Heperu Pty Limited & Ors v Perpetual Trustees Australia Ltd

[2010] HCATrans 16

[2010] HCATrans 016

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S105 of 2009

B e t w e e n -

HEPERU PTY LIMITED (ACN 001 517 719)

First Applicant

KIRISI HOLDINGS PTY LIMITED (ACN 003 010 106)

Second Applicant

BARRY SAMUEL LANDA

Third Applicant

DRUMMOYNE ADMINISTRATIVE SERVICES PTY LTD

Fourth Applicant

and

PERPETUAL TRUSTEES AUSTRALIA LTD (ACN 000 431 827)

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 FEBRUARY 2010, AT 11.55 AM

Copyright in the High Court of Australia

__________________

MR G.J. DIGBY, QC:   If your Honours please, I appear with MR G.K. BURTON, SC and MR A.J. HOURIGAN for the applicants.  (instructed by Wilsons Solicitors Attorneys & Conveyancers)

MR R.E. DUBLER, SC:   May it please the Court, I appear with my learned friend, MR J.S. EMMETT, for the respondent.  (instructed by TressCox Lawyers)

GUMMOW J:   We have an amended draft notice of appeal filed on 2 February.  Is that the document we should be working off?

MR DIGBY:   Yes, it is, your Honour.

GUMMOW J:   We will hear Mr Dubler first on your proposed grounds 13 and 14 under the heading “Restitution/quasi‑contract”.Yes, Mr Dubler.

MR DUBLER:   Should I address your Honours on the issue of restitution?

GUMMOW J:   Grounds 13 and 14.

MR DUBLER:   Yes, your Honour.  Your Honour, the first thing we say is that while obviously the question involves the interpretation of the Swiss Bank Case, that the interpretation given by the Court of Appeal below is clearly correct that the alternative construction, placing emphasis on the words there of Justice Priestley, which revolves around the notion of what is the meaning of “information must come from the payer”, that the construction given to those words of the judgment of Justice Priestley is to the effect that the information from the payer is really synonymous with the phrase “on the faith of the receipt”.

In our respectful submission, that is clearly the correct interpretation of the defence of change of position or faith of the receipt.  To adopt any other approach which is being urged upon by the applicants would essentially make the defence synonymous with the defence of estoppel and that clearly cannot be right, we say.  That it should be information that comes with the receipt and its attendant circumstances was the approach of Justice Handley below and that is to be found at paragraph 139 of the application book, page 121.

GUMMOW J:   Mr Dubler, is there any significance, in your favour maybe, to be drawn from paragraph 122 at page 115 of the application book, which reads:

Perpetual received the funds.  It did so in running a cash management fund for investors.  In doing so, it collected the funds from the paying bank (through its own collecting bank) and in consideration of the receipt of those funds allocated units ‑ ‑ ‑

MR DUBLER:   The answer is yes, and ‑ ‑ ‑

GUMMOW J:   How would that work out doctrinally, if, when connected to this change of position, or is it connected doctrinally to the action for money had and received itself?

MR DUBLER:   It is connected to both, your Honour, but dealing essentially with the restitution point, I was going to briefly address your Honours on insufficient prospects and then improper vehicle.  It arises in improper vehicle.  Perhaps if I deal with it directly because your Honour has asked it. 

We have five reasons why we say it is not a proper vehicle to test the boundaries of the “faith of the receipt” defence.  One here is that Perpetual was a trustee and so the defence it has peculiarly is that it was acting as a mere conduit or agent as trustee in respect of the money.  It was not the entity that in effect got the benefit.  It at all times held it, and had to by trust law, on behalf of others.  It then paid it out in accordance with the beneficiary unit holder’s instructions. 

That is wholly analogous with the case of a bank who merely acts upon the instructions of a customer and does so without notice of the fraud at the time, pays out to the customer.  That is the Westpac v ANZ line of territory dealt with by the High Court, not regarded as being in question or in doubt, and it would be applicable here, meaning that it would not be an appropriate vehicle to test the boundaries of the “faith of the receipt” defence or the meaning of “Swiss bank” where that is a clear basis, we would say, whereby Perpetual, my client, would not have been liable in any event on restitutionary principles.

May I return, perhaps, to the other points.  The first point I was addressing, your Honours, was about insufficient prospects.  Clearly there could be scope for taking too much from the Swiss Bank authority.  The point is at this point in time in the state of the law, a narrowing of its purport and the way in which the Court of Appeal has dealt with it is in fact consistent with other authorities.  It is consistent with the Queensland Court of Appeal in the Port of Brisbane Case.  It is consistent with the Victorian Court of Appeal in NIML v MAN.  It is consistent with the first instance decision of Justice Bleby in the Orix Case.

All of them suggest that what you are really considering is, on the “faith of the receipt” defence, the circumstances attended upon the receipt and those immediately attendant upon those circumstances, and that is a consistent, orthodox principle, and that is the state of the law, and there are insufficient prospects of your Honours saying the Court of Appeal got it wrong in its interpretation of Swiss Bank.

Your Honours would be aware that Swiss Bank did come up for special leave and essentially there are remarks there indicating that the Bench on that occasion regarded Swiss Bank as not taking the change of position defence into any great, radical, new levels, and that Swiss Bank on its facts is wholly understandable.

Could I deal with why it would not be a proper vehicle to narrow down, just on that restitution point, which was only a small point in this trial.  I have already dealt with the notion of Perpetual being a mere trustee or agent.  There are a number of reasons why, on any view, of the phrase of Justice Priestley’s in Swiss Bank, my client Perpetual would not be liable on restitutionary principles.

The first is this, that the applicants gave possession of bearer cheques to Mr Cincotta and they were made out to Perpetual and that is information moving from the relevant person, Dr Landa, that on any view that should be regarded as information coming from the payer, being largely synonymous with the principles of apparent authority relied upon by the Court of Appeal on the conversion case.  That is information coming from the payer and therefore it would not lead to Perpetual being liable.

The second point is that the court should, and correctly can assume, that the payer in this circumstance is the possessor of the bearer cheques because bearer cheques are negotiable by mere delivery, a fortiori with bank cheques.  The payer of bank cheques could be the bank or the possessor of the bank cheques.  Either case would mean that Perpetual is entitled to rely upon ‑ ‑ ‑

GUMMOW J:   It appears to be a question about whether a bank cheque is truly a cheque.

MR DUBLER:   That is true, your Honour.  I think it is dealt with under the Cheques Act, but may not strictly be a negotiable instrument.  But for the purpose of the doctrine, information coming from the payer should include someone who has a bank cheque made out to Perpetual, and Perpetual receives it from that person, that is a payer.  We could have succeeded on that ground.

Thirdly, the payer ought cover the acts and information coming from that payer’s agent, and Mr Cincotta was the agent and told us certain things and we believed it.  That would be another defence.  I have dealt with the notion of agency in mere conduit.  Nextly, your Honours will have seen in our written submissions we point out that the Court of Appeal accepted that the pleaded mistake, which has to be the foundation of a case in restitution, the pleaded mistake was ‑ ‑ ‑

GUMMOW J:   It is an agent for money had and received.

MR DUBLER:   Yes.  The mistake which grounds the action for moneys had and received was said to be a mistake as to which account the cheques would be deposited into.  That was the case, it was not amended.  The Court of Appeal accepted our proposition that on the facts you could not make that out, but they assumed a different fraud, the fraud about the investment contract.  With respect, that makes it an improper vehicle because we would be contending that they should not be dealing with mistaken facts not proven below which may have been dealt with by evidence.

Lastly, your Honours will be aware that in this case there is a peculiar feature about this cheque case, and that is that it was accepted and sued upon successfully, the existence of an investment contract with Morgan Brooks, and it has nothing to do with us, Perpetual, it is a different species, but Morgan Brooks was the mortgage originator.  Dr Landa gave the cheques to Mr Cincotta who said, “I am investing this for you on behalf of Morgan Brooks”.  That was accepted as being a valid contract, and they have judgment for that amount plus 8 per cent.  This cheque was in fact on, as a matter of law, investment with Morgan Brooks with an obligation to repay.

We would say that on that those circumstances, peculiar as they are, that it would also be a defence to the notion that we had taken the money at their expense.  It was in fact already on investment and they sued upon it

and they had their remedy, that it be contrary – we are not dealing with chattel any more, we are not dealing with recompense for dealing with someone’s property, we are dealing with whether we have been enriched at their expense.  If they have a cause of action against Morgan Brooks, which has to repay the money, it is difficult to see how we have acted with the money at their expense.  That is just another layer which makes this an inappropriate vehicle.  Unless there is anything further, they are our submissions, your Honour, just on that point, of course.

GUMMOW J:   Yes, Mr Digby.  We will hear from you first on the grounds 13 and 14, and then anything else you want to say on the other grounds you have.

MR DIGBY:   If your Honours please, your Honours may recall that we had applied to the Court on 2 October to divide the argument between Mr Burton and I, Mr Burton having dealt with all the preceding banking‑related arguments, and we wrote again to the Court yesterday seeking confirmation of that and were asked to ‑ ‑ ‑

GUMMOW J:   Yes, there is no difficulty.

MR DIGBY:   If your Honours please.

GUMMOW J:   Yes, Mr Burton.

MR BURTON:   May it please the Court, there is a very live issue as to the content of “on the faith of the receipt”.  We have expressed it as being given a content in Swiss Bank which, we respectfully submit, was not distinguishable from this case as the Court of Appeal distinguished it and sought to distinguish it.  This is not a case of simple change of position; there was no question that the trustee company received the money but not beneficially.  It received it as the legal titleholder to the money, and as such, it is in the position to sustain a money for had and received action.

GUMMOW J:   But was there not consideration given?

MR BURTON:   We respectfully submit, no, and this is where the issue is bound up with the question of apparent authority on which I need to address your Honour because, in essence, we respectfully submit, the special leave application on this is bound up with the question of apparent authority, both the existence of authority and the content of apparent authority, and the Court of Appeal inherently so recognised.  The facts were largely uncontested that the – there was a separate investment contract to which the recipient of the cheque was not a party in any case.

There were three non‑negotiable instruments, clearly, that unless, as Justice Heydon said, they are not given the status of non‑negotiable instruments under the Cheques Act that they were expressed to be non‑negotiable; they were the bank cheques.  There were three negotiable instruments.  The Court of Appeal drew no distinction between those.  There was no knowledge, it was found, of the existence of the overarching investment contract between the applicants and Morgan Brooks under which there was a promise to pay for investment return.

All that the recipient of the cheques knew was that they were being handed a cheque by a custodian, not a bearer of the cheque, and that the bearer of the cheque was paying that to an account which was, in effect, for himself, because he had apparent operating authority for his wife.  In those circumstances we would respectfully submit that the case is very similar in this regard to the decision of NIML in Victoria which the Court of Appeal does not seem to have taken into account where the fraudulent ‑ ‑ ‑

GUMMOW J:   What is the citation?

MR BURTON:   I am sorry, it is in our list of authority, it is at tab 11, but the first instance decision is not reproduced. The first instance decision is [2004] VSC 449, a decision of Justice Harper, and in that decision it was effectively said that the fraudulent agent was, so far as the trustee recipient was concerned, the payer, not - in our case, we respectfully submit, there is an analogy with the custodian. That is a matter which the Court would need to determine as a matter of principle as to the content on the faith of the receipt, because “who is the payer” gives content to the instructions question, which my friend has already adverted to.

So the Court, we would respectfully submit, needs to determine authoritatively in this context whether a trustee company who gets the legal title can avail itself of a change of position defence, such as payment over by an agent under the Westpac decision, whether in fact the payer, who is the custodian or the original drawer of the cheque, and the content of that here is very different ‑ ‑ ‑

GUMMOW J:   What do you say is the distinction between these facts and the Westpac Case?

MR BURTON:   Between these facts and the Westpac Case is that there was a legal title in the recipient in this case.  There was no question about that.  There was legal title as agent in the Westpac Case, we respectfully submit, for accounting to its customer, and in addition there was a clear transfer of beneficial entitlement in this case only, not transfer of legal entitlement to the moneys.

GUMMOW J:   Mr Dubler said there were four or five reasons why special leave should not be granted.

MR BURTON:   Can I deal with those other aspects which mainly relate to questions as to what was pleaded?  We respectfully submit, and we have set this out in our reply, that one of the matters that was pleaded was what the Court of Appeal assumed to be correct in this case to get to the question, which was that the relevant applicant paid or authorised and directed the payment or moneys represented by the cheques by reason of the said fraud, misrepresentations or misappropriation attributable to the rogue.  That was in paragraph 39(4) of the further amended statement of claim and if the Court compares that with what the Court of Appeal assumed at paragraph 121 of the judgment, application book 115, we would respectfully submit, that what the Court of Appeal assumed to be correct was pleaded.

We respectfully submit that this is an appropriate vehicle.  It was not a small aspect of the case, your Honour, it was an alternative ground for recovery, and it was bound up with the question of the existence of authority derived from an overarching investment contract and the scope of apparent authority when there was nothing more known by this trustee company other than it had to hold the money beneficially for someone else, having received it as titleholder, so that there was no question that it had authority to receive the money as payee for itself beneficially.  Secondly, that there was a clear indication that the money was being paid to the custodian who had no title to the cheque because he had operating authority on his wife’s account, so far as the trustee currently knew. 

That principle, and we sent your Honours a copy of the note yesterday, and the Court of Appeal’s reasoning on it, has been the subject, we would respectfully submit, of appropriate criticism by a learned author, Professor Tyree, who has written Banking Law in Australia, as inconsistent with authority.  We would respectfully submit it is inconsistent with the decision of the Court of Appeal in Victoria in NIML, which is at tab 11 in the volume, paragraph 19 of our cases, and it is inconsistent with the decision of the Queensland Court of Appeal in Voss which the Court of Appeal, we respectfully submit, wrongly distinguished because it is intrinsic in a transaction ‑ ‑ ‑

GUMMOW J:   What is the reference to this writing by Professor Tyree.

MR BURTON:   It is in tab 3 of our supplementary bundle.

GUMMOW J:   What is the abbreviation JBFLP mean?

MR BURTON:   Journal of Banking and Finance Law and Practice.

GUMMOW J:   All right, so it is volume 20, 342.

HEYDON J:   It is actually not by Professor Tyree, is it?

MR BURTON:   The second article is by Mr Broderick.  The first article is by Professor Tyree, 342 to 345.

GUMMOW J:   Yes, thank you.

MR BURTON:   Professor Tyree effectively criticises the Court of Appeal’s decision for this short reason, that the Court of Appeal looked at this effectively as a question of negotiation as opposed to issue of the cheque.  In that situation it applied the wrong principles for many reasons, but with great respect, they include that the scope of apparent authority must be akin to estoppel, and in that situation ‑ ‑ ‑

GUMMOW J:   Which grounds of the application are you now moving to?  You have moved away from ‑ ‑ ‑

MR BURTON:   I am sorry.  We are moving away from, but it is linked to because we respectfully submit that the scope of apparent authority, which my friends wish to argue on the recipient point, on the money had and received point ‑ ‑ ‑

GUMMOW J:   That is what I am wondering.  What I am getting to is, if you obtained a grant on grounds 13 and 14, would the considerations expressed by Professor Tyree be in play?

MR BURTON:   Yes, they would, your Honour.  They would, with respect, because the question of who is the payer and the scope of the instructions and the authority to give those instructions, we would respectfully submit is germane to the “faith of receipt” question.  I realised I have trenched on the other areas which I was to address in what I have said, your Honour but it is germane to that issue.  To address your Honour’s immediate question, the grounds in question would be the conversion grounds which are grounds 2 to 12 in the draft notice of appeal.  That is found at pages 150 and 151 of the application book.  If it is convenient, I might complete what I was going to say on the banking aspect because I have intruded - in essence, we respectfully submit that the question of existence of authority when there is an overarching investment contract is a matter on which the Court of Appeal erred in principle.

There seems to be no real contention by our friends that this is a matter of importance to the finance industry and, indeed, in any situation where there is a trustee recipient who must hold the money for someone else and the relationship between - where authority to deliver the cheque and to give instructions, taking up your Honour’s point on the Swiss Bank issue, is intrinsically a matter of particular category of principle.  It is not simply an application of uncontestable principle to the established facts.  Equally, the application of the interaction between the overarching contract and the contract on the cheque itself, bearing in mind that the cheque was delivered to a company, the trustee, who was not a party to the contract, is a matter which we respectfully submit places this in a separate category.

In addition, there are the matters of what is the content of apparent authority on which I have already addressed your Honours briefly.  There is the question of conversion by relation back, which Justice Heydon in the Citibank v Papandony appeal expressly reserved until the matter came up.  If your Honours were against us on our first grounds of conversion, then this would be a voidable situation, and the question of the doctrine of conversion by relation back would directly arise on the conversion case and there is obviously, we would respectfully submit, a matter of principle to be resolved on which there are apparently conflicting views in the New South Wales Court of Appeal, potentially, with the decision of Justice Giles, as His Honour then was, in Hunter BNZ, at first instance which has stood for a long time.

We would also respectfully submit that on the negligence and misleading conduct cases, it is a matter of principle as to the content of vulnerability when the very social process involved here, a non‑expert customer with an expert record keeper and intermediary meets a trustee who is, on its own protocols, the final gatekeeper.  In that situation the Court of Appeal simply said my clients were able to protect themselves by overlooking the intermediary with more care.

That would give no content to contributory negligence if that formed part of saying there was no duty and the question of the scope of vulnerability in that situation is a matter of principle and on misleading and deceptive conduct the Court of Appeal came to the view, effectively, that reliance outside of the passing‑off situation is, in effect, necessary to achieve the causal link under section 52, and the damages provisions section 82.

We would respectfully submit that that, again, is a matter that needs to be authoritatively determined.  They are very briefly the matters we raise on the banking aspect of the case and if the Court wishes I can elaborate on those matters, but the short point is, there appears to be no contest that this is a matter of public of importance to the finance industry. 

The content of authority has been the subject of criticism and there is apparent conflict between appellate decisions in applying principles when

money is held by the payer as part of the transaction for someone else’s benefit and there is an overarching investment contract, the relationship with that to the contract on the cheque itself when there is an illusory consideration involved.  May it please the Court.  My friend, Mr Digby, is to address your Honours on the remaining issues.

GUMMOW J:   Thank you.  Yes, Mr Digby.

MR DIGBY:   If your Honours please.  On what we characterise as the miscarriage case we identify, as a matter of public importance, the responsibilities of a responsible entity under the Corporations Act which did not arise and were not focused on in the initial trial, nor by the Court of Appeal and also the public importance of the whole of the framework within which the discovery process was proceeding under the New South Wales Rules.

Ultimately, we are seeking to persuade this Court that we ought to have an opportunity to fully argue that there was a situation created by the way in which the case was pleaded and conducted by Perpetual combined, more significantly, with the delinquent discovery by Perpetual which created a Quade situation where there was a miscarriage of justice and the proper case was not investigated.

What is to be noted, and it is not able to be contradicted, in our respectful submission, is that throughout the proceedings Perpetual put the case in such a way there was absolutely no issue about Perpetual being the appropriate party.  Perpetual has also, in the appeals, put the explanation for a lack of discovery and for conducting the case in that manner as one where it intended to accept responsibility for its subsidiary PIML, which we say would have been the more relevant party. 

The difficulty with that is, as we put it to this Court, they obfuscated the existence of PIML and a situation arose where inadequate discovery was made in respect of a subsidiary, notwithstanding that it appears to be Perpetual’s intent that it took responsibility in the proceeding for Perpetual.  This all resulted in a situation where there was no investigation of either Perpetual or PIML’s responsibilities under Chapter 5C.7 of the Corporations Act. 

That is very material, in our submission, because your Honours will have seen that both the court at first instance, Justice Palmer, and the Court of Appeal, proceeded in two material respects in relation to this submission.  Firstly, both of those courts regarded the consideration as one within the context of a trustee conducting a common fund and the Court of Appeal which dealt with the questions of negligence expressly, whereas the judge at first instance did not move to determine those matters, having found in favour of the plaintiffs on conversion, specifically confined the consideration of negligence to the context of a trustee of a common fund, whereas the factual situation which would have been revealed had the matter been properly presented and proper discovery had been made, would have been an existence of a Responsible Entity under the provisions of the Corporations Act subject to special statutory responsibilities, including specific provisions dealing with the statutory duty of care to be afforded by such an entity to the members.

Secondly, if there had been proper discovery or a presentation of the case which did not obfuscate PIML, but exposed the fact that Perpetual was proceeding to take responsibility for its subsidiary, but the subsidiary was at all times the relevant legal entity, then a situation would have arisen where there would have been a pleading of both the entitlements to recovery under the Corporations Act 601MA, and section 1325, but also relevantly, section 601FC(1)(b).

HEYDON J:   Can I ask you this, Mr Digby?  Would you have to rely on any further evidence in this Court that was not admitted or tendered before the Court of Appeal, or before Justice Palmer?

MR DIGBY:   No.  There is a good deal of evidence on this application, as your Honours will appreciate, but with the qualification that that has not been fully considered as part of preparing this application.  The qualified answer is, no.

HEYDON J:   Those three volumes, were the contents of them tendered before the Court of Appeal?

MR DIGBY:   The Court of Appeal, on the motion at the court’s instigation which sought to declare the challenge to the Court of Appeal’s decision incompetent, directed that affidavits be filed and a position statement be put forward.  Three affidavits, one of our instructing solicitor, Mr David Wilson, another one of an expert, Mr Matthew Wilson; and one of the solicitor at the time the case was conducted at trial, Mr Tom Bray, were put before the Court of Appeal to explain the significance of the inadequate discovery and to explain the fact that there had been an inducement, as our client would put it, not to consider there was any issue about the parties.  At the debate before the Court of Appeal on that motion, the affidavit of Matthew Wilson and the affidavit of David Wilson were accepted.  The affidavit of the solicitor contemporaneous with the conduct of the proceeding, Mr Bray, was not. 

Can I put one further matter to your Honour, that in the context of this special leave application, those materials are not before the High Court with any intent that they be considered by the High Court in a way which might be a vehicle for the High Court to make orders in the matter, on the merits ultimately, but are put before the Court to provide the context in which the motion proceeded before the Court of Appeal, so that your Honours can see that there is something of significance to what we assert was the lack of discovery - a very long way of saying to your Honour, probably not.

HEYDON J:   You filed a notice of motion in the Court of Appeal on 20 May which was nearly a month after the Court of Appeal pronounced its oral orders.

MR DIGBY:   That is so.

HEYDON J:   The Court of Appeal seems to have operated on the theory that the orders were, as is it were, taken out and finalised on that very day by entry into the computer system.  On what day do you say the orders were perfected?

MR DIGBY:   In November, just shortly before the argument on that motion when the court republished the reasons.

HEYDON J:   I see.  What about the hard copy filed on 5 May?  I am looking at paragraph 2 of the Court of Appeal’s second judgment.  They said the orders were entered in the computerised record on 23 April.  The hard copy was filed on 5 May.

MR DIGBY:   Our submissions, and the explanation relating to that is that it was that hard copy which was missing a page and was deficient in that respect, and that the court ought not to have considered that the orders were effectively entered together with the judgment which would allow a party to understand the significance of the orders until it republished the complete hard copy judgment in November, I think a day or so before our argument before the Court of Appeal on the motion.

HEYDON J:   Thank you.  I interrupted you when you were going to deal with something else.

MR DIGBY:   Ultimately, if your Honours please, we identify the public importance of the possible significance of the Corporations Act in relation to a responsible entity – I withdraw that.  What we say by way of public importance is that the opportunity to clarify the significance of the statutory responsibilities, particularly we focus in respect of negligence of the responsible entity which in fact received the cheque and which in fact was responsible for the relevant cash management fund, ought to be allowed to be addressed in the High Court.  These entities deal with billions of dollars worth of investment funds and tens of thousands of investors and to

elucidate those duties in the context of a situation like this case, including a fraud, is of public significance.

We also submit that this case falls within the principles established by the judgment of this Court in the Bank of Australia v Quade & Ors and that this case is one which satisfies three requirements for Quade providing an arguable basis for the judgment to be set aside and a retrial ordered, namely, as in Quade, here we say there was material delinquency in relation to discovery. 

We add to that that your Honours will have noted in the Court of Appeal’s judgment, notwithstanding that it was unsuccessful in persuading the Court of Appeal to even allow the motion to proceed, the Court of Appeal did not address Quade although Quade was in the submissions and put to the Court of Appeal as a relevant basis for the Court of Appeal to set aside the judgment.

Secondly, the Court of Appeal did so in the context of its own questions, that is to say, questions it framed which proceeded on the basis that our client’s assertion about inadequate discovery and its consequence in terms of our client’s state of mind during the proceeding were accepted.  It was advanced on the basis as question one of the Court of Appeal’s questions posed it that even was the motion competent, accepting those matters that were asserted by the respondent before the Court of Appeal.  So the first requirement of Quade is established, in our submission ‑ ‑ ‑

GUMMOW J:   The light is on, Mr Digby.

MR DIGBY:   I am sorry.  Deficiency of discovery.  The second, the culpability of PTAL in terms of discovery, is in our submission, unarguable.  Thirdly, there is no lack of care on the part of our client in relation to discovery because of the way it was induced to think there was no issue about the parties, and finally, there was a real possibility of a different outcome if discovery was properly made because it would have enlivened the consideration of sections 601, 1325, and the basis for negligence expressly provided for in the Corporations Act, section 601FC(1)(b).  If your Honours please.

GUMMOW J:   Mr Dubler, we do not need to hear you on draft appeal grounds 15 to 44, looking at the document filed on 2 February.  We have heard you in resistance to a grant on 13 and 14, but we are minded to grant 13 and 14.  At the moment we are minded to refer in further consideration of the application for special leave by the Full Court on grounds 2 to 12.

MR DUBLER:   Yes, I will address your Honours on that.  Essentially, we say, your Honour, that the conclusion that title passed and the conclusion that there was no conversion was driven by and determined by the facts as found, which were not in dispute.  They had essentially two key features about them, if I could just briefly go to them, which on our respectful submission make a finding of passing of title inevitable and would not warrant a grant of special leave.

The first feature which I have already alluded to is that the cheque was placed on an investment contract and that has never been sought to be avoided.  There was judgment on that and it was in return for the promise of repayment plus 8 per cent that the cheque was handed over.  So that would mean on that finding, which is not sought to be disturbed, that notions of their being an illusory contract, a contract for no value, or a wholly void contract such as was the discussion in Papandony in the Court of Appeal does not apply.  That just is clear, we would say.

The second key feature of the facts as found was that Dr Landa drew cheques payable to Perpetual and provided them to Mr Cincotta, who may be regarded as the rogue, but with an actual instruction to deliver them to Perpetual.  It can be assumed, and was discussed below, that that instruction to deliver came with an understanding, or maybe a condition, that Mr Cincotta, when he delivered it to Perpetual, would ensure that the money went on the investment as intended, that is the proceeds, the units were allocated to Morgan Brooks.

Thirdly, what happened was, and this is clear, Perpetual received the cheque without notice of any want of authority or any irregularity in Mr Cincotta’s authority, took it bona fide for value and deposited it.  But in those circumstances the authorities are clear, we would say, and there is no authority to the contrary, that Perpetual obtains title in such circumstances.  Just some of the recent authorities, apart from New South Wales Court of Appeal decision which included Justice Heydon alongside Justices Beazley and Davies in Sanwa Australian Finance v Finchill - that was in 2001, and that followed from Justice Waller in Brown Shipley in the English High Court and the New Zealand Court of Appeal in Yan v Post Office.

But most particularly relevant and close to the facts is the decision of the Privy Council in Dextra Bank.  There is just one paragraph which we say makes that proposition good, if I could take your Honours to it.  In our bundle it should be at tab 3, and the full citation is Dextra Bank & Trust Company Limited v Bank of Jamaica [2002] 1 All ER 193 (Privy Council). If I could take your Honours to paragraph 22 at page 5 of the report, and this a per curiam judgment delivered by Lords Goff and Bingham, and at paragraph 22 they say:

Dextra drew the cheque payable to the BOJ.  The cheque was regular and complete on its face.  Dextra entrusted this cheque to Phillips whom it authorised to deliver it to the BOJ.  Such authority was circumscribed by conditions relating to the obtaining of a promissory note, but subject to those conditions delivery was authorised ‑

So very similar here.

It is plain (and not, as it is understood, contested) that if Phillips had personally delivered the cheque to the BOJ, although without observing or notifying to the BOJ the conditions on which his authority to deliver was subject, the BOJ would have acquired good title to the cheque provided it gave value and had no notice of Phillip’s limited authority.  That is the effect of the decision in . . . The same result would follow if (as was the case here) Phillips had obtained the cheque from Dextra in fraud of Dextra, provided the BOJ had no notice of that fraud -

We say, and this is really referred to in the judgment of Justice Handley below, that ever since the decision in Watson from 1863, the law has been clear that in those circumstances, that Perpetual, if innocent, would obtain title.  My friend has brought in aid an alleged conflict with other authorities which we just plainly dispute.

GUMMOW J:   You can dispute that in the Full Court.

MR DUBLER:   I suppose I have my 30 seconds.

GUMMOW J:   On a resumed application for special leave on this point.

MR DUBLER:   Yes.  I will be brief, your Honour.  Voss was a case where the rogue paid the cheque to himself.  There could be any notions of bona fide receipt in that case.  NIML v MAN, the bank was held not to be liable for conversion on similar circumstances because it had not notice.  The party was liable because it was found to have notice.  Could I just – one point, your Honour, if I may - take your Honours to one point in the application book.  I know I am going to back to restitution, but if I may be permitted briefly to do this.  At the application book page 114, your Honours will see paragraph 120:

In our view, the pleaded beliefs in FASC para 39(1) that Dr Landa believed that the moneys would be held in an account specifically for him and his companies were not reflected in the contract entered with Morgan Brooks.

Then at 121 a different fraud is dealt with.  The Court of Appeal did not take it to be pleaded and before them.  May it please the Court.

MR BURTON:   Does your Honour wish to hear from me in reply?

GUMMOW J:   No.  On the amended draft notice of appeal filed on 2 February 2010 we dismiss it insofar as it puts forward grounds 15 to 44.  We grant special leave with respect to grounds 13 and 14.  The remaining grounds, 2 to 12, are referred in for further consideration of the special leave application by the Full Court at the same time as hearing the appeal on grounds 13 and 14.  Of course, the parties should be prepared to fully argue 2 to 12 as well as 13 and 14.

Justice Heydon and I are minded that this would be a one and a half to two‑day appeal.  Does that seem sensible?  If it is to be considered thoroughly, I think that is ‑ ‑ ‑

MR BURTON:   Yes, your Honour.

GUMMOW J:   All right.  Is there anything else?

MR DUBLER:   Yes, just two matters, your Honour.  We seek costs of responding to the amendments made to the leave application and secondly, I have been asked to flag the possibility of a cross‑appeal dealing with the judgment of the Court of Appeal of 9 February 2010.  That only deals with costs.  I am instructed to put that – hopefully it will go away, but that is currently still being considered.

GUMMOW J:   With costs?

MR DUBLER:   Yes, your Honour.

GUMMOW J:   We will reserve all question of costs arising out of the special leave application for the final outcome of the leave application in the Full Court.

AT 12.45 PM THE MATTER WAS CONCLUDED