Steffen v ANZ Banking Group - [2009] NSWSC 666

No judgment structure available for this case.

CITATION: Steffen v ANZ Banking Group [2009] NSWSC 666

HEARING DATE(S): 3/6/09

JUDGMENT DATE :
15 July 2009

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: McDougall J at 1

DECISION: See paragraph [125] of the judgment.

CATCHWORDS: DISCOVERY AND INTERROGATORIES - application for preliminary discovery - whether significant difference between "reasonable inquiries" and "all reasonable inquiries" - whether plaintiffs had made "reasonable inquiries" - whether plaintiffs had sufficient information to commence proceeding against defendant - whether to invoke court's discretion under relevant rules - whether discovery categories too broad - whether preliminary discovery available for proposed representative action.

LEGISLATION CITED: Civil Liability Act 2002
Civil Procedure Act 2005
Federal Court Rules
Supreme Court Rules
Uniform Civil Procedure Rules

CATEGORY: Principal judgment

CASES CITED: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (Federal Court of Australia, 24 May 1996, unreported; BC9602085)
Barnes v Addy (1874) LR 9 Ch App 244
Coco v The Queen (1994) 179 CLR 427
C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864
Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89
Foley v Hill (1844) 13 L J Ch 182
Foley v Hill (1848) 2 HL Cas 28
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125)
Gray v Johnston (1868) LR 3 HL 1
John Fairfax and Sons Limited v Cojuangco (1988) 165 CLR 346
Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549
Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399
Papaconstuntinos v Holmes a Court [2006] NSWSC 945
Roads and Traffic Authority of NSW v Australian National Car Parks Pty Ltd [2007] NSWCA 114
Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75
Securities Fund Services, Inc v American National Bank and Trust Company of Chicago 542 F. Supp. 323
Sinopharm Jiangsu Co Pty Limited v Bank of China [2007] NSWSC 484
Stewart v Miller [1979] 2 NSWLR 128
St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147
Wickstead v Browne (1992) 30 NSWLR 1
Wickstead v Browne (1993) 10 Leg Rep SL 2
Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515

PARTIES: Joachim Kurt Steffen (Plaintiff)
Australia and New Zealand Banking Group Limited (Defendant)

FILE NUMBER(S): SC 50245/08

COUNSEL: D R Pritchard SC / J S Emmett (Plaintiff)
J Sheahan SC / J T G Gibson (Defendant)

SOLICITORS: Colin Biggers & Paisley (Plaintiff)
Henry Davis York (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

15 July 2009

50245/08 JOACHIM KURT STEFFEN v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

JUDGMENT

1 HIS HONOUR: The plaintiffs and some twentyfour others (collectively “the investors”) claim to have invested substantial sums of money in a fraudulent “Ponzi” scheme. The scheme was operated through a company known as Strategic Alternative Investments Pty Limited, trading as SAI Finance (SAI Finance). The investors say that they were given to understand that their money would be held in trust, to be applied to leveraged foreign exchange dealings. They say that they were promised high returns – of the order of 20% per month – with the benefit of guaranteed capital protection.

2 The investors have lost the amounts invested by them – totalling in excess of $9 million. Not surprisingly, they would like to recover their money. Their prospects of recovering anything from SAI Finance or the fraudsters who operated through it would appear to be negligible at best.

3 The investors made their payments into one or other of a number of bank accounts held in various names with the defendant (ANZ). It is suggested that the names in which those accounts were held did not correspond with the account names nominated by the investors when they remitted funds.

4 The plaintiffs, both for themselves and (they say) as representatives of the other investors, seek an order that ANZ give preliminary discovery under UCPR rr 5.2 and 5.3. In brief, that discovery is intended to assist the plaintiffs to ascertain whether they, and the other investors, have:

(1) a claim against ANZ (r 5.3); or

Relevant provisions of the rules

5 Before I turn to the issues, I shall set out UCPR rr 5.1, 5.2 and 5.3:

r 5.1 Definitions

applicant

identity or whereabouts

r 5.2 Discovery to ascertain prospective defendant’s identity or whereabouts

the person concerned

the other person

(4) An order under this rule with respect to any information, document or thing held by a corporation may be addressed to any appropriate officer or former officer of the corporation.

(5) A person need not comply with the requirements of an order under subrule (2)(a) unless conduct money has been handed or tendered to the person a reasonable time before the date on which attendance is required.

(6) If the other person incurs expense or loss in complying with an order under subrule (2)(a) , and the expense or loss exceeds the amount paid to the person under subrule (5) , the court may order the applicant to pay to that person an amount sufficient to make good the expense or loss.

(a) if it is made in relation to proceedings in which the applicant is a party, by notice of motion in the proceedings, or

(b) in any other case, by summons.

r 5.3 Discovery of documents from prospective defendant

the prospective defendant

The court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person’s possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.

(2) An order under this rule with respect to any document held by a corporation may be addressed to any officer or former officer of the corporation.

(4) This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings.

The issues

6 The parties focused the greater part of their submissions on the application under r 5.3. The issues in relation to that were:

(1) Were the plaintiffs entitled to make a claim for relief against ANZ?

(2) Had the plaintiffs made reasonable inquiries?

(3) Did the plaintiffs have sufficient information to enable them to decide whether or not to commence proceedings against ANZ?

(4) Was it likely that ANZ might have possession of documents that could assist in determining whether the plaintiffs were entitled to make a claim for relief against it (this encapsulates both paras (b) and (c) of r 5.3(1));

(5) If the foregoing questions should be answered in favour of the plaintiffs, were there nonetheless discretionary reasons why they should not obtain the relief sought?

(6) Was the relief claimed – in terms of the categories of documents of which preliminary discovery was sought – too wide?

7 The separate issues in respect of the application under r 5.2 were:

(1) Is the operation of r 5.2 confined to a situation where the claimant knows that it has a claim against someone (a third party, “X”) but does not know the identity or whereabouts of that person, and wants to ascertain those things?

Principles governing the exercise of discretion

8 The parties referred me to a number of decisions on the principles to be applied, and matters relevant to be taken into consideration, in an application under r 5.3 or under its equivalent in the Federal Court Rules (Order 15A r 6). Since some of the decisions suggest that there is some difference between r 5.3 and Order 15A r 6, I set out the latter:

Discovery from prospective respondent

(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b) after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

9 In Papaconstuntinos v Holmes a Court [2006] NSWSC 945, Simpson J said at [14] that r 5.3 required the court to be satisfied of five matters before it could make an order in favour of the plaintiff against the defendant. Those five matters were:

10 As her Honour pointed out at [18], the question of discretion arose only if the plaintiff “takes all of the five hurdles”.

11 Simpson J drew attention at [17] to a distinction between the language of the UCPR and that of the Federal Court Rules. Rule 5.3 requires the applicant for relief to show that it has made “reasonable inquiries”. By contrast, r 6 (as for convenience I shall call Order 15A r 6) requires the applicant to show that it has made “all reasonable inquires”. Simpson J appears to have considered that the distinction in wording suggested that the power under r 5.3 was wider than the power under r 6.

12 There is I think a latent ambiguity in both rules underlying that apparent distinction. Is it necessary that the individual inquiries made should be taken to be “reasonable” (as r 6 might suggest)? Or is it necessary that the inquiries made, as a whole, should be “reasonable” (as r 5.3 appears to suggest)? I incline to the view that r 6 focuses attention on the inquiries individually, whereas r 5.3 focuses attention on the inquiries as a whole. Thus, under r 5.3, it might be possible to characterise the inquiries, as a whole, as “reasonable”, even though there was some inquiry, of itself reasonable, that had been omitted. If it were otherwise, an applicant for relief under r 5.3 could limit the inquiries made, and rely on the fact that each of them was, individually, reasonable so as to support a claim for relief. And it could do so notwithstanding that it had not made other inquiries which were clearly reasonable, and which, if made, would have been significant, in that they would have been likely to have given the applicant the information it needed. That indeed was the position in Sinopharm Jiangsu Co Pty Limited v Bank of China [2007] NSWSC 484, where I held that the plaintiff’s failure to make obvious and easy inquiries of its own bank in its own country meant that the inquiries that it did in fact make should not be characterised as “reasonable”.

13 In my view, there is no real difference in the operation of the requirements relating to “reasonable inquiries”. There are two reasons for saying that. The first is that omission to undertake an obvious, significant (in the sense given in the previous paragraph) and reasonable inquiry would be fatal under either rule. Under r 6, it would mean that the applicant for relief had not made “all reasonable inquiries”. Under r 5.3, it would mean that the applicant for relief could not demonstrate that the inquiries made, considered as a whole, were reasonable. The second reason is that, even if I were wrong in what I have just said, the failure to make an obvious, significant and reasonable inquiry would tell very heavily against the applicant for relief under r 5.3 on discretionary grounds. Of course no hard and fast rule can be laid down. But it is difficult to imagine that, if (contrary to my view) the making of some only (but by no means all) reasonable inquiries were sufficient to trigger the power to grant relief under r 5.3, the court would exercise that discretion in favour of an applicant who had failed to make an obvious, significant and reasonable inquiry.

14 Finally, in this context, I should note that the parties accepted that, on the facts before me, there would be no different outcome whether the test applied were “all reasonable inquiries” or “reasonable inquiries”. For the reasons that I have just given, I think that, at least as a matter of outcome if not as a matter of reasoning towards that outcome, the same is likely to be correct of many applications under r 5.3.

15 What are “reasonable inquiries” is a question of fact, to be considered in all the circumstances of the particular case. Clearly, the court is entitled to take into account whether there are other means of obtaining the information; and, equally clearly, the cost and delay of resorting to those alternative means is also relevant. As I said in Sinopharm at [32], “[w]hat is reasonable cannot be determined in some a priori fashion. The determination must take into account the facts of the particular case including, so far as those facts demonstrate it, the relationship (if any) between the applicant and the prospective defendant”. It would also be relevant to take into account the utility (or, to put it another way, uncertainty) of obtaining the necessary information by other means.

16 In Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399, Young CJ in Eq considered whether there was some difference in the width of the power granted by r 5.3, compared to that granted by r 6. At [22] his Honour drew attention to the different commencing words of the two rules. Rule 6 commences with the words “[w]here… there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court”. Rule 5.3 commences with the words “[i]f it appears to the court that… the applicant may be entitled to make a claim for relief from the court”. Having done so, his Honour commented that “[t]he Supreme Court [sic] rule would appear to be in wider terms than the Federal Court rule”.

17 I am not sure that there is any significant difference between a court’s having “reasonable cause to believe” something on the one hand and, on the other, that thing “appearing to the court”. Presumably, the thing in question – the entitlement to make a claim for relief – would not appear to the court unless there were reasonable cause to believe that it existed. Indeed, Young CJ in Eq appears to have proceeded on that basis. His Honour said at [30] that the test to be applied under r 5.3 was “reasonable cause to believe that an applicant may have a right of action”.

18 Accordingly, since (at least, in terms of outcome) there does not seem to be any significant difference between the operation of r 5.3 and the operation of r 6 on any given factual situation, I think that it is safe to be guided by statements of principle, as to the nature of the principles and the relevant discretionary considerations, on decisions given by the Federal Court of Australia on r 6.

19 In St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153 – 154 [26], Hely J stated the following propositions in relation to the operation of r 6 (I omit his Honour’s citations):

(a) the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case;

(b) each of the elements prescribed in subparas (a), (b) and (c) of the rule must be established. Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves;

(c) the test for determining whether the applicant has “reasonable cause to believe”, as required by subpara (a), is an objective one. Further, the words “or may have” cannot be ignored. The applicant does not have to make out a prima facie case;

(d) belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action;

(e) while uncertainty as to only one element of a cause of action might be compatible with the “reasonable cause to believe” required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe;

(f) the question posed by subpara (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award;

(g) whether an applicant has “sufficient information” for the purposes of subpara (b) also requires an objective assessment to be made. The subparagraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings;

Paxus Services

… designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent …

20 For the reasons that I have given, those propositions are equally applicable to the operation of r 5.3; and that is so even if r 5.3 is in some way wider in its operation than r 6.

21 In Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (Federal Court of Australia, 24 May 1996, unreported; BC9602085) Lindgren J pointed out (at BC 25) that r 6 “does not provide a means by which an applicant will be enabled to have available to it every document which would assist it in deciding whether to litigate”. In my view, the same may be said of r 5.3. In the same case, his Honour said (at BC 30) that the question posed by the rule was whether the applicant had sufficient information “which it reasonably needs to enable it to decide whether to commence a proceeding” rather than information whereby “it hopes to be comforted in taking the decision which it already has sufficient information to enable it to take”. Again, in my view, that applies to r 5.3.

22 Mr J C Sheahan of Senior Counsel who appeared with Mr J T G Gibson of Counsel for ANZ, submitted that there were conflicting policy considerations underlying r 5.3. On the one hand, he acknowledged, the rule had been said to be remedial, and thus, as Hely J said, should “be beneficially construed [and] given the fullest scope that its language will reasonably allow”. On the other hand, he submitted, the rule operated within the confines of the adversary system (a matter to which Lindgren J drew attention at Alphapharm at BC 30; and see also Sackville J in Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549 at [26]). Mr Sheahan submitted that the rule cut across traditional incidents of the adversary system, and the right at common law of a party to ligation (and, a fortiori, a non-party) to keep its documents to itself.

23 The latter point may be accepted. But the rule is hardly unique in that. The same is achieved by subpoenas, notices to produce and discovery under UCPR Part 21 (as between parties) and r 5.4 (as against non-parties).

24 Rule 5.3 cannot be characterised as an abrogation of or encroachment upon some fundamental common law right (see Mason CJ, Brennan, Gaudron and McHugh JJ in Coco v The Queen (1994) 179 CLR 427 at 436 – 438; and see Deane and Dawson JJ in the same case at 446). The legislature has said, in substance, that prospective defendants to litigation may be compelled to give information to prospective plaintiffs in the circumstances set out in r 5.3. There is no ground for reading down the width of the rule, or qualifying the beneficial construction to be given to it or the scope of its operation, because it is inconsistent with the adversary system of litigation at common law. For better or for worse, the only relevant qualification to the width of the power conferred by the rule is that inherent in the discretionary nature of the power that becomes exercisable once the conditions stated in the rule have been satisfied.

25 To the extent that there is an overlap between the threshold requirements of rr 5.3 and 5.2 (in particular, as to the necessity for “reasonable inquiries”), what I have said as to r 5.3 would apply equally to r 5.2. The parties did not submit otherwise. I note, however, that in Roads and Traffic Authority of NSW v Australian National Car Parks Pty Ltd [2007] NSWCA 114, Mason P (with whom McColl JA and Bell J agreed) said at [12] that “[r]ule 5.2(1)(a) implies that the applicant intends to sue the person whose identity is sought”. Thus, his Honour said, “[d]emonstration of such intention is obviously pertinent to a favourable exercise of the discretion to order preliminary discovery” under r 5.2.

26 In dealing with the parties’ submissions – in particular, on the claims for relief that the plaintiffs said the investors might be able to make - I shall not descend to the level of detail from time to time employed in submissions. It is not inaccurate, and I hope not unfair, to say that at times the submissions put reflected those that might be made on a strike-out hearing, employing the “General Steel Industries” test (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125) or on a final hearing. I do not think that, at least as a general proposition, applications under r 5.3 should attract detailed and lengthy elaboration. As Gyles J observed in C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [39], “arguments of the length and elaboration on all sides on this application are not envisaged by or necessary in order to satisfy [r 6]. They would have done justice to a final hearing. A prima facie case does not have to be demonstrated.”

First issue: entitlement to make a claim for relief against ANZ

The factual background

27 To understand the way in which the plaintiffs put this aspect of their case, it is necessary to look in somewhat greater detail at the relevant facts. In what follows, I am summarising what the plaintiffs say is the factual foundation of their and the other investors’ claims. I am not making finding of fact as to those matters.

28 SAI Finance, through its apparent representative Mr Krishnan Rasaratnam, or through other gentlemen apparently associated with him, offered the investors the opportunity to make money by engaging in foreign exchange dealings.

29 Mr Rasaratnam and his associates represented that:

(1) SAI Finance had a special relationship with Dresdner Bank AG, also referred to as Dresdner Kleinwort Investment Bank (DKIB), and the Allianz Group.

(2) Investors’ funds would be deposited into nominated accounts conducted with ANZ in the names of SAI Finance or DKIB.

(3) DKIB would provide a capital guarantee to each investor, confirmed by a “Certificate of Deposit Guarantee.”

(4) SAI Finance would utilise the funds invested in foreign exchange dealings.

30 The investors say that Mr Rasaratnam gave details of some four bank accounts with ANZ. Three of those are now relevant:

Account number	Sort code	Stated account name
5135 89762	012-306	SAI Finance Client Segregated Account
5135 91248	012-306	SAI Finance Client Segregated Trust A/C – Credit Line Quote Reference 1013588
4878 77196	014-518	Investment Holdings Trust (DKIB)

31 It is convenient to refer to the these accounts as, respectively, “account 762”, “account 248” and “account 196”.

32 From 7 September 2007 to 27 February 2008, the investors made some 86 telegraphic transfers from their personal bank accounts into accounts including one or other of the three accounts that I have described. The amounts transferred exceeded in total $9 million.

33 In each case, the relevant documentation stated the account number, sort code and account name (as set out at [30] above) for the particular account to which the payment was directed.

34 In most but not all cases, following the transfer of funds, the investor was provided with what purported to be a Certificate of Deposit Guarantee issued by DKIB, and statements on DKIB letterhead. Subsequent inquiries suggest that those documents were in every case forged.

35 In fact, the accounts were not in the names set out at [30] above. The account numbers and actual account names were as follows (the sort codes can be omitted):

Account number Actual account name

5135 89762 Menaka Krishnan; Krishnan Kadiraman Rasaratnam nominated as third party signatory

5135 91248 Unknown, but said by the plaintiffs to be an “account in the name of Mr Rasaratnam or his family.”

36 Menaka Krishnan is a name used by Mr Krishnan Rasaratnam’s wife, who is also known as Menaka Rasaratnam. Manickan Rasaratnam is Mr Krishnan Rasaratnam’s brother.

37 Mr Manickan Rasaratnam was an employee and authorised representative of a company known as Professional Investment Services Pty Limited.

38 SAI Finance held an Australian financial services licence from 6 April 2005 until 1 December 2006.

39 As I have said, the scheme operated by the fraudsters was a Ponzi scheme. Statements were issued showing profits made through foreign exchange trading activities. Those statements were false and the profits were fictional. At least in the early days of the scheme’s operation, some investors were paid what were represented to be shares of profits. In fact, those payments appear to have been made not from any trading activity (profitable or otherwise) but from funds paid in by later investors.

40 Substantially all of the funds invested have been lost. Some of them were used in foreign exchange trading activities, but those activities were conducted on the personal accounts of either Mr Krishnan Rasaratnam or Mr Manickan Rasaratnam. Monies were withdrawn as required from the accounts into which they have been paid, and were applied either to those trading activities or in some cases to make payments, purporting to be profit shares, to some investors.

The suggested causes of action

41 Mr D R Pritchard of Senior Counsel, who appeared with Mr J S Emmett of counsel for the plaintiffs, submitted that the investors might be entitled to make a claim for relief from the court against ANZ on one or more of four bases:

(1) for misapplication of trust assets;

(2) for breach of a duty of care;

(3) for money had and received; or

Misapplication of trust assets

42 Mr Pritchard submitted that each of the investors directed the funds to be paid into a bank account, the name of which (as stated on the instructions for payment) suggested either that it was a trust account (accounts 248 and 196) or a “segregated account” (accounts 762 and 248).

43 Thus, Mr Pritchard submitted, the fact of payment into such accounts strongly suggested that beneficial ownership of the money paid was not intended to pass to the account holder (SAI Finance or DKIB, as the case may be), but was intended to remain with the payor until the money was applied in accordance with the terms of the trust.

44 Mr Pritchard then submitted that ANZ may have had notice of the account names specified in the payment instructions, and thus may have had notice that the monies paid in were to be held on trust. However, he submitted, ANZ may also have had notice that:

(1) the actual names of the accounts into which funds were paid were names of private individuals;

(2) a large number of payments was made into those accounts in circumstances where the names stated in the payment instructions did not match the account number; and where, conversely, the actual name of the account did not match the name in the payment instructions; and

45 Mr Pritchard put his case, as to misapplication of trust heads, on the first or alternatively the second limb in Barnes v Addy (1874) LR 9 Ch App 244: respectively, “knowing receipt” of trust property and “knowing assistance” in fraudulent dealings with trust property. Mr Pritchard accepted that it would be more difficult for his clients to make out the requisite element of knowledge for a case based on the second limb in Barnes v Addy. He was right to do so: see Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 at 162 [171] – 164 [178].

46 Mr Sheahan submitted that, however put, the claim for misapplication of trust assets must fail. As to the claim based on the first limb of Barnes v Addy: he submitted that no trust could be constituted until property was transferred to the trustee. If SAI Finance were the putative trustee, it did not receive the funds (at least, until after ANZ had paid them away). If the ultimate recipient of the funds were held to be the trustee, there was again no trust until after they were paid away by ANZ.

47 As to the second limb of Barnes v Addy: Mr Sheahan submitted that there was no basis for concluding that the requisite element of knowledge could be made out on the facts of this case, merely from the “fact of the ambiguity in the transferring payment instruction”.

48 Mr Sheahan also submitted that:

(1) it did not follow, from the fact that the actual name of the transferee account was different to the stated name on the payment instruction, that the account was not a trust account; a trust was a legal relationship, not a legal entity, it could well have been the case, so far as ANZ knew, that the actual account holders were trustees.

(2) In at least some cases – where payment was made into account 196 – the payment was made into what was said to be a trust account (see at [35] above). Thus, Mr Sheahan submitted, if the intention conveyed to ANZ were that payments to be made to account 196 were to be made to an “investment holding trust” account, that was in fact done.

Barnes v Addy

49 In my view, employing the approach that I have outlined at [26] above, the plaintiffs have demonstrated that the investors may be entitled to bring a claim for relief, for misapplication of trust assets, against ANZ. In essence, I accept the submissions put by Mr Pritchard, which I summarise in my own terms as follows:

(1) The terms on which the payments were made – in particular, the specification of the name of the recipient account as being a “client segregated account” or a “trust” account (I leave aside the various permutations) may well be taken to have indicated that the funds transferred were impressed with a trust.

(2) ANZ, through its relevant employees, may well have appreciated this. Whether any employee did appreciate the possible significance of the description of the recipient accounts, and whether that employee’s knowledge or understanding should be imputed to ANZ, are matters to be determined at trial should the plaintiffs bring proceedings.

(3) It is at least arguable that the payments in question were (and therefore could have been taken to have been) impressed with a trust even before they reached the hands of the designated payee. A cheque drawn in favour of a named firm of solicitors’ trust account – “XYZ and Co Trust A/C “– may well be a sufficient indication that the cheque and its proceeds are impressed with a trust, even before they are banked into the trust account in question.

(4) It is also possible that employees of ANZ may have noticed that the funds were being deposited into accounts that bore a name other than the name specified on the payment instruction. (I interpose to say that in fact there is evidence to suggest that this happened on some two or three occasions, although only after the event – after all payments had been made and after all the monies had been paid away.) It is possible that such an employee may have understood from this that trust monies were not being paid in accordance with the payer’s instructions again, the question of whether any such understanding should be imputed to ANZ is a matter for trial.

Barnes v Addy

Farah Constructions

Barnes v Addy

50 I accept that the investors may not need the documents in question to show that in each case the payment was made on terms that (on their case) impressed it with a trust: they should be able to get those documents from their own banks. But it does not follow that they do not need documents from ANZ to obtain sufficient information whether or not to commence proceedings against ANZ. A crucial element of that case is the knowledge or notice (if any) that ANZ through its relevant employees had. That is peculiarly a matter to be gleaned from ANZ’s documents. The submission that, if ANZ’s submissions on the possible availability of a claim for relief are not accepted then it follows that the investors have sufficient information, overlooks this element.

51 That submission also overlooks the proposition that discovery under r 5.3 may assist the applicant to assess the strength of the claim, and in particular the strength of any defences.

52 Nor does it matter that (as appears to be the case) some 11 of the more than 80 payments made by the investors were paid into account 196 – i.e., an account, the actual name of which included the words “Investment Holding Trust”. That fact may well mean that, if proceedings are brought, the investors in question will fail in respect of those payments. But it does not mean that the investors’ cases must fail on the other payments, none of which appear to have been paid into an account whose name actually indicated that it was some form of trust account.

53 I have strayed somewhat from the precise question, which is, in substance, whether the evidence that is available inclines my mind towards the proposition that the investors may be entitled to make a claim for relief against ANZ for misapplication of trust funds. For the reasons that I have given, the evidence does incline my mind towards acceptance of that proposition; and the other matters that Mr Sheahan put (which I have summarised and dealt with) do not change that inclination.

54 Accordingly, it is unnecessary to deal with the suggested claim in so far as it is based on the second limb in Barnes v Addy. I note however that Mr Sheahan did not submit that, if I accepted the possible existence of a claim under the first but not the second limb, the ambit of discovery would be different.

Breach of duty of care

55 Mr Pritchard submitted that it was arguable that ANZ owed the investors a duty of care to take reasonable precautions to avoid causing them economic loss by paying away the funds in question, in circumstances where there was a mismatch between the account names nominated by the investors (all of which, Mr Pritchard submitted, were redolent of trust) and the actual names of the accounts.

56 Mr Pritchard accepted that no case of this kind had succeeded in Australia; but, nonetheless, he submitted that it might be available. He relied on an American decision: Securities Fund Services, Inc v American National Bank and Trust Company of Chicago 542 F. Supp. 323: a decision of Leighton J given in 1982. In that case, the initiator of a wire transfer from its bank to the defendant bank sued the defendant bank to recover the funds which had been credited (on forged instructions) to an account not in the name of the nominated beneficiary. The defendant sought to dismiss the proceedings. Leighton J held that, on the facts alleged in the pleadings, the defendant bank would have owed the initiator a duty of care, which its actions with dealing with the transfer may have breached. His Honour’s decision appears to have been predicated on the proposition that, on the facts as alleged, a relationship of agency existed between the imitator and the defendant (the receiving bank).

57 Mr Sheahan submitted that the decision of Leighton J was of no assistance in this country. He submitted that the High Court had made it clear that, before there could be a duty of care to avoid economic loss, there must be a number of “salient features”, including in particular “vulnerability” in the sense explained in the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515 at 530 [23].

58 Mr Sheahan submitted that there was no relevant salient feature present. There was no contractual relationship between any investor and ANZ, nor any other sufficiently close relationship between them. There was no reliance (known or otherwise). Most importantly, there was no vulnerability, because the investors could have taken steps to protect themselves.

59 Again, I approach this on the basis that is neither a strike-out application nor a final hearing. The question is not whether some pleaded or agreed facts are capable of supporting a duty of care, or whether on the evidence a duty of care has been established. It is whether such evidence as there is inclines my mind to the view that the investors may be entitled to make a claim for relief based on the existence and breach of a duty of care.

60 In Wickstead v Browne (1992) 30 NSWLR 1, the question was whether there should be summary dismissal of part of a claim – a claim in negligence. The majority (Handley and Cripps JJA) said that the claim in negligence should be dismissed summarily. Kirby P dissented. His Honour said, among other things, that:

(1) “it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with a full understanding of all relevant evidence” (at 5); and

61 There was an application for special leave to appeal to the High Court. The Court (Deane, Toohey and Gaudron JJ) granted leave and allowed the appeal: (1993) 10 Leg Rep SL 2. Their Honours said that they were “in general agreement with the reasons given by Justice Kirby in the Court of Appeal”. It is clear that their Honours took into account the whole of the reasons of Kirby P, and not just the passages that I have extracted. Nonetheless, it seems to me, the decision supports the proposition that it is ordinarily inappropriate summarily to dismiss a claim for an alleged breach of a duty of care to avoid economic loss. The test that an applicant must satisfy under r 5.3(1)(a) is less demanding than the test that someone opposing a claim for summary dismissal must satisfy. Although I acknowledge that there is no real correspondence between the two fields of legal endeavour, nonetheless it seems to me that, in assessing the claimed entitlement, it is appropriate to proceed on the basis that a claim for breach of a duty of care to avoid pure economic loss should not ordinarily be shut out on some a priori ground.

62 It is of course correct, as Mr Sheahan observed, that on the limited material presently available, it would be difficult for the investors to succeed. But it does not follow from that that they cannot satisfy the test of demonstrating a possible entitlement to make a claim for relief on this ground.

63 In my view, the matter cannot be said at this stage to be so hopelessly unarguable that the requisite (and, I would add, slight) balance of inclination has not been satisfied. On the contrary, I think, there is a basis on the evidence as it exists at present for saying that the investors may have such a claim.

64 Mr Sheahan submitted that, if I were to come to this conclusion, then they did not need documents because the documents could not go to the existence of a duty of care. That may or may not be correct; I express no opinion on the point. But it is certainly the case that the documents may be relevant to breach. For example, as discussed in the course of argument, the documents may show that ANZ had procedures designed to deal with the very circumstances that the investors suggest occurred in this case, and that its employees ignored these procedures.

65 Alternatively, the documents may show that ANZ had careful and adequate procedures, and followed them to the full: something that might support a defence, but which is nonetheless relevant for the purposes of the rule.

66 Again, having regard to the way that the submissions were put, I have strayed somewhat from the precise question. Returning to it, I am satisfied, to the requisite degree of inclination, that the investors may be entitled to make a claim of the kind presently under consideration. If they are, then the fact that the documents might not support the existence of a duty of care is of no relevance where, on any view, they could well go to the question of breach.

Money had and received

67 Mr Pritchard submitted that the investors transferred their funds to ANZ by mistake, and that they might have a cause of action for money had and received. Further, he submitted, if ANZ had notice of the matters referred to at [49 (1), (2), (4)] above, it might not be able to rely on any change of position defence.

68 Mr Sheahan submitted that, before a cause of action for money had and received could arise, the investors would have to show that ANZ had received the money for its own use and benefit, and that there was no such receipt in this case. Further, Mr Sheahan submitted, this was clearly a case where ANZ had acted on the faith of the receipts in each case when it paid away the amounts received.

69 The general position, at law, is that money deposited with a bank becomes its own property which it can apply for its own use and benefit: Foley v Hill (1848) 2 HL Cas 28. In that case, the appellant maintained an account with the respondents, his bankers. He filed a bill seeking an account of transactions on that account. The Vice-Chancellor decreed the taking of accounts. The Lord Chancellor (then Lord Lyndhurst) reversed the Vice-Chancellor’s decree and dismissed the bill. His Lordship’s reasons for doing so (reported at 1 Phil 399; (1844) 13 LJ Ch 182) were in substance that the account consisted of only a few simple items and was therefore not a proper subject for a bill in equity. An action would lie at law for money had and received. The House of Lords dismissed an appeal from the Lord Chancellor. Lord Cottenhan LC said at 36 (omitting citations):

“Money, when paid into a bank, ceases all together to be the money of the principal; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he has asked for it. The money paid into the banker’s [sic], is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own…. The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases… ”

70 The other members of the House, although giving separate reasons, agreed with the Lord Chancellor’s analysis. (Lord Lyndhurst, from whom the appeal was brought, was a member of the House; perhaps not surprisingly, he joined in the motion that the appeal should be dismissed.)

71 It is however clear that the question – “when does a bank receive money?” – may return different answers depending upon the purpose for which the question is asked. As the judgment of Lord Lyndhurst LC in Foley and the speeches in the House of Lords on appeal show, the element of receipt necessary to sustain an action at law for money had and received will be made out when the money is deposited to the customer’s account with the bank. However, in Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75, Spigelman CJ noted that a different answer may be given if the question is asked for the purpose of determining liability in equity: for example, in a “knowing receipt” case, for determining whether someone has received and become chargeable with trust property.

72 Spigelman CJ (with whom Handley and Santow JJA agreed) said at 107 [165], [166] that in some circumstances equity, perhaps looking to intent rather than form, may not treat a bank with whom money has been deposited as having received that money for its own use and benefit. His Honour said at 108 [167] that “[t]he best known example is where a bank credits and debits amounts to a current account in the normal course of operations of such an account. The bank is not treated as having “received” the money for purposes of this area of the law, unless it appropriates the receipt to a definitive reduction of the overdraft”.

73 At 108 [169], Spigelman CJ referred to Gray v Johnston (1868) LR 3 HL 1, saying that that case established the principle that the question is whether the bank received a “personal benefit”. At 108 [171], Spigelman CJ said that receipt for the general purposes of the bank (i.e., receipt of the kind of which Lord Cottenham LC spoke in Foley) is not of itself a relevant “benefit”.

74 Mr Sheahan relied on Robb Evans to support the proposition that no action could lie against his client for money had and received, because it was not shown that there was any relevant “personal benefit” so as to make the payments into the various accounts “receipts” that would ground a cause of action.

75 It is neither necessary nor desirable that I should express a concluded view on this submission. It is sufficient to say that an action for money had and received is an action at law, and that Spigelman CJ was speaking not in the context of actions at law but in the context of equitable liability. Indeed, his Honour’s reference, with evident approval, to the decision in Foley indicates that he did not intend to suggest that receipt of the kind presently under consideration (deposit for the credit of an account maintained with ANZ) could not be receipt sufficient to ground an action for money had and received.

76 For those reasons, I think that the investors may be entitled to make a claim for relief against ANZ on the basis of money had and received. I accept that ANZ will have available to it the change of position defence, and that this will depend (among other things) on the question of notice – more accurately, on the question of whether ANZ paid away the money on the faith of the receipt. I need do no more than say that whilst that may well afford a good defence, it cannot be said at present that the claim must fail; as Mr Pritchard said that aspect of ANZ’s defence raises the same questions as will be raised in respect of any claim under the first limb of Barnes v Addy.

Claim through SAI Finance

77 Mr Pritchard submitted that SAI Finance might have a claim against ANZ, and that it held the benefit of any such cause of action (and would hold any fruits) on trust for the investors. Thus, he submitted, the investors might be entitled to require SAI Finance to sue ANZ, or to achieve the same result through appointment of a receiver or liquidator.

78 It is not necessary to consider the merits of this (even for the limited purposes of determining an entitlement under r 5.3(1)(a)). That is because the question to be asked is whether the applicant – in this case, the plaintiffs - “may be entitled to make a claim for relief.” In the circumstances under consideration, and assuming (as is a fundamental aspect of the submission) that SAI Finance would hold any relevant cause of action on trust for the investors, the entity claiming relief would be SAI Finance. True it is that the investors might be the ones to benefit from any successful prosecution of that claim. But the fundamental point of principle is that, on the hypothetical facts with which I am presently concerned, SAI Finance would be the legal owner of the cause of action and would be the party by whom any proceedings to vindicate that cause of action would be brought.

79 Accepting that the rule is beneficial, and should be liberally construed and given as wide a scope as its language reasonably permits, it nonetheless focuses attention on a claim for relief available to the applicant for preliminary discovery. Further, under r 5.3, the claim for relief is one by that applicant against the person from whom preliminary discovery is sought. Even if the investors commence proceedings against SAI Finance to compel it to litigate a cause of action against ANZ, that would not give the investors a claim for relief (on this cause of action) against ANZ. There would be two claims for relief: one by the investors against SAI Finance; and one by SAI Finance against ANZ.

80 In short, I do not accept that the suggested claim through SAI Finance meets the threshold requirement of r 5.3(1)(a) – the possible entitlement of the plaintiffs to make a claim for relief against (in this case) ANZ.

Conclusion

81 In my view, the investors have discharged the burden of showing that they may be entitled to make a claim for relief against ANZ based on misapplication of trust assets, breach of duty of care and money had and received, but not on the fourth basis advanced – a claim through SAI Finance. However, that failure has no impact on the scope of the discovery sought.

Reasonable inquiries

82 It is unnecessary to set out the detail of the inquiries undertaken on behalf of the investors. The principal criticism that was made of their inquiries was that they had failed to make inquiries of their own banks to obtain documents relevant to the transfers of funds to ANZ: including SWIFT instructions by those banks in relation to the payments, any other documents in relation to the transmissions of funds, and policies and procedures governing international transfers. (Another suggested inadequacy in the inquiries undertaken on behalf of the investors was addressed before the hearing, and can be put aside.) Further, Mr Sheahan submitted, some of the inquiries made on behalf of the investors were relevant to things other than a claim against ANZ.

83 There is some documentary evidence of the terms on which transfers of funds were made to ANZ. Those documents (in so far as they are legible) appear to relate to transfers to account 762 and to describe it as “SAI Finance Client Segregated A/C” in most cases, and to transfers to account 196 in another or others (describing it as “Investment Holding Trust DKIB”). Further analysis of the documents in evidence is difficult, both because of the unhelpful way in which they have been compiled in the relevant exhibit and because, in many cases, they are difficult to read. Nonetheless, the documents do show that on some occasions there were transfers of funds to accounts where the name stated for the recipient accounts corresponded to the number as set out at [30] above. In other words, there is evidence that some of the transfers were made to an account, the name of which (on Mr Pritchard’s submissions) raised the possibility that the account was some kind of segregated monies or trust account.

84 I accept that the investors could have made inquiries of their own banks and would be likely to receive documents from them. There was no evidence on the point but, in circumstances where those who could have given evidence of what would appear to be an available avenue of inquiry have not done so, I proceed on the basis that I have just set out.

85 However, that does not mean that the question of “reasonable inquiries” must be determined adversely to the investors. There is material in evidence that is capable of supporting the proposition that at least some of the transfers in question were made:

(1) in terms (flowing from the stated name of the recipient account) that were capable of suggesting that the funds were to be held on trust, or were impressed with a trust; and

86 I do not think that it is necessary, for the purposes of r 5.3, to show that this is the case in respect of every such transfer. That being so, the question is whether the terms of the instructions pursuant to which the funds were transferred did, or perhaps should have, put ANZ employees on notice of the matters upon which Mr Prichard relied. The resolution of that question would depend on the terms of the documents, or instructions, actually received by ANZ. That is why, on the plaintiffs’ case, discovery from ANZ is important.

87 In those circumstances, whilst I accept that it may have been helpful for the plaintiff to make inquiries of their own banks as to the terms or conditions on which funds were remitted to ANZ, it does not follow that their failure to do so means, in terms of r 5.3, that they have failed to make reasonable inquiries.

88 In any event, the documents that are sought (I return to this below, and set out at [100] below the actual terms of the schedule to the further amended summons) go well beyond documents effecting or evidencing the terms of the transfers. To the extent that what is sought goes beyond the terms of the transfers, inquiry of the investors’ own banks would not have yielded any assistance.

89 The facts of this case are far removed from the facts in Sinopharm. There, the inquiry that could have been made, but was not, was the obvious and logical inquiry to make. There was no evidence to suggest that it could not have been made or, if made, it would have been fruitless. The discovery sought from the defendant in that case would not have added anything to the documents that should have been available from that plaintiff’s own bank. There was therefore no basis for imposing on the defendant in that case the burden of compliance with an order under r 5.3.

90 Thus, although I think that further inquiries could have been made in this case, I do not think that the failure to make them means that the inquiries that were made were not “reasonable”.

Do the plaintiffs have sufficient information already?

91 I have dealt with this to some extent in considering the first issue: see, in particular, [50], [64] and [65] above.

92 Once it is realised that r 5.3 encompasses the garnering of information not only in relation to the elements of the proposed cause of action, but also in relation to the availability and strength of any defence, it is clear that this issue should be resolved in favour of the plaintiffs.

Is it likely that ANZ has possession of relevant documents?

93 There was no real debate over this issue. As will be seen from the description from the documents sought (which I set out below, in considering the sixth issue) they are documents of a kind likely to be in the possession of ANZ and, to the extent that I propose to allow the application, capable of assisting the plaintiffs, or the investors, to decide whether to bring proceedings against ANZ. The documents sought could illuminate a number of matters including:

(1) the terms on which the transfers were made, as those terms appear from the documents received by ANZ in connection with the transfers and thus might be taken to have been known by ANZ;

(2) the procedures (if any) in place to deal with transfers where there was a discrepancy between the stated name and that actual name of the recipient account;

(3) any breach of those procedures and thus, potentially, breach of any duty of care owed; and

Barnes v Addy

Discretion

94 It is convenient to start by noting that ANZ did not submit that the request for production was so wide to be, for that reason alone, oppressive, or that the cost and inconvenience of producing documents would be unduly burdensome. The plaintiffs accept that they must meet ANZ’s cost of production. I was informed that the plaintiffs and ANZ are discussing an appropriate mechanism for the plaintiffs to give security for the cost of production, and that it was unlikely that the Court would be troubled with that question. Although, as a result, I have not heard argument on the point, my tentative view is that ANZ should have adequate security for the likely reasonable costs of the exercise.

95 Mr Sheahan relied on the following matters:

(1) the plaintiffs had not made all reasonable inquiries;

(2) the plaintiffs had not disclosed to the Court all of the information that they had received;

(3) there was no specificity in the schedule to the further amended summons as to whether the documents were sought under r 5.3 or r 5.2; and

96 I accept that the schedule did not indicate whether documents were sought pursuant to r 5.3 or r 5.2. This could only be important where the request for production could not be sustained under one of those rules. On the view to which I have come, to the extent that the requests for production can be sustained at all, they can all be sustained under r 5.3. Thus, it does not matter that the schedule does not in terms indicate whether they are sought under that rule or r 5.2. Nor does it matter that, in addition, particular requests may also have been sustainable under r 5.2.

97 Mr Pritchard drew attention to the substantial amount involved in the claim overall – as I have noted, it is said to exceed $9 million. Mr Sheahan submitted that, at least in relation to the negligence claim, it should be regarded as much smaller, having regard to the cumulative impact of contributory negligence and the apportionment regime (Part 4 of the Civil Liability Act 2002). Mr Sheahan submitted, I think correctly, that if proceedings were commenced and if ANZ were held to be liable, a substantial part of the liability would be deflected to the fraudsters, including SAI Finance. He submitted that the residual liability of ANZ could be no more than 10% or 20% of the total. Whilst I express no view on the quantification of proportions of responsibility, I do accept that application of the proportionate liability regime will reduce substantially any damages for negligence otherwise awarded against ANZ. Mr Sheahan did not submit that the same considerations applied to a cause of action based on misapplication of trust funds or money had and received.

98 I have dealt already with the extent of the inquiries available to, and made by, the plaintiffs. If the failure to make some inquiries does not disqualify them under r 5.3(1)(a), I do not see why it should disqualify them on discretionary grounds: at least, where on any view (in a case such as this) the further inquiries (that could have been, but were not, made) would not have produced all the information that the plaintiffs wish (and are legitimately entitled) to consider.

99 I am not sure why it is said that the plaintiffs have not disclosed to the Court all the information that they have received. There was a vast amount of documentary evidence setting out the results of the inquiries made (in so far as those results are contained in documents). Mercifully, the Court was not taken to it. In circumstances where Mr Sheahan did not go to the material, to show that it contained all that the plaintiffs could reasonably need, I do not think that this consideration should have any dispositive significance on discretionary grounds.

Width of the request for discovery

100 I start by reproducing the schedule to the further amended summons, which is the document in which the plaintiffs define their request:

SCHEDULE

Investors Means individuals and companies who transferred money into the Accounts

Accounts Means the following 4 [sic] accounts:

1 Number 5135 89762

Branch Florence St, Sydney. Sort code: 012-306

2 Number 5135 91248

Branch Florence St, Sydney. Sort code: 012-306

4 Number 4878 77196.

Branch Queensland 4217. Sort code: 014-518

Columbo Business Services Means Columbo Business Services Pty Limited

Period Means 1 July 2007 to date

Krishnan Rasaratnam Means Krishnan Rasaratnam also known as Kulasekaran Rasaratnam, Kadiraman Krishnan Rasaratnam, Mr R K K Kulasekaran, Mr Rasaratnam Kadiraman K Kulasekaran and/or Krishnan K K Rasaratnam

Manickan Rasaratnam Means the brother of Krishnan Rasaratnam, being Mr or Dr Manickan Rasaratnam, also known as Ras Manickan and/or Manidan Rajasegaran Rasaratnam

Menakah Rasaratnam Means the wife of Krishnan Rasarathnam, being Dr or Mrs Menakah Rasaratnam also known as Menaka Rasaratnam and/or Menakah Krishnan

Rasaratnams Means Krishnan Rasaratnam, Menakah Rasaratnam and Manickan Rasartnam.

SAI Means by Strategic Alternative Investments Pty Limited t/as SAI Finance

TT Means telegraphic transfer

TT Summary Means the TT Summary attached to the affidavit of Rachelle Harrington in support of the summons

For the Period, the following documents are sought:

Category 1:

1. Account opening documents for the Accounts and for any account held in the name of SAI.

2. Documents recording the names of authorised signatories on the Accounts and for any account held in the name of SAI and specimen signatures.
3. Terms and conditions for operation of the Accounts and for any account held in the name of SAI.

Category 2:

4. Statements for the Accounts and for any account held in the name of SAI.

5. Records identifying the payees for all payments out of the Accounts exceeding AUD$500. In the event the payees are the Rasaratnams, SAI or Columbo Business Services or other ANZ account holders, records identifying:
(a) the account name and number details

(b) statements for those accounts from the date of receipt of the payment for the balance of the Period.

6. All TT transaction records recording the reference “1013588”, being the reference on the TTs from the Investors.

Category 3:

7. All documents recording ANZ Bank policies and procedures which apply in New South Wales and Queensland in relation to:

(a) deposits into accounts in circumstances where the depositor nominates an existing ANZ account number but the account name nominated by the depositor does match the account name recorded by ANZ as being attached to that account number

(b) restrictions or conditions on deposits and withdrawals from trust accounts or client accounts

(c) processing of telegraphic transfers ranging in value from AUD50,000 to AUD500,000.

Category 4:
8. All documents and correspondence in relation to the Accounts and for any account held in the name of SAI relating to:

(a) irregularities in account names on TTs sent for payment

(b) inquiries or investigations carried out by ANZ in respect of the transactions in the TT summary

(c) failure to comply with the terms and conditions for operation of the Accounts and for any account held in the name of SAI

(d) any investigation or enquiry relating to the TTs in the TT Summary

(e) cancelled, returned or queried TTs.

101 It was common ground that the request for documents relating only to SAI Finance stood or fell with the fourth way in which the investors said they had a claim against ANZ: the claim through SAI Finance. In light of my conclusion on that claim, it follows that there should be no discovery in relation to “any account held in the name of SAI” (which appears in paras 1, 2, 3, 4 and 8 of the schedule).

102 Mr Sheahan submitted that, in relation to the breach of trust claim, proper discovery could not go beyond paras 1, 2 and 4 of the schedule. In relation to the negligence claim, he submitted that it could not go beyond para 7(a). In relation to the claim for money had and received, he submitted that it could not go beyond paras 1, 2, 4 and 7(a).

103 Mr Sheahan submitted, correctly, that para 8 related to documents brought into existence “after the event” – i.e., after the last of the payments had been made and paid away.

104 It is convenient to start with the documents referred to in para 8 of the schedule. The fact that they came into existence after the event does not mean that they may not be relevant. The question is whether documents might contain information which would assist the plaintiffs (or the investors) to decide whether or not to commence proceedings against ANZ. Nothing in the words of r 5.3 suggests that preliminary discovery pursuant to it is limited to documents brought into existence no later than the latest of the events that are said to give rise to the possible claim for relief. Documents brought into existence at a later time may well bear on the questions to be litigated. For example, they may show what was the knowledge of relevant employees of ANZ; what were the relevant procedures (if any) of ANZ; and what was done (or omitted to be done) in respect of any such relevant procedures.

105 As to the documents called for by para 3: the terms and conditions for the operation of the accounts (excluding, for the reasons that I have given, any account held in the name of SAI Finance) may well show whether there were any restrictions on those operations and whether any restrictions were followed, as to the withdrawals of the funds in question. The same applies to the documents called for by para 7(b).

106 As to para 5: part of the factual matrix on which the plaintiffs rely relates to the way in which payments out of the accounts were made. The documents for which para 5 calls would go to that issue. Documents sought under this paragraph may also be relevant to the claim under r 5.2.

107 As to para 6: this simply calls for any of ANZ’s documents relating to the specific TTs. To the extent that this calls for documents relating to transactions involving the particular plaintiffs, it does not seem to be objectionable. To the extent that it goes beyond this, to documents relating to the transactions of other investors, I deal with it below, in connection with the seventh issue.

108 Finally, as to para 7(c): it is possible that if such instructions exist, they may show that there were particular steps to be taken in connection with telegraphic transfers of the kind presently under consideration. Whether or not there were such procedures, and whether or not they were followed in any relevant transfer, may go (in particular) to the possible claim based on breach of duty of care.

Does rule 5.3 extend to a claim for relief made in a representative capacity?

109 Mr Sheahan submitted that the request for discovery by reference to the “TT Summary” was too wide and that any discovery should be limited to the five named plaintiffs. He submitted that r 5.3 did not extend to discovery sought in aid of a proposed representative proceeding.

The TT Summary

110 Mr Sheahan submitted that r 5.3 did not extend to a representative claim - at least, in so far as the claim is brought on behalf of represented parties who are not themselves named plaintiffs in the proceedings - because the only effect of an order made in such proceedings was to bind the represented parties to the judgment or order ultimately made. He submitted that the proceedings did not in terms involve a claim by the represented parties; nor would any judgment or order made in terms vindicate any such claim.

111 The starting point is UCPR rr 7.4 and 7.5:

r 7.4

Representation of concurrent interests

(1) Subject to subrule (5), this rule applies to any proceedings concerning:

(ii) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances, and

(iii) the claims of all those persons give rise to a substantial common issue of law or fact, or

(2) Proceedings to which this rule applies may be commenced and, unless the court orders otherwise, carried on by or against any one or more persons as representing any one or more of them.

(iii) includes claims for damages that would require individual assessment, or

(iv) is the same for each represented person, and

(b) whether or not the proceedings:

(ii) involve separate acts or omissions of the defendant done or omitted to be done in relation to individual represented persons.

(4) If a person who is not a party to the proceedings is appointed as referred to in subrule (3), that person must be joined as a party under rule 6.24.

(4A) If it appears to the court that determination of the issue or issues common to all the represented persons will not finally determine the claims of all the represented persons, the court may give directions in relation to the determination of the remaining issues.

(4B) Without limiting subrule (4A), the court may direct that notice be given to some or all of the represented persons in the proceedings in respect of any matter.

(4C) A represented person, whether or not joined as a party, is taken to have brought proceedings on the day on which the person became a represented person on all of the person’s causes of action that may be determined by judgment in the proceedings.

(b) property the subject of a trust.

r 7.5 Judgments and orders in proceedings bind represented persons

(1) A judgment or order made in proceedings in which a party has, pursuant to rule 7.4 , represented a number of persons binds all of those persons, but is not enforceable against any of those persons who is not a party except by leave of the court.

(2) Notice of motion for an application for leave under subrule (1) must be personally served on the person against whom the judgment or order is sought to be enforced.

112 It seems to be reasonably clear that if the investors have claims against ANZ, those claims are in respect of or arise out of similar or related circumstances (r 7.4(1)(a)(ii)). Mr Sheahan did not submit otherwise. Thus, it would be open to the plaintiffs (or some of them) to commence representative proceedings under the rule (subr (5) has no application).

113 If proceedings are commenced by the five present plaintiffs against ANZ, and if in those proceedings the plaintiffs claim to represent the other twenty-four investors, the proceedings will fall within r 7.4 and each person represented will be “taken to have brought proceedings on the day on which [that] person became a represented person on all of [that] person’s causes of action that may be determined by a judgment in the proceedings” (r 7.4(4C)). Further, the judgment or order made in those proceedings will bind each such represented person in respect of all those causes of action (r 7.5).

114 In form, the action by the five named plaintiffs would claim relief on behalf of each of them and of each of the other represented investors. Those claims would be made against ANZ. As a matter of language, I think that r 5.3(a) can accommodate not only a claim for relief made by an individual in his or her own capacity, but also a claim for relief made by that individual in his or her own capacity and on behalf of others whom he or she claims to represent under r 7.4.

115 Where the effect of a claim brought under r 7.4 is to decide, either in favour of or against each represented party, the relevant claims for relief that the represented party has, the practical effect of the judgment or order is somewhat wider than Mr Sheahan submitted. That is because (subject to any appeal) the defendant – in this case, ANZ – is also bound. The defendant is bound not only against the named plaintiff but also against those represented, to the extent that they are bound through the operation of r 7.4(4C) and r 7.5.

116 I have referred more than once to the propositions that r 5.3 is remedial, should be construed beneficially and should be given the widest operation that its language reasonably permits. Applying those principles, I see no reason to restrict the operation of the rule to a claim made by applicants in their own right, and to preclude it from operating where that claim is made, as well, on behalf of parties whom they seek to represent under r 7.4. The alternative – that each party sought to be represented should commence his or her proceedings under r 5.3 – is scarcely consistent with the overriding purpose of the Civil Procedure Act 2005 and the UCPR as set out in s 56(1) of the Act. By s 56(2), the Court must seek to give effect to that overriding purpose when, among other things, it interprets any provision of the rules. In my view, applying that approach to r 7.4, the conclusion to which I have come is buttressed.

117 I conclude that it is open to the plaintiffs, in their proceedings for preliminary discovery under rr 5.2 and 5.3, to seek discovery not only of documents relating to their particular transactions but also of documents relating to transactions of the other investors whom they wish to represent. Thus, I conclude, the request for discovery by reference to “the TT Summary” is not too wide because that summary extends to transactions beyond those involving the five plaintiffs.

Separate issue in respect of rule 5.2

118 Mr Sheahan submitted that r 5.2 applied where “the cause of action is known and crystallised, but the identity or whereabouts of the defendant is unknown”. That was so, he submitted, because the purpose of the rule is “to allow an applicant who has a cause of action against an entity or person but who does not know the identity of that person (or his whereabouts) to obtain documents or information from those that do”.

119 Mr Pritchard submitted that the rule did not require the plaintiffs to show that they had a cause of action against X, and lacked only knowledge of X’s identity or whereabouts. He submitted that in this case it was obvious that the plaintiffs would have a cause of action, under the second limb of Barnes v Addy, against any person knowingly involved in the fraudulent transaction. Thus, he submitted, r 5.2 would apply and entitle them (subject of course to the necessity to have made reasonable inquiries, and to questions of discretion) to discovery to see whether there were any such persons and, if so, who.

120 In many cases, the applicant under r 5.2 will know that there is in existence a person against whom the applicant has a cause of action – against who, the cause of action is known and crystallised. John Fairfax and Sons Limited v Cojuangco (1988) 165 CLR 346 was such a case (although dealing with the former Supreme Court Rules, Part 3 r 1). But it does not follow that r 5.2 is limited to such cases. In particular, the rule does not require that the applicant should have, or should demonstrate, a prima facie case against the defendant. As Mason P noted in Roads and Traffic Authority of NSW v Australian National Car Parks Pty Ltd [2007] NSWCA 114 at [13], SCR Part 3 r 1 “was amended in 1974 to eliminate a requirement that the applicant establish a prima facie case against the intended defendant”.

121 If it were necessary to resolve the issue, I would incline to the view that the rule should not be limited in the way for which Mr Sheahan contended.

122 In Stewart v Miller [1979] 2 NSWLR 128, Sheppard J had to deal with an application to set aside orders obtained ex parte under SCR Part 3 r 1. That was a case where a company, Computicket Australia Pty Ltd, presold tickets to concerts. It did not set the receipts aside in any special account, but mingled them with monies for which it was liable to account to other entertainers and promoters. Computicket went into liquidation. The plaintiffs claimed that they had causes of action against the directors or senior executives of Computicket, whose identity was unknown to them, for wrongfully disbursing or intermingling monies paid to the company on their behalf. Sheppard J at 139 characterised the application as one “in which, in effect, it is sought to discover the identity of the person or persons against whom the plaintiffs may have a cause of action”. His Honour’s language does not suggest that the cause of action must be “known and crystallised”.

123 Of course, the more speculative the cause of action becomes, the less inclined the court might be to give discovery under r 5.2: at least, on discretionary grounds. But in this case, it would seem to be reasonably clear that the investors would have a claim against anyone knowingly involved in the fraudulent activities of which the investors complain. I see no reason in principle why preliminary discovery under r 5.2 should not be available to assist the investors to ascertain whether there are any such persons and, if so, their identities and whereabouts.

Conclusion and orders

124 The plaintiffs are entitled to preliminary discovery from ANZ, to the extent or with the limitations that I have indicated.

125 I direct the parties to bring in short minutes of order to give effect to these reasons. I stand the proceedings over to 9:30am on 29 July 2009 for the making of orders. If there is any disagreement (including as to costs) I will deal with it then.

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Citations

Steffen v ANZ Banking Group [2009] NSWSC 666

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CITATION:	Steffen v ANZ Banking Group [2009] NSWSC 666
HEARING DATE(S):	3/6/09
JUDGMENT DATE :	15 July 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	McDougall J at 1
DECISION:	See paragraph [125] of the judgment.
CATCHWORDS:	DISCOVERY AND INTERROGATORIES - application for preliminary discovery - whether significant difference between "reasonable inquiries" and "all reasonable inquiries" - whether plaintiffs had made "reasonable inquiries" - whether plaintiffs had sufficient information to commence proceeding against defendant - whether to invoke court's discretion under relevant rules - whether discovery categories too broad - whether preliminary discovery available for proposed representative action.
LEGISLATION CITED:	Civil Liability Act 2002 Civil Procedure Act 2005 Federal Court Rules Supreme Court Rules Uniform Civil Procedure Rules
CATEGORY:	Principal judgment
CASES CITED:	Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (Federal Court of Australia, 24 May 1996, unreported; BC9602085) Barnes v Addy (1874) LR 9 Ch App 244 Coco v The Queen (1994) 179 CLR 427 C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 Foley v Hill (1844) 13 L J Ch 182 Foley v Hill (1848) 2 HL Cas 28 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125) Gray v Johnston (1868) LR 3 HL 1 John Fairfax and Sons Limited v Cojuangco (1988) 165 CLR 346 Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549 Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399 Papaconstuntinos v Holmes a Court [2006] NSWSC 945 Roads and Traffic Authority of NSW v Australian National Car Parks Pty Ltd [2007] NSWCA 114 Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75 Securities Fund Services, Inc v American National Bank and Trust Company of Chicago 542 F. Supp. 323 Sinopharm Jiangsu Co Pty Limited v Bank of China [2007] NSWSC 484 Stewart v Miller [1979] 2 NSWLR 128 St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 Wickstead v Browne (1992) 30 NSWLR 1 Wickstead v Browne (1993) 10 Leg Rep SL 2 Woolcock Street Investments Pty Limited v CDG Pty Limited (2004) 216 CLR 515
PARTIES:	Joachim Kurt Steffen (Plaintiff) Australia and New Zealand Banking Group Limited (Defendant)
FILE NUMBER(S):	SC 50245/08
COUNSEL:	D R Pritchard SC / J S Emmett (Plaintiff) J Sheahan SC / J T G Gibson (Defendant)
SOLICITORS:	Colin Biggers & Paisley (Plaintiff) Henry Davis York (Defendant)

Investors	Means individuals and companies who transferred money into the Accounts
Accounts	Means the following 4 [sic] accounts:

1	Number	5135 89762
Branch	Florence St, Sydney. Sort code: 012-306
2	Number	5135 91248
Branch	Florence St, Sydney. Sort code: 012-306
4	Number	4878 77196.
Branch	Queensland 4217. Sort code: 014-518

Columbo Business Services	Means Columbo Business Services Pty Limited
Period	Means 1 July 2007 to date
Krishnan Rasaratnam	Means Krishnan Rasaratnam also known as Kulasekaran Rasaratnam, Kadiraman Krishnan Rasaratnam, Mr R K K Kulasekaran, Mr Rasaratnam Kadiraman K Kulasekaran and/or Krishnan K K Rasaratnam
Manickan Rasaratnam	Means the brother of Krishnan Rasaratnam, being Mr or Dr Manickan Rasaratnam, also known as Ras Manickan and/or Manidan Rajasegaran Rasaratnam
Menakah Rasaratnam	Means the wife of Krishnan Rasarathnam, being Dr or Mrs Menakah Rasaratnam also known as Menaka Rasaratnam and/or Menakah Krishnan
Rasaratnams	Means Krishnan Rasaratnam, Menakah Rasaratnam and Manickan Rasartnam.
SAI	Means by Strategic Alternative Investments Pty Limited t/as SAI Finance
TT	Means telegraphic transfer
TT Summary	Means the TT Summary attached to the affidavit of Rachelle Harrington in support of the summons