National Australia Bank Ltd v Suraparaju
[2009] VCC 945
•19 August 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST – BANKING AND FINANCE DIVISION
Case No. CI-08-04795
| NATIONAL AUSTRALIA BANK LIMITED (A.C.N. 004 044 937) | Plaintiff |
| v | |
| BALAJI RAVI KUMAR SURAPARAJU | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 15 & 16 June and 14 August 2009 |
| DATE OF JUDGMENT: | 19 August 2009 |
| CASE MAY BE CITED AS: | National Australia Bank Ltd v Suraparaju |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0945 |
REASONS FOR JUDGMENT
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Catchwords: Banking and Finance – alleged conversion of bank cheque – whether plaintiff had sufficient title at time of alleged conversion –whether act of control over the cheque by the defendant – alternatively whether plaintiff entitled to value of cheque on basis of restitution – whether defence of change of position available
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. R. Strong | Mallesons Stephen Jaques |
| For the Defendant | Mr. A. Kirby | Kenna Teasdale Lawyers |
| HER HONOUR: |
1 In this case, the plaintiff (“NAB”) claims that a bank cheque for $100,000 drawn by a Mr Batra for the NAB (“the bank cheque”) was delivered to the Treasury Corporation of New South Wales for the issue to the defendant and one Merazoddin Mahammad of a New South Wales Treasury Bond in the sum of $100,000 (the bond). The plaintiff claims that the bank cheque was drawn by Mr Batra in fraud on the NAB and claims damages for $100,000 in conversion, or alternatively as restitution against the defendant.
2 The defendant denies liability and claims to have no knowledge of the application and acceptance of the bond in question.
3 In relation to conversion, the defendant claims that the NAB has not demonstrated that it has sufficient title to sue. Further, he highlights the lack of direct evidence that the defendant actually handled or dealt with the bank cheque.
4 In relation to the restitutionary claim, the defendant says that any monies received by the defendant were not the plaintiff’s moneys. He also claims to have changed his position in reliance on the receipt of the redemption proceeds from the Bond.
5 The issues in the case were therefore as follows[1]:
[1] These issues were made clear in opening and closing written submissions notwithstanding that the pleadings were less than satisfactory on both sides
(a)
whether or not the NAB has sufficient title for a conversion and/ or restitution claim;
(b)
whether or not the NAB has demonstrated that the defendant converted the bank cheque; and
(c) whether or not the defence of change of position has been established. 6 An earlier defence based on the principles of double recovery was withdrawn following the reopening of the case by the NAB, by consent, on 14 August 2009. On that day evidence was led to the effect that the NAB had not received any moneys in respect of the bank cheque or any bond acquired with it.
7 A preliminary issue, however, is whether the defendant actually completed the application for the bond and a later application to redeem the bond in his own handwriting. The defendant denies both of these allegations.
BACKGROUND FACTS
8 On 1 May 2007 the defendant opened a bank account at St George Bank. That application gave the defendant’s address as Unit 4, 25 The Crescent, Berala, New South Wales, 2121, with a mailing address at PO Box 1372 Strathfield, New South Wales, 2135 (“the St George bank account”).
9 On 18 May 2007 a NAB account was opened in the names of M. Mahammad, H. Yerragunta, R. Konda, and S. Viswanath (“the account holders”). The account number was 87-419-2728 (“the 2728 account”).
10 There was adduced in evidence a letter of offer document with NAB letterhead attached to an unsigned letter in the name of Akshay Batra, Business Banking Manager, dated 23 May 2007. The letter of offer document was recovered at the premises of Easy Home Loans in Footscray and not at the NAB’s premises. It appears to be signed by the four account holders but has not been signed on behalf of the NAB either by Mr Batra or anyone else.
11 On 30 May 2007 the bank cheque numbered 446705 was drawn “for NAB” apparently signed by Mr Batra. The cheque was in the sum of $100,000 in favour of the New South Wales Treasury Corporation. It carried the words “not negotiable” between vertical double lines. The names “Mahammad and Suraparaj” have been written in pencil on the back.
12 On that same day, 30 May 2007, $100,000 is shown as debited from the 2728 account which transaction is described as “bank cheque M Mahammad.”
13 By application document dated 8 June 2007, an application for the bond in an amount of $100,000 was made by Mahammad Merazoddin and the defendant. The address given for the applicants is 4/35 The Crescent, Berala. Instructions were also given that any interest and redemption funds should be paid to the St George Bank account held by the defendant with details thereof provided. The document also appears to contain the defendant’s tax file number. The document has apparently been signed by Mr Merazoddin on 5 June 2007 and by the defendant on 8 June 2007, although the defendant denied signing the document.
14 A document before the court dated 12 May 2009 showed the defendant and Mr Mahammad to be inscribed as joint holders of the bond as at 8 June 2007. “Voucher online” documentation produced on behalf of the NAB also showed that the bank cheque was scanned when it was banked by the payee, the NSW Treasury Corporation. The voucher showed that the bank cheque was presented on 8 June 2007.
15 By written application of 20 June 2007 there was an application to redeem the bond, again apparently signed by Mr Mohammad and the defendant. The address given was the Berala address. The defendant denies that his signature appears on this document.
16 The statement of account for the defendant’s St George account is then credited in an amount of $97,626 on 2 July in relation to “TCorp.” The sum of $450 cash deposit is also credited to that account on 4 July.
17 However, on 4 July the account is debited in respect of a bank cheque in an amount of $98,000. A voucher dated 4 July 2007 was also in evidence which showed the withdrawal of a bank cheque on that day for $98,000 in the name of Mohammad Abdur Rahman. The defendant admitted that he signed this voucher at the St George bank on 4 July.
THE ORAL EVIDENCE
NAB’s witnesses
18 Three witnesses were called on behalf of the NAB: a Ms Simms and a Mr Dhumatkar, who were both employees with the NAB; also Ms Novotny, a handwriting expert, as to whether or not the defendant signed the application for the bond and application for redemption of the bond as referred to already.
19 The two bank officers were straightforward witnesses, and I am satisfied that their evidence can be relied upon. This evidence will be referred to further below, when consideration is given to whether Mr Batra acted in pretended exercise of his authority to draw the bank cheque and in fact in fraud on the NAB.
20 The evidence of Ms Novotny is relevant to resolving the preliminary factual issue as to whether the defendant signed the application for the bond and the application to redeem the bond.
the defendant’s evidence
21 As indicated already, the defendant denied signing the application for the bond and the application to redeem the bond.
22 His evidence was that on an unspecified date he received a telephone call from “Vishal” that there were “accidentally” funds in his St George account. That he shortly thereafter went and checked, and found that the amount described - close to $98,000 - had appeared in his account. He was further told that he would need to meet with a person by the name of Mohammad Rahman at lunchtime and that he should draw a cheque in Mohammad’s name, further that there would be a receipt in the mail.
23 He described Mr Vishal as a “go to” person who was known as being somebody who would enable international students to get their five points in order to satisfy requirements for permanent residence. This involved the need to deposit a $100,000 bond, and it was known that Mr Vishal was the person who could organise such bonds. Further that the defendant used to refer people to Vishal who paid him $200 for each such reference, mostly in cash, and at other times directly into his bank account.
24 The defendant said that shortly thereafter he met Mr Mohammad Abdur Rahman at the St George bank, and gave him a cheque and that Mr Rahman gave him the “difference in cash” of $400 since the credit proceeds in his account were “short” of the $98,000 cheque provided.
25 Further that he never received a receipt (despite requests) and never had further contact with Mr Rahman.
26 I did not find the account given by the defendant to be plausible. Even if money “accidentally” landed in an account it is inherently unlikely that the defendant would simply pay out the money to an unknown person notwithstanding the high regard in which Mr Vishal was held.
27 However, there were other aspects of his testimony that were also unsatisfactory.
28 For example, under evidence-in-chief, the defendant claimed to have never lived at the address in Berala given on the application for the bond; he repeated this initially under cross-examination and also said that he did not know anyone who lived in the Crescent Berala. However, when he was further questioned and shown the application for a St George Bank account with the Berala address given as his own address, he contradicted his earlier testimony and said he went to Berala regularly to pick up his mail and that he had a lot of friends in Berala.
29 The defendant’s explanation as to how all the details associated with his Tax File Number and bank account came to be on the bond application were also unsatisfactory. Thus, he claimed that he had given the account details to Mr Vishal so that he could give a “spotter’s fee” to him for putting various immigrants in contact with him. He prevaricated and evaded attempts to provide a time frame within which he engaged in such transactions with Mr Vishal. The most consistent suggestion was that this was in a three month period ending in late 2007/2008. However, if this was the case, there would be no need for Mr Vishal to have his account details as early as 8 June 2007.
30 His explanation for why his Tax File Number appeared on the application for the bond form (that Mr Vishal had requested it for “accounting reasons”) was also unsatisfactory and implausible.
31 I am unable to consider the defendant a forthcoming and impressive witness. I cannot be confident that his account of events and issues is complete and substantially accurate.
Whether the defendant signed the application for the bond and the application to redeem the bond
Evidence of Ms Novotny
32 Ms Novotny, a handwriting and questioned document examiner, provided a report dated 21 May 2009. In that report she compared the two “questioned documents” with four specimen documents.
33 The questioned documents were the application for the bond bearing a questioned signature of 8 June 2007 (Q1) and the application for redemption of the bond dated 20 June 2007 (Q2).
34 The four specimens were as follows:
(a)
a St George request for account in the name of the defendant dated 1 May 2007 (S1);
(b)
a St George branch record for the withdrawal of a bank cheque from an account in the name of the defendant dated 4 July 2007 (S2);
(c)
a reproduction of a pre-approved acceptance document to increase the credit limit to $23,000 on a NAB gold credit card dated 9 July 2006 (S3); and
(d)
an execution page from a mediation agreement signed on 17 April 2009 (S4).
35 In relation to the first three specimen documents, the defendant, under cross- examination, agreed that each of those documents contained his signature.
36 In relation to the mediation agreement, Mr Dhumatkar gave evidence that he saw the defendant sign this document which evidence was not challenged. An initial suggestion of objecting to the admission of the fourth specimen signature was also not pursued by Mr Kirby who appeared as counsel for the defendant.
37 The conclusions of Ms Novotny were as follows:
“I concluded that it is highly probable that the questioned signature on Q1 was written by the writer of the Suraparaju specimens. This conclusion is slightly qualified due to the presence of the differences discussed above. Examination of further specimen signatures of Mr Suraparaju may allow for the expression of a more certain conclusion.
I concluded that the questioned signature on Q2 was written by the writer of the
Suraparaju specimens.”
38 The “differences discussed above” appeared to be that the four specimen signatures exhibited a marked degree of variation although Ms Novotny assumed that the four specimen signatures were written by the one person.
39 In Appendix C to her report Ms Novotny provided an explanation of her “conclusion terminology”. In relation to a “positive conclusion”, she described it as corresponding with “no doubt that the writer of the specimens wrote the questioned writing/signature”. In relation to the “highly probable” conclusion, she described it as being “almost certain that the questioned writing/signature was written by the writer of the specimens. However, some limiting factor, often the amount of writing in question or when the questioned document is a reproduction, has reduced the level of certainty attainable, and I cannot entirely eliminate the possibility of this being another person’s writing, but consider this to be highly unlikely.”
40 Mr Kirby suggested that I should bear in mind the following:
(a) that Ms Novotny conceded that the questioned signatures were “possibly written by different persons”; (b) that it was difficult to see how she could express a certain 100 per cent opinion in relation to the redemption document, given the specimen signatures were said to be complex and exhibiting a marked degree of variation between them; and (c) that she conceded her opinion on questioned signature Q1 would have to be downgraded from “highly probable” to “probable” if specimen signature S4 was excluded. 41 The concession of possibility of writing by different persons is noted. However, Ms Novotny did not resile from the conclusions I have extracted above.
42 In terms of the suggestion that the specimens exhibited a marked degree of variation, Ms Novotny agreed that she had assumed that all of the specimens were written by the one person. In the light of the subsequent admissions of the defendant, this assumption was demonstrably correct.
43 Finally, there is no suggestion now made that signature S4 should be excluded from the specimens considered.
consideration of evidence
44 I accept the evidence of Ms Novotny. She was an impressive and forthright witness and I am satisfied that her evidence may be relied upon. Her qualifications (including a Bachelor of Science (Honours) and employment with Forensic Document Services in Canberra) were not impeached.
45 In the light of the difficulties I had with the defendant’s explanations as compared with the coherent and straightforward evidence of Ms Novotny, I therefore prefer and accept Ms Novotny’s evidence which evidence was not effectively challenged under cross-examination.
46 I therefore find that the defendant did complete the application for the New South Wales Treasury Bond and the application to redeem the bond as claimed by the NAB.
47 However, it still remains to determine whether the NAB has established the causes of actions claimed.
CONVERSION
general principles
48 Conversion is the intentional exercise of control over a chattel which so seriously interferes with the right of another to control it that the intermeddler may justly be required to pay its full value.[2]
title
[2] Fleming, The Law of Torts (9th) at 60-61.
49 In this case the NAB was initially in possession of the bank cheque and as such, prima facie, had good title for conversion.
50 However, Mr Kirby challenged the title of the NAB and submitted that:
(a) title to a cheque can pass, even to a fraudster; and/or
(b) that the four account holders do not appear to have been involved in any
unauthorised or fraudulent conduct and provided good consideration by
becoming indebted to the NAB when the cheque was drawn on their account.
They thereby became the true owners of the cheque rather than the NAB.51 The position of the account holders will be examined further, below.
52 In relation to paragraph 50(a) above Mr Kirby relied on the cases of Union Bank of Australia Limited v McClintock & Ors,[3] Commercial Banking Group Co of Sydney Ltd v Edward Rolf Mann[4] and also Lipkin Gorman (a firm) v Karpnale Ltd.[5]
[3] [1922] 1 AC 240
[4] [1961] AC 1
[5] [1991] 2 AC 548
53 The cases cited however are concerned with the situation wherein an agent applies a cheque drawn in the purchase of a bank cheque which, as between the agent and principal, the agent has no authority to purchase. In those circumstances the principal is said not to be the true owner of the cheque for the purposes of suing the collecting bank in conversion[6] unless the bank cheque is drawn in favour of the principal.[7]
[6] as in the cases of Union Bank of Australia v McClintock [1922] 1 AC 240; (1922) 22 SR (NSW) 293 and Commercial Banking Co of Sydney Ltd v Mann [1961] AC 1; [1960] 3 All ER 482; [1961] SR (NSW)
[7] Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 and see also Weaver and Craigie, “the Law relating to Banker and Customer in Australia” pp 9-5056-7
54 These cases do not suggest that the title of a drawer bank to a cheque is lost by reason of a fraudulent act.
55 Thus in Australian Guarantee Corporation Ltd v Commissioners of the State Bank of Victoria,[8] it was held that if a cheque is obtained from the drawer by fraud, the drawer remains the true owner and entitled to immediate possession of the cheque.
[8] Australian Guarantee Corporation Ltd v Commissioners of the State Bank of Victoria [1989] VR 617 at 636
56 Further, in the case of NIML Ltd v Man Financial Australia Ltd[9], Nettle JA distinguished the case of Hunter BNZ Finance v Australia and New Zealand Banking Group Ltd [10](also relied on by Mr Kirby) as being concerned with a cheque which had been lawfully drawn by officers of the relevant company within the scope of their actual authority. By way of comparison the case of NIML:
“…is concerned with an essentially different problem of cheques drawn by an agent in pretended exercise of his authority to draw cheques on behalf of his principal but in fact in fraud on the principal for the agent’s own purposes. In such a case, it is plain that the principal remains the true owner of the cheque with the right to immediate possession of the cheque until the cheque is discharged.” (emphasis added)[11]
[9]
[10] (2006) 15 VR 156
[11]
57 In this case, Mr Strong, who appeared as Counsel for the NAB, submitted as follows:
“that Mr Batra was not authorised to commit the plaintiff to an unsecured facility of this size. He made it possible for himself to do so by making false entries in the computer system to the effect that the loan was secured and security was in order. He must have known that this was not true, and his representations were therefore fraudulent. By this means he came into possession of the bank cheque.” [12]
[12] Plaintiff’s written outline of submissions at paragraph 3
58 The issue is therefore whether Mr Strong’s submissions should be accepted such that the principle enunciated by Nettle JA also applies to the present case.
Was there a fraud committed by Mr Batra?
Evidence of Ms Simms
59 Ms Simms was a fraud investigator employed by the NAB who was involved in the bank’s investigations of the activities of Mr Batra.
60 She agreed that the investigations she was involved in suggested that Mr Batra was arranging loans on behalf of international students whereby they would obtain funds from the NAB to purchase bonds which could be presented to the Department of Immigration so as to satisfy visa application requirements relating to the lodging of a bond.
61 She recognised that Mr Batra’s signature was on the bank cheque dated 28 May 2007.
62 She described the electronic branch online business system (“EBOBS”). When an employee used this system in relation to a particular transaction, it created an audit trail which was permanent.
63 She explained that extracts from the EBOBS of 30 May 2007 showed that Mr Batra at workstation “81” was logged onto the system and transferred funds from the 2728 account to an office suspense account on that day. Further that bank cheque 446705 was then funded from a debit to that office suspense account.
64 Under cross-examination, Ms Simms was taken to the business letter of offer. She confirmed that it was recovered at the premises of Easy Home Loans in Footscray on an anton pillar order. She agreed that there was a company, Rajuma Pty Ltd that traded as Easy Home Loans which was a company associated with a Mr Narad. She believed that Mr Batra and Mr Narad worked together to fund the students but was unable to say precisely what the arrangement was.
65 She said that the letter of offer would not be regarded as having any “credibility” as it was not signed by Mr Batra. Further that bank processes had not been followed as there was no security for the loan or security packet, which would normally hold the completed executed document, along with the security documents relating to it.
Mr Dhumatkar
66 Mr Dhumatkar was a business banking manager with the NAB who was familiar with the computer documentation used by the NAB and was also seconded to assist fraud investigations into the activities of Mr Batra.
67 Mr Dhumatkar gave evidence about a credit memorandum document dated 21 May 2007 prepared by Mr Akshay Batra which came into play at a fairly initial stage of the transaction. Mr Batra is shown in that document to have a business credit rating score of 17. The document sought approval of a business plus overdraft facility of $400,000 in relation to the proposed account holders (as well as a secured business plus facility for $500,000 in the name of different account holders). It also shows that the facility was to be secured by a general mortgage letter of lien over investment bonds and was going to be secured “Category D”.
68 A document generated from the EBOBS showed a lending checklist wherein there was an approval date for the facility of 23 May 2007. Mr Dhumatkar described this as a screen shot of the “electronic business lending” (“EBL”). He said that the most important matter was at Point 12 which suggested that the “security was in order” item was “complete.” Mr Dhumatkar’s evidence was that the document showed that the business banking manager, Mr Batra, had certified on 24 May 2007 that the security was in order for this file. This was apparent from the notation next to the word “complete” being “Banker certifies Security in Order- 24/5/07. Akshay Batra.”
69 He also gave evidence that the notation “complete- docs held/executed in a registrable formal- 24/5/07- Akshay Batra” was a reference not only to any relevant business lending contracts, but also the supporting security documents.
70 There was also a file summary report of the same date which extracted all the relevant information from the EBL system in relation to two separate loans for the “hussain” group of $400,000 and $500,000. Under “Securities/Charge” there were also details of securities said to be held. Mr Dhumatkar’s evidence was that the document showed that the loan was approved as a category D transaction with the security in order certified. Further, that only after the security was certified as “in order” could transactions be effected in relation to an account.
71 Mr Dhumatkar’s evidence was also that the bank was unable to find any documentation at all in relation to the loan including a consumer consent form (for credit checks), the business letter of offer and security documentation; all of which the NAB would expect to find if the loan was regular.
72 Mr Dhumatkar also explained a “delegated commitment authority” document which reflected what an individual could or could not approve being dependent on their “CRS”. The higher the CRS the lower amounts capable of being approved within particular secured or unsecured categories. Secured categories were categories “A” to “D” while unsecured transactions were “F”, “G”, “H” and “J”.
73 Thus for someone with a CRS of 17 as in the case of Mr Batra he would be able to approve a secured D category up to $2 million. However, for unsecured or partly unsecured (categories F-J inclusive), he was more restricted. Category J reflected a “purely unsecured” loan. In that case, the authority of a person with a CRS of 17 was limited to a loan of $50,000.
74 The subject 2728 account was thereby established outside the relevant lending authority of Mr Batra given the absence of any security at all.
75 As indicated already, the case was reopened on 14 August wherein a further affidavit of Mr Dhumatkar of 29 July was tendered and Mr Dhumatkar was cross-examined further.
76 An issue had been raised as to whether or not the NAB had received moneys following federal court proceedings brought against, inter alia, Mr Batra, Mr Narad and various state Treasury Corporations for the recovery of bond proceeds.
77 Pursuant to orders of Justice Weinberg (as his honour then was) of 2 November 2007 various Treasury Corporations were required to pay the proceeds of all relevant bonds into a separate bank account. However, it was not discovered until later in 2008 that the bond the subject of this proceeding was redeemed prior to the making of those orders. As indicated already, the evidence of Mr Dhumatkar was that the NAB had not received any moneys in respect of the bank cheque or any bond acquired with that cheque from any entity. He further stated that the 2728 account had been marked as a bad and doubtful debt.
78 Mr Dhumatkar also gave evidence that deeds of settlement were entered into with three of the account holders Mr Khonda, Mr Yerragunta and Mr Viswanath, but not Mr Mahammad. However, none of those deeds dealt with any matters in respect of the bank cheque the subject of this proceeding or any bond acquired with that cheque. Moreover no proceeds were ever recovered in relation to Mr Khonda as, in the result, it appeared that he did not actually have a bond in his name.
79 Nevertheless in the recitals to each of the deeds of settlement the bond holder recites that he “required additional points to qualify for permanency in Australia.” It is further recited that the bond holder attended Easy Home Loans located at 1-4/77 Ashley Street Footscray for assistance in financing the bond. Further that the bond holder was therein provided with forms to fill in and sign. In the case of Mr Viswanath, the deed recites a specific approach by Mr Vishal. In the case of Mr Khonda specific reference is made to Mr Rajesh Narad “of Easy Home Loans.”
80 In each case it is acknowledged, agreed and accepted that[13]:
(a) the moneys used to purchase the relevant bond were obtained from
NAB;
(b) no loan account, agreement or arrangement exits between the NAB
and the bond holder in relation to those moneys; and
(c) all proceeds arising from the bond are beneficially owned by NAB
and NAB is entitled to receive those proceeds.[13] Para 2.1 in each of the Deeds
81 A feature of each of the settlements was that the NAB was not calling for the instant cancellation of the bond (clause 3 in each deed), rather for the continuation of monthly payments with an ultimate entitlement to the proceeds of the bond. Under cross examination by Mr Kirby, Mr Dhumatkar conceded that the NAB accepted the bond holders were generally “innocent” students.
Findings on the evidence
82 I am satisfied that Mr Batra drew the bank cheque in pretended exercise of his authority to draw cheques on behalf of his principal.
83 Thus although the cheque appears to be drawn on a valid account:
(a) the NAB does not appear to have received a completed loan
application or indeed any loan application at all;(b) no duly executed security documentation was received in relation to the account notwithstanding it was wrongly certified by Mr Batra as being so secured; and
(c) the account was established outside the authority of Mr Batra.
84 I am further satisfied that Mr Batra must have been aware of the deficiencies listed above but has attempted to present a picture of a regular valid transaction through the recordings of the transaction in the computer systems of the NAB.
85 I am further satisfied that Mr Batra has drawn the cheque and caused the payment of moneys by the NAB in circumstances where he must have known there was no authority for him to do so.
86 I am thereby satisfied that Mr Batra has opened the 2728 account and drawn the bank cheque in pretended exercise of his authority to draw cheques on behalf of the NAB but in fact in fraud on the NAB for his own purposes.
87 I am further satisfied that this is clearly the case on the evidence before me notwithstanding the seriousness of the allegation.[14]
[14] Briginshaw v Briginshaw (1938) 60 CLR 336
88 In these circumstances, the NAB remained the true owner of the cheque pursuant to the principles in the NIML case.
Position of account holders.
89 Mr Kirby nevertheless suggested, relying on the common law, that the account holders became owners of the bank cheque in circumstances where Mr Batra had actual or ostensible authority to bind the NAB. [15]
[15] Both Counsel accepted that the provisions of the Cheques Act 1986 were inapplicable to this case since, inter alia, section 3 defined a “holder” to mean the payee or indorsee who is in possession of the cheque and the bank’s alleged customers did not fit this description
90 For reasons given already, Mr Batra had no actual authority to enter a contract in the terms suggested by the unsigned letter of offer in the absence of the provision of security.
91 However, the defendant relied on the principles of ostensible authority. Thus it was submitted that Mr Batra had ostensible authority when dealing with customers and could bind the bank in contracts and arrangements unless those customers knew of his lack of authority.
92 Mr Kirby also submitted that the NAB bears the onus of proving this knowledge (as to the lack of authority) which onus had not been discharged. In particular, he relied on Mr Dhumatkar’s evidence to the effect that the account holders were “innocents.”
93 Mr Strong rejected the suggestion that Mr Batra had bound the bank. He also rejected the suggestion that there was any onus to rebut a case of ostensible authority on the part of the NAB.
94 In order to consider these submissions it is necessary to consider the applicable principles.
principles
95 Mr Kirby relied on the general statements in Halsbury’s Law of Australia[16] to the effect that:
“A third party dealing in good faith with an agent, who acts within the apparent scope of the authority and purports to act as agent, is not prejudiced by the fact that the agent is using the authority for his or her own benefit and not that of the principal. But a principal incurs no liability where the third party knows that the agent, although ostensibly acting on behalf of the principal, is really acting for his or her own behalf.”
[16] At [15-225]
96 Thus stated the principle is well established. However, it does not take the question of onus further.
97 Mr Strong relied on Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd & Anor[17] wherein it is stated that four conditions must be fulfilled to entitle a contractor to enforce against a company a contract entered into by an agent who had no actual authority to do so:
(a) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;
(b) that such representation was made by a person who had actual
authority;
(c) that the contractor was induced by such representation to enter the
contract, that is, the contractor in fact relied upon it;
(d) that there is nothing in the company’s articles to the contrary.
[17] [1964] 2 QB 480 at 505-6
98 Thus stated the principle is consistent with a position wherein a person is seeking to actually enforce a contract. It is not clear from this that the defendant would actually carry the onus in this case.
99 However, Mr Strong further referred to the case of Pacific Carriers Ltd v BNP Paribas[18] wherein the Freeman principles were applied (at [36]) and further relied on the case of United Bank of Kuwait Ltd v Hammond and others[19] wherein Lord Donaldson of the English Court of Appeal suggested that the burden of proof lay on the entity (a bank in that case) seeking to rely on ostensible authority.
[18] (2004) 218 CLR 451
[19] [1988] 3 All ER 418 at 429
100 However, I can see nothing in those cases to suggest that a plaintiff would not generally carry the onus. Further, the bank in the case of United Bank of Kuwait was apparently bringing the action as plaintiff and would be expected to carry the onus in any event.
101 There is nevertheless much force in a position that there should be at least some evidenciary onus on a defendant in a case such as this. As referred to in NIML by Nettle JA the doctrine of ostensible authority really represents a “species of estoppel”. [20]
[20] NIML Ltd v Man Financial Australia (2006) 15 VR 156 at [19]; See also Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451at [36]
102 Nevertheless, I accept that the plaintiff remains obliged to prove its case and thereby to prove its title and rebut any suggestion that the account holders had some superior title.
application of the principles
103 In raising ostensible authority, Mr Kirby placed reliance on the letter of offer and the account statements. He further suggested that the bank was bound by “the acts of Batra.”[21]
[21] Defendant’s supplementary submissions paragraph 6
104 However, in my view the evidence does not establish any foundation for the operation of ostensible authority principles.
105 Firstly, there is no evidence that Mr Batra (or indeed anyone from the bank) had any dealings with any of the customers to the 2728 account. To the extent there is evidence of the dealings of the bond holder customers referred to in the deeds of settlement, it relates to other bonds. Moreover, that evidence also suggests that dealings took place with Mr Vishal or Mr Narad.
106 The highest the evidence gets is that the terms of the unsigned letter of offer should somehow constitute a representation from the NAB. However, there is again nothing to suggest that any representation came from anyone acting or purporting to act on behalf of the bank in relation to this document. Thus it will be recalled that the document itself was not recovered at the bank’s premises nor was it executed by anyone on behalf of the bank.[22] The evidence of Ms Simms was that it appeared to be prepared “on the bank’s system” and it was in Mr Batra’s name but the evidence does not even establish that the bank (or Mr Batra) actually supplied this document to the account holders.
[22] Cf Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451at [38] which passage speaks of imparting authenticity to a blank form “by signature”
107 In such circumstances there is nothing to suggest a representation has been made by or on behalf of the NAB.
108 Further, even if there is some representation by the NAB there is absolutely no evidence whatsoever that it was relied on by the account holders. On this basis alone a claim of ostensible authority based on the unsigned letter of offer must fail.
109 In terms of the bank statements, an unusual feature in the case was that there appeared to be credits and debits to the 2728 account including the debiting of interest. However, there was nothing to suggest that the account holders knew or authorised the account to be opened, nor evidence to suggest that they authorised any of the debits or credits to the account. Mr Dhumatkar explained that the interest would be automatically calculated and debited on the opening of the account. He also gave evidence that Mr Batra was responsible for a debit to an account of Mr Merazoddin Mahammad to the 2728 loan account on 3 July and for a periodical payment debit to the 2728 loan account of the same date to commence on 28 June, 2007. However, in relation to the periodic payment, Mr Dhumatkar explained that there was no executed direct debit authority signed by the customer giving the account number to debit or the account number to credit.
110 In these circumstances there is no evidence to provide any foundation for an ostensible authority defence.
111 It is accordingly unnecessary to consider the submissions of counsel based on the alleged knowledge of the agent’s lack of authority by the account holders. Given the absence of a representation and reliance the issue of knowledge is unnecessary to resolve.
112 However, even if the issue of the account holders’ knowledge arises, it will be recalled that the loan facility was for a reasonably large amount of $400,000. The unsigned business letter of offer also clearly sets out the Facility Specific Security as a General Mortgage (letter of lien) on the crucial “details” page notwithstanding that no such security was ever provided by the account holders. Pursuant to clause 9(a)(xiii) of the letter of offer, the account holders were also said to represent and warrant that the security was in full force and effect. Further, pursuant to the declaration they made on the signature page they were purportedly declaring that all the information given was accurate and not misleading and that every security “held by us” extends to the agreement.
113 Although I accept that a debtor may not necessarily be put on notice in the event of a failure to follow protocols such as consent to credit checks, the proposed parties to a loan facility of $400,000 which was clearly intended to be secured should have been put on notice that the transaction was irregular in circumstances where no security was ever actually provided.
114 In these circumstances, even if ostensible authority arises, in my view the account holders were sufficiently on notice such that they should have known that the transaction was irregular and any “agent” not really acting on behalf of the NAB. Further, just because the bond holders may be “innocent” of the fraud as expressed by Mr Dhumatkar, this does not necessarily mean that they would be entitled to rely on the acts of any “agent” in circumstances where the account holders were put on notice of irregularities in the transaction.
115 I therefore find that the plaintiff has successfully rebutted any defence based on ostensible authority.
116 It follows that the NAB retained good title to the cheque which was not passed to the account holders.
117 Moreover, there was no suggestion that the defendant could demonstrate title in relation to the cheque in circumstances where he gave no consideration for it.
118 However, it was suggested that the defendant had not handled or dealt with the cheque which submission will be considered below.
Whether inconsistent act
119 In this case, Mr Strong submitted that the conversion was the act of handing over the cheque in return for the issue of the bond; the cause of action being complete on acquisition of the bond.
120 In the light of the fact that the bond was issued on the same date the bank cheque was presented and that the names of the parties on the back of the bank cheque corresponded with the names of the joint holders of the bond, I am satisfied that the bank cheque paid for the bond which matter was not challenged by the defendant.
121 However, Mr Kirby submitted that there was no direct evidence that the defendant actually handled or dealt with the bank cheque. The defendant also denied handling the cheque.
122 I do not accept the defendant’s evidence that he did not handle the cheque. In my view it is more probable than not that the defendant did actually handle the cheque, given that the date given for receipt of the bond is 8 June, which is also the date the defendant signed the application for the bond (Mr Merazoddin signing on 5 June 2007).
123 The defendant however suggested that he was at work all day (at the Commonwealth Bank) on 8 June 2007 and did not have the opportunity to make application for the bond in the City. He also produced worksheets in support of this suggestion.
124 There is no evidence that the application needed to be made in the city. Further, the application for the bond and the cheque could have been forwarded by mail or courier.
125 In any event, a principal is liable for loss or injury caused by the tort of his agent if the wrongful act was specifically instigated, authorised or ratified by the principal.[23]
[23] Bowstead and Reynolds on Agency at 8-177
126 In this case if the defendant did not handle the cheque himself then he must have authorised someone else, likely the other bond holder Mr Mahammad, to so handle it on his behalf. This is probable given I have found that the proceeds of the cheque were used for the issue of a bond which the defendant had applied for under his own signature.
127 On this basis I am satisfied that the defendant has committed the tort of conversion in that he has wrongly “handed over” the cheque, directly or indirectly through his agent, in order to obtain the issue of a bond in his name.
128 In such circumstances I am satisfied that the defendant has intentionally exercised control over the cheque such as to seriously interfere with the right of the NAB to control it.
129 I am thereby satisfied that the tort of conversion has been established.
MONEYS HAD AND RECEIVED
Principles
130 The claim for moneys had and received is “a cause of action whereby the plaintiff seeks to recover money from the defendant on the ground that the defendant had received the money to the use of the plaintiff to whom in justice and equity it belongs.”[24]
[24] NIML Ltd v Man Financial Australia Ltd [2004] VSC 449 at [74]
131 Underpinning recovery is the “unifying legal concept” of unjust enrichment.[25] The court will also pay regard to the substance rather than to the form of what has occurred.[26]
[25] David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; ANZ Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673.
[26] ANZ Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 674.
132 In this case the bond was acquired with money to which the defendant had no title and which money was obtained by a fraud on the NAB. In substance, the benefit of the payment made to the NSW Treasury Corporation by the NAB has therefore gone to the defendant.
133 For reasons already given I also reject the suggestion of the defendant that the NAB has failed to establish its title to the monies used. The monies properly belonged to the NAB and title was not lost by reason of the fraudulent acts of Mr Batra, nor the setting up of the bank account in the name of the account holders.
134 Prima facie then, the defendant is liable in restitution.
defence of change of position
principles
135 In terms of the defence of change of position, in ANZ Banking Group Ltd v Westpac Banking Corporation[27] the Court said:
“It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (e.g. the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognises would make an order for restitution unjust. (emphasis added)
[27] (1988) 164 CLR 662 at 673
136 The High Court in David Securities Pty Ltd v Commonwealth Bank of Australia[28] said:
“If we accept the principle that payments made under mistake of law should be prima facie recoverable, in the same way as payments made under a mistake of fact, a defence of change of position is necessary to ensure that enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust. This does not mean that the concept of unjust enrichment needs to shift the primary focus of its attention from the moment of enrichment. From the point of view of the person making the payment, what happens after he or she has mistakenly paid over the money us irrelevant, for it is at that moment that the defendant is unjustly enriched. However, the defence of change of position is relevant to the enrichment of the defendant precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt. In the jurisdictions in which it has been accepted (Canada and the United States), the defence operates in different ways but the common element in all cases is the requirement that that the defendant point to the expenditure or financial commitment which can be ascribed to the mistaken payment. In Canada and some United States decisions, the defendant has been required to point to specific expenditure being incurred because of the payment. Other cases in the United States allow a wider scope to the defence, such that a defendant can rely upon it even though he or she cannot precisely identify the expenditure caused by the mistaken payments. In no jurisdiction, however, can a defendant resort to the defence of change of position where he or she has simply spent the money received on ordinary living expenses.” (emphasis added)
[28] (1992) 175 CLR 353 at 385–386
application of principles
137 I do not accept that the defence of change of position is made out on the facts of this case.
138 I have rejected the defendant’s evidence that he did not apply for the bond or the redemption moneys. In these circumstances the precise reasons he acted in the way he did are unclear. Nevertheless, there is nothing before the court to suggest that the bond was received in order, for example, to discharge an existing debt. Moreover, there is nothing to suggest that there has been a receipt of the bond in good faith and in reliance on the payment.
139 The gravamen of the suggestion of change of position was that the defendant had not actually retained the proceeds of the bond, but had shortly thereafter paid the proceeds out to Mohammad Abdur Rahman.
140 It is debateable whether it is appropriate to consider this subsequent conduct of the defendant since the concept of unjust enrichment focuses on the moment of enrichment. The only evidence before the court suggests that the defendant was “unjustly enriched” at that time by the receipt of the bond in his name.
141 Moreover, even if it is appropriate to consider his conduct of 4 July, there is simply no evidence as to the reason why he paid the funds over to Mr. Rahman. On the evidence all that can be said is that this was a matter of his own choosing and, presumably, in his own interests. In such circumstances there is no basis on which a defence of change of position can be sustained.
142 The defence of change of position is therefore not made out.
CONCLUSION
143 The NAB has made out its case on the basis of liability pursuant to conversion and/or restitution.
144 The usual value of damages in conversion is the full amount of the “thing” converted, namely the value of the cheque. This is also the appropriate value of the restitution claim as this is the value of the benefit received by the defendant.
145 The NAB is entitled to judgment in the amount of $100,000.
146 However, I will hear further from the parties as to the precise form of final order including the question of interest and costs.
| [1990] VR 41 (2006) 15 VR 156 at 162 |
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