O'Brien v Supercheap Security Pty Ltd trading as Supercheap Security Pty Ltd (No 2)

[2023] NSWSC 761

Supreme Court

New South Wales

Medium Neutral Citation:

O’Brien v Supercheap Security Pty Ltd trading as Supercheap Security Pty Ltd (No 2) [2023] NSWSC 761

Hearing dates:

1 June 2023; further submissions 19 and 23 June 2023

Date of orders:

04 July 2023

Decision date:

04 July 2023

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

Leave to file Amended Commercial List Statement refused

Catchwords:

CIVIL PROCEDURE – pleadings – amendment – application for leave to amend Commercial List Statement – proposed causes of action for money paid under a mistake of fact, for knowing assistance in a dishonest and fraudulent design, for breach of common law duty of care, for misleading or deceptive conduct and for unconscionable conduct

Legislation Cited:

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)

Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth)

Australian Securities and Investments Commission Act 2001 (Cth)

Civil Procedure Act 2005 (NSW)

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18

Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161; [1993] 1 WLR 509

Caltex Refineries (Qld) Pty Limited v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258

Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373; [1975] HCA 8

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

O’Brien v Supercheap Security Pty Ltd [2023] NSWSC 21

Odtojan v Condon [2023] NSWCA 129

Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36

Robb Evans of Robb Evans & Associates v European Bank Limited (2004) 61 NSWLR 75; [2004] NSWCA 82

Turner v Windever & Anor [2005] NSWCA 73

Category:

Procedural rulings

Parties:

Joanne Marjorie O’Brien (Plaintiff/Applicant)
Supercheap Security Pty Ltd trading as Supercheap Security Pty Ltd (First Defendant)
Hassan Mehdi (Second Defendant)
National Australia Bank Limited (Third Defendant/Respondent)

Representation:

Counsel:
M Kalyk (Plaintiff/Applicant)
M Ellicott (Third Defendant/Respondent)

Solicitors:
Carmody Lawyers (Plaintiff/Applicant)
Herbert Smith Freehills (Third Defendant/Respondent)

File Number(s):

2022/241124

JUDGMENT

1. The plaintiff, Ms Joanne O’Brien, alleges that she has been defrauded by the first and second defendants, Supercheap Security Pty Ltd and Mr Hassan Mehdi, of $500,000. Mr Mehdi is the sole director and shareholder of Supercheap. Each has been served. Neither has appeared.

2. Ms O’Brien also seeks to make a claim against the third defendant, National Australia Bank Limited (“NAB”), on various bases to which I will return.

3. There were originally three other plaintiffs who also alleged that they had been defrauded by Supercheap and Mr Mehdi. They are no longer participating in the proceedings.

4. On 2 February 2023, Ball J summarily dismissed, pursuant to Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), r 13.4(1)(b), two of the claims made by Ms O’Brien and the former plaintiffs against NAB and struck out, pursuant to UCPR r 14.28(1), the other three claims. ^[1]

   1. O’Brien v Supercheap Security Pty Ltd [2023] NSWSC 21.

5. Ball J granted the former plaintiffs leave to replead the claims that had been struck out.

6. Now, by Notice of Motion filed on 28 April 2023, Ms O’Brien seeks leave to file an Amended Commercial List Statement (“the Proposed List Statement”) which seeks to address the shortcomings the subject of Ball J’s findings.

7. My conclusion is that leave to amend should be refused.

The alleged fraud

8. Ms O’Brien alleges that:

1. on 22 May 2022, she made enquiries about “best interest rates available” on a particular website;

2. she thereafter received emails and telephone calls from persons purporting to be employees of “AMP Bank” and who sent emails with addresses that suggested an association with “AMP”; ^[2]

   2. Such as [email protected] and [email protected].

3. individuals purporting to be from AMP represented to her that:

1. she could invest money by way of term deposit in her name;

2. she would receive interest payments at the rate of 3.65% per annum; and

3. to make the investment she should transfer funds to an account in her name and with a nominated BSB and account number;

4. she instructed her bank, Commonwealth Bank of Australia (“CBA”) “as her agent”^[3] to send five separate amounts of $100,000 to an account in her name with that BSB and account number (“the Nominated Account”) on 9, 14, 15, 16 and 17 June 2022 (“the Payments”);

5. the account having that BSB and account number was in fact maintained by Supercheap at NAB (“the Supercheap Account”);

6. an amount equal to the five amounts of $100,000 was credited to the Supercheap Account and, almost immediately, withdrawn; and

7. on 20 June 2022, Ms O’Brien attempted to make a further transfer in the same manner but CBA blocked that transaction from proceeding on the stated basis that “NAB account has been blocked due to suspicious activity”.

3. I return to this at [19] below.

Ms O’Brien’s claims against NAB

9. Ms O’Brien brings a number of claims against Supercheap and Mr Mehdi. Ms O’Brien alleges that Supercheap and Mr Mehdi engaged in a dishonest and fraudulent design.

10. Ms O’Brien seeks to make the following claims against NAB:

1. for money paid under a mistake of fact;

2. that NAB knowingly assisted the dishonest and fraudulent design of Supercheap and Mr Mehdi;

3. that NAB processed the payments in breach of alleged duty of care to Ms O’Brien;

4. that NAB engaged in misleading or deceptive conduct for the purpose of s 18 of the Australian Consumer Law (“ACL”); ^[4]

5. that NAB engaged in unconscionable conduct in contravention of ss 12CA or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”), ss 20 or 21 of the ACL, and the general law.

   4. Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law.

11. In paragraphs prefatory to those in which Ms O’Brien sets out her contentions in relation to the five causes of action to which I have referred, Ms O’Brien makes a number of contentions concerning NAB’s obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (“the Anti-Money Laundering Act”) and the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth) (“the Anti-Money Laundering Rules”). These include NAB’s alleged obligation to monitor its customers with a view to identifying, mitigating and managing the risk that the services provided by NAB may involve or facilitate money laundering.

12. It is common ground that, for the purpose of this application, I should assume the correctness of those allegations. They are said to be relevant to the contentions that Ms O’Brien makes concerning NAB’s alleged knowing assistance of Supercheap’s and Mr Mehdi’s alleged dishonest and fraudulent design.

Res Judicata point

13. I heard submissions concerning the effect of s 91 of the Civil Procedure Act 2005 (NSW) on the ability of Ms O’Brien to re-agitate those claims that Ball J summarily dismissed, ^[5] as opposed to those that his Honour struck out, with liberty to replead. ^[6]

    5. The claims for knowing receipt and negligence.

    6. The claims for a constructive or resulting trust arising from a mistaken payment, misleading or deceptive conduct and unconscionable conduct.

14. Section 91 of the Civil Procedure Act provides:

“91 Effect of dismissal of proceedings (cf SCR Part 40, rule 8)

(1) Dismissal of—

(a) any proceedings, either generally or in relation to any cause of action, or

(b) the whole or any part of a claim for relief in any proceedings,

does not, subject to the terms on which any order for dismissal was made, prevent the plaintiff from bringing fresh proceedings or claiming the same relief in fresh proceedings.

(2) Despite subsection (1), if, following a determination on the merits in any proceedings, the court dismisses the proceedings, or any claim for relief in the proceedings, the plaintiff is not entitled to claim any relief in respect of the same cause of action in any subsequent proceedings commenced in that or any other court.”

15. In view of the conclusions to which I have come concerning the merits of each of Ms O’Brien’s proposed claims against NAB, it is not necessary for me to deal with that question. That is because, whether or not Ms O’Brien remains entitled, following Ball J’s decision, to seek to propound a case against NAB for knowing assistance or money paid under a mistake of fact, she should not be given leave to do so.

Money paid under a mistake of fact

16. Ms O’Brien’s proposed case for money paid under a mistake of fact is set out in [63A] to [68] of the Proposed List Statement. I attach a copy of these paragraphs to these reasons.     Proposed List Statement [63A]-[68]

17. The structure of the claim is as follows:

1. NAB had a system encouraging, facilitating or permitting a person to issue instructions to their bank to credit that person’s funds to an account operated by NAB “including by nominating the account name of the account to be credited”; ^[7]

   7. [63A].

2. by acting on the instructions that Ms O’Brien gave to CBA to make the Payments to the Nominated Account, NAB was acting as Ms O’Brien’s agent, or sub-agent, or in a capacity analogous to an agent; ^[8]

3. at the time of her instructions to CBA, Ms O’Brien was acting under a mistake of fact, namely that she was instructing NAB to credit the Payments to the Nominated Account; ^[9]

4. NAB knew, or should have known, of that mistake, “primarily” because Ms O’Brien was named as the “Account Name”; ^[10]

5. NAB was thereby unjustly enriched; ^[11] and

6. alternatively to (e), NAB acted “unconscientiously” in crediting the Payments to the Supercheap Account.

   8. [65].

   9. [66].

   10. [66A].

   11. [66B(a)].

18. There are a number of difficulties with this proposed claim.

19. First, as to the matter in [17(b)], I cannot see how it could possibly be contended that NAB was acting as Ms O’Brien’s agent. As Ms O’Brien has herself alleged, ^[12] her agent was CBA, not NAB.

    12. See [8(d)] above.

20. Mr Kalyk, who appeared for Ms O’Brien, submitted that:

“… when a bank offers itself out as being willing and able to receive and act on an instruction to transfer funds from an originator, it is acting as the originator’s agent in giving effect to that instruction.”

21. I cannot see how that could possibly be so.

22. As to the matter in [17(c)], on her own case, Ms O’Brien was not acting under such a mistake of fact. On her case, through her agent, CBA, she did instruct NAB to credit the Payments to the Nominated Account. Ms O’Brien was not acting under the stated mistake of fact.

23. Finally, as to the matter in [17(e)], I see no basis upon which it could be concluded that NAB was enriched at all, let alone unjustly enriched. This matter was dealt with by Ball J in his judgment at [27] and [28]. As his Honour said:

“… amounts credited to a current account, which is not in overdraft, are not treated as having been received by the bank for the purpose of imposing an obligation in equity on the bank to account to the person said to be the true owner of the funds.”^[13]

13. O’Brien v Supercheap Security Pty Ltd (supra) at [28] and, see generally, Robb Evans of Robb Evans & Associates v European Bank Limited (2004) 61 NSWLR 75; [2004] NSWCA 82 at [167] (Spigelman CJ, with whom Handley and Santow JJA agreed).

24. This proposed cause of action has no reasonable prospects of success. Leave to bring it should be refused.

Knowing assistance

25. Ms O’Brien’s proposed case concerning knowing assistance is set out in [69] to [74] of the Proposed List Statement. I attach a copy of these paragraphs to these reasons.     Proposed List Statement [69]-[74]

26. The structure of this proposed cause of action is as follows.

27. First, it is alleged that NAB knew the matters set out at [69] of the Proposed List Statement, particularly that:

1. it did not operate any account in the names of the four originators (that is, not only Ms O’Brien but the other three former plaintiffs); ^[14]

   14. Subparagraph (r).

2. the instructions received by NAB from each of the originators (again, not only Ms O’Brien) were to credit an account in their name; ^[15]

   15. Subparagraphs (o) and (p).

3. there were indicators of a mistaken transfer, for example, references to “AMP” and to “fixed deposit amp”; ^[16]

4. Supercheap was a new customer of NAB; ^[17]

5. operations on the account were in excess of Supercheap’s stated expectations; ^[18]

6. funds were withdrawn from the account very shortly after deposit, with some funds being transferred out of Australia; ^[19] and

7. there were a large number of deposits from a number of different persons. ^[20]

   16. Subparagraph (t).

   17. Subparagraph (c).

   18. Subparagraphs (g), (l) and (m).

   19. Subparagraph (v).

   20. Subparagraph (k).

28. It is common ground that I should assume, for the purposes of this application, that Ms O’Brien will be able to establish that NAB actually knew each of these matters.

29. Next, it is alleged that because of that knowledge, NAB was required to take the steps set out in [69A] of the Proposed List Statement, including:

1. having systems in place to verify information it had received from Supercheap; ^[21]

2. the application of “an enhanced customer due diligence program” to the Supercheap Account; ^[22]

3. obtaining further information from Mr Mehdi “or third party sources”; ^[23] and

4. having suspicions that Supercheap and Mr Mehdi “were not who they claimed to be” or as to the veracity or adequacy of the information provided by them. ^[24]

   21. Subparagraphs (a), (b) and (c).

   22. Subparagraph (e).

   23. Subparagraph (f).

   24. Subparagraph (d).

30. It is not alleged that NAB did not take any of these steps, nor as to what would have been the position had it done so.

31. Next, it is alleged in [69B] of the Proposed List Statement that an honest and reasonable person in the position of NAB would have taken the steps specified in [69A] and/or had a system in place to ensure that such steps were taken, including:

1. speaking to Mr Mehdi; ^[25]

2. identifying persons other than Supercheap or Mr Mehdi “who were involved with” Supercheap or Mr Mehdi and who were “operating the account”; ^[26]

3. obtaining from Supercheap, or from “third party sources”, or from “open source searches”, to “verify the bona fides” of Supercheap or such other individuals as may have been involved in their activities; ^[27] and

4. generally, to gain an understanding and explanation of the transactions on the account. ^[28]

   25. Subparagraph (a).

   26. Subparagraph (b).

   27. Subparagraphs (c), (d) and (e).

   28. Subparagraphs (h) and (i).

32. The Proposed List Statement then alleges, in [69C], that by reason of the matters in [69], [69A] and [69B], NAB knew – that is, actually knew – or “should have known … some or all” of a large number of matters, including that:

1. Supercheap was a “sham company”; ^[29]

   29. Subparagraph (a).

2. Supercheap was operating “solely or primarily to facilitate a fraud”; ^[30]

3. Mr Mehdi was “either a sham director or a participant in the fraud”; ^[31]

4. Supercheap operated no legitimate business and/or apparently operated no legitimate business; ^[32]

5. the “persons perpetrating the frauds” held themselves out as representing AMP and encouraged victims to transfer funds to an account at NAB in the victim’s name; ^[33] and

6. on about 19 May 2022, AMP had published a warning expressly identifying a fraud using AMP’s name and “fake emails” suggesting a connection with AMP. ^[34]

   30. Subparagraph (b).

   31. Subparagraph (d).

   32. Subparagraph (e).

   33. Subparagraph (l).

   34. Subparagraph (k).

33. Finally, the Proposed List Statement alleges at [70] that, by reason of the matters in [69], [69A], [69B] and [69C]:

1. NAB had actual knowledge – that is, actually knew – that Supercheap, Mr Mehdi “and/or others” were engaging in dishonest and fraudulent design;

2. alternatively, NAB was “wilfully blind” to such dishonest and fraudulent design (these two allegations being described as Ms O’Brien’s “primary case”);

3. alternatively, that NAB “wilfully or recklessly” failed to make the enquiries specified at [69B]; or

4. further alternatively, that NAB had “sufficient knowledge”, “in the sense of actual knowledge or wilful blindness”, of the matters alleged at [69] and [69B] that would have indicated the dishonest and fraudulent design.

34. Ultimately, the question is whether, assuming, as I must for this purpose, NAB knew the matters at [69] of the Proposed List Statement, such knowledge is capable of leading to the extremely serious conclusions alleged at [70] of the Proposed List Statement.

35. That is because:

1. it is only in [69] that allegations are made as to what NAB actually knew;

2. [69A] is directed to what steps NAB “was required” to take and what NAB “should have suspected”;

3. [69B] is directed to what a reasonable and honest person in NAB’s position would have done;

4. [69C] aggregates these and contends that they lead to a conclusion that NAB knew or should have known the matters there set out; and

5. these matters lead to the allegations of knowing assistance in a dishonest or fraudulent design in [70].

36. As Ms Ellicott, who appeared for NAB, submitted, apart from the knowledge alleged at [69], the Proposed List Statement relies on matters of constructive knowledge to found an allegation of actual knowledge.

37. Turning to the knowledge of NAB alleged at [69], I cannot see how it could be concluded that, by reason of knowing those matters, NAB had knowledge of the kind alleged at [70].

38. That is particularly so in relation to Ms O’Brien’s “primary case” that NAB actually knew or was wilfully blind to the alleged dishonest and fraudulent design of Supercheap and Mr Mehdi, “and others”.

39. Each of the allegations at [70] attributes wilful conduct to NAB:

1. actual knowledge of the dishonest and fraudulent design;

2. wilful blindness to the dishonest and fraudulent design; and

3. wilful or reckless failure to undertake enquiries.

40. These are grave allegations; especially the first, that NAB actually knew of the alleged dishonest and fraudulent design. As the Court of Appeal very recently reiterated, such allegations should only be made where there is a proper basis to do so and are not lightly to be made. Legal practitioners, including those advising Ms O’Brien, are bound by rules of ethical conduct not to make such allegations without specific instructions and on an appropriate evidentiary foundation. ^[35]

    35. Odtojan v Condon [2023] NSWCA 129 at [25] and [30] (Leeming and Kirk JJA).

41. It may be that knowledge alleged at [69] of the Proposed List Statement might amount to circumstances that would put an honest and reasonable person in the position of NAB on enquiry. This is the fifth of the five categories of knowing involvement propounded by Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA. ^[36] Indeed, according to the allegations made in the Proposed List Statement, on 20 June 2022 NAB informed CBA that the Supercheap Account had been “blocked due to suspicious activity”. ^[37] Evidently, by then NAB was on enquiry. However, as the Proposed List Statement implicitly acknowledges, that is not sufficient for the purposes of a knowing assistance case. ^[38]

    36. [1992] 4 All ER 161; [1993] 1 WLR 509 at 575-6.

    37. See [8(g)] above.

    38. Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 at 412; [1975] HCA 8 (Stephen J, Barwick CJ and Gibbs J agreeing, McTiernan J in dissent); Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [160], [176]-[178] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [259]-[262] (Finn, Stone and Perram JJ).

40. The difficulty is highlighted in the following passage from Mr Kalyk’s submissions:

“The inference is plainly open that, taken at its highest, NAB had actual knowledge of the fraud or should have known about the fraud. If NAB took the steps it should have taken (e.g. conducted the most basic due diligence on the bona fides of the [Supercheap] Account, inquired of just one of the many originators, or turned their minds to the most basic question of why all these individuals were asking for money to be credited to an account in their name which did not exist), it is clear that they would have had actual knowledge about the fraud. The most basic inquiries would have led to the discovery that the [Supercheap] Account was entirely illegitimate and simply a front for the fraud.” (Emphasis added.)

43. The knowledge attributed to NAB at [69] of the Proposed List Statement is only capable of establishing, at the very most, that Ms O’Brien has some prospect of establishing the matter that I have emphasised, namely that NAB “should have known about the fraud”.

44. That is not a sufficient basis to make the very serious allegations that the Proposed List Statement posits, nor to propound a case for knowing assistance of a dishonest and fraudulent design.

45. Mr Kalyk submitted that the “present pleaded case goes beyond mere suspicion”. But that is the problem. The allegations of what NAB actually knew cannot justify the proposed case.

Duty of care

46. Ms O’Brien’s case concerning the alleged duty of care is set out at [74A] to [82] of the Proposed List Statement. I attach a copy of those paragraphs to these reasons.     Proposed List Statement [74A]-[82]

47. The structure of Ms O’Brien’s claim concerning an alleged breach of duty of care is that:

1. NAB had a system encouraging, facilitating or permitting a person to issue instructions to their bank to credit that person’s funds to an account operated by NAB “including by nominating the account name of the account to be credited”; ^[39]

   39. [69A].

2. the system and processes involving cashless transactions carry with them the risk of fraud; ^[40]

   40. [75].

3. in those circumstances, Ms O’Brien relied on NAB to take reasonable precautions against such a risk; ^[41]

4. Ms O’Brien was vulnerable to loss or damage should NAB not take reasonable steps against that risk; ^[42]

5. such risk was foreseeable and not insignificant; ^[43]

6. that risk was such that a reasonable person in NAB’s position would have had in force a system whereby, relevantly, funds were not credited to an account belonging to a person different from the account name specified in the instruction; ^[44] and

7. NAB had a duty to the plaintiff at common law to take reasonable care in acting or purporting to act on instructions to NAB to credit funds to an account operated by NAB. ^[45]

   41. [76(a)].

   42. [76(b)].

   43. [77].

   44. [78].

   45. [79].

48. This alleged duty is narrower than that posited before Ball J, which was a duty to take reasonable care in the “oversight and effective cashless transfer of funds throughout Australia and internationally”.

49. But the proposed case has the same inherent problems as identified by Ball J. At [44], his Honour referred to the principles to be applied when determining whether a novel duty of care arises, as summarised by Allsop P (as his Honour then was) in Caltex Refineries (Qld) Pty Limited v Stavar. ^[46]

    46. (2009) 75 NSWLR 649; [2009] NSWCA 258 at [102]-[103].

50. Ball J concluded:

“Notwithstanding the fact that the issue generally requires a careful examination of the facts, in my opinion, it is apparent that, applying these principles, it is not reasonably arguable that NAB owes the alleged duty. A number of matters identified by Allsop P tend against the existence of such a duty and none points in favour of it.

The alleged duty is said to be a duty to avoid pure economic loss. It is one which, in effect, is said to be owed to the world at large. The alleged duty is broad and indeterminate in scope. Those factors, particularly in combination, count against the existence of the alleged duty.

There is no personal or other connection between the plaintiffs and NAB. The duty in effect is said to be a duty to take reasonable care to prevent the plaintiffs from being defrauded by customers of NAB. But none of the facts pleaded by the plaintiffs provide a basis for saying that NAB assumed that responsibility or that the plaintiffs reasonably relied on NAB to prevent them from being defrauded by NAB’s customer. Moreover, the existence of the pleaded duty would raise the possibility of conflict between the duty a bank owes to its customer and a duty that it is said to owe to anyone who chooses to deal with that customer. The relevant obligations of a bank, and NAB in particular, are dealt with in detail by legislation. There is nothing in that legislation that suggests that breach of it gives rise to civil liability on the part of the bank to any person who deals with its customer.

Vulnerability to the harm said to be caused by the alleged conduct is an important, if not critical, indicator of the existence of a duty of care. ^[47] The List Statement suggests that the plaintiffs were vulnerable to harm caused by NAB’s conduct — or, more accurately, inaction — and that the plaintiffs had limited ability to protect themselves. That submission cannot be accepted. It was open to the plaintiffs to make their own enquiries, including taking steps to check that they were dealing with persons employed by AMP by contacting AMP themselves.” ^[48]

47. See Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [118] (McHugh J).

48. O’Brien v Supercheap Security Pty Ltd (supra) at [45]-[48].

51. The Proposed List Statement does not cure these problems. In particular:

1. the alleged duty is to avoid economic loss, is still said to be owed to the world at large, and to be broad and indeterminate in scope;

2. the allegations are still not capable of establishing relevant vulnerability.

52. Ms O’Brien’s negligence case remains not reasonably arguable. ^[49]

    49. As Ball J concluded at [52].

Misleading or deceptive conduct

53. Ms O’Brien’s proposed case in relation to misleading or deceptive conduct is set out at [83] to [90] of the Proposed List Statement. I attach a copy of those paragraphs to these reasons.     Proposed List Statement [83]-[90]

54. Ms O’Brien’s proposed case is that NAB represented to her that when she instructed NAB to credit funds to an account operated by NAB:

“a. the instructions to credit funds would be followed;

b. the funds would not [be] credited to an account that did not exist; and/or

c. where instructions are ambiguous, the details of the instruction would be checked with the originator or their agent.”^[50]

50. At [84].

55. The particulars of the alleged representation are:

“The representations were implied from the conduct pleaded at paragraph 63A, seen in context of the legal obligations applying to banks as pleaded at paragraphs 55 to 63.”

56. Paragraph [63A] ^[51] alleges that NAB:

“Operated a system that encouraged, facilitated or permitted a person (the originator) to issue instructions through the originator’s bank to [NAB] to credit funds held in accounts operated by [NAB] including by nominating the account name of the account to be credited.”

51. To which I have referred above at [17(a)] and [47(a)].

57. Paragraphs [55] to [63] of the Proposed List Statement set out the matters that I have summarised at [11] above.

58. I cannot see how the alleged representation could possibly be implied from these matters. Mr Kalyk’s submissions concerning this aspect of Ms O’Brien’s case proceeded upon the basis that NAB had a system which required an originator to include an account name as part of transfer instructions.

59. There is a further problem. The Proposed List Statement contends that the alleged representation was relied upon by Ms O’Brien in:

“a. forming the view that [her] instructions to [NAB] would be followed, that the funds would be credited to an account operated by [NAB] in the name [she] nominated, that the funds would not be credited to an account that did not exist and that if the instructions were ambiguous the details would be checked with [her] or [her] bank; and

b. forming the view that it was desirable and reasonable to instruct [NAB] to credit the nominated accounts operated by [NAB] as pleaded above at paragraph 21;

c. taking comfort in the security of the transaction being effected; and

d. not taking further steps to verify or confirm that [Ms O’Brien] did in fact have an account operated with [NAB].”

60. But, as Ms Ellicott pointed out, it is Ms O’Brien’s case that she was told by persons purporting to be from AMP that an account had been set up in her name with AMP.

61. On her own case, that is what Ms O’Brien relied on, not on any implied representation from NAB. Ms O’Brien did not think she was transferring funds into an account operated by NAB.

62. In response to Ms Ellicott’s submission, Mr Kalyk submitted:

“Those representations are conveyed by NAB’s conduct. They do not cease to be conveyed, and do not cease to be relied upon, because an originator thinks that the name of the bank is AMP and not NAB.” (Emphasis in original.)

63. That submission is misconceived. On her own case, Ms O’Brien did not rely on any representation from NAB.

64. I do not propose to give Ms O’Brien leave to make this claim.

Unconscionable conduct

65. Ms O’Brien’s case concerning NAB’s alleged unconscionable conduct is set out at [91] to [93] of the Proposed List Statement. I attach a copy of those paragraphs to these reasons.     Proposed List Statement [91]-[93]

66. The structure of the proposed claim is that:

1. NAB operated the system alleged at [63A] of the Proposed List Statement; ^[52]

   52. To which I have referred at [17(a)], [47(a)] and [50] above.

2. Ms O’Brien was in a position of special disadvantage to NAB for the reasons set out at [91B];

3. NAB knew or should have known that Ms O’Brien was at such a special disadvantage; ^[53]

4. notwithstanding knowing of that special disadvantage, NAB permitted the continued operation of the Supercheap Account “for its own commercial interests”; ^[54]

5. NAB engaged in the conduct at [91] of the Proposed List Statement, which conduct was in connection with the supply or possible supply of financial services within the meaning of s 12CB of the ASIC Act, or the supply of services within the meaning of ss 20 and 21 of the ACL; and

6. such conduct was unconscionable under the general law, or in contravention of s 12CB of the ASIC Act or ss 20 or 21 of the ACL.

   53. [91C].

   54. [91D].

67. There are a number of difficulties with this claim.

68. The first is that the supply of “financial services” and “services” referred to at [91] of the Proposed List Statement and “in connection with” NAB is alleged to have engaged in unconscionable conduct, comprised services provided to Supercheap and Mr Mehdi and not to Ms O’Brien.

69. Thus, the “financial services” and “services” alleged at [91] are:

1. opening and operating an account for Supercheap;

2. allowing Mr Mehdi to become a signatory to the Supercheap Account;

3. allowing the “operator” of the Supercheap Account to transfer funds out of that account; and

4. crediting funds to the Supercheap Account as a result of electronic funds transfer instructions.

70. As Ball J pointed out:^[55]

“Section 12CC(1) provides that ‘[w]ithout limiting the matters to which the [C]ourt may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the [C]ourt may have regard to’ a list of matters relating to the relationship between the supplier and service recipient. It is apparent from s 12CC that the person with which s 12CB is concerned is the service recipient. Consequently, s 12CB must be read as stating that a person must not in connection with the supply or possible supply of financial services to the recipient of those services engage in conduct that is in all the circumstances unconscionable. A person who suffers loss ‘by’ that conduct is entitled to recover damages from the supplier under s 12GF. Consequently, in order to make out a case under s 12CB the plaintiffs must plead and prove the financial services that NAB supplied or proposed to supply to them and the conduct that NAB engaged in in connection with that supply or possible supply which could be said in all the circumstances to be unconscionable. The plaintiffs have made no attempt to identify what they say was the financial service provided to them. Indeed, the pleaded supply of financial services appears to be a supply to the first defendant.”

55. At [64].

71. Thus, s 12CB of the ASIC Act is directed to conduct engaged in connection with the supply of financial services to the “service recipient”. If that person can show loss “because” of that conduct, that person may recover damages. The same applies to the conduct proscribed by s 21 of the ACL, as is made clear by s 22(1) of the ACL, which is the analogue to s 12CC of the ASIC Act. The conduct proscribed by s 21 is conduct engaged in connection with the supply of services to the “customer”.

72. But, here, Ms O’Brien was not the “service recipient” of any “financial services” provided by NAB nor the “customer” in respect of any “services” provided by NAB. The “service recipient” and “customer” was Supercheap and Mr Mehdi. NAB was not providing those financial services, or indeed any financial services, to Ms O’Brien.

73. Unlike the pleading with which Ball J was concerned, the current proposed pleading recognises the necessity for a person in Ms O’Brien’s position to allege that she was at a “special disadvantage” to NAB.

74. The allegations of special disadvantage are set forth in proposed [91B] to be:

1. that Ms O’Brien did not know that NAB did not hold any account in her name and of her “consequent vulnerability to irreparable mistake or fraud”;

2. that Ms O’Brien was operating under a mistake of fact “that she did in fact have an account with” NAB; ^[56]

3. the alleged “lack of any bargaining power” to choose the manner in which Ms O’Brien could “issue an instruction to debit an account that is believed to be operated” by NAB;

4. the lack of any disclosure by NAB to Ms O’Brien that NAB might “unilaterally and without warning not follow any direction” given by her; and

5. the knowledge that NAB had or should have had in relation to the matters to which I have referred at [27] to [32] above that Ms O’Brien did not have.

   56. A different mistake of fact than the one alleged in her mistake of fact case, which was a mistaken belief that she was instructing NAB to credit funds in an account in the name identified in her instructions.

75. In substance, these allegations amount to an alleged disparity of knowledge between Ms O’Brien and NAB. There is authority that the mere unawareness of a matter material to the interests of a party to a transaction is not, itself, a special disadvantage. ^[57]

    57. See for example, Turner v Windever & Anor [2005] NSWCA 73 at [70]-[73] (Giles JA, Bryson JA agreeing).

76. However, there is a further difficulty.

77. That is that it is not alleged, as the authorities make clear is an essential prerequisite to such a claim, that not only is one party at a special disadvantage but that the stronger party had “unconscientiously” exploited such disadvantage.

78. The nearest the Proposed List Statement comes to making that allegation is [91D] which provides:

“Notwithstanding the known special disadvantage of [Ms O’Brien] and the knowledge pleaded in paragraphs 69 to 69C,^[58] [NAB] permitted the continued operation of the [Supercheap] Account and credited to the account of [Supercheap] the funds [remitted by Ms O’Brien] for its own commercial interests, including increasing revenue from customers, increasing funds under management and reducing costs.”

58. Discussed at [27]-[32] above.

79. This appears to me to fall far short of an allegation of an “unconscientious” exploitation by NAB of Ms O’Brien’s alleged position of special disadvantage.

80. Finally, and in any event, I cannot see upon what basis it could be concluded that NAB’s conduct could be characterised as being unconscionable.

81. It is true, as Ball J observed,^[59] that s 12CB of the ASIC Act “has a far wider reach than the unwritten law”.

    59. At [61].

82. Nonetheless, what must be shown is conduct that:

1. objectively answers the description of being against conscience, where the standard of conscience is informed by such matters as “certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made; ^[60]

2. is “so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”,^[61] the judgment being “a heavy one” and one “informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society; ^[62] and

3. although not limited to conduct held to be “unconscionable” under the general law, must nonetheless be capable of being described as unconscionable. ^[63]

   60. Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [14] (Kiefel CJ and Bell J).

   61. Ibid at [92] (Gageler J).

   62. Ibid at [93].

   63. Ibid at [119] (Keane J).

83. As Ball J observed,^[64] in this case, the relevant conduct the subject of the allegations against NAB is permitting a customer to open and operate a bank account without taking reasonable care to prevent the account from being used to perpetrate a fraud. I cannot see how that conduct could possibly, alone, amount to unconscionable conduct.

    64. At [62].

Conclusion

84. Ms O’Brien’s proposed case has no reasonable prospects of success. I refuse her application for leave to further amend her List Statement.

85. I will now invite submissions as to why the proceedings, as against NAB, should not now be dismissed with costs.

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Endnotes

Decision last updated: 04 July 2023