are successful in their proceedings against [us] once all avenues of appeal are exhausted.
Understanding that to include this Court, I fear I may have talked myself into the position where there were never any orders at first instance against which anything could have been done. Mercifully, the parties have not proceeded on that artificial fashion and rather, the relief granted in this manner is relief, however contingent it be, against which an appeal was mounted in the Court of Appeal where we were successful, removing, so far as we are concerned, this unfortunate form of order.
Now, we apprehend that it is said that “form of relief” at 1403, 1404, is enough somehow to answer our proposition that you cannot have conversion of a cheque – that is, disputing the authorised delivery of these cheques to their named payee while you are simultaneously asserting that because they were effectively, that is, legally effectually delivered, thereby making an investment to which the obligations under the contract attached, there should be judgment on the contract.
We have submitted and do submit that that is an impossible position which has an effect first on the conversion claim in the manner I have explained, but also on the money had and received claim. In relation to the money had and received claim, its effect is, we submit, the obvious proposition clear in principle that one cannot say that a receipt is to the benefit or to the use of the plaintiff if the plaintiff intends the payment to have been made and used in a particular way, in this case, under the investment contract. That is both what, gulled by Mr Cincotta, Dr Landa intended at the time and much more significantly because that, of course, rendered things voidable ‑ ‑ ‑
GUMMOW J: Now, do you need a notice of contention to put this argument?
MR WALKER: It is all in a notice of contention, all of which are specified in our written submissions, yes.
GUMMOW J: Is it there?
MR WALKER: Yes, your Honour. Yes, your Honour is asking is this argument contained and under contention?
GUMMOW J: Yes.
MR WALKER: Yes. Ground (f), page 1648 of volume 3 and, as I say, the argument is that you cannot simultaneously maintain that the money was and was not paid by way of an investment governed by the investment contract. Now, if it was not paid by way of investment by way of the investment contract because that contract has been avoided in time, et cetera, then, of course, because of the circumstances that the Court of Appeal assumes – I stress assumes – in their paragraph 121, there be what the authorities, including I think the current draft restatement in the United States and their Honours call a prima facie right to restitution, prima facie in the sense we have adopted in our written submissions, namely, it leaves outstanding consideration of the so‑called defence of change of position.
KIEFEL J: Paragraph (f) appears to be the directed to the question of the giving of value rather than questions of actual authority. Am I misreading it?
FRENCH CJ: You have an actual authority contention, I think, that is contention on the grant of special leave, in the conversion grants and this contention is in the appeal. You have two notices, have you not, 1640 and 1648?
MR WALKER: I am sorry. There is confusion at the Bar table. I had answered, I hope, the question Justice Gummow asked me concerning what I will call the election point and its effect on the money had and received count. Now, I stay by my answer. For once my junior is wrong. I should note the date. Page 1648 line 45, (f). I am sorry, Justice Kiefel, that is the money had and received contention.
KIEFEL J: I had overlooked the other notice.
MR WALKER: What will I call it? That is the actually authorised notice of contention rather than the foreshadowed one.
KIEFEL J: Yes, I see that.
HEYDON J: Is Morgan Brooks Pty Ltd in liquidation?
MR WALKER: I am told, yes, it is. I am not quite sure what your Honours do with that. Certainly may I make this clear. All our argument, as everyone would appreciate, is made on the basis that insolvency is the looming ultimate liability and individuals such as Mr Cincotta, is a circumstance against which the position of what I will call the various innocents who are left standing with money needs to be evaluated. The potential for what we understand to be the fact suffices for the purposes such as they are of my learned friend’s argument against us. Obviously no cause of action is made better because an alternative cause of action against somebody else would be against an insolvent.
HEYDON J: It makes you get out of bed earlier in the morning though, thinking up whether there is a good cause of action against a solvent defendant.
MR WALKER: It does, absolutely, yes.
HEYDON J: It makes one put one’s thinking cap on.
MR WALKER: Yes, without any doubt, your Honour. Your Honours, can I come back to the facts which inform both conversion and money had and received in this sense. As to ostensible authority being aware, obviously, of any defect the other side says even by being put on inquiry, so that is constructively, and in money had and received as to either the good faith element or the acting on the faith of causation element for the defence of change of position it becomes significant, we submit, to see what is and is not available to the appellants with respect to Perpetual’s good faith and negligence.
Now, negligence is used in a number of different senses in the case. It includes a claim on the cause of action in tort in negligence which failed and is not before this Court, but it includes as well special leave which has been refused. I should draw to your Honours’ attention that the order ‑ ‑ ‑
GUMMOW J: Just go back to paragraph (f), 1648, Mr Walker. I am not sure I understand it.
MR WALKER: Yes, your Honour.
GUMMOW J: The expression “at the expense of”, is that how you plead Bullen & Leake, money had and received?
MR WALKER: I cannot answer in relation to Bullen & Leake.
GUMMOW J: …..from New South Wales?
MR WALKER: Yes. Well, let me say off the top of my head it is a long time since I have pleaded one. No, one would not see the expression “at the expense of ‑ ‑ ‑
GUMMOW J: No, this is restitution jargon that has come down from somewhere or other and is treated as a given. I want to know why it is a given?
MR WALKER: Yes, your Honour is, with respect, correct. That is what it is and I was using older language when I talked about…..et cetera. How shall I say, the intended concept we hope plainly conveyed is precisely the same.
GUMMOW J: It seemed to have wrapped up in it some notion of waiver of tort claims, is there?
MR WALKER: There is a hint of that, yes, your Honour. But we would prefer to put it much – and I do not mean to hint that.
GUMMOW J: Or is it some invocation of global wealth, overall wealth?
What is going on?
MR WALKER: No, it is not that. It goes as follows – taking at its most charitable, that is most beneficially in favour of the appellants, the combination of pleading and findings concerning mistake or mistake induced by fraud, the case for money had and received is that the money has been paid for a reason ‑ ‑ ‑
GUMMOW J: To the use of the plaintiff?
MR WALKER: Quite, to the use of the plaintiff because of something. In this case, it is a contract, the investment contract which - and we submit one could not possibly resist what follows - has been avoided for fraud. It could have been put a different way, namely that the investment contract did not exist. But long ago the plaintiffs took a route right against that. Rather than saying “investment contract”, what “investment contract”? It was all rubbish from beginning to end. It was, to use a word they now use, “illusory”. There was no investment contract. It was a void contract, not in the sense of having been voided, but in the sense that a fake diamond is a diamond, and it is not at all.
KIEFEL J: I am sorry to interrupt you. Is paragraph (f) intended to convey that the plaintiff has suffered no detriment?
MR WALKER: No, I cannot possibly say that because, depending upon whether you are an economic realist or a formalist in a legal sense, there either has or has not been detriment. Can I explain. Not at the expense of, it being restitution jargon rather than money had and received language, refers to the fact that there being no failure of the contract, that is, the contract remaining on foot under which the money was paid, it cannot be said that there is a reason for it to be paid back otherwise than as governed by the contract. To put it another way, no claim for money had and been received for money intended to be paid under a contract, actually paid under a contract, with contractual rights and obligations with respect to the dealing with the money. You cannot both assert that the contract produces certain consequences because of the payment and say but the payment should not have been made at all.
To go back to Justice Heydon’s challenging proposition, you may think very hard about this as a pleader as to which of those is what ought to be done, but perhaps at an earlier stage even before pleading because it is at the stage where one is advising on affirmation or not. In our submission – and here is where the hint of waiving the tort kind of thinking comes up – it is elementary and fundamental that if you are going to have account for money had and received because the money was paid under a contract which did not exist or which has been avoided, you must be able to make good one or other of those premises.
The first, we stress, could well and truly have been available in this case, but it has never been explored because the plaintiff said it did exist. The second therefore arose. It existed but it was voidable and payment under an avoided contract is perhaps the paradigm case apart from payment under a void contract, for money had and received. But it requires the prior avoidance and in this case, presumably on the basis of this notion one sees at 1403, 1404 of affirmation without prejudice, in this case it was not avoided. All that matters for us is that it has not been avoided and it for those reasons that we say there is no money had and received to the use or benefit of the plaintiff because it has been paid under a contract ‑ ‑ ‑
GUMMOW J: Are there any cases that say this? This action has been around a long while.
MR WALKER: Yes. Your Honour, I cannot think of one that – there are, we think, many cases. I will have to take that on notice. It has to do with the availability of the claim, money had and received, because the payment was for a reason that has - using old language - failed rendering it – again using old language – equitable that it be paid back. The way in which the currently worked‑on restatement puts it is ‑ ‑ ‑
GUMMOW J: It retains the expression “at the expense of” which the reporter is rather embarrassed about I can tell you. It is there because it was in the 1937 restatement and it seems to be sanctified, but it is an embarrassment because it does not deal with an account of profits where the profit it not a loss to the plaintiff. So the reporter prefers the notion of unjustifiable enrichment.
MR WALKER: Which meaning not just to retain. I should say more accurately not just not to repay.
GUMMOW J: But that does not solve our problem here, I think.
MR WALKER: But here, if you have paid money under a contract and insist that you have paid money under a contract ‑ ‑ ‑
GUMMOW J: A contract with whom, though?
MR WALKER: With anybody. I am talking about a receipt which is that money. So the case that really matters for us, we submit, can be schematised like this. A, the payer, pays money to B – tendentiously I will call it the conduit – under contract with C. So long, we submit, as the contract between A and C exists so that A maintains the payment was made via B to C under the contract giving rise to rights and obligations between A and C under the contract, there is simply no room whatever for saying that either B or C is obliged to hand it back, or its equivalent, under account of money had and received.
HAYNE J: The reason that underpins the conclusion you assert is that the facts as described deny a mistake. There has been no payment by mistake and there has been no failure of consideration.
MR WALKER: No, is the short answer. I am talking now about the effect of becoming aware of the ground – let us call it mistake, although what matters here is mistake induced by fraud – becoming aware of that, having the choice, “Will I keep on foot this abomination of an investment contract with Morgan Brooks? I will”, and while ever you do, it is like – assume there was a statute that gave an election rather than had an automatic effect, that gave an election to somebody who was not given appropriate paperwork to repay a loan and pay only a statutory rate of interest rather than the interest stipulated under the credit contract. It could not be said, with respect, that you having decided to affirm the loan contract that you could somehow get back by way of money had and received payment you had made in accordance with that contract. You cannot approbate and reprobate your affirmation of the contract. You take all its terms or none.
HAYNE J: But the real work of that proposition is being done in the expression “in accordance with the contract”, is it not?
MR WALKER: Yes, it is.
HAYNE J: Is that not rather swampy ground in this case?
MR WALKER: It is certainly the area where we might sink above our eyeballs depending upon matters I think I have sufficiently addressed on concerning the investment contract and the actual or ostensible authority to deliver the cheque. If we be correct in those propositions, the ones I identified as being critical, then, no, we are on firm ground because we can say these cheques produce proceeds which Dr Landa does say – and I stress, that is as of today still saying – were invested with Perpetual within the description of the investments governed by the investment contract.
They are, thus, in accordance with the investment contract – see the passage in paragraph 22 of their written submissions – not in the sense that he paid the money because he was obliged to do so, but because the character of the payment, which includes their effectiveness as payment to Perpetual - that is essential to his case - thereupon, by reason of that character, that is, effective payments to Perpetual produce obligations imposed on Morgan Brooks – real obligations which sound in damages.
GUMMOW J: Does it come to this, that C does not receive a payment from A to the use of A because the payment by A to C was in performance of discharge of a contract between A and B?
MR WALKER: Yes. That is the proposition I tried to put earlier. There is also a corollary of that ‑ ‑ ‑
GUMMOW J: That then throws you into the questions Justice Hayne was putting to you as to the nature of this contract and the nature of the performance.
MR WALKER: Yes.
HAYNE J: Discharge.
GUMMOW J: And the word “discharge”.
MR WALKER: Yes, yes and that is why I have been at pains to say that when I call this payment in accordance with a contract, I am not suggesting it is performance of an obligation, I am saying that it is a fact to which they have given contractual meaning. They say this is one of those payments. They are not saying this is a payment to somebody from whom I want it back as money had and received because there is no good reason for them to keep it in justice. They are saying “There is a good reason for Perpetual to have had it because I invested and I now want my return under the contract” and, in our submission, bearing in mind the difference between what might, for example, be called “interest” – money had and received – and the contractual return he wanted – then one can see that these are absolutely different, diametrically opposed courses they are taking.
He is saying under the contract count against Morgan Brooks “I want this money to have been effectively paid. I wanted it to have been effectively paid. I still stand in court to say it was effectively paid to Perpetual because that is a necessary foundation of my success in the claim against Morgan Brooks”. If it was not paid to Perpetual, Morgan Brooks cannot be liable. It would not be liable at all for anything, because Morgan Brooks has not failed to respond to that investment with the promised return. It would not have been a promised investment.
The other set of cases – I apologise on my feet for not being able to name them – I have in mind are those which, as I say, are the corollary of what Justice Gummow puts to me, namely that if there is a subsisting contract to regulate or govern the rights and obligations with respect to a payment, then there is no possibility by definition of a money had and received claim for that money, that is, the impossibility of, for example, a quantum meruit, to go to another money count, for the same work that is the subject of a subsisting contract.
To the contrary, of course, if the contract has been removed from the scene by one of the available means, in this case by a voidance upon an election in that regard and it is in that sense that the perhaps Germanic notion in the expression “at the expense of” is used in contention (f), it means not to the use or benefit of because you are claiming in these very same proceedings that it is a payment that attracts the investment contract returns.
Your Honours, I have used the metaphor “conduit pipe” to describe Perpetual in focusing on the appropriate question with respect to authority and the delivery of the cheque, that is, its authority to deliver rather than authority to deliver and cheat. Could I simply add some references. Your Honours have our argument in writing about this, but I would wish to emphasise in particular the Brown Shipley authority [1991] 2 All ER 690, perhaps the best passage is at 699 G to J. I am not going to take your Honours to it given the time. The Sanwa decision [2001] NSWCA 466 at paragraphs 24 to 26, with the authorities, many which have already been named in argument there cited.
In other words, the authorities, in our submission, entirely support the proposition that though there be voidable title, that is, though the authority in question was provided induced by fraud, it is nonetheless authority, it is not no authority. That is why a distinction which has already been observed exists between this case and the Voss decision [2004] 1 Qd R 214, see in particular by way of throwing up the point the last sentence of paragraph [20]. There was nothing non‑existent, dummy or fraudulent about the name of the payee on our cheques; to the contrary.
In the catalogue set out in writing and in their address that my learned friends put concerning the putting of Perpetual on inquiry, which they turned to service for both limbs of the case, there are a number of matters where we wish to emphasise and elaborate our written answer. The first concerns the fact of Cincotta being a so‑called financial intermediary – one can comment the financial intermediary from hell – but when one compares it immediately to the case which elicited this argument by our learned friends, so‑called Huggins Case [1901] AC 414, where Mr Huggins obviously had to be a intermediary – he was not the municipal body with overseers to receive the rates – there is no question – I stress no question – of Perpetual knowing that Mr Cincotta was Dr Landa’s financial intermediary or indeed anyone’s – an important point of distinction which, in our submission, has not received, in the appellant’s argument, any recognition.
HEYDON J: If you turn up to see the official, one method is to post but another method is to turn up to see the official, and one of the people who can turn up is a financial adviser.
MR WALKER: It can be a financial adviser, yes?
HEYDON J: So you think that Mr Cincotta was wearing his wife’s hat?
MR WALKER: No, he turned up with an application ‑ ‑ ‑
HEYDON J: Not a financial adviser hat?
MR WALKER: According to Perpetual, in a matter to which I am about to come, namely, the suspect transaction so‑called report, the consideration of making one, he was a husband. That was the badge he wore for their consideration of the noteworthy dealings. He was a husband. Perish the thought that husbands cannot also be their wives’ financial advisers but that is not what the application form is referring to. It is also – and I am getting ahead of myself with this catalogue of features – but it is also, of course, not remarkable for husbands and wives to help each other ministerially, clerically and otherwise in relation to financial dealings. That a wife, for example, does her husband’s banking, and vice versa, is unremarkable and probably happening as we speak.
HEYDON J: Do they do it using bank cheques for a million dollars or cheques drawn by Heperu Proprietary Limited, which is not the name of either the husband of the wife?
MR WALKER: Not in my circles, your Honour, no.
HEYDON J: I think you have to be a bit realistic about Perpetual’s position at the point when Mr Cincotta arrived.
MR WALKER: One difficulty, if I may respectfully put it this way, is that there was not challenged nor are there findings at first instance or on appeal which permit of the finding that my learned friend, Mr Digby, sought yesterday, namely, commercially unacceptable behaviour.
HEYDON J: I found that a useless expression.
MR WALKER: It is found in one of the authorities ‑ ‑ ‑
HEYDON J: But hat does not really matter whether it is commercially unacceptable.
MR WALKER: I do not mean by that observation to express any disagreement with your Honour’s comment. It is, of course, ambiguous because one way in which one might characterise unacceptable behaviour is that it presents too much risk to oneself, such as Dr Landa’s own conduct. This was so little explored that we do not even know on the record how, in fact, the documents were presented to the staff at Perpetual. All we know is that they got there. So images anecdotally, so to speak, of a man with a million dollar bank cheque at the counter may for all I know be perfectly accurate but it would be by accident. We do not know from the record.
GUMMOW J: Mr Walker, just going back to this question of “at the expense of” in Lipkin Gorman [1991] 2 AC, Lord Templeman, who did not feel embarrassed about talking about money had and received, at page 564 refers to a decision of Lord Ellenborough in Hudson v Robinson (1816) 4 M & S 475 and then Lord Templeman asks himself what is going on here? You remember there was the solicitor and there was the partner with the gambling problem. He says the money of the solicitor “has got into the pocket” of the club “without any consideration” and ‑ ‑ ‑
MR WALKER: The latter being because of the gambling?
GUMMOW J: Without any consideration coming back to the club, to the solicitors. Now, why does that not fit Dr Landa’s case?
MR WALKER: It did not come into their hands for consideration in this case because of the gaming matter. We gave value because we undertook obligations under our trust deed, et cetera, and the statute with respect to this money. That is the relevant meaning of the value given. We took it in return for promises that we made thereupon.
GUMMOW J: But not in favour of Dr Landa. It is his money and that is the fraud. That fact is the product of the fraud.
MR WALKER: Your Honour, my answer is, he does get the benefit of our promises, so far as we concerned.
KIEFEL J: I thought your case was, he gets the benefit of the company’s promises, Morgan Brooks.
MR WALKER: Yes, but that is because we did, that is, we produced investment returns, they either do or do not meet the stipulated minium, that is a matter for Morgan Brooks, the hapless financial investment house.
GUMMOW J: He gets this worthless consideration on your theory from the ‑ ‑ ‑
MR WALKER: But we gave value in the sense that, yes, we took the money and we did ‑ ‑ ‑
GUMMOW J: Yes, but value to whom? That is the problem.
MR WALKER: It is not a problem, your Honour, once one sees that the investment contract positively requires in every forum between all parties, requires that the proceeds of the investment we made of these cheques is ultimately held for Dr Landa.
GUMMOW J: Perpetual was not a party to that contract.
MR WALKER: No, of course not, but, your Honour, that does not mean we are not giving value when we take money and in return promise to perform, and we do perform ‑ ‑ ‑
GUMMOW J: Promise to perform to the rogue.
MR WALKER: But, your Honour, the value here does not involve privity with respect to the true owner of a cheque. The true owner of a cheque, in our submission, is not entitled to say there has to privity by the person who has received the money in order for that person to be giving value in the sense of that expression. Certainly when one goes back to the conversion claim that is true. The value might be simply by satisfying a pre‑existing debt. Indeed, it can be by value, as the cases show, in favour of the fraudster, him or herself. Your Honours, we have made available one of the authorities that the draft restatement commentary draws to attention. I am sorry. We have not made them available yet; may I do so now.
GUMMOW J: It is not a draft any more actually. It has been adopted.
MR WALKER: Yes. I think we have drawn that to the Court’s attention.
GUMMOW J: It is now the restatement.
MR WALKER: I am going to mispronounce the name, I am sure, Wynar v JB Roof 19 Cal 2d 748, 1942, or 122 P 2d 896. In the opinion of Justice Traynor there is there discussion to which we are going to make some reference when I come to the defence of change of position. If one sees in the computer copy I have handed up, page 3, particularly proposition (3a) and (6), but it continues. The notion of giving value is teased out by his Honour so as to show that it bears and has always borne a meaning so far as the recipient of the money is concerned, but it can include discharge of an antecedence, that is a pre‑existing liability, et cetera. Without repeating myself further, in our submission, that is precisely what happened when the application form was acted upon and the additional funds provision was later acted upon by my client in such a way as to oblige it to deal with the money as the combination of the statute and the particular managed investment instruments required.
That is why, in answer to Justice Gummow’s questions about obligations in favour of whom, that is why we can say that so far as the subsisting investment contract is concerned what happened at Perpetual is an event covered by it, investment at Perpetual to produce a certain return, et cetera. It can be said, therefore, that everything that happens in that contractually described and contemplated event is for Dr Landa’s benefit, and it has been so held by the court in this case already below – in a way, of course, that the appellants do not challenge – but these are payments which are caught by the contract and had to be dealt with in a particular way. Therefore, it follows what happened at Perpetual, and every step after receiving of the cheques, what happened at Perpetual is for his benefit. I wonder if that is a convenient time.
FRENCH CJ: Mr Walker, can you give me an indication of how much longer you think you will be?
MR WALKER: I think between 40 minutes and an hour, your Honour.
FRENCH CJ: Yes, all right. We will adjourn until 2.00 pm.
AT 12.49 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.02 PM:
FRENCH CJ: Yes, Mr Walker.
GUMMOW J: That Citizens National Trust decision of Justice Traynor seems to be a payment over case between principal and agent or agent and principal.
MR WALKER: Yes, it is. The word “agent” is used in a broad sense, not strictly just “agent”. It includes trustee. Thinking about the question Justice Gummow asked me in relation to the availability of a claim for money had and received when the reason for the justice of the money coming back, that is, the reason why it was received to the benefit of the plaintiff is because a contract has failed in some relevant sense, there is an analogy, it is only an analogy, that came to mind which is Sir Frederick Jordan in Horton v Jones, in relation to:
No action will lie for a quantum meruit so long as there is in existence an enforceable express contract which provides for a special remuneration.
(1939) 39 SR (NSW) 305 at 319 to 320, a passage cited by Justice Brennan in Pavey and Matthews v Paul 162 CLR 221 at 236 and 237. At the expense of the plaintiff, including in quotation marks, “see per Chief Justice Mason in Royal Insurance, (1994) 182 CLR 51 at 75, cited by Chief Justice Gleeson and Justices Gaudron and Hayne in Roxborough 208 CLR 516 at 529, paragraphs 25 to 27”.
Your Honours, I had started but not finished on the proposition that whether it be called commercially unacceptable or negligent that adverse judgment against my client’s conduct is not open here. I had started by pointing out there was actually a cause of action for the tort of negligence unsuccessfully mounted, which is not before this Court. One can see that in the pleading at volume 1 of the appeal book, pages 24 through to 28. The pleading is in paragraphs 49A to 49D. Issue was joined on all of that and there was a plea to which attention was drawn yesterday at 1 appeal book 64 at about line 43 of good faith on our part; a plea by us.
Justice Palmer notes at first instance that it was not asserted that Perpetual was aware that the money received into Mrs Cincotta’s/Ms Belle’s account was the proceeds of Mr Cincotta’s fraud at volume 3 of the appeal book, 1350, paragraph 12, and the innocence on Perpetual’s part of any wrongdoing found by his Honour, paragraph 165 on page 1397. There was no finding on a claim for claiming negligence, that is, the tort claim, because at first instance, of course, Dr Landa had succeeded in conversion - see paragraph 171 of the first instance judgment at page 1399. Accordingly, the cross‑claim in question because there had no been no finding on “negligence fell away” - paragraph 174, pages 1399 to 1400.
There was thus nothing in the notice of appeal to the Court of Appeal concerning negligence. The document without it can be found at volume 3 of the appeal book at 1407. There was, however, a contention by Dr Landa which you see at 1415, contention number 2 was that the same relief should have been granted on the ground of negligence, and then negligence in its different forms, not just as a cause of action but also a component of various other elements of other claims, is dealt with in the Court of Appeal. Importantly at paragraph 106 on 1459 there is finding, a lack of negligence –
by reference to a standard applicable to a banker or one applicable to a trustee operating a common fund.
That paragraph 106, I would ask your Honours to note the phrasing of it because it is picked up in the application for special leave in a ground for which leave was refused, not referred. The Court of Appeal notes at paragraph 110, page 1461, that there was no suggestion that Perpetual was in any way dishonest or had actual notice of fraud.
FRENCH CJ: This is undergrowth you do not need to clear away.
MR WALKER: I hope. In case, which their Honours said was not clear, negligence mattered in relation to the defence of change of position, at paragraph 136, going back to 106, their Honours noted that in any event Perpetual was not negligent, even recognising status as a trustee. Paragraph 110 on page 1461, perhaps going to good faith and to negligence – last sentence “Given the face of the cheques it” – that is Perpetual - “could not reasonably have been alerted to any relevant suspicion.” And paragraph 147 on page 1473, Perpetual is not responsible for any of the circumstances rendering Dr Landa vulnerable.
There was a challenge sought to be mounted by ground 21 in the application for special leave, page 1583 line 17 of the book. That is the only challenge there was to findings concerning negligence. You will see the challenge is framed in terms that pick up paragraph 106. There was no challenge to the rejection of an attack on good faith. In the appeal books there is an order with respect to the special leave application which was amended so that the minute would record what was pronounced with respect to refusal of leave as well. The amended order that the Court will have is that all the grounds were dismissed otherwise than those two for which leave was granted and the 11 which were referred.
FRENCH CJ: I think we are all familiar with this history.
MR WALKER: Well, your Honour, we go to pains in that regard because the argument against us is that we were negligent.
GUMMOW J: Well, “negligence” is an umbrella expression. Sometimes it is a cause of action and sometimes it is a comment on conduct, sometimes it is a step in legal reasoning for some other cause of action.
MR WALKER: That is why I draw to attention paragraph 106 which is not a finding for the purposes of a cause of action. This is a finding for the purpose of the “put on inquiry” arguments.
HEYDON J: It is a finding they disagree with, the appellants. The appellants are launching a general challenge to the conversion reasoning on which they lost and paragraph 106 is an element in that reasoning.
MR WALKER: Your Honour, I simply point out that they make a challenge with respect to negligence and special leave that they ‑ ‑ ‑
HEYDON J: They were not - they are not now arguing that the tort of negligence was committed.
MR WALKER: No, I understand that.
HEYDON J: They are arguing in relation to apparent authority and drawing attention to facts.
MR WALKER: Yes, they are.
HEYDON J: It does not help to repeat again and again and again instances where the Court of Appeal found against their challenge. The question is is there something that can be said in favour of the Court of Appeal’s conclusions?
MR WALKER: The short answer is that I am about to come to what I want to say about Perpetual’s procedures, what the experts said about it. In our submission, there is no reason to find - we submit, it is not within the grant or the referred matters to find that we were negligent, to use the language of paragraph 106. I said that I would ‑ ‑ ‑
HEYDON J: You hold this out as a sort of model behaviour, do you, for a trustee company?
MR WALKER: Your Honour, you cannot have a protocol and with insouciance not follow it. So, it could not be modelled in that sense but in our submission it is not possible, on the face of the evidence, and certainly would not be the better view of the evidence to hold that there was something – I am not talking about the cause of action, not talking about negligence in the sense it is used in paragraph 106, in the sense our learned friends use it and cognate expressions, about the way in which Perpetual dealt with these cheques on all of which ‑ ‑ ‑
HAYNE J: Come away from this word “negligence” and focus simply on the last sentence of 110:
Given the face of the cheques it could not reasonably have been alerted to any relevant suspicion.
Do you defend that?
MR WALKER: Yes, I do. Well, I need to, your Honour. In fact, I was about to say, we were the payee on the face of the cheque.
HAYNE J: Cheque drawn by a third party?
MR WALKER: Cheque drawn by a third party. May I come immediately then to ‑ ‑ ‑
GUMMOW J: The problem with paragraph 110 is that the penultimate sentence does not lead to the final sentence. “Actual notice” is one thing, whether they could have been reasonably alerted is another.
MR WALKER: I think the word “suspicion” lends force to what your Honour has just said. There is a difference between being alerted to a relevant suspicion and having actual notice, of course, but I think the sentences are addressing a progression of thought rather than saying the same thing. I accept what Justice Gummow says about the difference.
To return to first of all to the proposition Justice Hayne has raised with me, yes, of course we rely upon the face of the cheque. How could it be otherwise? We were the named payee. We presented it at the bank for collection which is the means by which one is paid the proceeds of a cheque. If you are the named payee, nothing is more natural than doing just that. I will come to the proposition based upon the way in which the evidence deals with it concerning the lack of the account holder’s name, who would never be a payee, of course, as requested by us in our forms to be put into what Mr Burton calls the payee field in the cheque.
GUMMOW J: What is the point of having that what you say is a request?
MR WALKER: There are a number of points.
GUMMOW J: From your client’s point of view, why would they stipulate that?
MR WALKER: Your Honour, for, obvious, both record keeping and prudential reasons, that cannot be gainsaid. It is not a puzzling requirement, it is a requirement with a tolerably plain purpose and, if observed, effect.
GUMMOW J: Unless they have a defence under section 86 of the New South Wales Trustee Act, trustees have to deal strictly with moneys that come into their hands, do they not?
MR WALKER: Yes, they do.
GUMMOW J: Your client is a trustee company.
MR WALKER: Yes, it is.
GUMMOW J: So all of that should influence what it regards as prudential conduct on its part, I would have thought.
MR WALKER: I am not sure I entirely caught your Honour’s last comment but, yes, everything we did and did not do falls to be judged by the standards, both at general law or under statute, incorporating the general law standards of a trustee, yes.
GUMMOW J: This company is not a company of the more modern variety that has been unleashed into the financial world in recent years.
MR WALKER: No, I accept all of t. My argument cannot succeed if it requires diminishing in any way status as a trustee company or duties as a trustee. There is no question about that. On the other hand, let me take the obvious example of the bank cheques. There is a cheque drawn by a bank and it is payable to Perpetual, it is in a not very helpful use of the expression a third party cheque, itself an inexact and non‑technical expression, relevantly.
GUMMOW J: Do you say that your client acted honestly and that they acted reasonably?
MR WALKER: Yes.
GUMMOW J: Whether they did, would it be fair to permit that to stand? That is the language of section 86, is it not?
MR WALKER: Yes. To put it another way, though there is nothing I can say about having a protocol or not observing it, it is not necessary to have such a protocol and therefore it follows, if not observed, there is not falling short of a standard if the standard did not call for there to be a protocol at all. When one thinks about it, to require someone who is not a payee and could not be a payee to be named as part of an artificial payee designation would be unlikely to be stipulated either by statute or by general law. We did stipulate it as our protocol, and I cannot get away from that, and it would have been a good idea had it been observed. It would have been better than a good idea; very different argument here.
But bearing in mind that one cannot see that the statute or the general law calls for there to be such a requirement or request, I stress request, in the protocol, it cannot be that departing from it in itself is falling short of one the standards required by law.
KIEFEL J: But is it a standard of good business practice? What is the purpose of the protocol otherwise?
MR WALKER: The answer to your Honour can be seen I suppose in the evidence we put on from our financial services manager, Ms McCoy, in relation to these issues. In volume 2, pages 1051 and 1052, paragraph 19, and with respect, both of those reasons could be described as aspects of, I think your Honour put to me, good business practice, yes. It would be futile for me to stand here and suggest that to have that protocol was not good business practice, that is self‑evidently why we had it, self‑evidently why it would have been better for it to have been followed, not merely because it was a protocol.
KIEFEL J: Paragraph 19.2 is perhaps the most pertinent.
MR WALKER: Yes, they are both significant, but, yes, I accept that, your Honour, yes.
HAYNE J: Which translated to the facts of this case to have a convenient record on the face of the cheque of Mrs Cincotta’s assertion of title to the cheque - that is the way 19.2 would translate to the facts of this case.
MR WALKER: I am not sure, with respect, your Honour, that it is a question of Mrs Cincotta ever having title to the cheque, as opposed to being entitled to the benefit of the Perpetual investment.
HAYNE J: I simply translate the witnesses’ words.
MR WALKER: But, your Honour, that difference may not matter because Mrs Cincotta, as the name of what I will call the account holder at Perpetual being made known, is evidently the purpose that you see in that paragraph 19, yes and not merely for clerical purposes, but for clerical purposes it was obviously not unimportant bearing in mind trust and business obligations to keep adequate records. In this case that purpose was not defeated in the circumstances of the application form and the investment of the moneys.
I accept that that does not meant the protocol is of no moment, but our proposition is this does not amount to any shortcoming by whatever label one describes it – shortcoming in conduct of the kind that affects either the conversion claim in relation to the ostensible authority or the change of position defence, namely whether or not the change of position was brought about the by receipt.
KIEFEL J: Do you accept that the concept of good faith in this context encompasses proper and good commercial practice? You appear to in paragraph 27 of the written submissions.
MR WALKER: There will be what we call, I think, an objective element, but there is no doubt that you could have good faith though you have imperfect business systems. The conceptual difference between being ‑ ‑ ‑
KIEFEL J: The point is, I suppose, that what you discuss at paragraph 27 is an extension beyond the very narrow view of good faith just meaning acting honestly. What is discussed there by reference to Niru Battery Manufacturing Co v Milestone Trading [2002] 2 All ER 705 is lack of good faith being a failure to act in a commercially acceptable way.
MR WALKER: Yes, or sharp practice.
KIEFEL J: Yes, but they are alternatives, commercially ‑ ‑ ‑
MR WALKER: “Commercially acceptable” cannot be a phrase that simply means anything less than best practice is commercially unacceptable.
KIEFEL J: But if you diverge from your own business standards, how can you be said to be acting in good faith?
MR WALKER: Your Honour, it depends upon what the standards are in question. If they exhibited anything tantamount to a lack of honesty, then of course the answer is that it would not be good faith. But no, departing from one’s standards, particularly when those standards are not stipulated in a way as to make them, as it were, mandatory, customers are requested to make out the cheques in this form and we reserved the right to accept payment in other ways. We had application forms which permit us to know for whom the investment was supposed to be made.
In our submission, nothing casts doubt on good faith. If one who reserves a liberty to accept payment in other than requested ways does so that is not departing, that is actually acting in accordance with a liberty reserved. A requested way for convenience and best practice, including for clerical reasons, of filling out a cheque in our submission comes nowhere near imparting a lack of good faith, if for reasons regarded as adequate or not even thought about at the time, there is a departure, from time to time, from that method so long as what is done by way of the departure – not the fact of departure, but what is actually done that departs – does not itself exhibit sharp practice or commercially unacceptable action, and commercially unacceptable must mean in terms of what I will call – I hope without a contradiction of terms – commercial morality.
KIEFEL J: You do not consider acting unreasonably in contrary to good standards of conduct in business can come within that concept?
MR WALKER: No. In our submission, simply to act in a way that is – shall I say sloppy, would not be lack of good faith unless it was too ‑ ‑ ‑
KIEFEL J: There are obviously degrees of it.
MR WALKER: Quite, that is so. Unless it is to such an extent that it is the recklessness that one sees on the facts of Niru itself where you knew that it was for a shipment that had not happened and you proceeded recklessly on the basis of a totally unsubstantiated assurance that there was an alternative.
KIEFEL J: That is probably why the term “unreasonable” is sometimes used in the wider notion of good faith concepts - if your actions are so divergent from usual standards as to be unreasonable. It is sometimes said in the European context that you cannot be acting contractually in good faith.
MR WALKER: Much depends upon what is encompassed within the notion of “unreasonable”. The word “reasonable” and its antonym are used in too many different parts of our law for one readily to say that what would be negligent at common law is thereby an exhibition of lack of good faith, or negates good faith, or prevents good faith from being made out. In our submission, a more accurate description of the notion of acceptability that is at hand is found in the phrasing that we quote from the Abou‑Rahmah v Abacha decision, [2006] EWCA Civ 1492 in paragraph 27 of our written submissions, namely “contrary to normally accepted standards of honest conduct”. I hope that answers your Honour’s question.
To put it another way, one does not by promulgating so‑called standards which, in fact, as we have pointed out, turn on requests rather than mandatory stipulations for the way in which things are to be done, one does not thereby artificially create a situation where by not applying it in a case you negate your good faith, whereas a competitor who never promulgated that standard and simply proceeded on the same basis would not by dint of having had no standard to depart from, would not negate good faith.
Now, of course, it may be that departure from the standard is committed in circumstances which themselves negate good faith. In other words, the wink or nod given to a co‑conspirator, as it were, will be a pretty classic example where standards and a departure from it will actually provide the evidence to negate good faith or will be evidence that prevents establishing good faith to put the onus in the right place.
FRENCH CJ: Good faith may mean a diligent application of the standards you set for yourself in terms of protocols. The absence of good faith does not necessarily mean, in that sense, does not necessarily, of course, mean bad faith or dishonesty.
MR WALKER: No, that is why I have just corrected myself. We have got to show the good faith, I accept that.
FRENCH CJ: Now, Mr Walker, I think you were going to make a comment about the expert witnesses and some mismatch between the relevant situation on which, in this case, they were giving evidence?
MR WALKER: Yes.
FRENCH CJ: Is that directed to the focus of the suspect transaction report on the risk of tax avoidance and money laundering?
MR WALKER: No, but I am going to come to that in a moment.
FRENCH CJ: Yes, all right. I appreciate that you have been engaged in dialogue with the Bench, but I am keen to move on so that we can follow your track.
MR WALKER: I have said the protocol was not mandatory, can I simply give you a reference as quickly as I can to that, appeal book 272, the expression is “please make payable”. The discretion to accept or reject applications, appeal book 260, it is in the right‑hand column about line 38.
HEYDON J: When you say appeal book 260, do you mean volume 1 of the appeal book?
MR WALKER: Yes, I do, sorry.
HEYDON J: That is a bit of cross‑examination. Is that what you are referring to? Evidence of Mr Evans on the voir dire is on page 260.
MR WALKER: It is a reference to it, I am sorry, your Honour.
HEYDON J: I wonder if you have the right page?
MR WALKER: I do apologise, your Honours, that is an incorrect note. I am sorry, your Honours.
GUMMOW J: Just before you do that, Mr Walker, CMF means cash management fund, does it not?
MR WALKER: Yes, it does.
GUMMOW J: It was established, we see from the evidence of the legal officer at page 644, in 1984.
MR WALKER: Yes. That is, I think, 5,470 investors, about a billion dollars, yes, at line 11.
GUMMOW J: Then paragraph 9 says:
Perpetual’s At Call Fund was a statutory trustee company cash common fund originally established by Perpetual in accordance with the Victorian Trustee Companies Act, 1984. The fund was intended to comply with the New South Wales Trustee Companies Act, 1964, the Queensland Trustee Companies Act, 1968-1989 and the Australian Capital Territory Trustee Companies Act, 1947.
Then it was registered as a management investment scheme in 2000 under the federal legislation.
MR WALKER: Yes, your Honour.
GUMMOW J: That seems to me the starting point for measuring what it did in administering its fund.
MR WALKER: Yes, it is. At page 651, in relation to the commonplace of receiving cheques just payable to Perpetual without the requested designation, see 651, paragraph 68 at the foot of that page. They are called “third party cheques” as you there see. The reference to the discretion that I gave wrongly earlier is in volume 1, page 557, right‑hand column, line 42.
HEYDON J: It is a slightly different discretion, is it not? I suppose it encompasses formal deficiencies, but it encompasses identities and other problems, no doubt.
MR WALKER: It certainly encompasses an application form having designated the beneficiary and the cheque being put to use on behalf of that beneficiary immediately without objecting to the lack of designation on the face of the cheque in the payee field. Your Honours, could I, in relation to the expert evidence, take you in volume 1 to page 268, and at lines 20 and following , the cross‑examination of our expert, Mr Evans, characterises this case as one where the cheque has been:
drawn by one person . . . intended to be invested into an investment in that person’s name but in fact going into an investment in another person’s name?–
That, for the reasons I have already put, does not actually answer this case as Dr Landa understood it.
GUMMOW J: Did Mr Evans make an affidavit?
MR WALKER: Yes, your Honour.
GUMMOW J: Where do we see that?
MR WALKER: Page 1101 in volume 3.
GUMMOW J: We have two affidavits. Where is the first one?
MR WALKER: The first one starts at 1083. At page 272 there commences cross‑examination in relation to what would happen – see line 32:
if you had some doubt because the name of the intended investment did not appear on the face of the cheque –
In the next exchange of question and answer, which finishes at about line 45 on page 272, you see the response in vehement terms concerning what would happen in relation to a bank cheque, according to Mr Evans, “the bank would tell you take a hike”. In our submission, that really highlights the position with respect to what I will call the disparity between the name of the drawer and the name on the application form by which Perpetual is requested to invest the funds.
With a bank cheque, that disparity, far from arousing suspicion, would allay any possible concern. A bank is the drawer of this cheque which is being deposited, to use a figurative expression, for investment under this application form. There is no call for concern, let alone the quite impractical inquiry where you would be told to take a hike with respect to what does the ultimate purchases of this bank cheque think about this as the designated beneficiary.
GUMMOW J: The problem with all this evidence, I think, Mr Walker, and it appears at page 1084, this gentleman was asked to comment upon “standard industry practice and procedure” in the administration of funds by trustees.
MR WALKER: Yes.
GUMMOW J: For all I know, the standard industry practice is quite below what the law requires.
MR WALKER: I do not want to say anything against the principle of what my learned friend said yesterday. Mr Burton said yesterday about that, it must be right, with respect, the whole of the industry could be substandard. It was, nonetheless, something about which he can give evidence and usefully so. In my submission, there is nothing either at trial or in the Court of Appeal or available by way of evidence – I stress by way of evidence – as opposed to the judgment of your Honours, to show that the whole of the industry is substandard in this fashion.
In particular, there is not, in our submission, anywhere near a sufficient evidentiary basis for the proposition that minimal standards would require in the payee field the name of someone who is not a payer at all but is a designated beneficiary. In other words, there is no evidence to say that either by experience of fraud or by study of office systems or by accounting standards, a cheque intended to be paid to Perpetual should have something added to Perpetual’s name even though it accompanies an application form identifying the designated beneficiary of the investment. So while in principle, with respect, proving what is done does not prove what ought to be done. There is lacking an essential factual foundation to go that further step.
GUMMOW J: If you are looking at the defence of “change of position”, to use that expression, you are talking of change of position by a trustee, not someone in an “industry”.
MR WALKER: Yes, it is a factual issue, therefore, as to whether receipt of a cheque intended to be paid to Perpetual, actually paid to Perpetual, is the reason why it is that to which may be ascribed the subsequent conduct required by law in answering withdrawal and redemption requests and the answer is surely, yes. Dr Landa intended it to go, it did go, and it went to an investment which would be at call by redemption requests.
It has to be the case that factually the reason why that account was opened was because Dr Landa sent forth his agent for delivery, Mr Cincotta, to have it go to Perpetual, and it did go to Perpetual. At 651 in volume 2, line 40, what was happening – and this is of course subject to the observation that Justice Gummow has made – paragraph 67 on that page – we are back to Ms McCoy’s evidence about our procedures - says:
It is common for Perpetual to receive cheques drawn on the accounts of third parties which are processed in the usual way by Perpetual.
Your Honours, a moment’s thought will suggest why it would be common. If people were investing borrowed funds it is perfectly possible for the lender, the third party lender, to draw the cheque. That is of course the case when a bank cheque has been purchased there will be a third party drawer. In our submission, there is nothing in itself without the third party, the supposed disparity between the designated beneficiary and the drawer on the cheque to give rise to any inquiry. Paragraph 68 on 651 continues that in relation to what was routinely done, and one might say routinely not done.
HEYDON J: By the usual way, she means, does she, “Perpetual’s standard, usual practice and procedures” in paragraph 63?
MR WALKER: It means – what is set out, as we read it, from page 646 onwards under the heading “CMF investment application procedure”, and includes the “usual practice” in paragraph 32 on page 647 ‑ ‑ ‑
GUMMOW J: The usual practice is quite important because the money is being settled on a trust. That is what happening. Trust is being created.
MR WALKER: Yes, quite.
GUMMOW J: If your client knows for whom, it is in trouble.
MR WALKER: We thought we knew for whom because of the application form and, in our submission, it is only by application illegitimate, we submit, of hindsight that one can start hypothesising something concerning the insertion of a designated beneficiary. Certainly, Dr Landa does not say that it should have said “Dr Landa” on the cheque. That was not the investment contract, it was not his expectation. In terms of ordinary practice in the industry, could I take your Honours to Mr Evans’ evidence at 277, at about line 24 or thereabouts:
Q. You regard it as reasonable practice for a unit trust manager or a funds manager of a unit trust to require . . . the name of the investor to appear as part of the payee on the cheque?
A.Yes, that was fairly common practice then.
Then in the middle of the page:
reasonable practice . . . to require that the name of the investor appear on the application form. That’s obvious, isn’t it?
A. Yes.
The contrast, in our submission, is clear, and if you have got the latter, which we had, then the basic duty of a trustee to know for whom you are meant to hold so as to be able to account, is fulfilled, and it not suggested that there was every any doubt or difficulty on Perpetual’s part in holding this for, as they thought, Mrs Cincotta. The suspect transaction report ‑ ‑ ‑
GUMMOW J: As also the Corporations Law required in addition to the trust law because the Corporations Law picks up the consideration that a number of these actors may not be trustee companies in the traditional sense.
MR WALKER: So the books of the company have to be kept so as to be able to account but, in our submission, there is neither law nor fact, certainly no expert evidence in this case, to say that that positively requires, I stress, as a minimum requirement, the name of the designated beneficiary on the face of the cheque. The fact that it would be a good idea is not enough to make it a minimum requirement, in our submission, particularly when the application form is the one that is obvious and the other is fairly common. In relation to the suspect transaction report, could I remind your Honours that the suspicion was on account of tax evasion bearing in mind that Mr Cincotta was controlling the in and out of money into his wife’s account. So it is husband and money and wife’s account, and tax evasion was suspected and we can be assured that this is not tax evasion by anybody other than Mr Cincotta that was the subject of the suspicion.
We are not worried about Dr Landa, he is not known about, we are not worried about the drawers of the cheques, we are not worried about Perpetual at tax evaders. The idea is that if you are shifting money in and out of your wife’s account, there may be, my language, some laundering, some attempt to hide your trail, rapidly put to one side by Perpetual, no actual report made because, as was pointed out, the very thing that raised the thought in the office was the creation of records at banks of transactions and so there was no need for Perpetual to report anything because everything was being recorded and if banks thought there was any difficulty, it would thereby be reported by them.
That, of course, shows that Perpetual, insofar as it is legitimate at all to have recourse to what might be inferred, it thought, Perpetual was regarding and understandably this money is possibly Mr Cincotta’s money of a kind that needed to be but might not be returned as taxable receipts of some kind. It is a premise entirely remote from the proposition that it was in fact somebody else’s altogether, such as Mr Landa’s. That brings me then to the relevance, if anything, of Mr Cincotta using the account of his wife.
Much weight has been put upon that by our learned friends. In our submission, there is no prima facie suspicious circumstance presented by one spouse apparently being authorised to operate another spouse’s account and appearing to carry out either ministerial or more substantive tasks in relation to the funds in the account. There is certainly no evidence to suggest that this is a telltale of fraud; that is, one spouse acting for the other. That is the first point.
The next point upon which much weight was made concerned the notion that Mr Cincotta was a person with no apparent personal interest in the cheque. Of course, it is to be recalled, as I put before the adjournment, there is no suggestion that Perpetual knew he was anybody’s financial intermediary and there is no suggestion that there is, as it were, an appropriate canon of conduct by Perpetual by which people wealthy enough to have these sums of money to invest in it should be quizzed as to whether they really are as wealthy as apparently seems to be the case, or do they really handle this many funds perhaps on behalf of other people? There is no evidence of anything in relation to either standard practice or even fairly common practice in that regard.
In any event, it has to be borne in mind, although I stress it is no part of our case that he was a bearer, we stress these are cheques which are bearer cheques. For those reasons, the combination of features which are said to give rise, by whatever name, to either a duty to inquire further or to some falling short of a relevant standard so as to defeat the reliance on ostensible agency in the conversion claim or to defeat the chain of causation and perhaps even to prevent good faith being proved in the money had and received defence on examination fail to provide anything which, on any safe foundation of fact, expert opinion or, in my submission, inference from what is known of the industry, ought to have put Perpetual to do anything further than it did.
HAYNE J: Can I just understand one aspect of that submission. Is that submission founded in part upon understanding the relationship between or created by the opening of the account in the name of Mrs Cincotta?
MR WALKER: We were entitled to proceed on the basis that that was legitimate, that is, that did not call for any ‑ ‑ ‑
HAYNE J: I understand that contention, but there is nothing known to your client that suggests that Mr Cincotta is acting as a financial intermediary. All that is known is that there is a single natural person who is an investor through whose account is passing large sums of money, including cheques drawn by third parties.
MR WALKER: And bank cheques, yes. Yes, your Honour.
HAYNE J: Yes.
MR WALKER: Mr Evans gave evidence, which, in our submission, the cross‑examination did not detract from, in volume 3.
HAYNE J: Just to return to that point I was exploring with you, Mr Walker. There was only one port of call that Perpetual had to make to inquire about the account, Mrs Cincotta.
MR WALKER: Yes. There is Mr Cincotta, which does not count for present purposes, and there is Mrs Cincotta, yes. We say that because the ports of call can be rejected that might be offered by the drawing bank, in the case of bank cheques, or by the third party drawers in the case of non‑bank cheques. How do you find where a Heperu is, for example? You may be able to find where a Dr Landa is, but these, in our submission, are matters which are too happenstance to be the stuff of what is required objectively of a designated payee, named payee, on the face of the bearer cheque such as Perpetual.
I was about to give a reference in volume 3, page 1107, paragraph 17.2(g) at about lines 15 to 20 on that page, being a response in general terms to the proposition about checking, which I have just been addressing. Similar considerations can be seen in the comment by Justice McPherson in the Port of Brisbane decision [2003] 2 QR 661 at page 673, lines 15 to 30. In relation to the face of the cheque, in somewhat different circumstances but concerning the same essential aspects of the face of the cheque, see also the statements by Justice Nettle in the Victorian Court of Appeal decision of NIML (2006) 15 VR 156 at 164, paragraph 26. I do not wish to say more about that because I would be repeating myself.
HAYNE J: Perpetual’s records divided clients into a large number of categories, did they not? There were, according to the training modules which were in evidence about how to use the composer system, a very large number of different classes of investor.
MR WALKER: Yes.
HAYNE J: It was important to ‑ ‑ ‑
MR WALKER: To know what to do with it.
HAYNE J: And it was important to Perpetual to distinguish between those who were acting as trustees in making their investment, and so on.
MR WALKER: Yes.
HAYNE J: Yes.
MR WALKER: But that does not mean that everybody who comes along need to be interrogated as to whether they are really a trustee. There needs to be something to indicate that, and I understand what your Honour has put concerning the movement of the funds, we say that certainly does not indicate that somebody is probably a trustee.
I should have given a reference to Justice Kiefel earlier in relation to the connection, or not, between reasonableness and lack of living up to standards and the capacity to make out good faith. It is in Justice McPherson’s reasons in Port of Brisbane [2003] 2 Qd R 661. That other passage is at 674 to 675, paragraphs [21] and [22].
Justice Gummow asked yesterday concerning the, what I will call, famous passage in David Securities 175 CLR 353 at 385. As can be seen from the disposition of that case, in particular the order that your find at page 407 of the report, order (iii), that is the third of the issues for remitter in accordance with the judgment of this Court was:
whether the respondent changed its position on the faith of receipt of the payments by the appellants.
In order to decide the case and dispose of it, it was necessary, for the reasons explained by their Honours, to hold that there was an issue, that is, there was a defence of change of position on the faith of receipt.
HEYDON J: It seems to have been assumed in argument – it receives a very brief mention at the end of Mr Emmett’s argument at the bottom of 358, and a very brief mention in Mr Spender’s argument in reply:
The defence of change of position cannot apply where the party relying on the payment has taken a predetermined gamble -
then indicates that Mr Spender is assuming circumstances in which it can apply. This is not a decision as a result of a contested argument on the proposition for which it is being relied on. It reflects an assumption between counsel.
MR WALKER: Yes, I should add against myself something further to substantiate what your Honour has just said. On page 356, about an inch down:
unless he is entitled to rely on a specific defence such as change of position –
This is in Mr Spender’s argument.
HEYDON J: Also the majority cited Professor Birks for the existence of the doctrine. I do not believe that citation appears in the course of argument. It is not very conclusive perhaps, given the selectivity with which arguments have to be reported.
MR WALKER: Your Honours, I am restricted to the note of citation in the report, and what your Honour observes seems to be correct.
FRENCH CJ: I noticed, Mr Walker, at page 65 in appeal book 1 in relation to your client’s change of position plea that there is a reference to particulars:
To be provided separately as set out in Fifth Defendant’s evidence in chief.
Does that mean those particulars were simply to be, as it were, discerned from the statements of evidence?
MR WALKER: Might in inquire? Yes, I am told, your Honour. I told the Court I would be looking at the grounds of appeal with respect to the challenge to paragraphs 20 and 21 of the Court of Appeal in volume 3 at 1636 to 1637. I should draw to attention 3(a) and (g) of the referred questions. For reasons that include those suggested for my consideration by Justice Heydon, your Honours may well think that (a) and (g) comprehend the matter. I cannot say more than that. In relation to Swiss Bank, in our submission, the reasons of the Court of Appeal at pages 1470 to 1471, paragraph 139, that is, the Court of Appeal in this case explaining Swiss Bank, whether that is declining to follow it or not. In our submission, it is
an approach to be preferred in an area where the inquiry should not be restricted or circumscribed artificially.
Change of position has as perhaps its classical example a payment over style of case where somebody has received a payment which they appear to be obliged to, in turn, disburse to somebody else in return to what appears to be a valid mandate from that other person, even if that other person is the fraud, such as Mr Cincotta. That, in our respectful submission, is change of position because of, on the faith of, which may be ascribed to the payment notwithstanding that the actual change of position which provides a defence, as Justice Traynor illustrates in Weiner’s Case, does not become a defence until you no longer hold that money.
So if all you do is hold it apparently for the fraud, then that is not a change of position because you can simply say to the fraud, “Well, I do not hold it for you any more, I am giving it back to the true owner.” In our submission, change of position could never be one where you leave out of account or prevent the defence arising because the conduct relied upon as change of position also requires other matters extraneous to the original payer to have occurred. Of course that will be true in any payment over case. I stress, that is the classical case for a change of position defence. May it please the Court.
FRENCH CJ: Thank you, Mr Walker.
MR DIGBY: If your Honours please, Mr Burton is dealing with the reply.
FRENCH CJ: Thank you. Yes, Mr Burton.
MR BURTON: I thank your Honour. Can I deal first with what my friend started with yesterday, which was the question of the timing of when the fraud started and the pleading of fraud. The first matter your Honours need to go to is 1 appeal book 16. In paragraph 39 it was, in our submission, clearly pleaded as fraud from the start. If one goes to page 16 one sees under particular (3) in line 3:
by reason of the fraud, misrepresentations or misappropriation by or attributable (in terms of liability or responsibility) to the fifth defendant’s principal being the first and/or second and/or third defendants. The relevant fraud, misrepresentation or misappropriation was or were the representations in about August 2001 (following earlier representations to similar effect since about November 2000) to the relevant plaintiff by the second defendant -
That is Dominic Cincotta -
on behalf of himself and the third defendant -
That was the company he controlled
and within his actual or apparent authority from the first defendant -
That is Morgan Brooks -
that the monies of the relevant plaintiff would be invested with the fifth defendant for the account and benefit of the first or second plaintiff (in either accounts directly with the fifth defendant for the first or second plaintiff or accounts with the fifth defendant in the name of the first defendant for the first or second plaintiff).
When one looks at that one can also see where the learned trial judge’s findings, which I will come back to, come from. Paragraph 4 directly pleads the fraud and uses the words, as I think one member of the Court, I am sorry I cannot remember who yesterday, pointed to the “said fraud”. It may have been the learned Chief Justice.
Further and alternatively, the relevant plaintiff paid or authorised and directed the payment of the monies represented by the said cheques to the fifth defendant by reason of the said fraud -
which is the one described in the previous paragraph. This matter was directly dealt with in response to submissions made on this topic on behalf of Perpetual at trial in submissions that have not been reproduced in the supplementary application book. In our submissions in reply, the Perpetual submissions are there. They were dealt with in Perpetual submissions paragraphs 60 to 70.
FRENCH CJ: Why are you taking us to the submissions at trial?
MR BURTON: I am sorry. I was simply seeking to establish that the timing of the fraud was a live issue and had been pleaded and submitted on and the trial conducted on the basis it was a fraud case from the outset and that the evidence supports that proposition as well.
GUMMOW J: The outset being in the coffee shop.
MR BURTON: The outset being the coffee shop and earlier, that there were inferences from the documents which I am about to take your Honour to from 1995. I am conscious of the time so I can take your Honours to the references or simply give your Honours the references, but with the submissions, because they are not reproduced, I thought I should mention the gist of them because they do summarise the evidence as well.
FRENCH CJ: You can just mention the references.
MR BURTON: Yes, thank you, your Honour. The first of the references is in relation to - it was clear on the facts that and indeed this was said by Mr Aulsebrook who appeared in person for the first defendant – that Morgan Brooks did not generate the statements that were received, and my friend Mr Walker has taken to you, with the Morgan Brooks letterhead on them. They were from Dominic Cincotta. Secondly, the moneys were paid straight into the wife’s name. Thirdly, they were paid straight out. Now, some of these documents are not in the appeal book because it is our submission that there was no real contest as to the time that the fraud being other than a contemporary fraud, that is from the outset at trial, and that point certainly has not been raised in the way it was in submission until today.
GUMMOW J: Is it enough for your purposes for us to proceed on the basis that the case respecting fraud was at least fought out and decided on the basis that the fraud, if not earlier, commenced at the time at the coffee shop.
MR BURTON: At least, yes, but it is our submission it commenced with a first forged application.
GUMMOW J: The time of ‑ ‑ ‑
MR BURTON: Indeed, 1995, because as the learned primary judge found, the signature of the operating authority was forged. The only genuine signature was Mrs Cincotta’s at the bottom of a blank form and at that ‑ ‑ ‑
GUMMOW J: We were taken to that yesterday.
MR BURTON: Yes, that is correct, your Honour, and I ‑ ‑ ‑
FRENCH CJ: The fraud at the inception that you assert, although not plainly so pleading, I take it is a fraud based on the proposition that Mr Cincotta did not have, what, the authority to do what he was promising to do and knew that or that he did not have the intention to do what he was promising to do?
MR BURTON: It is primarily the latter, your Honour, did not have the intention to do what he was saying he would do, and we pleaded the representation, but also therefore abused whatever authority he had because the only authority he had was to do what he represented he would do, so the two tie together, I think.
FRENCH CJ: Yes, all right.
MR BURTON: Every application form, and I have given your Honours the references for these yesterday, was a forgery. It was not really an option on the evidence, we would respectfully submit, when your Honours read the whole of it that is in the appeal books, an option to put it into the wife’s name. It was said in Dr Landa’s evidence “I will invest it for you” and that is a strained interpretation to say it is for any purpose other than “on your behalf and for your benefit”. At the end of the day, the learned primary judge found the contract in the terms that it had been pleaded, that it was for Dr Landa’s behalf, and that has not been the subject of a challenge in ‑ ‑ ‑
GUMMOW J: No, but the challenge as to what is meant by “on behalf”, I think.
MR BURTON: Yes. But it cannot reasonably mean the wife, with respect, in those circumstances. I think I mentioned to your Honours that there were payments out. The schedules that we have in the appeal books are at 2 appeal book 997 to 1000, we mentioned those in our written submissions, where the money came in and immediately went out. The documents that are not there are that they went into – and this was in evidence in the case – the wife’s cash management account at Westpac on which Mr Cincotta had genuine operating authority, again set up in the early nineties. The relevant entries are at pages 998 and 999 to 1000.
I should mention that at that point, as we have said our in our written submissions, the pattern kept going till early March 2002 when there was the suspect transaction internal report. At that point there was two and a half million in the account which was substantially more than had been invested by Dr Landa and after that point the churn in a clearing account continued in very large amounts, including of course the million dollar cheque in December, the $250,000 cheque in August 2002.
We would respectfully submit when your Honours look at the pleading and the inferences from the documents, it was clearly made out, as the primary judge so found, that there was fraud and fraudulent illusion from the very beginning. The small amounts of interest that were shown in relation to the statements from Morgan Brooks amount to about $55,000 compared to the amount invested. In relation to the matter of the fraud, that leads into the question of the contract and we would respectfully submit that your Honours will, when you have reviewed the material, find that the contract was in the form that the learned primary judge found and that that meant there was no authority to deliver in the form that my friend has submitted for.
On the pleadings, what was pleaded was that there was an authority. The cases developed was in the form the Court of Appeal found of apparent authority. The notice of contention, we respectfully submit, is in relation to actual authority, as has been put to you, and that goes well beyond the terms of the contract and the material, that Dr Landa circumscribed the authority in relation to Mr Cincotta, it was to be invested for him. When you read the evidence that my friend has taken you to, and again this is in our written submissions, the answers are not as clear, they are exiguous, I think my friend used, in relation to the material being for any name including Mrs Cincotta’s name so long as a return was given. The material, we would respectfully submit, at the end of the day on a reading of a lay person’s evidence who was being asked to invest this money is that it was expected to be put in with Perpetual for him and that is either in his name or with Morgan Brooks, clearly recording it was for him.
GUMMOW J: Mr Burton, there were three bank cheques. Does the evidence show in any immediate sense how they were purchased and by whom?
MR BURTON: Yes, your Honour. Dr Landa’s first affidavit and the exhibits, which are set out in full in the first appeal book, and that commences at ‑ ‑ ‑
HEYDON J: His affidavit begins at 338, I think.
MR BURTON: That is correct, your Honour. Sets out the circumstances commencing with paragraph 7 by exhibiting the documents and the documents are the documents my friend took you to, a selection of them. That is on pages 339 and following. In Dr Landa’s second affidavit there was one reference, that is at 1 appeal book 452, paragraph 12. This is his affidavit sworn on 20 April 2005. There is a matter which he corrects in a later affidavit. He says in line 4 and 5 “were all arranged with the Fifth Defendant”.
That is subsequently corrected in his third affidavit in which more detail is given, that is the affidavit sworn 11 December 2006 commencing at page 473 of 1 appeal book. Commencing at paragraph 5 of that affidavit on page 474 he sets out in more detail in paragraphs – he firstly corrects the reference to the fifth defendant and says it was with Perpetual Trustees Victoria who in his cross‑examination my friend has taken you to said he understood to be a wholly owned subsidiary, which is common ground. At paragraphs 5 to 8 he deals with the circumstances in which those loans were arranged, as he understood them.
GUMMOW J: Where do we get to the bank cheques?
MR BURTON: I am sorry. They were the bank cheques.
GUMMOW J: Whereabouts?
MR BURTON: In paragraphs 5 to 8 of the affidavit of 11 December 2006, pages 474 and 475.
HEYDON J: $305,000, $345,000 and $1 million.
MR BURTON: Yes. Corrs Chambers Westgarth acted for Perpetual Trustees Victoria. When you go to the exhibits to his first affidavit – there are three of these but if I can give your Honours references to the two that are in the appeal books. The documentation is incomplete for the $1 million transaction. At page 362 of appeal book 1 is an authority to complete documents signed by Dr Landa. Paragraph 1(c) authorises:
the Mortgagee to pay the advance to Corrs Chambers Westgarth or as they direct.
At page 385, in relation to the other loan on that date, 27 September 2001, the identical document, 1(c). We do not have the document where Corrs directed the cheque to be drawn in the form of “Pay Perpetual Trustees”. The best evidence we have on that is Dr Landa’s affidavit deposing to the conversations at paragraphs 5 to 8 on pages 474 to 475 that I have already taken your Honours to.
GUMMOW J: Yes, I see.
MR BURTON: We would respectfully submit – and I did have here to give to your Honours the references to the learned trial judge’s findings which I presently cannot find. Can I come back to that. We would submit in the light of the primary judge’s findings on the nature of the contract being in line with the pleadings and the Court of Appeal’s finding in paragraph 121, the first sentence, to which there has been no formal challenge, we would respectfully submit that that is the finding on which your Honours would operate, that the cheques were “induced by fraud”.
Can I also give your Honours a reference to where we dealt with this matter in our written submissions in reply, in paragraph 15 on page 5 of our written submissions in reply. We refer to the written submissions of the respondent on this topic, refer to what appears in paragraph 37 of our written submissions in-chief which is the reference to paragraph 121. We refer to the pleading at 39(4) and then we give what we respectfully submit are the concurrent findings as to fraud and set out the paragraphs in the trial reasons and the appeal reasons which deal with that topic and the appeal references.
GUMMOW J: These mortgages, the funds provided under the mortgages, involve mortgages over properties held by Dr Landa in his own name, did they?
MR BURTON: One of them was his family home, yes. The other two were investment properties. The terms of the mortgage ‑ ‑ ‑
GUMMOW J: Why I am asking is that the relief you obtain in respect of what looks like the bank cheque moneys was in favour of Heperu, was it not?
MR BURTON: Yes.
GUMMOW J: How did that come about, rather than Dr Landa personally?
MR BURTON: It was pleaded that the cheques were drawn on behalf of Heperu.
GUMMOW J: I see.
MR BURTON: So we were suing in conversion on behalf of the drawer of the cheque. That is pleaded in paragraph 39 and we succeed in paragraphs of the pleading. Can I take your Honour to that. It is commencing at paragraph 16. Indeed, I should start at page 15. I will not need to return to this then.
HEYDON J: I am having a bit of trouble hearing you, Mr Burton. Could you speak up, please?
MR BURTON: I apologise, your Honour. The pleading has a similarity of particulars and if I could take your Honours first to paragraph 31 on page 12 of appeal book 1. “Each of the investments”, it commences ‑ ‑ ‑
GUMMOW J: Paragraph 31 is dealing with the personal cheques.
MR BURTON: The personal cheques, yes.
GUMMOW J: Where do we deal with the bank cheques?
MR BURTON: There are similar particulars to each of these about the fraud. The bank cheques commence at paragraph 41.
GUMMOW J: On 18?
MR BURTON: On page 18. Your Honours will see that at lines 7 or 8 of that ‑ ‑ ‑
GUMMOW J: “[C]heques having been purchased at the direction of the first and/or third plaintiff”.
MR BURTON: Yes, the third plaintiff was Dr Landa. The first plaintiff was Heperu. If your Honours go to the mortgages, the mortgage for the first amount is at page 355 as my friend took you to this morning, and that mortgagor is Dr Landa. He says that was an investment property, in his affidavit that I have taken you to. The mortgage for the second property is at 378. That was again the mortgagor, Dr Landa, and the third mortgage was at 394, and again that was Dr Landa in relation to the family home.
It was, as we understood, common ground that there was no such investment product given by Perpetual. If there is any doubt on that I can give your Honours a reference to the Greenslade and McCoy affidavits which depose to that. Can I just give your Honours the reference? Appeal book 637, Greenslade – these are both officers of the fifth defendant - paragraphs 30 and 33, and Ms McCoy’s affidavit 27 September 2005 in 2 appeal book 661 at pages 145 to 147.
If I could then develop the matter that was sought to be raised by my friend this morning in relation to the trustee companies and the nature of the property held by trustee companies. That, in the way that my friend fairly said this morning, was not explored at the hearing, the reason being what I canvassed with your Honours at the outset of our written submissions in‑chief yesterday, that Perpetual assumed responsibility for the acts and admitted receipt on the pleadings in its own name of the funds and dealing with the funds, and there were no other parties in the Perpetual group that were, on that admission, parties to the proceedings, and there was no evidence at the hearing in relation to the nature of the managed investment scheme documents as so on.
The nearest one gets is paragraphs 10 to 16 of Mr Greenslade’s affidavit at 2 appeal book 635 and can I just give your Honours the reference to that - the short point being that there was no point taken and, we would respectfully submit, on the way Perpetual conducted the case and took responsibility for others, could be taken involving a statutory trust to the extent that somehow that excused them from dealing with the moneys in an appropriate manner. Indeed, it would be curious if the statutory protocols for protecting investors were to be used to exonerate or exculpate the trustee company from dealing with this particular investment in an appropriate manner.
Now, turning to the debate on the nature of the contract, I have already mentioned to your Honours, in our respectful submission, there is – and I have developed this in‑chief and in our written submissions as the forbearer of principle. There is no inconsistency between the investment contract and the claim in conversion and if I can deal with that matter in the context of what my friend said just before lunch in some detail. Firstly, in the way that the notice of contention on the restitution appeal on the quasi‑contract money had and received appeal is put in paragraph (f), that is a case that, we would respectfully submit, is new. There has never been pleaded affirmation against us or election that we affirmed and thereby were denied these rights in conversion. That was not raised at trial or in the Court of Appeal on the pleadings or in the conduct of the case.
It has not been directly raised in the proposed notice of contention in relation to conversion. It is only in the notice of contention in the form that your Honours have seen it in paragraph (f). I can take it to your Honours to that if I need to but I think your Honours looked at it this morning. It is something which is phrased in the form not so much as the way my friend put it to you today, but as something that deals with relief. It says that there was no claim at the expense. It is not pleaded or sought to be raised as an affirmation case that denies us recovery in conversion. It is put rather as saying that we have no right to the money by way of relief because this money had and received claim was not at our expense because of the contract. As your Honours have canvassed with my friend, Mr Walker, that language appears to be inapposite and certainly was not used in the way the case has been conducted to date and this point has certainly not been raised to this date.
GUMMOW J: What is the answer to it?
MR BURTON: The answer is, we would respectfully submit, several things. Firstly, the rights are not inconsistent in this case in any event.
GUMMOW J: Say that again?
MR BURTON: The rights are not inconsistent in any event when one truly looks at the contract in its correct construction. Secondly, even if there was some inconsistency in those rights, there has been no final election as to judgment until all appeals are exhausted and indeed until the judgment is satisfied on the authority we have given your Honours and I will take your Honour to shortly again. Thirdly, there is no final judgment in any event against Morgan Brooks because of the subject to inquiries to damages, no judgment has been entered. There has been no inquiry as to damages.
Fourthly, and I can tell your Honours that Morgan Brooks, I am instructed, was deregistered on 19 July 2009, that is, the company who was the first defendant. It had changed its name by then. We would respectfully submit that this is not a case of election between inconsistent rights, but choosing between alternative remedies. In our case it is even stronger because we are putting these claims in the alternative against different parties in the one set of proceedings.
The authority I will take your Honour to in a moment - which your Honours are well aware of, I would have thought, is United Australia Limited v Barclays Bank Limited - is a case where there were different proceedings and finally, if there was an election as to inconsistent rights, it was made without full knowledge at the time that the proceedings were commenced, and that appears from Dr Landa’s cross‑examination by Mr Van Aalst who appeared for Patrice Cincotta at the hearing.
So, if I could develop each of those briefly. The first one is the nature of the contract is not inconsistent in any event. My friend fairly said that it is critical to the point as he sought to advance it that the nature of the contract must be such that there was authority to deliver this cheque in performance of the contract. If he fails on that ground on construction of the contract for reasons that we have already canvassed with your Honour in‑chief then this point goes away.
At the end of the day, as we have said in our submissions in‑chief, this contract was about an illusory investment product. That does not mean that Morgan Brooks cannot be liable because if they are responsible for the person that promised that this product existed on the authority in McRae v Commonwealth Disposals then they can be liable in contract. They promised to give a return for particular money. The only reason that the promise is enforceable is because they promised something, even if they could not deliver. That is a different contract with a different party to the one which is on the cheque. The contract on the cheque is with Perpetual. It is a promise to pay on the cheque in return for the money being invested by a trustee company on behalf of Dr Landa, which he clearly did not get, and for the return of an illusory consideration for the return of an investment product.
So we would respectfully submit when one sues on a promise to pay back, one is not prevented from pursuing a remedy against another person who made the same promise to invest on behalf of Dr Landa. In other words, there were two people who made promises to Dr Landa – Morgan Brooks who was found to be responsible for Dominic Cincotta and Perpetual when they received the cheque. That second contract, of course, could not be performed because it was for an illusory product and that was part of the case we developed to your Honours in‑chief in the fourth error of principle that I dealt with yesterday.
Now, can I then turn to the authority, and can I take your Honours to the small bundle that I handed up after lunch yesterday. There were two tabs that I said I may need to deal with in reply, given what we had seen in my friends’ written submissions. They are at tab 13 and the first is United Australia Limited v Barclays Bank Limited found in ‑ ‑ ‑
GUMMOW J: You can take it that we are not unfamiliar with Barclays Bank. What do you want to get out of it?
MR BURTON: What we have submitted, your Honour, in paragraph 14 of our written submissions in reply, the last sentence. The appellants are not obliged to choose between truly alternative forms of relief or remedy claimed against different defendants until judgment. Indeed, one could add, until judgment is satisfied. It is a rule against double recovery. And then continue to have rights against parties which are consistent with that election until the full amount of the claim is satisfied. That is what we seek to obtain. Can I take your Honours, as briefly as I can, to the relevant passages which are slightly more fulsome than what I have set out in the written submissions at paragraph 14, last sentence. Starting first with Viscount Simon at the bottom of page 17 at point 10, his Honour says:
This review of the authorities convinces me that the oft‑quoted dictum of Bovill CJ in Smith v Baker is wrong. There is, as far as I can discover, no reported case which has ever laid it down as matter of decision that when the plaintiff “waives the tort” and starts an action in assumpsit, he then and there debars himself from a future proceeding based on the tort.
Your Honours will recall that one person was sued in money lent and on the alternative of money had and received and that action was discontinued. Then the bank was sued in conversion, in trover, and, we would respectfully submit, that is our case, except we have done it in the one set of proceedings in the alternative and have alternative judgments which have not yet been taken out, let alone satisfied. I will not read all of page 18, but if I could ask your Honours to read that in due course. At the bottom of page 18 and top of 19:
No doubt, if the plaintiff proved the necessary facts, he could be required to elect on which of his alternative causes of action he would take judgment, but that has nothing to do with the unfounded contention that election arises when the writ is issued.
Going down to the middle of the page:
So far, I have been discussing what is the true proposition of law when the second action is brought against the same defendant.
HEYDON J: Mr Burton, I think if you just, for example, said could your Honours later read the paragraph beginning, “So far, I have been discussing” until some point?
MR BURTON: I am sorry, your Honour, yes, I shall. Here, of course, we have two different defendants, so if I would ask your Honours to read the rest of page 19 and through to the end of his Honour’s reasons on 22 where his Honour contrasts cases where there was an election as to inconsistent rights. Then we have the famous speech of Lord Atkin with the clanking of chains which commences at page 26 with the history of assumpsit. If I could ask your Honours particularly to focus on page 28 at about point 4 on page.
FRENCH CJ: It is probably not a good time of day to get into the history of assumpsit. I think we understand the proposition for which you are citing this case.
MR BURTON: No, I am not, your Honour. I am just going straight to the proposition here. I probably went too quickly over one matter at 21, particularly in the middle of the page on 21.
FRENCH CJ: Mr Burton, you have given us the proposition for which you say this is authority. We can read the judgments for ourselves.
MR BURTON: So the middle of page 28 which indicates the rule against double recovery and then through to the end of that speech at 33, and to similar effect is Lord Romer particularly at point 5 onwards on page 34 going over to the top of page 35. Also Lord Porter at page 53 in the two paragraphs that are full on that page. Their Honours deal with the same cases largely and finally at page 54.
GUMMOW J: A more recent treatment is by, I think, Lord Nicholls in Capacious Investments [1996] AC 514.
MR BURTON: We are about to cite that one to your Honours.
GUMMOW J: We do not need to be taken through it in detail.
MR BURTON: I actually do not have the report of that, your Honour, I am sorry. I only have a print. I can hand up to your Honour the computer print if that is of any inconvenience.
FRENCH CJ: I think we have the reference anyway, so, thank you.
MR BURTON: Yes, thank you. Then this Court dealt with the matter in Ciavarella v Balmer (1983) 153 CLR 438 at 439, where the Court contrasted the position with the election of inconsistent rights in the same way that the House of Lords did when you have a choice between, for instance, terminating a contract or affirming it or seeking to re-enter or to sue for rent.
In relation to the cases that my friend criticised as not on point, that we have referred to in paragraph 8 of our written submissions in‑chief, developing slightly what was put to my friend by Justice Hayne, I think, in relation to the Chartered Bank Case, contrary to my friend’s submission, most of these cases involved a named payee who was other than the rogue. The named payee was…..as MAN Financial was at the time in NIML v MAN Financial. The bank was the named payee in Morison, the bank was the named payee in Chartered, and various companies were the alleged distributors who – there was no contract with them, but they were named payees in Papandony.
We would respectfully submit that Dextra is not against those cases. Dextra simply illustrates that when there is a payee intended to take under authority to deliver the mechanism, delivery is not important, and I think that may have been what Justice Heydon said to my friend when he was discussing the case.
GUMMOW J: Lord Nicholls’ speech was applied in this Court by Chief Justice Gleeson and Justice Callinan in Baxter 205 CLR 653, paragraph 39.
MR BURTON: Thank you.
GUMMOW J: It is perhaps the starting point for us.
MR BURTON: May it please the Court. In relation to the exchanges that took place between Justice Gummow and my friend in relation to the duties of a trustee, we would refer your Honours by way of extension to the two cases and the text in paragraph 48 of our written submissions in that regard.
When your Honours read the transcript that my friend took you to in relation to the experts, to the extent that one gains help from it, we would say that that help is in the references we have given you in the written submissions which are the concessions that I have already taken you to. The suspect transaction inquiry was not properly done. It should have led, Mr Evans admitted in cross‑examination, to a referral to the drawers after that point. The cheques, when they differed from a named payee, the experts were on common ground that that, with personal cheques, should be a reference to the drawer and that when one came to the bank cheques, Mr Worcester said the same and said the discreet inquiries of the issuing bank would not be a difficulty, and Mr Evans said he would refer the matter to legal counsel.
When one reads the entirety of the transcript we would say that that is the essence of it. Reasonable practice to inform something that I think fell from your Honour Justice Kiefel and Justice Gummow may have a role to play in terms of industry insofar as it informs what this particular trustee company did. If that is the standard of investment management companies who are unit trusts, then it has a degree of relevance to determining whether the protocols were more than simply a matter of self‑discipline within Perpetual that they were in fact a matter that should have been followed.
Mr Worcester made the point very strongly in both his report and in his cross‑examination that these were unit trusts and that that was what he was dealing with in answering these questions about practice, and he referred to his personal experience in setting up the compliance programs in the nineties, which, of course, is when this fraud started, to say that he would have pinged it, I think was his phrase, in 1997, and that was through his experience in setting up similar compliance programs and supervising them at National Mutual, now AXA. He was consistent with his report. We would respectfully submit, when your Honours look at Mr Evans’ evidence, the concessions he made in cross‑examination qualified quite heavily the conclusions that he had drawn in his report, which was his evidence in‑chief effectively.
I have now found the primary judge references to the contract. They are the one that your Honours mentioned this morning at paragraph 11 at paragraph 14, the first dash point. They are found at pages 1350 to 1351 of the third appeal book at 165 and, of course, in the Court of Appeal at paragraph 27 on 3 appeal book, 1432. I think they may be encompassed in that paragraph 15 of the respondent’s written submissions, in any event.
GUMMOW J: If we granted special leave on the cheque point, would you then have anything to say about the notice of contention which appears at 1640?
MR BURTON: Yes, I do, your Honour, and we have set that out in our written submissions in reply. If I can just briefly point you to where that is. Indeed, we said some of this in our written submissions in‑chief. Can I take you first to those written submissions in‑chief at paragraph 2 on page 5 and under the heading “Notices of contention” at paragraphs 52 and 53 on page 19 and then again, in response to my friend’s submissions, at paragraphs 15 and 16 on page 5. Quite a few matters in the notice of contention are canvassed in paragraph 16, one sentence to each.
I cannot remember from which Member of the Court it fell, but there was a reference to the suspect transactions report which again it is canvassed in our written submissions, but if the report had indeed gone to AUSTRAC, there would have been serious measures under the statute, such as freezing orders and so on in relation to the account until things were inquired into.
GUMMOW J: The statute being?
MR BURTON: The Financial Transaction Reports Act 1988 (Cth), and we can provide your Honours with a copy of that if it is convenient.
GUMMOW J: We can find it easily enough.
MR BURTON: Yes, thank you. In relation, and I think this is nearly finally to the very brief submissions made about payment over and in relation to change of position generally that my friend dealt with orally. We have explained in our written submissions in reply why we respectfully submit and indeed to a degree in‑chief payment over is in a different category to change of position and set that out in some detail. If I can give your Honour the references to that. In paragraph 13 on page 4 of our written submissions in reply.
In relation to the test for good faith and negligence, which I think grew from a question from several Members of the Bench but also followed up a matter which Justice Kiefel explored with Mr Digby yesterday, I think, that if it was not from the information of the payer, what would be would reasonable reliance be the appropriate standard looking at it from the point of view of the payee. We would respectfully submit that as the developed approach, if the focus is not – the focus should still primarily be on the payer, but if one is looking to have a focus on the conduct of the payee, reasonable reliance with an objective standard would be an appropriate measure which I think is what your Honour was putting.
KIEFEL J: I think I was actually suggesting that you look at the knowledge of the recipient, its reliance in that sense, because it involves a question of their belief or acting on the faith of indicates that they are induced or that they have a particular belief. So whether the information comes form payer or from whatever source, the question is whether they
had some basis for a belief that they were able to deal with the moneys in the way in which they did.
MR BURTON: Yes, and that of course, as your Honour has said, would link to the conduct of the payer in terms of inducement, but it would also link, if that was the test to be adopted, on an objective basis to what they were actually aware of and therefore to have known from that what they were actually aware of, the reason to know type test, and in certain circumstances would involve a duty to inquire even further.
In that sense I do not want to draw an analogy completely with the position of a bank, but there is a degree of overlap in terms that one has certain facts and how one characterises them. It may depend on the circumstances at the time. Here, we would say, as my friend Mr Digby said in‑chief, that however the characterisation is put there are certain basic facts which apply to all the cheques including the non-compliance with protocol. Some apply more strongly to the personal cheques but that basic non‑compliance with protocols, which was in the respondent’s own camp, is something that would have stopped this fraud dead in its tracks because if the name of the investor had been in the payment field, that would have been the end of it as far as Dr Landa was concerned when one looks at his evidence closely. Unless I can assist your Honours further.
FRENCH CJ: Thank you, Mr Burton. The Court will reserve its decision. The Court adjourns until 9.30 tomorrow morning in Sydney and 9.30 tomorrow morning in Canberra.
AT 3.58 PM THE MATTER WAS ADJOURNED
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