Walking with J Pty Ltd v ANZ Banking Group Ltd (Ruling)
[2024] VCC 1109
•29 July 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMON LAW DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-23-06593
| WALKING WITH J PTY LTD (ABN 639 260 601) and DAVID YU LING YAO | First Plaintiff Second Plaintiff |
| v | |
| AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED (ACN 005 257 522) trading as ANZ Bank | Defendant |
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JUDGE: | HIS HONOUR JUDGE PURCELL | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 May 2024 | |
DATE OF RULING: | 29 July 2024 | |
CASE MAY BE CITED AS: | Walking With J Pty Ltd & Anor v ANZ Banking Group Ltd (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 1109 | |
RULING
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Subject:DAMAGES
Catchwords: Summary judgment – whether pleaded claim certain to fail – whether compensation available for money paid to a fraudulent bank account – pleadings – application to strike out parts of a Statement of Claim – novel duty of care – plaintiff’s pleadings struck out
Legislation Cited: Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007; Civil Procedure Act 2010; County Court Civil Procedure Rules 2018
Cases Cited:Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; Caltex Refineries (QLD) Pty Ltd v Stavar (2009) 75 NSWLR 649; Malaspina & Ors v State of Victoria [2024] VSC 338; O’Brien v Supercheap Security Pty Ltd [2023] NSWSC 21; O’Brien v Supercheap Security Pty Ltd trading as Supercheap Security Pty Ltd (No 2) [2023] NSWSC 761; Lysaght Building Solutions Pty Ltd (trading as Highline Commercial Construction ACN 103 232 444) v Blanalko Pty Ltd (ACN 005 822 926) (2013) 42 VR 27; Sarto v Sarto [2021] VSC 295; Healy & Ors v Bird & Anor [2022] VSC 823; Roxburgh v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Perre & Ors v Apand Pty Ltd (1999) 198 CLR 180; Minister for the Environment v Sharma and Others [2022] FCAFC 35; Agar v Hyde (2000) 201 CLR 552
Ruling: Order for summary judgment in favour of the defendant
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G Nash KC | Access Law |
| For the Defendant | Mr T Jeffrie | Herbert Smith Freehills |
HIS HONOUR:
Internet banking
1According to a fact sheet published by the Australian Financial Complaints Authority:
“Internet banking is an easy way to electronically transfer money from one account to another. It is important to get the BSB and account number right, because banking systems only use the account number when processing the payment. The account name is not used to transfer the payment.”[1]
[1] Australian Financial Complaints Authority, “Mistaken internet payments”, Fact Sheet, 17 May 2024.
2Yet, because of the increasing number of scams from electronic banking, in November 2023 the Australian Banking Association announced as part of “a war on scams” that the major Australian banks would roll out payee confirmation technology to ensure that people were transferring money to the person they intend to.
3Anyone who reads the newspapers would appreciate that the issue of scams arising from bank transactions is something of a “hot topic” at the present time.
4What follows in these reasons deals with a scam and internet banking. It is a story of how payee confirmation technology may have prevented the scam had that technology been in operation.
Overview of this proceeding
5The scam in this proceeding occurred after the receiving bank (the defendant) correctly used the BSB and account number it was given for the transfer but ignored the direction about the name of the account.
6The plaintiffs assert that the defendant should have ensured that the account name matched before accepting the transfer. The defendant says it was under no such requirement.
A timeline of relevant events
An account is opened with the ANZ Bank
7What follows is a summary of events and facts extracted from the pleadings and other evidence and is not in dispute, unless otherwise indicated.
8On 19 January 2022, an account was opened with the ANZ Bank (“the defendant”) in the name of Gagandeep Singh Chatarth trading as GS Unique Automotive (“the account”).
The account is verified
9Before opening the account, the defendant relied on a Manual Verification Cover Sheet setting out customer details and documents recorded for the customer; a photocopy of a photo card in the name of Gagandeep Singh Chatarth, showing a photo and an address on the photo side in NSW and a different address on the reverse side, also in NSW; and an ASIC extract of an ASIC search that showed GS Unique Automotive was registered as a business name on 10 January 2022, with the holder of that name being Gagandeep Singh Chatarth and an address for service of documents in NSW that was different to either address on the photo card.
10In its defence and in submissions, the defendant says that the process and documentation that it relied on to open the account complied with its obligations pursuant to the verification of identity requirements contained in the Anti-Money Laundering and Counter-Terrorism Financing Instrument 2007 (“the VOI requirements”).
11The plaintiffs asserted that the defendant did not comply with the VOI requirements, or that even if it did, it should have made further enquiries.
12Pausing, the VOI requirements do not necessarily create a duty of care owed by the defendant to the plaintiff. In the pleaded case, the plaintiffs did not make that assertion. Effectively, the plaintiffs allege that the defendant was negligent in the process it used to allow the account to be opened. But, as I shall set out, the issue of negligence only arises if a duty of care was owed. That is sharply in focus where the plaintiffs gave the BSB and account number that they nominated for money to be transferred into. In that sense, whether or not the account was genuine, or fraudulent, is irrelevant as it was the account they nominated for the transfer.
Money is transferred
13Returning to the timeline of events, on 18 February 2022, Walking With J Pty Ltd and Yu Ling Yao (“the plaintiffs”) entered into a lease with C&J Designer Homes Pty Ltd and others, to occupy premises in Balwyn, Victoria (“the premises”).
14Before the lease was signed, by email dated 28 January 2022, the landlord sent an email with an invoice that included electronic banking details. That invoice provided a BSB and account number for a NAB bank account held in the name of C&J Designer Homes Pty Ltd.
15Then, on 15 February 2022, the plaintiffs received another email which purported to be from the landlord (which they did not check) that said that new bank details would have to be provided for the payment of the rent. After an exchange of emails, a revised invoice was provided in an email with a BSB and account number for the account held with the defendant, but still said to be in the name of C&J Designer Homes Pty Ptd.
16On 17 February 2022, the plaintiffs transferred money intended for payment of rent to the landlord, separately from accounts they held with the Commonwealth Bank of Australia (“CBA”) and the Westpac Bank, to the account (“the transfers”).
17For the transfers, according to their proposed amended statement of claim dated 3 May 2024 (“the ASOC”), the plaintiffs provided instructions to CBA and Westpac that included three things, namely the BSB, the account number and the account name of C&J Designer Homes Pty Ltd.
18The ASOC then pleads that CBA and Westpac followed the instructions and made the payments to the account. However, as I shall turn to in a moment, that fact is not made out. CBA and Westpac did not match the name given to them in the instructions, with the name of the account.
19Therefore, at this early stage, there arises an issue as to exactly what instructions were provided to the defendant for the transfers, if the account name was not used by the transferring banks.
20In fact, it is not explicitly pleaded that the plaintiffs did provide the name “C&J Designer Homes Pty Ltd” to the defendant. Instead, the material facts in the ASOC refer to, or infer, a failure by the defendant to use the account name “C&J Designer Homes Pty Ltd”.
21At the least, the ASOC is deficient in how the account name allegation is pleaded.
22In any event, the BSB and account number the plaintiffs provided were used by the defendant and the transfers were accepted into the account.
23Subsequently, the plaintiffs learnt that the landlord’s email had been hacked. False banking details had been provided in an email with the revised invoice.
24Unfortunately for the plaintiffs, they were not alert to the scam email. They did not check with the landlord to ensure that the email was genuine or that the banking details were correct. By the time they realised the email had been hacked and false banking details provided, the money had been transferred to crypto trading accounts and could not be recovered.
25Before the plaintiffs were scammed, there is no suggestion that the defendant knew that the account was to be used for a fraud or was a fraudulent account.
The terms and conditions of the electronic transfer
26As already mentioned, there arises an issue as to what instructions were provided either to CBA or Westpac, but more importantly to the defendant. This is unclear from the ASOC.
27In a letter dated 19 September 2022 from CBA to the plaintiffs’ solicitors,[2] CBA said:
‘The customer is responsible for ensuring they are aware of where the funds are going. Page 31 of our current Electronic Banking Terms and Conditions clearly states “If you tell us to make a payment or transfer and after we have implemented your instructions you discover that the account you told us to make a payment or transfer to was incorrect, you can contact the recipient to obtain a refund or contact us. We will attempt to recover the funds on your behalf but we are not liable unless we fail to comply with the process and timeframes set out below.” Financial institutions do not undertake name matching when a payment is processed. Page 31 of our Electronic Banking Terms and Conditions states “The account name of the recipient does not form part of your payment instructions and will not be used or checked by us in making your payment.” Customers are presented with a warning of this nature, encouraging them to carefully check the payment details in NetBank and the CommBank App before a payment is processed.’
[2] Affidavit of Ruby Yao, sworn 25 February 2024, exhibit RY-9
28Consistent with what CBA said to the plaintiffs, in its defence the defendant pleaded that it complied with the New Payments Platform (“NPP”), an online payment platform used by Australian banks, in which instantaneous transfers are made using the BSB and account number and in which account names were not used as an identifier.
29Therefore, the defendant says that it followed the NPP instructions, which were the BSB and the account number, when it accepted the transfers.
30There is no allegation in the ASOC that the defendant did not comply with the NPP.
31I shall proceed in this application on the assumption that the plaintiffs will establish at trial the material facts pleaded by them. I shall also proceed on the basis that the plaintiffs could re-plead to specifically allege that the defendant ignored the direction regarding the name of the account.
A duty of care must be identified
32It is trite to note that the existence of a duty of care is a necessary condition of liability in negligence. If there is no duty owed, then concepts of breach and damage are otiose.
33A defendant will only be liable, in negligence, for a failure to take reasonable care to prevent a certain kind of foreseeable harm to a plaintiff, in circumstances where the law imposes a duty to take such care.[3]
[3] Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185
34The defendant submitted that this is a relatively straightforward case.[4] The plaintiffs were the victims of a scam. They seek to recoup the money scammed from them from a bank which was not their bank, to which they were not customers and, in legal terms, where they were strangers to the defendant.
[4] Transcript (“T”) 6, Lines (“L”) 15-23
35The defendant says there was no duty of care owed. It raises what it says are deficiencies with the pleaded case, but more broadly says that no amount of remedial work can ever produce a pleading that would formulate a duty of care that it owed.
36The defendants now seek orders for summary judgment in its favour, on the basis that the plaintiffs’ claim against it has no reasonable prospect of success because they will be unable to establish the existence of a duty of care.
37Alternatively, the defendant seeks orders to strike out the ASOC.
The duty alleged
38At the outset, it is no easy task to extract from the pleading how the plaintiffs say a duty of care was owed to them. Much of the pleading conflates or merges issues to do with the duty owed with breach of duty and with the material facts relied on for the alleged breach of duty. At the very least, that would require the plaintiffs to re-plead.
39The alleged duty of care is set out at paragraphs 32-35 of the ASOC.
40Paragraph 32 simply raises the VOI requirements. I have already noted that the defendant acknowledges those requirements and says it complied with them and that the plaintiffs allege that that it did not. But what is not pleaded is whether a duty of care was owed broadly to ensure that the account was not ‘fraudulent’.
41Next, paragraph 33 asserts issues to do with reasonable foreseeability and that the lack of due diligence by the defendant with the VOI requirements meant that it was reasonably foreseeable that the account might be used for fraudulent purposes. That is a very broad allegation that would test the boundaries of foreseeability for the purposes of establishing a duty of care.
42Then, in paragraph 34, the plaintiffs plead that the defendant knew that the account was not in the name of C&J Designer Homes Pty Ltd; that it was in the name of Gagandeep Singh Chatarth trading as GS Unique Automotive; and, more relevantly, that the plaintiffs intended the funds to be credited to an account in the name of C&J Designer Homes Pty Ltd.
43The plaintiffs then set out in paragraph 35 that, by reason of paragraphs 32, 33 and 34, the defendant owed a duty of care as follows:
a)to comply with the VOI requirements before opening the fraudulent account;
b)to conduct a diligent, due and proper identification of the person asking to open the account;
c)to credit funds transferred by the plaintiff only to an account held in the name of C&J Designer Homes Pty Ltd; and
d)to not credit funds transferred by the plaintiffs to any account not in the name of C&J Designer Homes Pty Ltd.
44On a broad interpretation of the pleading, the plaintiffs assert that a duty of care was owed in two respects. First, to comply with the VOI requirements and exercise due diligence when the account was opened. Second, to only accept the transfers if the account names were matched.
45As already indicated, in my opinion, there are immediate problems with the ASOC.
46Much of the pleading regarding verification of the account conflates the material facts relied on for breach of duty with the concept of the duty owed. Broadly, as the defendant submitted, and with which I agree, the allegations in respect to the VOI requirements go to breach and do not identify the duty said to be owed.
47At the core of the pleaded case is the assertion that the defendant owed a duty of care to only accept the transfers if the names matched. What the ASOC also does not do is properly set out how that duty arose on the facts as pleaded.
48Although the ASOC pleads a claim based on “money had and received”, this is a repeat of the core contention that the defendant was under an obligation to match the name given in the instructions with the name of the account held with it.
49In short, at the very least, the defendant would succeed on the strike out application and the plaintiffs would need to re-plead.
A novel claim
50The parties agree that there is no decided case where a bank has been held liable in negligence for accepting a transfer via the NPP where it correctly matched the BSB and account number provided but did not match the account name. Therefore, I consider that the duty alleged is novel.
51As the duty alleged is novel, I accept the submission of the defendant that the Court should take an incremental approach to establishing a duty by analysing the ‘salient features’ that bear on the relationship between the parties.
52The approach to an analysis of the ‘salient features’ was as set out by Allsop P in Caltex Refineries (QLD) Pty Ltd v Stavar.[5] The approach set out by Allsop P is well-known and need not be repeated.
[5] (2009) 75 NSWLR 649, at 676 [102]
53More recently, the approach that a Court should take on an application for summary judgment where there is alleged a novel duty of care was considered by Keogh J in Malaspina & Ors v State of Victoria.[6] In that regard, I respectfully adopt the approach taken by Keogh J, where His Honour said:
‘The claim in this case does not fall within an established category in which the existence of a duty has been recognised. The task of determining whether a novel duty arises was described in NSW v Spearpoint (‘NSW v Spearpoint’) by Allsop ACJ:
It is clear that in ascertaining whether, in any particular circumstances, a duty of care is to be imputed and in identifying its scope and content, where the circumstances are not covered by an accepted category of liability, the task is to analyse closely the facts bearing on the relationship between the plaintiff and the putative tortfeasor. See for example Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at [22].
This close examination will involve an assessment of salient features such as foreseeability, degree of harm, vulnerability, reliance, assumption of responsibility and numerous other possible factors. These other factors will include legal policy such as coherence and conformity with other duties or legal obligations.
Allsop ACJ described the task as ‘one which is fact rich and fact intensive’. This means that it will often be inappropriate to summarily dismiss a claim on the question of the existence of a duty, where the possibility exists of evidence relevant to that question being led at trial.’
(Footnotes omitted)
[6][2024] VSC 338
No binding authority
54The parties agree that there is no authority that is binding on this Court.
55But the parties each referred to the related decisions of the New South Wales Supreme Court, of Ball J in O’Brien v Supercheap Security Pty Ltd[7] and Stevenson J in O’Brien v Supercheap Security Pty Ltd trading as Supercheap Security Pty Ltd (No 2)[8] (“the O’Brien decisions”), which I shall discuss later in these reasons.
[7] [2023] NSWSC 21 (“O’Brien”)
[8] [2023] NSWSC 761 (“O’Brien (No 2)”)
56Senior counsel for the plaintiffs conceded that the O’Brien decisions “appeared to be against us”[9] but submitted that analysis of those cases indicated the contrary, before seeking to distinguish the O’Brien decisions from the scenario in this proceeding.
[9] T 36, L 24 -27
This proceeding
57Dealing with formalities, by application made on summons,[10] the defendant seeks orders for summary judgment to be given in its favour or, alternatively, for various paragraphs of the plaintiffs’ statement of claim (“SOC”) to be struck out.
[10]Dated 21 March 2024.
58By their SOC or, alternatively, by the ASOC, the plaintiffs broadly seek the recovery of the money that was scammed from them, together with incidental orders for interest and costs.
59The defendant denies that it is liable to the plaintiffs. Broadly, it says that there was no duty owed by it to the plaintiffs and that there is no viable cause of action that is available against it.
60The summons brought by the defendant was supported by an affidavit sworn by its solicitor on 13 March 2024. In addition, the defendant provided written submissions dated 12 February 2024 and submissions in reply dated 10 May 2024. At the oral hearing, the defendant also filed a book of authorities.
61The plaintiffs relied on an affidavit sworn by Ms Ruby Yao on 25 April 2024. They also provided written submissions although, due to an error in the heading on that document, it was not filed in accordance with the Orders of the Court made on 25 March 2024. At the oral hearing, the plaintiffs also filed a book of authorities relied on by them.
62I have considered the SOC, ASOC, defence, reply, affidavit material, authorities and written and oral submissions. I shall refer to that material to the extent necessary to explain my reasons in this Ruling.
Legal principles for summary judgment and strike out
Summary judgment
63The principles regarding summary judgment were discussed by the Victorian Court of Appeal in Lysaght Building Solutions Pty Ltd (trading as Highline Commercial Construction ACN 103 232 444) v Blanalko Pty Ltd (ACN 005 822 926)[11] as follows:
“Upon the present state of authority:
a)the test for summary judgment under s 63 of the Civil Procedure Act2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b)the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c)it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.”[12]
[11](2013) 42 VR 27 per Warren CJ, Nettle and Neave JJA.
[12]Ibid, paragraph [35]
64The test under s63 of the Civil Procedure Act 2010 is whether the plaintiff has a “real” as opposed to a “fanciful” chance of success. In consideration of that, the power to terminate the proceeding summarily should be exercised with caution and should not be exercised unless it is clear there is no real question to be tried.
65In the present case, the first issue is whether the pleaded case has a real prospect of success and of establishing a liability against the defendant.
Strike out – r23.02
66Next, the legal principles for a strike out application are also now well-known and not in dispute. They were discussed and summarised by Derham AsJ in Sarto v Sarto.[13] There is no need to set the principles out in full, but I concur with what was said in Sarto that the fact that a proceeding arises from a complex factual matrix does not detract from the pleading requirements. To the contrary, the requirements become more poignant.[14] In a novel proceeding, it is critical that the pleading identify the duty that is said to have been owed.
[13][2021] VSC 295 (“Sarto”)
[14] Ibid [43].
67An application brought under r23.02 of the County Court Civil Procedure Rules 2018 involves a challenge to the sufficiency of a pleading as distinct from the defendant’s primary contention, namely, that no amount of remedial work can disclose a valid claim. The power to strike out is discretionary. It should only be exercised if, based on the pleading, the “claim is so manifestly hopeless that a trial would be a futility”.[15]
[15] Healy & Ors v Bird & Anor [2022] VSC 823 at [27].
The parties’ contentions
Plaintiffs’ submissions
68The plaintiff contended that the duty alleged was not a novel one. They submitted that there was sufficient proximity between the parties because of the nominated direction to receive the transfer to the named account. They then went on to highlight what was said to be the negligence of the defendant in allowing the fraudulent account to be opened.
69Much of the plaintiffs’ submissions were directed towards breach. They said in summary that the defendant acted contrary to their instructions and their claims turned on a clear misapplication of the money transferred by them. The plaintiffs submitted “ANZ’s argument turns on an inconsistency in the instruction it received, and an unstated assumption that to disregard the inconsistency did not constitute negligence”.[16]
[16] Plaintiffs’ submissions dated 3 May 2024, paragraphs [31] – [32]
70In oral submission, senior counsel for the plaintiffs repeated the factual basis for the claim against the defendant, described as the primary submission, that the defendant did not follow the instruction to pay the named account holder. As senior counsel said in oral submissions:
“Now, we’re not alleging mistake. What we’re saying, Your Honour, is that we gave directions to the bank – sorry, we transferred the money to the bank with directions that it be paid – that it be credited to an account in a particular name with a particular account number and a bank credited it to an account – the account number, but ignore the direction in relation to the name of the account.”.[17]
[17] T 37, L 14-21
71The plaintiffs conceded that there was no legal authority directly on point as to whether the receiving bank can take into account two of the directions (the BSB and the account number) but ignore the third (the name of the account).[18] The plaintiffs emphasised that they were not alleging a mistake by the defendant, but rather that it ignored the account name. They posed the rhetorical question “is there any reason in logic, or in law, why part of the direction should be ignored?”.[19]
[18] T 37, L 25-28
[19] T 39, L16-19
72Regarding a claim based on “money had and received”, the plaintiffs submitted that Roxburgh v Rothmans of Pall Mall Australia Ltd[20] was authority for the proposition that where money had been transferred for a purpose that has failed, then the money is liable to be refunded. The money was received by the defendant for the purpose of being transferred to the nominated account, remained the bank’s money and, because the direction was not followed, the bank was liable to refund the money to the plaintiffs.
[20] (2001) 208 CLR 516
73Pausing, in the ASOC it was alleged that, in the circumstances, the plaintiffs had an immediate right to request the return of the money, although I doubt that very much and they conceded that could have been pleaded more clearly.[21]
[21] T 51, L 14
74The claim based on “money had and received” has what I consider to be several fatal hurdles, including the lack of any contract or consideration between the parties, but ultimately it also turns on the primary contention that the defendant had to follow the direction regarding the named account. This was expressed in oral submission as “We gave the money to the bank, subject to a condition, condition wasn’t fulfilled, therefore, we’re entitled to possession”.[22]
[22] T 51, L 22-24
75However, the plaintiffs did not give anything to the defendant. Rather, they gave instructions to CBA and Westpac to make transfers to the account, where they had no direct contact, and no direct relationship, with the defendant. The issue is whether a duty of care arises in that scenario.
Defendant’s submissions
76The defendant submitted that the pleaded case failed to identify a reasonably arguable duty of care. It submitted that the alleged duty of care was a novel one and not a duty recognised at law.
77Next, it submitted that the pleaded case did not establish that a duty of care was owed. In the context of the salient features, it submitted that there were several reasons why no duty was owed.
78First, the alleged duty is an indeterminate duty that would be owed to the world. It submitted that Perre & Ors v Apand Pty Ltd[23] was the seminal case on indeterminacy and for the reasons expressed in that case by McHugh J, liability is indeterminate when it cannot realistically be calculated. Therefore, analysed accordingly, the duty alleged in this proceeding was indeterminate.[24]
[23] (1999) 198 CLR 180, [107]
[24] T 17
79Therefore, it submitted that the plaintiffs’ case failed at the first hurdle, because if the liability alleged is indeterminate, then there is no duty of care owed.[25]
[25] Minister for the Environment v Sharma and Others [2022] FCAFC 35 at [702]
80Insofar as the plaintiffs tried to confine the pleaded case to them because of the fact of the directions, the defendant submitted that this was “the pleader’s construct” to artificially confine the boundaries of the relevant class.[26]
[26] T 19, L 7-10
81Second, the defendant submitted that there is insufficient proximity between the plaintiffs and the defendant to give rise to a duty of care.
82Third, the defendant highlighted that the plaintiffs do not point to any vulnerability which would give rise to a third party, such as the defendant, owing a duty to protect the plaintiffs from pure economic loss.
83Fourth, the defendant submitted that the alleged duty would require the defendant to take broad and indeterminate steps to prevent illegal activity by other parties. It submitted – correctly – that the authorities make it clear that such a duty can only arise in “exceptional circumstances”. It submitted that this was not such an example.
84Fifth, it submitted that it is unclear how or why a breach of the relevant statutory duty in respect to account verification would give rise or contribute to a novel duty of care owed to the plaintiffs who were not customers of the defendant.
85Sixth, it submitted that the assertion of the plaintiffs that it was reasonably foreseeable that they would suffer harm if the defendant did not comply with the statutory account verification requirements cannot, of itself, give rise to a novel duty of care.
86In that context, it accepted that it would be different if the defendant had actual knowledge that the account was being used for a fraudulent purpose, because that would change the salient features test, but it noted there was no such allegation made against it.[27]
[27] T 13, L 15-17
87Next, it submitted that, from the pleaded claim based on “money had and received”, the defendant could not discern from the pleading what that claim was or what it means. It submitted that this part of the pleading was bad in law and so the amendment should not be allowed, because it was not a claim in contract, and was really an attempt to recast the claim in conversion as set out in the SOC and then abandoned by the plaintiffs’ ASOC.[28]
[28] T 35
88In summary, the defendant asserted that the Court could not be satisfied that the pleaded case had any real prospects of success, the circumstances of the scam did not give rise to a duty of care, and no amount of remedial work to the ASOC could ever set out a duty owed.
89The defendant also provided submissions in reply to the plaintiffs’ submissions, in which it expanded on the submissions about why there was no duty owed to the plaintiffs and dealt with the proposed ASOC.
O’Brien decisions
O’Brien
90The facts of O’Brien relate to an application by the National Australia Bank (“NAB”), for summary dismissal of all or part of a claim against it.
91Ms O’Brien was the victim of a scam. She accepted an invitation published on a website to invest money at attractive interest rates. After her online enquiry, she received telephone calls and emails purportedly from one or more employees of AMP Bank.
92Consequently, she was directed to deposit money in an account held with NAB in the name of the first defendant. However, the name of the account given to her was in fact not in the name of the first defendant. Following a transfer of funds, the funds were withdrawn and misappropriated.
93Ms O’Brien made allegations against NAB, who were the third defendant and sued in the capacity as the receiving bank, said to arise out of the banking code of practice and representations on its website concerning its practices in relation to various statutory requirements.
94Ms O’Brien pleaded that there was an implied warranty NAB would exercise due care and skill in providing its non-cash payment systems. There was a specific pleading under the heading “Failure to Comply with Instructions to Transfer”, in which she set out her allegation that instructions were given to transfer the money to an account with a particular name, and that NAB had no authority to credit the funds to an account in a different account name and therefore held the money on a constructive or resulting trust for the plaintiffs.
95The factual matrix in O’Brien may not be precisely the same as in this proceeding but there are many similarities.
96Ms O’Brien’s claim was in part based on the allegation that NAB knew or should have known that the funds were received because of fraudulent or suspicious activity. Allegations were made against NAB for permitting or allowing the fraudulent account to be opened and where the nominated account name was not the same as the name in which the NAB account was held, that should have caused NAB to halt, flag or investigate the transaction. It was asserted by Ms O’Brien that the nominated account name was an essential integer to the transaction.
97In O’Brien, Ball J said of the breach of duty of care that:
“40.In my opinion, there are at least two fatal difficulties with the claim based on negligence.
41.First, although the duty of care is pleaded to be a duty owed by NAB to the plaintiffs, as pleaded it is a duty said to be owed by NAB to the world at large. Such a duty is inconsistent with authority and is not reasonably arguable.
42.In JP SPC 4 v Royal Bank of Scotland International Ltd [2022] 3 WLR 261; UKPC 18 an application was made to strike out a claim brought by a Cayman Island based investment fund against the respondent bank. The investment fund had established a scheme by which investors lent solicitors in England and Wales money to finance their pursuit of high-volume low-value litigation. The loans were made through a company based in the Isle of Man, Synergy (Isle of Man) Ltd (SIOM), which was a customer of the bank. It was alleged that SIOM and two individuals associated with it had misappropriated money from the accounts held by SIOM with the bank. The fund alleged that the bank owed it a duty of care the effect of which was that ‘if the circumstances were such that a reasonable banker would have had grounds for considering that there was a serious or real possibility that the [Fund] was being defrauded and/or its funds were being misapplied …, [the Bank] was obliged not to honour instructions in relation to [the Accounts] until such time as it had made reasonable enquiry and satisfied itself as to the propriety of the conduct of [the Accounts]’ (at [6]). The Privy Council, upholding the decision of the High Court of Justice of the Isle of Man Staff of Government (Appeal Division), held that the claim should be struck out. In reaching that decision Lord Hamblen and Lord Burrows (with whom Lord Briggs, Lord Kitchen and Lady Rose agreed) said (at [94]):
There is nothing in principle or in the cases to support the idea that the tortious duty of care owed by a bank to its customer to exercise reasonable care and skill, which is co-extensive with the contractual duty of care owed by a bank to its customer, can be extended across to a third party with whom the bank has no contractual relationship even if the bank knew or ought to have known that the third party was the beneficial owner of the moneys in the customer’s account.
43.The decision of the Privy Council is not binding on this Court and, to some extent, the law in Australia relating to when a duty of care is owed has diverged from the law in the United Kingdom. Nonetheless, the decision supports a conclusion that the plaintiffs’ claim is not reasonably arguable.
44.The principles for determining whether a duty of care exists in a novel case in Australia were summarised by Allsop P (with whom Simpson J agreed) in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 at [102]–[103] in these terms:
102 … If … the posited duty is a novel one, the proper approach is to undertake a close analysis of the facts bearing on the relationship between the plaintiff and the putative tortfeasor by references to the ‘salient features’ or factors affecting the appropriateness of imputing a legal duty to take reasonable care to avoid harm or injury.
103 These salient features include:
(a)the foreseeability of harm;
(b)the nature of the harm alleged;
(c)the degree and nature of control able to be exercised by the defendant to avoid harm;
(d)the degree of vulnerability of the plaintiff to harm from the defendant’s conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself;
(e)the degree of reliance by the plaintiff upon the defendant;
(f)any assumption of responsibility by the defendant;
(g)the proximity or nearness in a physical, temporal or relational sense of the plaintiff to the defendant;
(h)the existence or otherwise of a category of relationship between the defendant and the plaintiff or a person closely connected with the plaintiff;
(i)the nature of the activity undertaken by the defendant;
(j)the nature or the degree of the hazard or danger liable to be caused by the defendant’s conduct or the activity or substance controlled by the defendant;
(k)knowledge (either actual or constructive) by the defendant that the conduct will cause harm to the plaintiff;
(l)any potential indeterminacy of liability;
(m)the nature and consequences of any action that can be taken to avoid the harm to the plaintiff;
(n)the extent of imposition on the autonomy or freedom of individuals, including the right to pursue one’s own interests;
(o)the existence of conflicting duties arising from other principles of law or statute;
(p)consistency with the terms, scope and purpose of any statute relevant to the existence of a duty; and
(q)the desirability of, and in some circumstances, need for conformance and coherence in the structure and fabric of the common law.
45.Notwithstanding the fact that the issue generally requires a careful examination of the facts, in my opinion, it is apparent that, applying these principles, it is not reasonably arguable that NAB owes the alleged duty. A number of matters identified by Allsop P tend against the existence of such a duty and none points in favour of it.
46.The alleged duty is said to be a duty to avoid pure economic loss. It is one which, in effect, is said to be owed to the world at large. The alleged duty is broad and indeterminate in scope. Those factors, particularly in combination, count against the existence of the alleged duty.
47.There is no personal or other connection between the plaintiffs and NAB. The duty in effect is said to be a duty to take reasonable care to prevent the plaintiffs from being defrauded by customers of NAB. But none of the facts pleaded by the plaintiffs provide a basis for saying that NAB assumed that responsibility or that the plaintiffs reasonably relied on NAB to prevent them from being defrauded by NAB’s customer. Moreover, the existence of the pleaded duty would raise the possibility of conflict between the duty a bank owes to its customer and a duty that it is said to owe to anyone who chooses to deal with that customer. The relevant obligations of a bank, and NAB in particular, are dealt with in detail by legislation. There is nothing in that legislation that suggests that breach of it gives rise to civil liability on the part of the bank to any person who deals with its customer.
48.Vulnerability to the harm said to be caused by the alleged conduct is an important, if not critical, indicator of the existence of a duty of care: see Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [118] per McHugh J. The List Statement suggests that the plaintiffs were vulnerable to harm caused by NAB’s conduct — or, more accurately, inaction — and that the plaintiffs had limited ability to protect themselves. That submission cannot be accepted. It was open to the plaintiffs to make their own enquiries, including taking steps to check that they were dealing with persons employed by AMP by contacting AMP themselves.
49.The plaintiffs submit that the circumstances of this case are analogous to the position of occupiers of licensed premises who have been held in some circumstances to owe a duty of care to patrons in relation to the tortious or criminal conduct of other patrons: see generally Rooty Hill RSL Club Ltd v Karimi [2009] NSWCA 2 (Rooty Hill). However, the two cases are not analogous. Rooty Hill concerned a case in which one patron assaulted another. It was not a case concerning pure economic loss. The degree of control that the occupier could exercise (by excluding the offending patron) and the vulnerability of the injured patron were entirely different.
50.Second, in my opinion, the pleading of breach is inadequate because it does not identify with any precision what NAB should have done but did not do. In substance, what seems to be alleged is that NAB did not have in place adequate systems to check that the account it permitted to be opened would not be used to perpetrate a fraud. However, the List Statement does not identify why the systems were inadequate — that is, what NAB should have done but did not do. So, for example, it is alleged that NAB failed to comply with the applicable customer identification procedure set out in the AMLCTF Rules. However, there is no allegation of how it failed to comply with that procedure. Similarly, it is alleged that NAB failed to monitor or have in place an appropriate system of monitoring “the first defendant, the second defendant and/or the SS Account”. However, it is not clear whether what is alleged is that there was no system in place or whether there was a system in place but it was inadequate in some respect. If the latter, no attempt has been made to identify in what respects the system was inadequate.
51.The plaintiffs answer to the point made in the previous paragraph is that they are matters of evidence. I do not accept that submission. NAB is entitled to know with some particularity the case it must meet. Consequently, it is entitled to know in what respects it is said its systems were inadequate. The pleading is inadequate for that reason and should be struck out.
52.On the conclusion I have reached, the negligence claim is not reasonably arguable. Although the claim is pleaded defectively and should be struck out for that reason, it also suffers a more fundamental problem. Consequently, it should be dismissed.”[29]
[29]O’Brien, [40]-[52]
O’Brien (No 2)
98The decision of Ball J in O’Brien did not dispose of the whole of the proceeding and Ms O’Brien was given leave to re-plead against NAB. That caused the proceeding to come back before Stevenson J in O’Brien (No 2).
99In O’Brien (No 2), Stevenson J set out in detail the background fraud, the claim against NAB and then dealt with a res judicata point. He then dealt with allegations that Ms O’Brien had paid the money under a mistake or that NAB had knowingly assisted in that mistake.
100Some of the allegations made in O’Brien (No 2) are apposite to the allegations made against the defendant in this proceeding, although in the proceeding before this Court there is no allegation that the defendant knew that the account was fraudulent or that it was being used for fraudulent purposes.
101In O’Brien (No 2), his Honour set out the structure of Ms O’Brien’s claim concerning an alleged breach of duty of care as follows:
“46.Ms O’Brien’s case concerning the alleged duty of care is set out at [74A] to [82] of the Proposed List Statement. I attach a copy of those paragraphs to these reasons. Proposed List Statement [74A]-[82]
47.The structure of Ms O’Brien’s claim concerning an alleged breach of duty of care is that:
1.NAB had a system encouraging, facilitating or permitting a person to issue instructions to their bank to credit that person’s funds to an account operated by NAB ‘including by nominating the account name of the account to be credited’;
2.the system and processes involving cashless transactions carry with them the risk of fraud;
3.in those circumstances, Ms O’Brien relied on NAB to take reasonable precautions against such a risk;
4.Ms O’Brien was vulnerable to loss or damage should NAB not take reasonable steps against that risk;
5.such risk was foreseeable and not insignificant;
6.that risk was such that a reasonable person in NAB’s position would have had in force a system whereby, relevantly, funds were not credited to an account belonging to a person different from the account name specified in the instruction; and
7.NAB had a duty to the plaintiff at common law to take reasonable care in acting or purporting to act on instructions to NAB to credit funds to an account operated by NAB.
48.This alleged duty is narrower than that posited before Ball J, which was a duty to take reasonable care in the ‘oversight and effective cashless transfer of funds throughout Australia and internationally’.
49.But the proposed case has the same inherent problems as identified by Ball J. At [44], his Honour referred to the principles to be applied when determining whether a novel duty of care arises, as summarised by Allsop P (as his Honour then was) in Caltex Refineries (Qld) Pty Limited v Stavar.”[30]
[30]O’Brien (No 2), [46]-[49]
102His Honour said further that:
“51.The Proposed List Statement does not cure these problems. In particular:
1.the alleged duty is to avoid economic loss, is still said to be owed to the world at large, and to be broad and indeterminate in scope;
2.the allegations are still not capable of establishing relevant vulnerability.
52. Ms O’Brien’s negligence case remains not reasonably arguable.”[31]
[31]Ibid, [51]-[52]
103I consider the discussion regarding a duty of care in the O’Brien decisions to be apposite to the issues that arise in this proceeding. Those decisions contain a useful discussion and summary of relevant legal principles and authorities, which I respectfully adopt.
104The plaintiffs submitted that the O’Brien decisions turned or proceed “almost precisely” on an argument about mutual mistake regarding the payment to NAB. Therefore, they sought to distinguish those decisions from the present proceeding.
105On the other hand, the defendant submitted that the O’Brien decisions were clearly compatible with the duty alleged in this proceeding and for that reason they are highly persuasive and should be followed by this Court.[32]
[32] T 59, L 22-23
106Having considered the O’Brien decisions, and the parties’ contentions, I prefer the submissions of the defendant.
Analysis – was a duty of care owed?
107As I have said, at the core of the plaintiffs’ claim in negligence is the allegation that the defendant breached a duty of care owed to them by failing to ensure that there was a match of the account name before it allowed the transfer to be made to the account.
108With respect, I agree with the analysis in the O’Brien decisions as explaining why, in such a scenario, no duty of care arises in the context of the relevant authorities as discussed.
109The account name that the plaintiffs provided to CBA and Westpac was not an essential integer to the transfers. Neither was it an essential integer to the acceptance of the transfers by the defendant. The plaintiffs seek to retrospectively assert that it was and to create a duty of care, where none existed.
110First, in this proceeding, the transferring banks were the ones that had a contractual and commercial relationship with the plaintiffs. There was no such relationship between the plaintiffs and the defendant. In that sense, the parties were strangers to each other.
111Second, the transfers were made in a manner accepted as in accordance with regulatory requirements for the electronic transfer of funds using the NPP, that is, to match the BSB and the account number.
112Third, the defendant accepts that the account names did not match, although as I have noted, the ASOC does not specifically or clearly plead that the defendant was given an instruction to use the account name that the plaintiffs say they gave to CBA and Westpac.
113Fourth, if the alleged duty of care was one the defendant owed, then it would be an indeterminate duty owed to any person making an electronic transfer to one of the defendant’s customers’ accounts where the name did not match.
114Fifth, relevant to the last point, there was no contract or relationship between the plaintiffs and the defendant to mandate or compel the defendant, as the receiving bank, to only accept the transfer if there was a match with the account names.
115To illustrate this point, the directions were actually given to CBA and Westpac. This is not a scenario where the plaintiffs attended at one of the defendant’s branches and forcibly insisted that the name of the account was an essential integer to the transfers. As the defendant correctly highlighted, in this proceeding the parties were strangers to each other.
116Therefore, sixth, the duty alleged would be owed by the defendant to the world at large, to avoid pure economic loss caused by a transaction with an account held with it that turned out to be used for fraudulent purposes. That alleged duty is broad and indeterminate in scope.
117As the plurality stated in Agar v Hyde,[33] duties of care are owed to individuals and must be considered in relation to the facts of that individual’s case. That does not mean that there cannot be a duty owed to many persons. Equally, it does not mean that a duty is owed to someone that the defendant does not know and cannot identify.
[33](2000) 201 CLR 552
118In that context, if the defendant owed the duty alleged to the plaintiffs in this proceeding, then the defendant would owe a similar duty to an indeterminate number of people it does not know and cannot identify, for an indeterminate number of banking transactions.
119Seventh, as the defendant highlighted, there was no statutory requirement to only credit the funds to the account held if the name matched. As said in its reply submission, it had no prior knowledge of the transfer and no pre-existing relationship with the plaintiffs to put it on notice.
120Eighth, when all the salient features of the relationship between the plaintiffs and the defendant are analysed, it is apparent that no duty was owed.
121The plaintiffs’ attempt to narrow the indeterminate nature of the duty alleged by focusing on the directions they gave ignores the fact that it would still be a duty owed for every set of directions to the defendant, to avoid pure economic loss, to persons with whom it had no direct relationship.
122There is nothing in the proceeding before this Court that would justify distinguishing the O’Brien decisions or for refusing to follow those persuasive authorities.
123The factual matrix in O’Brien is like that in the proceeding before the Court. Therefore, applying the analysis in O’Brien to the facts in this proceeding supports the conclusion that the duty alleged is not one that was owed by the defendant to the plaintiffs.
124It is unnecessary to separately consider the alternate claim for money had and received. It is a repackaged allegation about the failure to follow the nominated direction to only pay to the identified account.
125Finally, where no duty was owed, it is irrelevant whether the defendant did comply with the VOI requirements for the establishment of the account, as that only becomes relevant for the question of breach.
Conclusion
126The facts in this proceeding highlight the risks associated with email and internet banking. I have sympathy for the plaintiffs who were the victims of a scam. Probably since humans kept records, there are instances of bad people attempting to scam good people. This has become more sophisticated in the modern digital world. But, in accordance with the legal principles and authorities discussed, overall, I prefer the submissions of the defendant.
127Based on the pleaded case, there was no duty of care owed to the plaintiffs.
128Therefore, the defendant has been successful on the summons and the SOC should be struck out.
129Further, the plaintiffs have no real prospect of establishing the existence of the duty of care alleged to have been owed to them by the defendant. That is because, by reference to the relevant salient features of the factual matrix of this proceeding, the duty alleged is to avoid pure economic loss and, in effect, a duty said to be owed to the world at large. It is broad and indeterminate in scope.
130There is no point in allowing leave to re-plead to correct any deficiencies in the current pleading, as no amount of remedial work can demonstrate a duty of care owed.
131In the circumstances, there shall be an order for summary judgment in favour of the defendant.
132I shall hear from the parties in respect to consequential orders to give effect to these reasons, by inviting the parties to co-operate to produce a minute of the appropriate orders, or failing agreement, by filing orders that each party seeks within seven business days.
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