Tandem Group Limited v ASB Bank Limited
[2021] NZHC 51
•2 February 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-004-43
[2021] NZHC 51
BETWEEN TANDEM GROUP LIMITED
Plaintiff
AND
ASB BANK LIMITED
Defendant
Hearing: 20 August 2020 Counsel:
J W Turner and J C Waugh for plaintiff
Z G Kennedy and H M Jaques for defendant
Judgment:
2 February 2021
JUDGMENT OF KATZ J
This judgment was delivered by me on 2 February 2021 at 3:00pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Devonport Law Limited
MinterEllisonRuddWatts, Auckland Counsel: J Turner, Chancery Chambers, Auckland
TANDEM GROUP LIMITED v ASB BANK LIMITED [2021] NZHC 51 [2 February 2021]
Introduction
[1] Joe and Zena Clark are longstanding clients of Tandem Group Limited (“Tandem”), an accounting firm. In 2016 an employee of Tandem, Shaun Quigley, defrauded Mr and Mrs Clark of $200,000 by inserting his own name as the payee of a cheque that he had arranged for Mrs Clark to sign. Tragically, when the fraud was discovered, Mr Quigley (who suffered from a gambling addiction) committed suicide.
[2] As Mr Quigley’s estate was insolvent, Tandem repaid the $200,000 owing to the Clarks. It subsequently issued this proceeding, in which it seeks to recover that sum from the paying bank, ASB Bank Limited (“ASB”). (The Clarks assigned their interest in the claim to Tandem.)
[3]Tandem pleads three causes of action against ASB:
(a)First cause of action: Breach of an implied contractual duty of care to the Clarks to exercise reasonable care and skill in relation to the carrying out of its obligations as the Clarks’ banker and in deciding whether to pay the proceeds of the cheque to Mr Quigley’s personal bank account.
(b)Second cause of action: Breach of a tortious duty of care to exercise reasonable care and skill when deciding whether to pay the proceeds of the cheque to Mr Quigley’s personal bank account.
(c)Third cause of action: Dishonest assistance by ASB in facilitating the commission of a breach of trust by Mr Quigley.
[4] ASB says that all three causes of action are barred by an exclusion clause contained in its Business, Rural and Corporate Banking Terms and Conditions (“Terms”). Tandem denies that the Terms form part of its contract with ASB, and says further that even if they do, ASB’s acts and/or omissions in relation to the cheque constituted fraud and/or wilful negligence and therefore fall within an exception to the exclusion clause.
[5] The application currently before me is an interlocutory application by ASB seeking an order for defendant’s summary judgment or, in the alternative, striking out one or more of Tandem’s causes of action.
Legal principles – defendant’s summary judgment and strike out
[6] The court has jurisdiction to make an order for summary judgment under rule 12.2(2) of the High Court Rules 2016 if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed. The applicable principles are well-settled and are set out in the Court of Appeal’s decision in Westpac Banking Corp v M M Kembla New Zealand Ltd.1 The onus is on ASB to establish that Tandem cannot succeed on any of its causes of action.
[7] Where a claim involves issues of disputed fact or issues of fact or law which should more appropriately be determined in the context of a trial after a full hearing of the evidence, then the court should dismiss an application for summary judgment.2 Summary judgment is not appropriate where there is a credible dispute, as questions of credibility can be determined only when a witness is in the witness-box on oath and cross-examined. The summary judgment procedure does not normally permit that method of testing allegations.3 However, the Court is entitled to take a robust approach to plainly contrived or inherently improbable factual conflicts and is not required to uncritically accept them.4
[8] The legal principles governing strike-out applications are also well-settled. The court has jurisdiction to order that the whole or any part of a pleading be struck out where the pleading discloses no reasonably arguable cause of action.5 The relevant criteria include that:6
1 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [58]-[64].
2 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [62].
3 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 at 14; and Pemberton v Chappell
[1987] 1 NZLR 1, (1986) 1 PRNZ 183 at 185.
4 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 at 14 citing Eng Mee Yong v Letchumanan [1980] AC 331 at 341.
5 High Court Rules 2016, r 15.1.
6 Robert Osborne (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR15.1.02(1)]; Couch v A-G [2008] NZSC 45, [2008] 3 NZLR 725 (SC) at [32]-[33] affirming Attorney-General v Prince [1998] 1 NZLR 262 (CA), (1997) 16 FRNZ 258 at 264.
(a)pleaded facts are assumed to be true, save for those which are entirely speculative and without foundation;
(b)the cause of action must be clearly untenable;
(c)the jurisdiction is to be exercised sparingly and only in clear cases but is not excluded by the need to decide difficult questions of law requiring extensive argument; and
(d)the Court should be particularly slow to strike out a claim in any developing area of the law.
Factual background
[9] The Clarks were dairy farmers. They had been customers of the ASB Mid-Canterbury Rural Team since around 1996. In 2016, their primary contact at ASB was Sam Brown at the Mid-Canterbury office.
[10] Tandem provided accounting and taxation services to the Clarks over a period of many years. In recent times Marilyn Davies has been the Clarks’ primary contact. Mr Quigley, an employee of Tandem, also assisted the Clarks from time to time with accounting and taxation matters.
[11] On 7 April 2016, the Clarks received a call from Mr Quigley. He advised them to deposit funds in a farm equalisation account, a tax scheme available to various types of industries particularly susceptible to income fluctuation. The Clarks met with Mr Quigley later that day and arranged for a cheque, made payable to “Inland Revenue Department”, to be drawn and given to Mr Quigley. Mr Quigley told them that he was not sure of the correct account name for the farm equalisation account. He suggested that he fill in the payee once he had confirmed who it should be. Mrs Clark accordingly signed next to the payee field to enable Mr Quigley to later amend the cheque to include the correct payee. The effect of doing this was to leave the payee field blank. The Clarks then left the cheque in the possession of Mr Quigley.
[12] Mr Quigley subsequently made the cheque payable to himself and fraudulently banked it into his personal bank account at TSB, New Plymouth, later that day.
[13] Later that evening, Mrs Clark emailed Sam Brown at ASB to inform him that the Clarks had given their accountant a $200,000 cheque to “deposit…into the farm equalisation for us”.
[14]The steps taken by ASB to verify the cheque are discussed in detail at [51] to
[54] below. ASB then paid the funds into Mr Quigley’s account.
[15] The fraud came to light two weeks later, on 22 April 2016, when a cheque drawn by another client of Tandem, also made payable to Mr Quigley, was identified as fraudulent and dishonoured.
[16] On Saturday 23 April 2016, Mr Quigley sent an email in which he confessed to defrauding the Clarks as well as various other clients of Tandem. Shortly after sending that email, Mr Quigley committed suicide.
Were the Terms incorporated into the contract between the Clarks and ASB?
The Terms
[17] ASB’s Terms include a fairly broad exclusion clause which limits ASB’s liability for loss other than that caused by its fraud or wilful negligence. The relevant clause provides:
To the extent permitted by law, under no circumstances shall we be liable to you or any other person for, and you indemnify us from and against, any loss, claim, delay, charge, expense, cost, damage or any other liability (“loss”) and consequences of whatsoever nature arising whether direct, indirect including without limitation, any loss of profit, business revenue, goodwill or anticipated savings or loss of data, arising from:
(i) our acting upon any instructions in accordance with your Account Operating Instructions; or
(ii) our acting or omitting to act wholly or in part in accordance with an instruction that is, or appears to be, given by you or on your behalf in relation to an Account or other dealing with us; or
…
(iv) a failure by you to comply with any relevant terms for giving instructions;
…
except where a loss is directly caused by our fraud or wilful negligence.
[Emphasis added]
[18] Tandem says that the Terms were not incorporated into the contract between the Clarks and ASB. Alternatively, if they were so incorporated, it argues that the exclusion clause does not preclude liability because ASB was wilfully negligent in approving the cheque for payment.
Were the Terms incorporated into the contract between the Clarks and ASB?
[19] On 5 April 2002, the Clarks signed updated Account Operating Instructions which recorded that:
Please note that these forms are to be read in conjunction with [the Terms].
….
The Customer acknowledges that it has received a copy of [the Terms] and agrees to be bound by them as amended from time to time.
…
[20] The Account Operating Instructions also recorded the following customer declarations:
I/We have been provided with, understand and accept [the Terms].
(ii) “I/We understand that [the Terms] form the basis of my/our relationship with ASB Bank Limited and will apply to all Business and Rural Accounts, facilities and Services I/we may open or operate (whether existing or future, solely or with others).
[21] The Clarks accept that they signed the Account Operating Instructions. However, Mrs Clark deposes that she does not believe that she has seen the Terms previously, or that a copy of them was provided to her and her husband when they signed the account forms on 5 April 2002. She states further that:
We have not retained our bank documents from that far back so I am unable to confirm this point.
[22] The Terms in force in 2002 and referred to in the Clarks’ Account Operating Instructions allowed ASB to unilaterally amend the Terms provided it gave notice to its customers through certain channels. Prior to 2012, ASB notified changes to the Terms through the means provided for in various iterations of the Terms, including by public notice in the New Zealand Herald, Dominion Post and Christchurch Press, and by making the Terms available in its branches.
[23] On 18 August 2012, ASB published a notice in each of those three newspapers notifying its customers that it had made changes to the Terms to allow ASB to communicate future changes to them by notice on ASB’s website or by other electronic banking channels and that copies of the updated terms could be found on ASB’s website. The new Terms were effective from 1 September 2012.
[24] ASB’s General Manager (Brand and Marketing) deposed that since 1 September 2012, ASB has posted notices informing customers of changes to the bank’s terms and conditions on its website, sometimes in conjunction with notices by other means. Since 2014, ASB has followed a standard operating procedure, which specifies how notice is to be given on the website, including the length of time for which a notice is to appear on the website.
[25] ASB has not yet been able to locate a copy of the website notification for the current version of the Terms (dated 29 June 2015). It has, however, located internal instructions to post the notice on its website. Mr Evans of ASB deposed that the notice would have followed in accordance with those instructions. The Terms were available on ASB’s website from 29 June 2015. In any event, even if the 2015 version of the Terms were not properly notified (which seems unlikely on the evidence), the wording of the exclusion clause did not alter between 2012 and 2015.
[26] Mrs Clark does not assert that she did not receive the Terms in 2002. Rather, she says, in essence, that she can no longer recall whether she received them. That is hardly surprising, given that 18 years have now elapsed and Mrs Clark has not retained her banking records from that time. However, it is significant that both Mr and Mrs Clark signed a contemporaneous document confirming that they had received,
understood and accepted the Terms. In the absence of fraud, misrepresentation or mistake (which is not alleged here):7
…people are bound by a writing to which they have put their signature, whether they have read its contents or have chosen to leave them unread.
[27] Given the equivocal nature of Mrs Clark’s evidence, and the Clarks’ contemporaneous acknowledgement that they did receive a copy of the Terms, it is appropriate in my view to take a fairly robust approach to this issue. I therefore proceed on the basis that the Terms were incorporated into the contract between the Clarks and ASB, and that the Clarks (and therefore Tandem) are bound by the exclusion clause.
Did ASB owe a relevant duty of care to the Clarks?
[28] Tandem alleges that ASB owed the Clarks a duty of care in both contract and tort to observe reasonable skill and care in carrying out its obligations under its contract and in deciding whether to pay the proceeds of the cheque to Mr Quigley’s account.
The alleged implied contractual duty of care
[29] Mr Kennedy, for ASB, submitted that the pleaded implied contractual duty is precluded by the Terms and, in any event, does not meet the requirements for the implication of contractual terms.8 On the contrary, given that there is no dispute that Mrs Clark had signed the cheque, ASB was bound to act on her mandate.
[30] Mr Turner, for Tandem, accepted that the general duty of a paying bank is to honour the customer’s mandate when paying a cheque. He submitted, however, that where the factual circumstances show that there is a “real or serious possibility” of
7 Matthew Barber, Jeremy Finn and Stephen Todd Burrows Finn and Todd on the Law of Contract in New Zealand (6th ed LexisNexis, Wellington, 2018) at 237-240 citing L’Estrange v Graucob [1934] 2 KB 394 at 403; See also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd 920050 (2005) 219 CLR 165.
8 Attorney General of Belize v Belize Telecom Limited [2009] UKPC 10; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (UKPC).
fraud being present then a paying bank will be put on further inquiry.9 That general principle is supported by a number of cases referred to by Mr Turner including Selangor United Rubber Estates Ltd v Cradock (No 3),10 Karak Rubber Co Ltd v Burden (No 20),11 Groves-Raffin Construction Ltd and Fidelity Insurance Co of Canada v Bank of Nova Scotia and Imperial Bank of Commerce,12 Varker v The Commercial Banking Co of Sydney Ltd13 and Lipkin Gorman v Karpnale.14
[31] Subsequently, in Barclays Bank plc v Quincecare Ltd,15 the English High Court (Steyn J) reviewed the relevant authorities, including Selangor, Karak Rubber, and Lipkin Gorman when considering the issue of whether the a bank owes a duty to a customer not to follow the instructions of a person authorised to operate a customer’s account (a mandatory) in circumstances where the Bank has reasonable grounds for believing that the mandatory is dishonestly exercising their power. In an oft-cited passage, Steyn J summarised the relevant legal principles as follows:16
The law should not impose too burdensome an obligation on bankers, which hampers the effective transacting of banking business unnecessarily. On the other hand, the law should guard against the facilitation of fraud, and exact a reasonable standard of care in order to combat fraud and to protect bank customers and innocent third parties. To hold that a bank is only liable when it has displayed a lack of probity would be much too restrictive an approach. On the other hand, to impose liability whenever speculation might suggest dishonesty would impose wholly impractical standards on bankers. In my judgment the sensible compromise, which strikes a fair balance between competing considerations, is simply to say that a banker must refrain from executing an order if and for as long as the banker is ‘put on inquiry’ in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the company (see proposition (3) in Lipkin Gorman v Karpnale Ltd (1986) [1992] 4 All ER 331 at 349, [1987] 1 WLR 987 at 1006). And, the external standard of the likely perception of an ordinary prudent banker is the governing one. (emphasis added)
9 Halsbury’s Laws of England (5th ed, 2015, online ed) vol 48 Financial Institutions at [152], and fn 6 and 7; Ali Malek and John Odgers (eds) Paget’s Law of Banking (14th ed, LexisNexis Butterworths, London, 2014)at [22.52] and [23.13]; Alan L Tyree and others Tyree‘s Banking Law in New Zealand (3rd ed, LexisNexis, Wellington, 2014) at 102-105 and 338-340..
10 Selangor United Rubber Estates Ltd v Cradock (No 3), [1968] 1 WLR 1555; [1968] 2 All ER 1073.
11 Karak Rubber Co Ltd v Burden (No 2) [1972] 1 All ER 1210.
12 Groves-Raffin Construction Ltd and Fidelity Insurance Co of Canada v Bank of Nova Scotia and Imperial Bank of Commerce [1976] 1 Lloyd‘s Rep 373.
13 Varker v The Commercial Banking Co of Sydney Ltd [1972] 2 NSWLR 967.
14 Lipkin Gorman v Karpnale. [1989] 1 WLR 1340. The decision was reversed on other grounds not relevant to the liability of the banker in Lipkin Gorman v Karpnale [1991] 2 AC 548.
15 Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.
16 Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 at 376.
[32] The “Quincecare duty” was recognised by the United Kingdom Supreme Court in Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd, where Lady Hale P expressed the view that the duty struck a careful balance between the interests of the customer and the interests of the bank.17
[33] The New Zealand Court of Appeal appears to have acknowledged the existence of the Quincecare duty in Westpac New Zealand Ltd v MAP and Associates Ltd, but does not discuss the duty beyond a passing mention in a footnote.18 The duty was also referred to in Scott v ANZ, an application to strike out a claim brought against ANZ for breach of a duty to non-customers.19 In that case ANZ appeared to accept that the Quincecare duty could apply in some circumstances, but not in the circumstances of that case.
[34] The learned author of Tyree’s Banking Law in New Zealand summarises the New Zealand legal position as follows:20
There is an implied duty to make enquiry before paying an apparently authorised cheque, if a reasonable and honest banker who knew of the relevant facts would have considered that there was a ‘serious or real possibility’ that its customer might be being defrauded.
[35] The present application is an application for defendant’s summary judgment or, alternatively, strike out. The duty of care contended for by Tandem is clearly arguable save that, due to the exclusion clause in the Terms, ASB must be wilfully negligent or act in a manner that constitutes fraud, in order to found liability.
[36] I note, however, that the relevant duty is to make inquiry before paying on the cheque (if the circumstances warrant such a course). The duty is not to decline to make payment based on a mere suspicion of fraud. Given the Supreme Court’s decision in Westpac New Zealand Ltd v MAP and Associates Ltd,21 it appears that only
17 Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50; [2019] 3 WLR 997 at [16].
18 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 at fn 7.
19 Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906 at [154].
20 Alan L Tyree and others Tyree’s Banking Law in New Zealand (3rd ed, LexisNexis, Wellington, 2014) at 102-105.
21 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 at [11]. For a detailed analysis of the inconsistency between the Quincecare duty and Westpac v
if the result of the reasonable inquiries undertaken revealed actual dishonesty or fraud in relation to the cheque would ASB have been entitled to decline payment. In particular, the Supreme Court held that a banker is obliged to follow its customer’s mandate unless performance of the mandate would render the bank liable for dishonest assistance (rather than merely potentially doing so).22 The rationale for this was explained as follows:23
…as a matter of contract, a bank’s clear initial duty is to act in terms of its customer’s instructions. Too ready or easy an undermining of that obligation would introduce much inconvenience and uncertainty into a fundamental commercial relationship. To allow a bank to justify a breach of mandate by demonstrating a suspicion or belief, even on reasonable grounds, that honouring the mandate would involve it in dishonestly assisting in a breach of trust would significantly lower the threshold on which the bank could decline to act on its customer’s instructions. This would not be consistent with the need for security of contract in this field.
[37] For the reasons outlined, I am satisfied that it is arguable that ASB owed the Clarks an implied contractual duty to make enquiry before paying the cheque. Specifically, if a reasonable and honest banker who knew of the relevant facts would have considered that there was a ‘serious or real possibility’ that the Clarks might be defrauded then it is arguable that a duty to inquire arose.
The alleged tortious duty of care
[38] I now turn to consider the alleged tortious duty of care. In appropriate cases concurrent liability may arise for both breach of a contractual duty and in tort for negligence.24
[39] In Selangor United Rubber Estates Ltd v Cradock (No 3) Ungoed-Thomas J cited, with approval, Greer LJ’s classic statement distinguishing negligence in tort and negligence arising out of contract:25
MAP see Peter Watts “The Quincecare duty: misconceived and misdelivered” (2020) JBL 5 403 at 406-409.
22 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.
23 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 at [11].
24 Body Corporate 207624 v North Shore City Council [2012] NZSC 83 at [39]-[40] and [193].
25 Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 at 1592; [1968] 2 All ER 1073 at 1103 citing Jarvis v Moy, Davies, Smith, Vendrvell & Co. [1936] 1 KB 399 at 405.
... where the breach of duty alleged arises out of a liability independently of the personal obligation undertaken by contract, it is a tort, and it may be tort even though there may happen to be a contract between the parties, if the duty in fact arises independently of that contract. Breach of contract arises where that complained of is a breach of duty arising out of the obligations undertaken by the contract.
[40] Although it was submitted to Ungoed-Thomas J in Selangor that the statement of claim in that case was wide enough to cover negligence both in tort and contract, his Honour disagreed, stating that:26
…the negligence with which we are concerned, being negligence in the duty owed to the plaintiff as the bank’s customer, is negligence “arising out of the obligations undertaken by the contract” between the bank and its customer and is, in my view, clearly negligence in contract.
[41] Those observations would appear to be equally apt in this case. I note that in Quincecare, however, Steyn J accepted that there was a concurrent tortious basis for the pleaded duty of care.27
[42] In this case, the second cause of action (tortious duty) appears to add nothing to the first cause of action (implied contractual duty). Although pleaded in tort rather than contract, the scope of the duty is essentially the same, and the same facts are said to give rise to its breach. I accept, however, that it is at least arguable that concurrent tortious and contractual liability could arise in this case (as Steyn J accepted in Quincecare). Although, there appears to be force in the recent observation by Peter Watts QC, in his article “The Quincecare duty: misconceived and misdelivered” that to the extent that Steyn J contemplated concurrent tortious liability, such liability, if it exists, must be based on an assumption of responsibility, parallel to contract.28
[43] For the reasons outlined, I am satisfied that it is arguable that ASB owed a concurrent tortious duty of care to the Clarks.
26 Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 at 1592, [1968] 2 All ER 1073 at 1103.
27 Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 at 383-384.
28 Peter Watts “The Quincecare duty: misconceived and misdelivered” (2020) JBL 5 403 citing Steel v NRAM Ltd [2018] UKSC 13; [2018] 1 WLR 1190.
Is it arguable that ASB has breached its alleged contractual or tortious duty wilfully, or has dishonestly assisted in facilitating a breach of trust?
[44] Given my conclusion that the exclusion clause applies, Tandem would need to establish at trial that its loss was caused by ASB’s fraud or wilful negligence.
Relevant law
[45] The definition of wilful negligence commonly accepted in New Zealand is that of the Court of Chancery in Re City Equitable Fire Insurance Co Ltd:29
An act, or an omission to do an act, is wilful where the person who acts, or omits to act, knows what he is doing and intends to do what he is doing, but if that act or omission amounts to a breach of that person’s duty, and therefore to negligence, he is not guilty of wilful neglect or default unless he knows that he is committing and intends to commit, a breach of his duty, or is recklessly careless in the sense of not caring whether his act or omission is or is not a breach of his duty.
[46] As for dishonest assistance, ASB can only be liable where, in all the circumstances actually known to it, a reasonable banker would know that it was dishonest to pay the funds in question or to the order of its customer.30 Where the claim is against a bank, weight is to be given to its fundamental obligation to meet the customer’s instructions.31
[47] Tandem would need to prove at trial that ASB had a dishonest state of mind. It may do so by demonstrating that ASB knew that the transaction was not one in which it could honestly participate. Alternatively, it may be able to establish suspicions on the part of ASB, combined with a conscious decision not to make enquiries, that may result in knowledge (wilful blindness).32
29 Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 (CA) at 434.
30 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751;
US International Marketing Ltd v National Bank of New Zealand [2004] 1 NZLR 589 (CA) at [9].
31 Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 at [11].
32 Sandman v McKay [2019] NZSC 41 at [77]-[78].
Relevant facts
[48] The key facts that are relevant to the assessment of whether it is arguable that ASB was wilfully negligent or has dishonestly facilitated a breach of trust are as follows.
[49]Mrs Clark provided the cheque to Mr Quigley on 7 April 2020, as outlined at
[11] to [12] above. At 10:16pm that evening, Mrs Clark emailed Sam Brown, her account manager at ASB stating that:
We have been to our accountant today and they are going to deposit $200,000 into the farm equalisation for us. The cheque was written out today.
[50] Mr Brown no longer works for ASB, and ASB has provided no evidence as to when (or if) he saw that email, or whether he relayed its contents to anyone else at ASB.
[51] The cheque was automatically listed in ASB’s daily Branch Information Report (“BIR”) on 8 April 2020. It was a high-value cheque, so ASB’s internal protocol (“HVC Protocol”) required it to verify the instructions on the face of the cheque.
[52] Debbie Counsell, a rural banking assistant in ASB’s Mid-Canterbury Rural team, was responsible for the BIR that day. In her affidavit she says that she reviewed the cheque in accordance with the HVC Protocol. She says that she attempted to contact the Clarks to confirm the details of the cheque, as required, but could not get through immediately. When she finally got hold of Mrs Clark, Mrs Clark verified the details of the cheque. Ms Counsell further states that the payee is a fundamental detail of a cheque and that she always verifies the payee details on high-value cheques. Ms Counsell says she always raises any alterations to a cheque when she calls a customer to verify. The purpose of this is to ensure that the alteration was intended by the customer.
[53] Ms Counsell’s evidence is that when she read out the name of the payee (Mr Quigley) Mrs Clark responded along the lines of “that’s my accountant so it’s
fine”. Ms Counsell drafted a contemporaneous file note recording her call with Mrs Clark. It states:
Chq dated 7/4/2016 to S Quigley for $200K. Chq confirmed with Zena on 0274383592, chq signed by Zena and chq details veroified [sic]”.
[54] Mrs Clark, on the other hand, deposes that she “absolutely cannot recall any telephone conversation with Ms Counsell at any time” on 8 April 2016. She also challenges Ms Counsell’s recollection that she verified Mr Quigley as the payee. Mrs Clark says that she only learned of Mr Quigley’s surname later, after the fraud had been discovered. She says that Marilyn Davies of Tandem informed her of the fraud on 25 April 2016. Mrs Clark then contacted ASB the next day to request a copy of the cheque. She says that when she received a copy of the cheque she saw that the substituted payee was “S Quigley”. Mrs Clark states that this was the first time that she learned that Shaun’s surname was Quigley. She was “doubly shocked” at that point, because she realised that it was likely (as in fact later turned out to be the case) that Shaun‘s father, Ian Quigley, had been a year behind her at High School.
[55] There is clearly a factual dispute as to whether the phone call referred to by Ms Counsell was made and, if it was, what was discussed. Neither Mrs Clark nor Ms Counsell have given oral evidence. Nor has their evidence been tested by cross-examination. Mrs Clark’s evidence on these issues is not so inherently improbable or fanciful that it can or should be dismissed out of hand at this preliminary stage. Tandem is entitled to test Ms Counsell’s evidence at trial. Discovery may also cast further light on the matter. Relevant documents may include phone records (if available) and communications (if any) from Tandem to Mrs Clark prior to 25 April 2016, particularly if any of them were authored by Mr Quigley and/or referred to him by his full name.
[56] Determining the factual disputes regarding the existence and content of the alleged 8 April 2020 phone call will require cross-examination of both Ms Counsell and Mrs Clark. It is likely that the trial Judge will need to make credibility findings. At this preliminary stage, therefore, I proceed on the factual basis most favourable to Tandem and assume that it may be able to establish at trial that either the relevant
phone call was not made or that, if it was, Mrs Clark did not verify Mr Quigley as the payee of the cheque.
Is it arguable that ASB’s conduct could amount to wilful negligence or dishonest assistance in facilitating a breach of trust?
[57] Proceeding on that basis – is it arguable that ASB’s conduct in relation to the cheque could amount to wilful negligence or dishonest assistance in facilitating a breach of trust?
[58] Morris Anderson, a banking industry consultant, provided expert evidence on banking practice and procedure on behalf of Tandem. Mr Anderson was previously employed in the banking industry in New Zealand for 43 years, from 1971 to 2014. Since that time, he has been a consultant on banking industry matters. He deposes that he is familiar with the cheque clearance procedures used by major New Zealand trading banks.
[59] Having considered the relevant documentation and the affidavit evidence, Mr Anderson’s expert opinion is that ASB as the paying bank did not make adequate inquiries in relation to the matter and accordingly did not meet its duty of care and skill in clearing the cheque. He provides various reasons for this opinion, including that:
(a)There were several features evident on the face of the cheque itself that ought to have put the bank on notice that this was a highly suspicious and unusual transaction requiring further inquiry to be made by the bank in order to check that fraud was not present, namely:
(i)the cheque was not a bearer cheque and was drawn for a very substantial sum ($200,000), which notably was a sum in round figures, and was made payable to an altered personal payee in place of the lnland Revenue Department, which was in itself also a most unusual feature;
(ii)the altered payee “S Quigley” appeared on the face of the cheque to be a named individual and did not appear to represent a Crown account or the trust account of an accounting firm (as the bank ought to have expected given Mrs Clark’s email sent the previous evening to Sam Brown at the bank);
(iii)the name of the altered payee had clearly been inserted in different handwriting from that of Mrs Clark, who had inserted the name of the original payee (lnland Revenue Department) in her own handwriting; and
(iv)although Mr Quigley apparently added the words and figures to the cheque in his own handwriting, even the handwriting of the words and figures appears to be different from the handwriting of the altered payee, S Quigley. This again ought to have been a further source of alarm to the bank.
[60] Mr Anderson’s evidence is that it is “extremely unusual” for a cheque with a very substantial face value in round figures and exhibiting features of the kind listed above to be presented to a paying bank for payment:
Where such a cheque also exhibits an altered payee name inserted in different handwriting, this should in my opinion have rung huge alarm bells at the defendant as the paying bank.
[61] Mr Anderson deposes that during the course of his lengthy banking career he had only encountered a small number (less than 20) of high value cheques exhibiting these kinds of features. The majority of these “very unusual” cheques were found on further inquiry to be fraudulent or to represent illegal transactions such as money laundering.
[62] Mr Anderson further states that, in his view, the bank failed to comply with aspects of its own HVC Protocol, including the requirement to check that any alteration to the payee is in the same handwriting as the signatory of the cheque. Nor does Ms Counsell’s diary note record the purpose of the cheque, as required by the HVC Protocol. In any event, Mr Anderson’s view is that even if the HVC Protocol
had been strictly followed, that would not have been sufficient to discharge ASB’s duty of care and skill to the Clarks, given the highly suspicious and unusual features of the cheque, considered in the light of the surrounding circumstances known to the bank. For example, Mr Anderson’s view is that given that Ms Counsell worked in a small and close-knit team of three, she should have enquired of her colleagues, including in particular Mr Brown (the Clarks’ account manager), as to their knowledge of the cheque.
[63] In addition, even if Ms Counsell’s evidence regarding her phone call with Mrs Clark is accepted, Mr Anderson’s view is that the inquiries made by Ms Counsell were insufficient in the circumstances. He suggests that Ms Counsell should have made further inquiry of Mrs Clark as to who exactly Mr Quigley was, why the cheque had been altered (and by whom) and why it was not being paid into a Crown account or accountant’s trust account. Mrs Clark’s evidence is that, in the face of such inquires, she likely would have referred the bank to Marilyn Davies at Tandem. This would have resulted in the fraud being uncovered (and the cheque being dishonoured).
[64] In my view, if Tandem is able to establish at trial that Ms Counsell did not phone Mrs Clark on 6 April 2016 or that, if she did, she did not verify Mr Quigley as the payee of the cheque, then a finding of wilful negligence or, possibly, dishonest assistance would be open to the Court given the highly unusual features of the cheque and the fact that ASB was on notice that the funds were intended for a farm equalisation account. On the other hand, if Ms Counsell’s evidence were accepted a finding of wilful negligence or dishonest assistance would be unlikely, unless the Court were persuaded by Mr Anderson’s evidence that Ms Counsell should have made even more comprehensive inquiries than those she claims to have made.
Summary and conclusion
[65] Tandem, in my view, is likely to face some fairly formidable factual and legal obstacles at trial. The issues at this preliminary stage, however, are simply whether:
(a)ASB has established that Tandem cannot succeed on any of its causes of action (in which case defendant’s summary judgment would be appropriate); or
(b)ASB has established that the whole or any part of Tandem’s pleading discloses no reasonably arguable cause of action (in which case the relevant cause of action should be struck out).
[66] For the reasons I have outlined it is my view that although Tandem’s case appears relatively weak, none of its causes of action can be said to be untenable or unarguable. It necessarily follows that ASB’s application must fail.
Result
[67] ASB’s application for defendant’s summary judgment or strike out is dismissed.
[68] My preliminary view is that, as the successful party, Tandem is entitled to costs on a 2B basis. If counsel take a different view, or cannot agree the appropriate quantum, then leave is reserved to file memoranda. Any memorandum on behalf of Tandem is to be filed by 19 February 2021. Any response from ASB is to be filed by 26 February 2021.
Katz J
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