Perpetual Trustees Australia Ltd v Heperu Pty Ltd

The appeal before the Court of Appeal of New South Wales concerned the liability of Perpetual Trustees Australia Ltd (Perpetual) to the respondents, Dr Landa and his companies, for the conversion of six cheques. The dispute arose from a fraudulent investment scheme orchestrated by Mr Cincotta, who had induced Dr Landa to invest substantial sums by representing that these funds would be placed in an "offset mortgage account" with Perpetual. In reality, no such scheme existed, and Mr Cincotta misappropriated the funds. Dr Landa drew the cheques in favour of Perpetual, which were then delivered to Mr Cincotta, who was found to have no actual authority to act on behalf of Perpetual in this manner.

The central legal issues before the Court of Appeal were whether Perpetual was liable for conversion of the cheques, and whether Perpetual's defences, including estoppel and change of position, were valid. Specifically, the court had to determine if title to the cheques had passed to Perpetual, and if so, whether Perpetual's subsequent payment of the proceeds before notice of the fraud meant it was not liable for conversion or unjust enrichment. The court also considered whether a duty of care was owed by Perpetual to potential investors like Dr Landa to prevent economic loss arising from the dishonesty of agents acting in relation to Perpetual's common fund.

The Court of Appeal allowed Perpetual's appeal, overturning the primary judge's finding of liability for conversion. The court reasoned that for title to pass to the payee of a cheque, the drawer must intend to pass title to that payee. In this instance, Dr Landa drew the cheques payable to Perpetual, intending for Perpetual to receive the funds. While Mr Cincotta acted fraudulently, the court held that the condition of delivery to Mr Cincotta did not invalidate the passing of title to Perpetual, as the payee had not been complicit in the fraud. The court distinguished the present case from authorities where the payee was found to have converted the cheque, noting that Perpetual had not been a party to the fraud and had acted in good faith. Furthermore, the court found that Perpetual did not owe a duty of care to Dr Landa to prevent economic loss arising from Mr Cincotta's dishonesty, as there was no sufficient vulnerability or assumption of responsibility by Perpetual.

Consequently, the Court of Appeal set aside the orders made against Perpetual and entered judgment in favour of Perpetual against the plaintiffs. The respondents were ordered to pay Perpetual's costs of the appeal, and were granted certificates under the Suitors' Fund Act 1951 (NSW), if qualified.