SA Public Service Savings & Loans v Raw No. Scgrg-97-2 Judgment No. S6398

[1997] SASC 6398

SOUTH AUSTRALIAN PUBLIC SERVICE SAVINGS & LOANS v RAW

Magistrates Appeal

Nyland J

This appeal is from a decision of a magistrate sitting in the civil division of the Magistrates Court at Adelaide.

On 18 December 1996, the appellant, who was the defendant in the proceedings was ordered to pay the respondent the sum of $15,267.14 inclusive of interest to 17 December 1996 in satisfaction of all rights and obligations of the parties with respect to the Brian Dennis Motors cheque account, the Visa account and the security deposit account as referred to in proceedings in the Magistrates Court.  The appellant was also ordered to pay the respondent’s costs of the proceedings to be agreed or taxed.

The respondent’s claim at trial fell into three parts described as "the cheque account claim", "the Visa account claim" and "the security deposit account".

The respondent commenced banking with the appellant in 1989.  He had a business as a bus driver and operated his business cheque account in the name of Brian Dennis Motors ("the business account").  The business had a cheque account with an overdraft limit of $18,000.  The respondent also operated a personal cheque account with Visa card access.  This had a $7,000 overdraft limit which was reduced to $4,000 before the period relevant to these proceedings.  The overdraft limits were secured upon a security deposit account which in effect was a term deposit.

In about the month of November 1994 the respondent formed a de facto relationship with Lynette Redman and he made her a signatory to his personal account.  With his agreement she obtained a Redicard which gave her to access to funds in the account from ATM’s.  The respondent was obliged to be away from home for up to six days a week on bus driving trips, during which period he did not incur any expenses as he was provided with free accommodation at places to which he took passengers.  After a time therefore Ms Redman took over the handling of the respondent’s personal and business finances.

During 1995, Ms Redman developed a gambling habit with respect to poker machines.  It did not appear to be disputed that she used funds from the respondent’s personal account to which she had access, although he said that this was done without his authority.

Cheque Account Claim.

On or about 22 May 1995, Ms Redman forged the respondent’s signature on a cheque in the sum of $6,000.  That cheque was drawn on the respondent’s business account.  She deposited the funds therefrom in the respondent’s personal account.  The learned magistrate noted in his reasons that the date on which Ms Redman deposited the $6,000 into the respondent’s personal account, it was already in excess of the $4,000 overdraft limit and that were it not for this deposit, the fact that Ms Redman had been using the account beyond the respondent’s expectations would have inevitably come to his attention as a result of the account being overdrawn. 

On 9 June 1995, Ms Redman repeated this conduct forging a further cheque in the sum of $4,000 drawn on the business account which she again deposited in the respondent’s personal account. 

On 7 August 1995, Ms Redman forged a further cheque for $3,000 drawn on the business account which she deposited in an account in her own name. 

On 14 August 1995, she forged a cheque in the sum of $3,500 drawn on the respondent’s business account which she deposited in another account in her own name. 

During August 1995, a final cheque was forged in the sum of $2,000 and drawn on the business account.  Those funds were deposited in the respondent’s personal account and the sum of $1,350 withdrawn therefrom before the cheque was dishonoured on 23 August 1995.

The bank then debited the personal account in the sum of $2,000 and imposed fees for a dishonoured cheque.  By this time the personal account was overdrawn by $6,000, that being $2,000 over the original limit agreed between the appellant and the respondent.

The total amount of money obtained by Ms Redman by means of forged cheques was in the sum of $17,850, of which sum $10,000 was paid into the respondent’s personal account.  At no stage did the respondent give Ms Redman any authority to draw funds from his business account.

The appellant did not dispute its liability to reimburse the respondent for the funds paid into Ms Redman’s personal account at the ANZ bank, but contended that there was no liability to reimburse the respondent the cheques drawn by her which were deposited in his personal account, that is, the sum of $10,000 (the cheque account claim).

Visa Account Claim.

The respondent’s personal account had a Visa facility with a credit limit of $4,000.  Ms Redman withdrew funds from this account by using her Redicard card at automatic teller machines.  The appellant admitted withdrawals in excess of the $4,000 limit.  At the time that Ms Redman’s activities were discovered the account was overdrawn in the sum of approximately $6,000.  The magistrate found that a substantial amount of the cash was withdrawn by Ms Redman and gambled on poker machines.  The respondent did not dispute that Ms Redman had authority to operate his Visa account but claimed that the authority only extended to transactions which were within the agreed terms of the account and not in excess of its limit.  The respondent argued that any express or implied request by Ms Redman for funds beyond the agreed limit might give rise to a claim against her but that there could not be a claim against him as there was no nexus between the authority given to the bank and the transactions undertaken by Ms Redman.

The Security Deposit:

When the appellant realised the accounts were overdrawn it prevailed upon the respondent to part with sufficient funds from a security deposit account to recoup its losses.  The third part of respondent’s claim at trial was therefore to recover those funds.  It was agreed that the determination of this issue depended upon the conclusions reached with respect to the cheque account and Visa account claims. 

Magistrate’s Findings:

The magistrate found that in the circumstances of the forgery there was no reason to depart from the statutory position that the respondent was entitled to reimbursement of those funds to the extent that he had been deprived of them.

The magistrate held that the respondent was entitled to recover the amount of the two cheques that were paid into Ms Redman’s personal account or elsewhere. That finding is not challenged on appeal. 

The magistrate further held that the respondent was entitled to recover all of the other monies which were paid out to Ms Redman as a result of the forged cheques notwithstanding that the funds therefrom were in the first instance placed into the respondent’s account.  The magistrate said that "Ms Redman was merely using his account as a conduit to deposit the funds obtained by forgery before accessing them herself" and that it was irrelevant that she may have used some portion of them for household or other expenses.  He therefore found that the respondent was entitled to recover the full amount of each of the four cheques which were paid out as a consequence of the forgery.

In relation to the fifth cheque, the appellant had allowed funds to be withdrawn against it before then dishonouring it and as a consequence Ms Redman had obtained $1,350 from that forged cheque in excess of the overdraft.  The magistrate held that those funds should not have been paid to Ms Redman and the respondent was also entitled to recover that sum.

In all he found that the respondent was entitled to recover "all of the monies paid out as a result of forgery, firstly in the sum of $16,500 and further the monies obtained as a result of the fifth forged cheque and as a consequence of the overdraft limit on the Visa account being permitted to exceed without his permission an extra $1,350, in all a total sum of $17,850".  As a consequence of that finding, he held that the appellant should not have accessed the security deposit account but, in the absence of evidence, was unable to assess whether that gave rise to a further claim for compensation by the respondent.

The magistrate published his reasons for decision on 3 December 1996 in the absence of the parties.  The matter was called back on on 18 December 1996, and for reasons which are unclear entered judgment for the plaintiff in the sum of $15,267.14. 

The appellant in its notice of appeal has appealed against the whole of the decision of the learned magistrate.  The grounds of appeal are that the learned magistrate erred in:

1. Holding that the plaintiff was entitled to recover from the defendant compensation in respect of two cheques totalling $10,000 drawn on 22 May 1995 and 9 June 1995 against the plaintiff’s business account, the proceeds of which were paid into the plaintiff’s personal account.

1. Failing to take into account the fact that the personal account into which the said sum of $10,000 was paid was the account of the plaintiff and that upon the said sum of $10,000 being paid into that account the plaintiff accordingly suffered no loss and therefore the defendant was not liable to compensate the plaintiff in respect of such sum of money.

1. Failing to determine that the repayment by the plaintiff to the defendant of all monies owing by the plaintiff to the defendant on the overdrawn personal account did not constitute an abandonment by the plaintiff of its claims against the defendant in respect of monies overdrawn on the plaintiff’s personal account.

1. Failing to have any, or any proper regard, to the fact that the effect of Section 32(1) of the Cheques and Payment Orders Act had the consequence that the two cheques totalling the sum of $10,000 referred to in paragraph 1 of this Notice of Appeal, were inoperative in all respects at law and that while the defendant was required as a matter of law to reimburse the plaintiff’s business account against which the said cheques were drawn the defendant was entitled to recover payment of the said sum from the plaintiff’s personal account into which the proceeds of the said cheques were paid.

1. In admitting into evidence the written statement of Lynette Redman concerning the alleged use to which she put the funds which she withdrew from the plaintiff’s personal account after she had deposited to it cheques totalling $10,000 drawn on the plaintiff’s business account bearing a forged signature purporting to be that of the plaintiff (such funds will be referred to hereinafter as "the funds in question").

1. In holding that the use to which Lynette Redman put any of the funds in question was not relevant to the issues in this case.

1. In holding that, if Lynette Redman used any of the funds in question for her own use, the withdrawals concerned were not to the loss of the plaintiff despite having held that, the plaintiff having given Lynette Redman access to the account, funds she took from it were his loss.

1. In failing to hold that, if Lynette Redman used any of the funds in question for the plaintiff’s own use and for the joint use of her and the plaintiff, the plaintiff was required to bring these funds to account in favour of the defendant.

1. In failing to hold that there was no reliable admissible evidence of the use to which Lynette Redman had put any of the funds in question and, accordingly, failing to find that the plaintiff had failed to prove that he had suffered any loss.

The appellant does not dispute the findings made by the magistrate that the signatures on the cheques were forged, nor does it dispute his finding that Ms Redman had no authority to operate the respondent’s business account.  The appellant accepts that it had no mandate to debit the respondent’s business account with the sum of $10,000 but argues that it had no mandate to credit the sum of $10,000 to the respondent’s personal account. 

The crux of the appellant’s argument as to the cheque account claim is that a bank which has paid out a sum of money on a forged cheque, believing the signature to be genuine has a right to recover the payment so made from the recipient thereof, which in this case it asserted is the respondent.  The appellant acknowledged that the respondent was entitled pursuant to the provisions of s32 of the Cheques and Payments Orders Act 1986 to have the debits in his business account reversed but argued that the appellant was entitled to recover from the respondent the value of the cheques and to debit the account to which the accounts were paid because:

1.     It had no right to pay the money into the personal account, and

2.     It can on the normal doctrine of mistake recover from the person to whom the money was paid.

The two issues which arise for determination to resolve this aspect of the matter are firstly, who should bear the onus of proving who was the recipient of the funds after they had been paid into the respondent’s personal account, and secondly, whether the appellant had a claim against the respondent for restitution of monies paid into his personal account as a result of a fraudulent cheque.

The respondent argued that having established the forgery by Ms Redman, breach of contract by the appellant and a prima facie entitlement for damages upon proving the unauthorised withdrawal of funds from his business account, in the absence of any further evidence as to the whereabouts of those funds, he should succeed.  He argued that from that point onwards the appellant was under an evidential burden to adduce some evidence that he had not suffered a prima facie loss.  The evidence that proceeds of the cheques were deposited into a joint account fell short of proving any ultimate enjoyment of the proceeds by the plaintiff.  In support of this argument, counsel for the respondent referred to Purkess v Crittenden .  That decision relates to an action for damages in negligence with respect to a claim for personal injury where the court was considering the issue of sufficiency of proof of a pre-existing condition.  The majority of the Court (Barwick CJ, Kitto and Taylor JJ) said at p167:

"The expression ‘burden’ or ‘onus’ of proof, was applied to judicial proceedings ... has two distinct and frequently confused meanings: (1) the burden of proof as a matter of law and pleading - the burden, as it has been called, of establishing a case, whether by preponderance of evidence, or beyond a reasonable doubt; and (2) the burden of proof in the sense of introducing evidence’ (Phipson on Evidence, 10th ed. (1963) par 92).  This is a proposition which has been frequently acknowledged (See eg Fitzpatrick v Walter E Cooper Pty Ltd  and Mummery v Irvings Pty Ltd ).  The position is, we think, correctly stated by the learned author of the work to which we have referred when he says: ‘the burden of proof in the first sense is always stable, the burden of proof in the second sense may shift constantly, according as one scale of evidence or the other preponderates’ (ibid par 95) and it was with the meaning of this expression in its secondary sense that the case mention was concerned."

And further at p168:

"... it is not enough for the defendant merely to suggest the existence of a progressive pre-existing condition in the plaintiff or a relationship between any such condition and the plaintiff’s present incapacity.  On the contrary it was stressed that both the pre-existing condition and its future probable effects or its actual relationship to that incapacity must be the subject of evidence (ie either substantive evidence in the defendant’s case or evidence extracted by cross-examination in the plaintiff’s case) which, if accepted, would establish with some reasonable measure of precision, what the pre-existing condition was and what its future effects, both as to their nature and their future development and progress, were likely to be."

Windeyer J said at p171:

"The plaintiff in his own case need do no more than rely upon the conclusion to be drawn from the basic facts that before the accident he was not disabled: that after it he was disabled in a way that could be a consequence of the hurt he sustained.  Whether one calls such a conclusion an inference, a presumption of fact or a presumptio hominis matters not.  It is an inference which any tribunal of fact would ordinarily draw until the defendant had, by evidence elicited in cross-examination or led, provided some material to overcome it - either by proving the contrary or throwing the matter into doubt."

At the trial of the present action the only witnesses to give evidence were the respondent and Geoffrey Richards, a compliance officer and internal auditor employed by the appellant. Ms Redman did not give evidence but a statement made by her was admitted over the objection of the appellant pursuant to the provisions of s34(c) of the Evidence Act 1929. In that statement Ms Redman purported to identify unauthorised withdrawals that she had made from the respondent’s personal account for the purposes of funding her gambling habit. The appellant cross-examined the respondent at some length as to apparent inconsistencies in this statement as well as to the use of funds drawn on his account. The evidence adduced about the use to which the funds in the personal account were put is confusing and at times quite unclear. The appellant argued that Ms Redman may have used part of the funds withdrawn for household purposes for which the respondent obtained a benefit. Further, where the respondent used his Visa card at an automatic teller machine, not as a credit card but as an access card to obtain funds from the personal account, it is impossible to differentiate this from two withdrawals by Ms Redman using her Redicard.

The magistrate eventually found that Ms Redman’s statement was manifestly unreliable and was the result of a joint collaboration with the respondent.  He was nevertheless persuaded on the evidence that Ms Redman had used the funds placed in the respondent’s personal account as the evidence established that she had taken more funds from the account after the forgery than was put into that account by the forgery, and on that basis he held that the respondent had suffered a loss and was entitled to succeed.

Although Purkess (supra) is concerned with an action in tort, the dicta referred to is in my view relevant to the present situation.  I do not consider that it was sufficient for the appellant simply to rely on the evidence that the monies had been paid into the respondent’s account.  In Lloyds Bank Ltd v The Chartered Bank of India , the plaintiffs operated a bank which maintained a branch office in Bombay.  The Chief Accountant at this office had authority to draw cheques on other bankers with whom the plaintiff held an account.  The accountant held an account with the plaintiff, and an account with the defendant bank.  In 1922 the accountant began operating a scheme whereby he fraudulently drew cheques on the plaintiffs in favour of the defendants, then issued the defendants with written instructions to place the cheques to the credit of the personal account which he held with them.  In the event that a countersignature was required, he would fraudulently misrepresent the purpose for which the cheque was being drawn.  When the cheques cleared, he would write cheques against his personal account to his own credit, which were paid to stockbrokers employed on his behalf, the plaintiff bank to the credit of his personal account, or for special services rendered by them.  On discovering the fraud, the plaintiff bank sued the defendant bank for conversion of the 19 cheques involved.  The Court determined that in attempting to defeat the claim for damages there must be evidence that goes beyond merely demonstrating the funds returned to the plaintiff’s hands.  Lord Scrutton stated at p61 that:

"Whether any particular payment to the plaintiff by one of the wrongdoers reduces the damages for conversion must depend on the facts of each case, and cannot be settled by mere proof of receipt without more."

He said later at p63:

"In my opinion the mere proof of receipt of monies from the wrongdoer, which, if the owner of the property converted had known of the conversion, he might have appropriated against his loss by conversion, does not, in the absence of knowledge of the conversion, justify the deduction claimed."

The appellant in this case never maintained or submitted that the respondent had been aware of Ms Redman’s activities with respect to his account at any time.  The evidence of the respondent, which was accepted by the magistrate, was that he had not had the benefit of those proceeds.  The appellant did not produce evidence to show that the respondent had enjoyed some or any part thereof.  Most of the evidence in this case as to the disposition of those proceeds consisted of matters of speculation.  In my opinion, the magistrate correctly found on the evidence accepted by him that the respondent had suffered a loss and that he was therefore entitled to recover with respect thereto.

Visa Account Claim:

In the course of the argument directed to this issue, the appellant pointed out that when it was faced with a request for funds, via an automatic teller machine, the account from which the funds were requested was at an agreed limit.  There was, however, a discretion to advance further funds.  The appellant submitted that a request for funds at that stage could therefore be treated by it as a request for a further extension of credit which could be granted on demand.  In advancing the funds in this case the appellant could be seen as acceding to that request.

On the hearing of the appeal the respondent did not dispute the general statement of principle but argued that it was not applicable in a case such as this where the person requesting the funds was not the holder of the account.  The respondent acknowledged that the appellant had the authority to recognise Ms Redman operating on the account but said that this authority extended only to transactions which were within the agreed terms of the account and not one which took the account beyond its limits. 

The respondent submitted that any express or implied request by Ms Redman for funds beyond the agreed limit might give rise to a claim against her but not against him.  The respondent in evidence told the court that he had been told by Mr David Hall, an officer of the appellant, that the appellant would not permit withdrawals on the account so as to take it over its $4,000 overdraft limit.  There was no evidence adduced by the appellant to the contrary.

Exhibit P6 is the account application which is endorsed with the words "Third Party Only" above Ms Redman’s application details.

Mr Richards gave evidence that the bank records which were identified with the term "Handyway H" were transactions conducted through the Adelaide Casino and he also gave evidence that on the account statement, where the Visa card ended with "708", the transaction involved money or purchases made on a Visa card.  Otherwise, he said, it was impossible to determine whether a particular ATM transaction was made with the respondent’s Visa card or the Redicard issued to Ms Redman.  He also gave evidence that since about 1990, all receipts issued from ATM’s would provide an account balance except on a rare occasion when the ATM was off-line and withdrawals by members were allowed only to a specified limit.

Although the respondent had given Ms Redman authority to operate the Visa account there was no evidence to establish that she was authorised by him to draw in excess of its limit.  She only had authority to draw on the account in accordance with its terms.  Exhibit P6 alerted the appellant to the fact that this was an account to which Ms Redman was a third party only.  The appellant should therefore have been well aware that the authority was limited to the terms of the agreement between the appellant and the respondent.  The fact that it was not possible to determine which card was used at the ATM should have made the appellant more diligent in ensuring that the limit was not exceeded as it was foreseeable that the respondent might suffer loss and damage at the hands of Ms Redman if the appellant permitted the balance to go beyond the agreed limit.

In my opinion, the magistrate correctly found that the respondent was entitled to recover the excess of monies paid out with respect to the Visa account claim.  It follows therefore that the magistrate also correctly found that the appellant should not have accessed the security account in the manner that it did. 

On the hearing of the appeal the issue of compensation was not canvassed and I therefore presume that this has been resolved between the parties.  If I am wrong about this, it may be necessary for the matter to be the subject of further evidence and argument before the magistrate following the resolution of this appeal.

In the Notice of Appeal the appellant sought to set aside the order made by the magistrate that the defendant pay the plaintiff’s costs as agreed or to be taxed and sought an order that the respondent pay the appellant’s costs of the proceedings in the Magistrates Court on 20 September 1996 having regard to the terms of the Calderbank letter of offer made by the appellant to the respondent.

The offer with respect to costs made by the appellant was contained in a letter sent by facsimile dated 20 September 1996.  The appellant offered to pay to the respondent the sum of $6,500.  That offer was however expressed to be inclusive of costs and in any event was not made until after the initial trial was adjourned on 4 July 1996.  The appellant on appeal did not dispute its liability as to the sum of $6,500.  That sum was therefore an amount more than was offered.  Accordingly, and bearing in mind the orders to be made on this appeal, I consider the order for costs was properly made.

For the reasons set out herein the appeal is dismissed.