La Rosa, F.C. v The Rural & Industrial Bank of Western Australia

[1990] FCA 418

Re: FRANCESCO CANDELORO LA ROSA and LINDA ROBYN LA ROSA; Ex Parte ROSS STEWART
NORGARD as trustee in bankruptcy of the estate of FRANCESCO CANDELORO LA ROSA
and LINDA ROBYN LA ROSA
And: THE RURAL AND INDUSTRIES BANK OF WESTERN AUSTRALIA PTY LTD
No. WA G616 of 1990
FED No. 418
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - pleading - implied contracts - master servant duties - misleading or deceptive conduct - failure to adequately define elements of causes of action - embarrassing pleas - relevant paragraphs struck out.

Bankruptcy Act 1966 s.120

Fair Trading Act 1987 (WA) s.10

Trade Practices Act 1974 s.52

Ex parte James (1874) 9 Ch App 609

La Rosa Ex parte Norgard and Rocom Pty Ltd (unrep Fed. Court, French J. 7 February 1990)

HEARING

PERTH

#DATE 8:8:1990

Counsel for the respondents: Dr J.T. Schoombee

Solicitors for the respondents: Bennett and Co.

Cousel for the cross-respondent: Mr S. Boyle

Solicitors for the cross-respondent: Robinson Cox

ORDER

Paragraphs 6, 7, 9, 12.1(n)(iv), 12.1(o)(iv), 20, 23 and 30 of the Second Cross-Claim filed on 6 August 1990 be struck out.

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

JUDGE1

On 2 December 1988 the Trustee of the bankrupt estate of Frank and Linda La Rosa commenced proceedings against Rodpat Nominees Pty Ltd ("Rodpat") a motor vehicle dealer. The Trustee's application sought recovery from the company of payments totalling $2,842,500 said to have been made to it by the La Rosas in April 1988. The payments are alleged to constitute settlements recoverable under s.120 of the Bankruptcy Act 1966. Rodpat defends the claim on the basis that if there were a settlement the principal creditor, the Rural and Industries Bank of Western Australia ("R. and I. Bank") was so closely involved in the impugned transactions that it ought not to participate in the benefits of any recovery. The defence raises issues of estoppel and unconscionability derived from Ex parte James (1874) 9 ChApp 609. Rodpat cross-claims against the Bank for cognate declaratory and injunctive relief. The practical benefit of this counter attack is apparent from the fact that total creditors' claims are $29,888,915 of which $29,635,000 is claimed by the Bank. Pleadings are closed and discovery and inspection substantially completed in the principal proceedings. They are essentially ready for trial although the question of the recoverability of the moneys claimed under s.120 of the Act may depend upon the outcome of an appeal which has been reserved for judgment by the Full Court in connection with another case involving the same bankrupts - Re La Rosa Ex parte Norgard and Rocom Pty Ltd (unrep. Fed. Court, French J, 7 February 1990 Appeal heard on 8 May 1990)

1. On 20 February 1990 the Bank foreshadowed its intention to introduce its own cross-claim against Rodpat and Rodpat's principal, Ferguson. An order was made that any such motion be filed on or before 6 March 1990 returnable on 13 March 1990. After extensions of time, a motion was filed by the Bank on 4 April and on 10 April leave was granted to it to issue a cross-claim against Rodpat and Ferguson. Directions were also made at that time to Rodpat and Ferguson to file any strike out motion by 2 May. A motion to strike out various portions of the Bank's cross-claim was filed on 24 April and heard on 9 May. On 16 May an order was made striking out the Bank's cross-claim but giving leave to file and deliver an amended cross-claim by 13 June. An amended cross-claim was filed on 13 July 1990, but after hearing debate on further objections an order was made on 16 July that the Bank file and deliver particulars on or before 30 July and have leave to file and deliver any further amendments by that date. The matter was relisted for 7 August. In the event a redrawn cross-claim was filed on 6 August and various objections taken to it on 7 August. I propose to deal with those objections and the submissions made on them on the basis that they reflect an oral motion to strike out various portions of the amended cross-claim. I indicated to the parties on the hearing of the matter yesterday that I would strike out certain paragraphs but would identify them in writing and provide written reasons for so doing today. In the meantime further directions were given for the reprogramming of the cross-claim generally so that it may be ready for trial at the same time as the principal application.
   The Bank's Cross-Claim

2. By its cross-claim the Bank pleads its status as a body corporate carrying on the business of a trading and savings bank (para 1) and that of Rodpat as a company incorporated in Victoria and engaged in trade and commerce (para 2). Hobourne Pty Ltd ("Hobourne") is also named as a Victorian company and trustee of Combined Motor Auctions Unit Trust which carried on business as Town Auto Auctions ("TAA") and Australian Auto Auctions ("AAA") (para 2.1). Rodney John Ferguson is identified as a director of Rodpat and Hobourne (para 3). Messrs R. O'Neale and J. Dolling are named as the clerk and branch manager employed by the Bank at its Albany branch in 1988 and between 1985 and 1988 respectively (para 4).

3. La Rosa is said to have opened an account with the Albany branch in November 1987 under the name G. and R. Auto Clean, which was the name of a motor vehicle dealers business carried on by him and his wife in partnership. In February 1988 it is said that he was granted an overdraft facility of $50,000 on this account, reduced to $30,000 on 27 February and withdrawn on 7 April. On 25 March 1988 he opened a further account with the Albany branch in the name of Moor Motors, but was not granted an overdraft facility on that account (para 5). Paragraphs 6 and 7 then plead:
   "6. By reason of the relationship of La
   

Rosa as customer and the R and I as bank, an implied contract arose between La Rosa and the R and I ("the Banking Contract").

7. Terms of the Banking Contract were,

inter alia:

(a) that without the approval of the Manager of the Albany Branch, the proceeds of cheques credited to an account would not be available to be drawn upon until cleared ("the Term");

(b) the proceeds of a cheque deposited to the credit of an account would become cleared funds at a time when a reasonable Branch Manager would treat the cheque as having been paid, which in the case of the Albany Branch was four working days;

(c) that the G and R Account would not be overdrawn beyond its permitted limit and the Moor Motors Account would not be overdrawn."

Dolling is said to have delegated to O'Neale the responsibility for supervision of the two accounts from February 1988 until 31 March 1988, after which time he took over that supervision himself and the exercise of the managerial discretion referred to in para 7(a). By virtue of his employment as branch manager he was said to have owed various duties to the Bank which are set out in five sub-paragraphs of para 9 of the cross-claim. I accept the submission that the paragraph is embarrassing in that it does not identify whether the duties are implied terms of the contract of employment or arise in some other way. If they are implied terms of the contract of employment, then that is a contention which involves assertions of fact which should be pleaded. If the duties are not contractual but arise in some other way, then that should be made clear.

1. The cross-claim alleges an agreement between La Rosa and O'Neale that La Rosa should approach Ferguson and enter into various cheque exchange transactions with him on the basis that cheques received by La Rosa would be banked to the credit of the G. and R. Account immediately after the transaction while Ferguson would hold G. and R. cheques for two working days (para 10). In so agreeing, it is said, O'Neale acted without the authority of the Bank (para 11). Paragraph 12 pleads an agreement between La Rosa and Ferguson made on or about 26 February 1988 that they would enter into transactions along the lines proposed between La Rosa and O'Neale. A number of transactions said to have been made with Hobourne pursuant to the agreement are then set out in para 12.1 of the cross-claim.

2. Objection is taken to the pleading in 12.1(n)(iv) and 12.1(o)(iv). As drafted those sub-paragraphs disclose an internal contradiction in that they plead that the G. and R. cheques were not deposited but that the credit created by the deposit of AAA cheques did not clear from the G. and R. Account until certain specified dates. Presumably it was meant to allege that the G. and R. cheques were deposited at or about the time that the credits were cleared. As presently pleaded the sub-paragraphs are embarrassing for this reason. The objection was also taken that a credit created by the deposit of one cheque into an account is not cleared by the debit associated with the drawing and presentation of another cheque on that same account. I am satisfied in that respect however that the pleading is tolerably clear. If the Bank takes the opportunity that it will have in amending these sub-paragraphs, to rephrase them by referring to the balance of the accounts rather than the clearing of credits, their expression may be clearer and therefore preferable.

3. The cross-claim further alleges that Ferguson gave instructions to the manager of the R. and I. Branch at which Hobourne cheques would be presented that they were not to be cleared for payment until La Rosa cheques in each transaction were cleared for payment by the Albany Branch (para 13). Dolling, it is said, took over the supervision of the G. and R. and Moor Motors Accounts in April 1988 and agreed with La Rosa that he could continue with the Hobourne transactions in order to conceal the fact that the G. and R. Account was overdrawn beyond its permitted limit and that the Moor Motors Account was overdrawn without authority (para 14). Ferguson, it is alleged, was or ought to have been aware at all material times, in relation to each of the Hobourne transactions, that cheques drawn by La Rosa were being cleared against provisional credits appearing in the G. and R. Account and Moor Motors Account in breach of the banking contract (para 15). It is also claimed that he was aware that Dolling was acting in breach of the duties he owed to the Bank as pleaded in para 9 (para 16), and that he knew or ought to have known that the effect of the transactions was to create a debt owed by La Rosa to the Bank which La Rosa would not be able to repay and that the purpose and effect of the Hobourne transactions was to conceal from the Bank the fact that the G. and R. Account was overdrawn beyond its permitted limit and that the Moor Motors Account was overdrawn.

4. With the knowledge pleaded in paras 15, 16 and 17 Ferguson is said to have entered, on behalf of Rodpat, into further transactions similar to the Hobourne transactions. This series is designated in the cross-claim as "Rodpat" transactions and set out in para 18. Paragraph 19 contends that Ferguson acted on behalf of Rodpat in relation to the Rodpat transactions and was its directing mind and will. Paragraph 20 then states:
   "20. (a) Ferguson's conduct in providing to La
   

Rosa the cheques in the Hobourne Transactions and the Rodpat Transactions, in agreeing that such cheques should be banked immediately by La Rosa and in delaying the deposit of the La Rosa cheques, resulted in representations to the R and I in the form of an account balance which showed that the G and R Account was not overdrawn beyond its permitted limit and that the Moor Motors Account was not overdrawn.

(b) The representations pleaded in paragraph

(a) induced and were intended to induce the R and I to continue to pay cheques drawn by the La Rosas on the said accounts.

(c) In reliance upon the representations, the R and I continued to pay cheques drawn by the La Rosas on the said accounts.

(d) The representations were false in that the G and R Account was in fact overdrawn beyond its permitted limit and the Moor Motors Account was overdrawn and the representations were made either knowing the representations were false or recklessly not caring whether they were true or false."

By reason of the Bank continuing to pay cheques drawn by the La Rosas on the G. and R. Account and the Moor Motors Account it suffered loss and damage which, it is said, amounted to $30,6313,123.60 (para 21). Rodpat is alleged to have received a total financial benefit arising out of the Rodpat transactions of $4,064,000. Ferguson and Rodpat, it is claimed, knew or ought to have known that Rodpat received that benefit paid on the authority of Dolling in breach of his duties to the Bank (para 22). Paragraph 23 then says:

"23. Dolling cleared cheques drawn by La

Rosa in breach of the terms of the Banking Contract and in breach of the duties pleaded in paragraph 9. By reason of such conduct and by reason of the matters pleaded in paragraphs 14 to 21, Dolling defrauded the R and I of $4,064,000.00."

This is characterised by counsel for the Bank as a plea of deceit on the part of Dolling. It is obviously defective in its reliance upon "matters pleaded in paragraphs 14 to 21". These include pleas as to Ferguson's state of mind (paras. 15, 16 and 17) which cannot be elements of a deceit committed by Dolling.

1. It is alleged that Rodpat took its benefit as a constructive trustee for the Bank (para 24). Reference is also made to the use by Ferguson of some of the Rodpat monies to buy properties in Victoria Avenue, Dalkeith and the contention advanced that he holds them as trustee for the Bank (paras 25 and 26). Paragraph 27 raises a plea of unjust enrichment and para 28 mistake. Paragraph 29 pleads misleading or deceptive conduct by Dolling in trade or commerce contrary to s.10 of the Fair Trading Act 1987 (WA) and accessorial conduct by Ferguson (para 31). Paragraph 30 is linked back to para 20 and alleges:
   "30. Ferguson's conduct in connection
   

with the Hobourne Transactions and the Rodpat Transactions as pleaded in paragraph 20(a) constituted conduct in trade or commerce which was misleading and deceptive in contravention of Section 10(1) of the Fair Trading Act 1987 (WA)."

Hobourne's conduct and that of Rodpat is said to have constituted conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive in contravention of s.52 of the Trade Practices Act 1974 (para 32) and Ferguson was said to have been involved as an accessory (para 33). The relief sought by the Bank is as follows:

(a) Against Ferguson, a declaration

that Ferguson holds the properties in Victoria Avenue, Dalkeith on trust for the Bank;

(b) An order that Ferguson transfer

the properties to the Bank or its nominees;

(c) Against Rodpat an order that

Rodpat pay the Bank $4,064,000 less the value of the properties as at the date of judgment if the Court orders that the properties be transferred to the Bank;

(d) As against Rodpat and Ferguson the

damages pleaded in paragraph 21 less the value as at the date of judgment of the properties transferred to the Bank;

(e) Interest.

Paragraph 6 of the cross-claim is attacked as embarrassing because it pleads an implied contract arising from the relationship of La Rosa and the Bank as customer and banker. This is an ill defined relationship, not given content by any reference back to earlier pleading. If the implied contract is said to arise from some more specifically defined event or contracts e.g. the opening and conduct of the accounts pleaded in para 5, then the plea would not be embarrassing albeit it might give rise to a problematic proposition. I accept however that Rodpat is entitled to know the basis upon which the implied contract is said to have arisen. On the other hand, I do not accept Rodpat's contention that para 7(b) is embarrassing. It can stand in its present form. That is not to say it is without difficulty as a proposition. But as an allegation, it can in my opinion be pleaded to.

1. I have already made observations in relation to paras 9, 12.1(n)(iv) and (o)(iv). Paragraph 20 is clearly embarrassing. It pleads representations which are said to have resulted from Ferguson's conduct, but does not attribute them to any person. It says they were in the form of an "account balance" which showed that the G. and R. Account was not overdrawn beyond its permitted limit. This may be a reference to what appears in certain Bank records but that is not apparent. Indeed, counsel for the Bank suggested in argument that the vice of the conduct was that the provisional or apparent credit arising from the Rodpat cheques meant that certain control systems were not triggered. If the conduct itself is characterised as representational that can be pleaded. If it is merely relied upon to set up a plea of misleading or deceptive conduct for the purposes of the statutory causes of action, no explicit representation need be pleaded so long as the conduct is identified and the way in which the Bank was misled or deceived specified or apparent from the pleadings. Contrary to Rodpat's submission, I would not think it necessary to elaborate the pleading of reliance by the Bank upon the apparent credits by specifying the natural persons who relied upon them. For the reasons I have outlined however, para 20 in its present terms is defective.

2. The plea in para 29 is attacked because of the use of the undefined term "unauthorised overdraft facility" as an alternative to the contention that the accounts were overdrawn beyond their permitted limits. In my opinion however the meaning of the paragraph is sufficiently clear and it can be pleaded to. And provided that para 20 is appropriately reframed, para 30 should be able to stand.

3. For these reasons paragraphs 6, 7, 9, 12.1(n)(iv), 12.1(o)(iv), 20, 23 and 30 should be struck out.