Commonwealth Bank of Australia v Segal

The second VLOC facility

1. The second VLOC was an additional line of credit for $200,000. Both Dr Segal and Mr Barel were the named customers on that account. However Dr Segal says that to the bank's knowledge he borrowed that money for his own purposes, but as it was also secured by the mortgage over the property it was also in Mr Barel's name.
2. Exhibit 4 appears to be the original of the new account operating authority for the second VLOC. The authority itself appears to consist of a printed form over which customer specific information has been overlaid with a printer. The authority states the account was opened on 28th June 2004. This is the only date appearing on the document. Under the words "Method of Operation", the words "One Signature" appear. The quoted words are part of the overlaid material. Below this are customer details for Dr Segal and Mr Barel including home address, date of birth, occupation, means of identification and mailing address. The authority has been signed by both Dr Segal and Mr Barel in blue ink.
3. Dr Segal's case is that it was a term of the contract with the bank for the second VLOC that cheques were required to be co-signed by both customers. He does not deny signing an authority but he maintains that what I have referred to as the overlaid material was not there on the authority he signed. Essentially he maintains it must have been added later, without his authority. At one stage he suggested Exhibit 4 might have been the authority for the first VLOC opened in 2003, notwithstanding the date it bears.
4. In total, excluding cheques destroyed or cancelled, 52 cheques were drawn on the second VLOC. Of these, only the first cheque was co-signed by Dr Segal and Mr Barel; 9 were signed by Dr Segal alone; and 45 by Mr Barel (Exhibit 5).
5. The cross-claim is brought on two grounds: first, the bank breached a term of the contract by honouring the 45 cheques totalling the sum of $197,120.27 (according to the summary in Exhibit 5) drawn by Mr Barel and bearing his signature only; and, secondly, and in the alternative, if he is wrong about the bank's breach of contract, he claims to be entitled to recover damages from the bank for breach of the obligations created by s 18 Australian Consumer Law (ACL) or s 12DA Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act). That is to say that officers of the bank were guilty of deceptive and misleading conduct by representing to him that his instructions that cheques required two signatures would be implemented.
6. The bank denies both these grounds and submits that the operation of the account was governed by the new account authority (Exhibit 4) which I have referred to above which expressly provides that the method of operation of the account only required one signature. It also denies that any contrary representation was made by any of its officers.

Issues in these proceedings

1. The issues between the parties can be summarised as follows: 1. Was it a term of the contract that cheques must be co-signed? If Dr Segal makes good this case, clearly the bank was in breach honouring the 45 cheques drawn by Mr Barel alone. 2. If the requirement for two signatures was not a term of the contract, did the bank breach s 18 ACL or s 12DA ASIC Act by representing that Dr Segal's instructions for two signatures on the account would be implemented? 3. In the event that the bank has been found to be in breach of its contractual or statutory obligations what amount, if any, of damages is Dr Segal entitled to?
2. I have come to the conclusion, for reasons which follow that Exhibit 4 is the form of authority signed by Dr Segal in June 2004 when the second VLOC was opened. It has not been altered or manipulated since he signed, except by the detachment of a redundant deposit slip. I am not persuaded that any oral authority contrary to the signed authority was given by Dr Segal which bank officers represented they would implement. The alternative case too fails on the facts.

Summary of the case

1. Exhibit 4, as I have already said, appears to be the original of the new account authority signed by both Dr Segal and Mr Barel when the second VLOC was opened. Dr Segal says that none of the overlaid material which currently appears on Exhibit 4 was there when he signed it. Therefore it is not the form he signed for Mr Eves, the bank officer he dealt with. Apart from the pre-printed matter, the handwritten words "Please sign and return" and the little crosses where the signature was required, the form was blank. All of the overlaid material was added later.
2. In answer to this the bank submits that there are very serious questions about Dr Segal's reliability and honesty which will bear upon my assessment of his evidence that the form he signed was "blank". It says that he has constructed an account to support his case that he did not sign Exhibit 4 as it appears. Dr Segal says his account is consistent and he has maintained "through thick and thin that he had signed a blank form" (105.10T).
3. I am not satisfied that Dr Segal's testimony about the opening of the second VLOC is reliable. This is not to say that his evidence is consciously and deliberately fabricated. But this as a case where accurate recollection of the details is crucial: see M v The Queen [1994] HCA 63; 181 CLR 487 at 534. He first raised his "concerns" in August 2010 when there was tension about the "performance" of his loans from the bank. He was facing repayment of a large debt due to the bank which led to the possession proceedings in this Court. Human nature being what it is, he was doubtless under stress and raised this matter to off-set the pressure he was receiving from the bank. As the years have passed he has convinced himself that the version he has propounded in this cross claim is correct. Sometimes people under pressure will reconstruct, or distort, their memory about an event or situation so that it better reflects what perhaps they thought they had said or done, or what they wished they had done to the point where they are completely unable to bring an accurate recall to bear. The difficulty for Dr Segal as these reasons seek to explain is that his "recollection" is inconsistent with contemporary documents, the routine practices followed by the bank, expert evidence, and the apparent logic of events.

Exhibit 4 is what it appears to be

1. Dr Segal's statement is Exhibit AC. He says at [8]: It is my usual practice to review forms before I sign them. I would not have signed the account opening form if it said "one signature" under "method of operation". The account form that has been provided by the Cross Defendant shows my address as 43 Yarrara Road, South Pymble. This was not my address at the time. If this was completed I would have pointed out the error. I do not remember the rest of the form being completed. Annexed to his statement are a number of emails between the bank's representative, a Mr Matthew Gugerly and himself, from when the banker/customer relationship was souring. Additional emails, beyond those contained in his statement were also tendered (Exhibit A). It seems that Dr Segal first requested a copy of the authority for the second VLOC on 26th August 2010. This was 4 years and 6 months after the last cheque had been drawn on the account. Mr Gugerly provided Dr Segal with a photocopy of the authority. Dr Segal responded saying "this is a typed form. Where is the one we filled in on opening the account?"
2. On 31st August 2010 Dr Segal sent a further email to Mr Gugerly in which he said "the signature card was done in ink pen, the typing has been added later. The typing is not consistent with the origionals [sic] card." And again on 21st December 2010 Dr Segal sent another email to Mr Gugerly chasing up a copy of the signature card and stating "[t]he "copy" you sent is either a forgery or not related to this account. This should be a major concern for the bank." Mr Gugerly responded on 11th January 2011 refuting the fraud allegations and confirming the copy that he had sent previously was the signature card for the account. Dr Segal replied saying "[t]he signature card is not consistent with what I signed." From what I can glean from the remainder of the emails the matter was referred on to the Bank's Group Security Department which deals with fraud related issues (see also 96.5-97.25T). Mr Lee whose evidence I refer to below, said if the bank had detected fraud he would have been notified, and he was not.
3. Dr Segal was extensively cross examined on his recollection of the new account authority. When shown Exhibit 4 he said that he remembers signing a document on 28th June 2014 and discussions related to the signing of the document. When asked whether he had an actual memory of signing Exhibit 4 he said "[w]ell I don't believe this is actually the document that was put in front of me on that date" (33.35T). He said he actually remembers signing the "signature card" but he did not believe that Exhibit 4 "is the card that I actually signed on [28th June 2004]". He had no recollection of signing Exhibit 4. Mr McLure of counsel, for the bank, asked Dr Segal a number of questions regarding the appearance of the new account form which I think necessary to set out (34.5 - .20T): Q. What is it about the document, that is in front of you, that leads you believe it was not the document you signed at the meeting with Mr Eves in June of 2004? A. The document I signed was blank. This document doesn't follow the signature instructions I asked for or they actually suggested I take and then I've done my amateur forensics and like match up and the forms don't match. Q. So there are three things, the first is the document you signed was blank. The second thing is it doesn't match the signature instructions you gave to Mr Eves' assistant. A. They were in the same room; we were sitting around one metre apart. Q. So that's the second thing. The third thing is you've done some amateur forensics and what? A. The bottom of the signature card, which is known as Q2, does not fit in with this original card and they're both from separate documents. I have graphics to prove it. And further when asked what he meant by blank document he said (34.35T): My actually recollection was that it was not a white coloured card like this, I thought it was more yellowish, I thought it was more of a card as in card like figure but it didn't have the writing on it. Exhibit 4 is not at all like a card. It is printed on a sheet of paper.
4. He later said that the document was not completely devoid of writing. There was printed material but he does not remember any extra writing on it. He admitted that his recollection of the size of the document being smaller than A4 is wrong (34.45T) but maintains that his memory of the colour and thickness of the document i.e. the document being yellowish in colour and thicker than a normal piece of paper is still correct.
5. These specific features of the document; that it was yellowish, thicker than a normal A4 piece of paper and only had general pre-printed typing on it are important features which go to the heart of Dr Segal's allegations. Yet as was elicited in cross examination little, if any reference is made to these features in his affidavit, in his email correspondence with the bank or in any legal correspondence concerning the new account authority for the second VLOC.
6. There are two other things I wish to briefly point out regarding Dr Segal's description of the new account authority. The first is his allegation in an email dated 21st December 2010 to the bank that the copy he was sent is a forgery and the second is his evidence that Exhibit 4 may well be the signature card for his first VLOC. Turning first to the fraud allegation, Mr McLure asked the following questions (46.30 - .45T) Q. What was it about the document which Mr [Gugerly] emailed to you in August that led you to think that it was either a forgery or not related to the second line of credit? A. My initial thoughts in August when I first got it was the wrong address on it, besides the wrong instruction. That was in ‑ back in August 2010. My major issues with that form. Q. Is that it? A. As of 2010. I've got more since then. But at the time, the things which were wrong were the mode of operation and the mailing address for me. Q. You know that forgery is serious criminal offence, don't you? A. Yes. Q. So you were of the view, were you, that one explanation for why, according to you, there was two errors in this document, was a sufficient basis for you to allege that someone at the bank had engaged in serious criminal conduct? A. Yes. And at 48.50T: Q. What you're asking his Honour to accept is that it is inconceivable that you would have signed a form in June 2004 which nominated as your address the address of your then girlfriend's parents; correct? A. Correct. His bank statements had been going to that address.
7. Mr McLure argued the fact that Dr Segal was prepared to make such allegations to the bank in 2010 "demonstrates his preparedness to make serious allegations of misconduct without any proper basis for doing so, and that tendency is exhibited in these proceedings" (118.5T). There is force in this. However, I repeat what I have said earlier, I do not think that Dr Segal intentionally and consciously lied about his recollection of the authority.
8. Turning now to the second point, as I have already said Dr Segal says that he has no recollection of signing Exhibit 4, but it is likely that he signed it, he said, in 2003 when the first VLOC was opened. He says that as the document has been personalised in pencil with the names Elie and Phillip he assumes "it was the account opening card, signature card for the other viridian line of credit" (36.45T). He gave the following answer to Mr McLure's question (37.30T) Q. Do you maintain that that is a document which you signed in 2003 in relation to the first Viridian Line of Credit account? A. There are only three signatures cards done with the Commonwealth Bank. The home loan started in March 2003. We had to start a account ‑ transaction account for that. That was done over the counter standing up in Rose Bay. They didn't know who we were so we wouldn't have pre‑filled out a signature card with our personal names on it. So the only pre‑filled account cards could be the two Viridians; the first and the second Viridians. So this card, by definition, has to go to one of the two Viridians and if it's not the second one, it's the first one. I then asked (37.40T): Q. That's a process of deductive reasoning you've applied to answer the question. Is that right, doctor? A. Yes. This, I found inherently improbable. It well illustrates what I have said about reconstruction. I interpolate that I do not accept that Exhibit 4 is the authority for the first line VLOC.
9. As I have said above, I find that the evidence proffered by Dr Segal as to his recollection of the account opening form for the second VLOC to be unreliable not because he is intentionally lying but because he has persuaded himself of a mistaken belief as to the appearance and content of the document.
10. As against Dr Segal's unconvincing evidence is the expert opinion of Ms Andrea Devlin, a forensic document and handwriting examiner and the evidence of John Lee, a bank officer, concerning the bank's document retention systems.
11. A possible source of Dr Segal's erroneous belief about the new account authority having been altered is the circumstance that there are two versions of it extant amongst the bank's records. In her affidavit, attaching her expert report, sworn on 13th June 2014, Ms Devlin, who was retained by Dr Segal's solicitors, annexes both and refers to them as document Q1 and Q2. Q2 is set out at p 11 of the annexure to her affidavit. It is a copy of Exhibit 4 but with a deposit slip attached. The detachable deposit slip at its foot is explicable. The new account authority is obviously a pro-forma document applicable to current accounts as well as lines of credit. In the case of a normal cheque account, the first transaction in the account would be the deposit of funds. The second VLOC was a chequebook-operated line of credit. It was not necessary that any additional funds be deposited. Q1 is on p 10 of Ms Devlin's affidavit. It for all intents and purposes appears to be Q2 but with the redundant deposit slip detached. Q1 is a copy of Exhibit 4. Ms Devlin had access to the original to prepare her report.
12. In her report dated 14th February 2014 Ms Devlin says: Document Q2 is a reduced size, low resolution reproduction of Q1 before: the stamp was applied across the dashed cut line; the lower section was torn away; the black ball point pen ink circle was drawn around the entry to 2354; and (apparently) at least some of the staple holes were introduced to the top left corner. Attached at Appendix "B" is a chart showing an overlay of Q1 and Q2, with Q2 adjusted to partly compensate for the distortions which have resulted from the reproduction process/es involved in the production of Q2 as submitted to our laboratory. It will be seen that the image of Q2 still does not exactly overlay Q1. I noted that the top edge of Q2 was cropped at some stage in the reproduction process/es involved in the production of Q2 as submitted to our laboratory.
13. She set out her findings upon forensic examination of the documents. She concluded: If the stamp impression on Q1 was reproduced on and subsequently removed from an earlier generation copy/copies of Q2, I would expect to see substantial and localised distortion and inconsistencies in the corresponding area of Q2. I observed no such distortions or inconsistencies.
14. Ms Devlin found no evidence to support the proposition that Q2 "may be the product of document manipulation". Her microscopic examination of Q1 provided "evidence supportive of the proposition that the stamped impression in Q1 was applied to the document before the lower section was torn away" (original emphasis).
15. Ms Devlin's evidence is that Q2 is a photocopy of Q1, albeit a lower resolution copy of the type found in "scanned images and facsimile reproductions".
16. Ms Devlin's evidence does not support Dr Segal's case.
17. Mr John Lee has been employed as a manager in Group Credit Restructuring within the Risk Management Team at the bank since 1997. Between July 1994 and June 1997, he was employed in the Loan Processing Centre. In his affidavit sworn on 22nd August 2014, Mr Lee explained that the bank operates a computerised, central data base of customer and account information named CommSee. On 16th June 2011, Mr Lee conducted a search on CommSee "for any account operating authorities in relation to" the second VLOC. Two records were produced and they were what Ms Devlin called Q1 and Q2. The original of Q1 (the authority with the deposit slip torn off; Exhibit 4) was produced, and a scanned image of Q2 (deposit slip still attached) was produced. Copies of these are Tabs 3 and 4 respectively to the exhibit to Mr Lee's affidavit (Exhibit JL-1).
18. Both documents are identical, save for the detached deposit slip; and both in terms authorise cheques to be drawn on one customer's signature. A further review of the Bank's records failed to find any change to the operating authority; and no further written instruction as to account operation. Mr Lee said (at [18]): If the method of operation of an account changed, I would expect to see a trail of changes in CommSee and the bank's hard copy lending file with all the separate account authority forms for each change imaged on the system. The obvious inference from Mr Lee's evidence is that had there been any change in the method of operation of the second VLOC, a new written authority would have been obtained and retained. This is consistent with the evidence of Mr Eves I recount below.
19. It is also evident from Tab 8 to Mr Lee's affidavit that the first record the bank have of Dr Segal questioning the terms of the mandate is at a meeting on 21st January 2010 to discuss the "performance" of the various loan accounts to which Dr Segal was a party. There was concern about the debt.
20. Mr Lee was cross-examined about whether he had ever found an "original" of Q2, (the copy with deposit slip) and confirmed that "nothing came back from my request for that" (94.40T).
21. It is apparent from the documents produced by Mr Lee that Q2 was entered in the CommSee system on 11th November 2004, and Q1 on 29th December 2004 (91.45 - 92.30T) (pp 250 - 261 of the CB). The original of Q1 (authority with deposit slip detached) as I have said is Exhibit 4. I am persuaded it is the original of Q2, albeit with the slip detached.
22. I am satisfied from the evidence of Ms Devlin, Mr Lee, and the evidential force of its entry in the bank's ordinary record keeping system in 2004 that it is what it appears to be i.e. the original of the mandate for operation of the second VLOC. I am satisfied that the signature of Dr Segal and Mr Barel was applied to the authority when the overlaid material on the pro forma contained the instruction to the bank that the method of operation of the account was to be by one signature of either customer. This document has contractual force, and Dr Segal is bound by his signature: Toll (FGCT) Pty Limited v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165. I reject the argument that the contract between banker and customer required joint signatures for operation of the second VLOC.

The alternative case

1. It is Dr Segal's firm belief that he instructed the bank that the second VLOC facility was to only be operated by the joint signatures. This instruction, he says was given to the assistant of Mr Danny Eves when they both attended Dr Segal's surgery at Goulburn Street, Liverpool in June 2004.
2. Mr Danny Eves was a Relationship Executive in the Corporate Banking, Institutional and Business Services team of the bank. During 2004 he was the Relationship Executive for Dr Segal and Mr Barel in the development of the property at Dover Heights. He says that he remembers meeting Dr Segal on one occasion at his surgery on Goulburn Street to deliver some loan documents regarding his and Mr Barel's loans. He does not recall when this meeting took place and whether an assistant went with him and whether they were male or female. He could have been accompanied.
3. Mr Eves said that it was his usual practice to leave the loan documents with the customer to allow them sufficient time to review them and obtain further advice or information if necessary (affidavit [12], CB p 63). When asked by Mr Glissan of counsel for Dr Segal, about this practice and whether he would have left a new account authority, he said that he "didn't necessarily know what was in the envelope, I left the envelope and that was it" (83.30T). He also said that it was not his role to get involved in the mechanics of the account such as who is going to operate it. This he said occurred at the document preparation centre and to his knowledge (although he had never worked there) it was for the client to fill in how they wanted to operate the account (84.20 - .30T).
4. Neither counsel pressed Mr Eves about the conversation that Dr Segal says he had with his assistant. In his affidavit he says that he does not recall the conversation alleged; if it did take place it would have been his practice to get Dr Segal's instructions in writing so that he could inform the document preparation team. They would have created a new account authority for Dr Segal to sign and only after the form was signed and returned to the Business Service Centre (BSC) or Business Banking Centre could the method of operation for the account be changed. He says that he would not have made any request orally because it was his understanding that the BSC required written instructions (affidavit [20], CB p 64).
5. I have no reason to doubt what Mr Eves has said about his usual practice when confronted with a situation of this kind. It dovetails with the evidence of Mr Lee about the need to document operating authorities. It is not surprising that Mr Eves was unable to recall all of the details of his meeting with Dr Segal given not only the effluxion of time, but also the fact that at that time he was responsible for around 100 clients in his role as a Relationship Executive. I find that he honestly and to the best of his knowledge gave evidence of what he could remember of the meeting between himself and Dr Segal. I find it likely therefore that had any conversation taken place between an assistant of Mr Eves and Dr Segal, the usual practice would have been followed - that is he would have taken Dr Segal's instructions in writing and the document preparation team would have prepared another new account authority for Dr Segal to sign. No evidence has been put before me to show that any such written instructions were given to the document preparation team.
6. All of this just makes sense. I find that had Dr Segal raised a change to Exhibit 4 with anyone at the bank he would have been told that it had to be put in writing.
7. In response to this, Mr Glissan says that an explanation for the why the account form was not changed would be that somewhere in the process of conveying Dr Segal's instructions to the document centre responsible for preparing documents, the instruction about the two signatures has been lost. While such a scenario may be a possibility, I find it unlikely to have occurred. I prefer the evidence of Mr Eves that any change of operating instructions would have been required to be given to the document preparation team in writing. It makes commercial sense to handle such requests in this way because there is less of a chance of the instructions becoming lost.
8. I find on the balance of probabilities that no such conversation took place between Mr Eves' associate and Dr Segal in which he asked for the second VLOC facility to be operated by the signatures of both himself and Mr Barel. If there was such a conversation between them Dr Segal is mistaken as to the contents of the conversation. Had the conversation Dr Segal says occurred actually happened the assistant would have followed the required protocol and his instructions would have been conveyed in writing to the document preparation team whereupon an amended new account authority would have been issued.
9. I just wish to say two final things regarding the method of account operation which in my view go against Dr Segal's assertion that he told Mr Eves or his associate at their meeting that two signatures were required, and that any representation was made that that would be done. The first relates to Dr Segal's drawing of cheques from the second VLOC. The second relates to when Dr Segal first notified the bank of Mr Barel's apparent unauthorised cheque withdrawals.
10. As I have already pointed out only the first cheque was co-signed. Cheques numbered 2 - 9, 14 and 15 (Exhibit 5) were signed solely by Dr Segal. He says for cheques 2 - 9 that he "used the account infrequently and had forgotten it was a joint account…and signed [those cheques] individually", he signed and wrote out cheque 14 and signed a blank cheque 15 (Exhibit AC). In relation to cheque 15 he said (28.10T): Okay. This cheque I signed. It was in the chequebook and I would have said words to the effect of that it still requires [Mr Barel's] signature before it will be activated so it is safe for me to have signed it before I left, because I'm meant ‑ in my understanding I'm meant to be signing the cheques. I don't recall‑‑
11. By drawing these cheques individually Dr Segal was acting in direct contradiction to what he says that his instructions were to the bank, instructions which I infer from his evidence were important to him because he wanted to have control of the account.
12. Turing to the second point, Dr Segal left to go overseas on 10th February 2005. On his return on 28th February 2005 he met with Mr Barel. He says that at this time he discovered that Mr Barel had signed cheques 10, 12 and 13 on 16th, 18th and 24th February 2005 respectively and that he cannot remember whether Mr Barel told him this or whether he noticed from the chequebook. He was "surprised the [bank] had processed cheques without my signature" (Exhibit AC, [14]). It was also at this time he says that he recalled that the second VLOC facility was a joint account requiring two signatures. He did not know whether he had ever spoken to Mr Barel about this requirement before then but he "would have told him at that time of the meeting" (50.30T). This he says was the only occasion that he had such a conversation with Mr Barel until the account was stopped.
13. In his affidavit he said (Exhibit AC, [17]): "[c]heques numbered 16 onwards were signed solely by [Mr Barel] and were not authorised by me…and I was not aware he was drawing further cheques on this account until approximately mid-April, 2005. From this evidence, from mid April 2005 Dr Segal was aware that Mr Barel had been individually signing cheques contrary to his alleged instructions to the bank which he informed Mr Barel of at their meeting on 28th February 2005. Prior to Dr Segal and Mr Barel obtaining their loan from the bank, they had previously held a loan with St George Bank. Part of this loan included a construction facility from which Mr Barel drew a cheque for $91,459.45 without the consent of Dr Segal. When asked by Mr McLure about Mr Barel's conduct in 2001 in withdrawing a large sum of money without his consent Dr Segal agreed that it was improper but he did not do anything about it. Returning now to the second VLOC facility Mr McLure asked (53.10 - .15T) Q. You're asking his Honour to accept, aren't you, that notwithstanding the experience you had with Mr Barel with the St George account in 2001 and notwithstanding that you had expressly told him in February 2005 that he was not to sign cheques without your also signing them you did nothing about it? A. Correct. Q. You didn't speak to Mr Barel about it; correct? A. Correct. Indeed there is no evidence to support Dr Segal doing anything about addressing this issue at all between first becoming aware of it on one view as early as 28th February 2005 but definitely by mid April 2005 and 3rd February 2006 when the last cheque was signed again solely by Mr Barel (Exhibit 5).
14. Dr Segal's actual contemporary conduct in relation to the second VLOC is entirely inconsistent with his version about giving the instructions that cheques must be co-signed; it is entirely consistent with Exhibit 4.
15. Apparently, he was regularly monitoring Netbank, he says at least once a week. He was easily able to see that Mr Barel was passing cheques through the second VLOC facility not co-signed by him. He says that it was not until sometime in about mid to late 2007, when the work on the development had stopped and Mr Barel dropped off accounts "that I realised that there was more than just money, second line of credit going. I realised what had gone on" (59.25T). It was at this point, towards the latter half of 2007 that Dr Segal says that he became fully aware of Mr Barel's unauthorised operation of the second VLOC facility. He responded to Mr McLure's questions as follows (59.50 - .60.20T): Q. You've just told his Honour that in 2007 you found out that Mr Barel was spending more money than what you had approved. But you did nothing about it until 2010. Is that right? A. Correct. Q. If it was true that in 2007 you were concerned about Mr Barel spending money without your authority, you would have raise it with the bank then, wouldn't you? A. I didn't ‑ I didn't ‑ as I say, I don't think I recalled the instructions until a bit later. Yeah. I mean I had disputes from ‑ I had bought this complaint to the bank about a year after I had a dispute with Elie, so it took ‑ it was a while after I realise that not only was it breach of my agreement with Elie, it was in breach of the instructions given to the bank. Q. When did you first remember that the account was being operated in breach of the instructions you claim you gave in June 2004? A. Probably about December 2009. That's when I asked for a meeting with the bank. Q. What was it that caused you to remember it then, in circumstances where you had forgotten it from mid‑April 2005? A. I don't know why. Maybe I was busy. I mean, I had a dispute with Elie going from the year before then so I presume maybe I was thinking about it and I suddenly remembered that actually was in breach of instructions
16. With respect, I agree completely with Mr McClure's submission that if Dr Segal had given the instructions he says he did in June 2004 ,which he says were important to him, why did he not do anything at all about Mr Barel's conduct from the time he became aware of it? Especially given that Mr Barel had previously withdrawn money without his consent from their joint facility with St George Bank which in his opinion "wasn't right". Dr Segal has provided no reasonable or rational explanation as to why he did nothing about the bank and Mr Barel violating the instruction he believed he had given. He says as early as 28th February 2005 that he was "surprised" that the bank had processed cheques 10,12 and 13 which had been signed solely by Mr Barel and further in relation to cheque 15 he thought it was safe to sign it blank because it "still requires [Mr Barel's] signature before it will be activated".
17. All of these circumstances suggest to me that he clearly knew then that to withdraw money from the facility two signatures were not required. To me it appears highly unlikely that he would simply forget between 2005 and 2010 such an instruction. The more probable, rational conclusion is that no such instruction for the operation of the second VLOC was ever conveyed by Dr Segal to the bank. Nor did anyone represent that the bank would conduct the account on that basis only.

Conclusion on alternative claim

1. Dr Segal says that if the requirement for two signatures was not a term of the contract, the bank breached their obligations under s 18 ACL or s 12DA ASIC Act by representing that his instructions for two signatures would be implemented. These sections are familiar and it is unnecessary to set them out in full. For the reasons I have given above it is unnecessary for me to go further than saying that I have found that there was no conversation between Dr Segal and Mr Eves or his assistant concerning a requirement that cheques be co-signed by Dr Segal and Mr Barel. No representation having been made no further question needs to be decided under the statutes.

Contingent findings about quantum

1. Dr Segal's claim is for $197,120.27 plus interest. The principal sum is the total amount of cheques drawn on the authority of Mr Barel's signature alone.
2. The bank says the circumstances that: the account was always in joint names; secured by property of which Dr Segal and Mr Barel were both owners; and that the proceeds of sale were utilised to discharge a joint liability, engages the principle discussed in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 at [442] - [452]. Reliance is also placed upon Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 84, 99 that the corollary of the principle of restiotutio in integrum is that a plaintiff is not entitled to profit over the position he would have been in had the contract been performed. Dr Segal argues that the principle discussed by Young CJ in Eq., (as his Honour then was) does not apply "where it can be established that all the funds in the account were the property of the defrauded customer": Tyree, Banking Law in Australia (4th Edition, Butterworths 2002) at [10.6.3].
3. Were it necessary to decide the question, I would favour the bank's argument. The contract propounded by Dr Segal was for the development in which he and Mr Barel were jointly engaged. Had his argument about the terms of the contract been accepted, he was entitled to exert only partial control over the funds drawn down from the line of credit because Mr Barel's signature was also an essential prerequisite. If the funds were to be expended on the development, both would profit in the end. I do not see this is a case where Dr Segal would has established that had he made good his principle argument, all the funds in the account were his property.

Re-joining Mr Barel

1. As I briefly mentioned at the beginning of this judgment, Mr Barel has made an application to be re-joined to these proceedings for the purpose of making submissions in relation to any costs order that I may make. He was formerly a party to these proceedings when the matter concerned the bank's enforcement. The bank discontinued their proceedings against him upon discharge of the security pursuant to the orders made by the Court of Appeal. As a result, the bank currently holds a sum of $150,000 which is the surplus from the sale of the property. It says that that money is secured moneys and only when all of the costs of these proceedings have been incurred and paid for will the bank hold that money on trust for Dr Segal and Mr Barel. Mr Barel claims an interest in 50 per cent of the retained funds (pursuant to the orders of the Court of Appeal) currently held by the bank, that is approximately $75,000. He is concerned that were I to make an order for costs against Dr Segal, the bank may be entitled to draw on the retained funds to satisfy those costs. Were that to happen and the costs exceed Dr Segal's 50 per cent share Mr Barel would in effect be subsidising a case which he is not a party to.
2. Mr Loxton, of counsel for Mr Barel says that any contribution by him would be unjust and unfair. He points to the principles of res judicata and issue estoppel to argue the issues between Dr Segal and Mr Barel have already been the subject of final orders. He says that none of the circumstances under s 98(1)(b) Civil Procedure Act 2005 (NSW) justify Mr Barel as he currently stands as a non-party paying any of the costs of a party against whom a costs order is made.
3. In effect what Mr Loxton seeks is that in the event that a costs order arises against Dr Segal such an order be in the form that any costs which are to be paid by him are to be paid by him personally. This would entitle Dr Segal to draw on the retention funds only up to his share, that is $75,000, leaving Mr Barel's $75,000 untouched save for any outstanding enforcement costs that he may personally still owe to the bank.
4. Mr McLure says that as Mr Barel does not appear to be requesting any orders which will inhibit the bank's entitlement to recoup the costs from these proceedings the bank does not wish to make any submissions on this issue. Mr Glissan on the other hand, given that Dr Segal may, if I were minded to make the orders Mr Barel seeks become personally liable submits that there is no occasion for Mr Barel to be re-joined at this stage. He says that whether Dr Segal is successful in his cross claim or not, costs should follow the event. This means that either he should receive his share of the retained funds less any enforcement costs (but not those costs associated with these proceedings) or in the event that costs are awarded against him, the bank is entitled to resort to the retention fund in order to recover the costs of this cross claim.
5. Having considered the position of all parties I am minded to grant Mr Barel's application to be re-joined as a party to these proceedings. Given that the bank intends, and may be entitled, to rely on the terms of the mortgage to recoup its costs associated with defending this cross claim as part of its overall enforcement costs of the mortgage, the appropriate action in such a circumstance is to allow Mr Barel the opportunity to be heard given that he holds an interest in the retained monies held by the bank.
6. And in my view after hearing the further arguments of counsel concerning the appropriate costs order to make in such an instance I think that having regard to what Mr Loxton has said about the position of Mr Barel in relation to the retained funds, he is entitled to an indemnity from Dr Segal were the bank to draw on the retained funds to his detriment.

Orders

1. My orders are: 1. Mr Barel is re-joined to the proceedings as second cross defendant to this cross claim; 2. Judgment for the first cross defendant against the cross claimant on the cross claim; 3. The cross claimant is to pay the first cross defendants costs of and incidental to the cross claim forthwith and on the ordinary basis after they have been agreed or assessed; 4. The cross claimant is to indemnify the second cross defendant against the costs of the first cross defendant against the cross claimant to the extent those costs are levied on the funds retained by first cross defendant to the detriment of the second cross defendant's contingent one- half share in those funds; 5. The second cross defendant to pay his own costs of his application to be re-joined as a party to this cross claim.

Amendments 01 June 2015 - Cover sheet and body of judgment correction re. spelling of Mr McLure's name. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 June 2015