Di Sante v Camando Nominees Pty Ltd [2000] VSC 211

2. Australia and New Zealand Banking Group Limited ("ANZ") as defendant seeks to have the plaintiff's proceeding against it based in negligence dismissed pursuant to Order 23.01 of the rules on the ground that the claim is statute barred.

6. The plaintiff is the executrix and beneficiary of the will and estate of Guiseppe Di Sante ("the deceased"). She alleges that the deceased, and later she in her capacity as executrix of the deceased's estate, invested monies with various financial institutions totalling almost $250,000. Prior to his death the deceased and, subsequently, the plaintiff in her capacity as executrix retained a firm of accountants, C. Petrilli and Associates ("Petrilli"), a principal of which was one Mr Petrilli, to manage the invested monies. The deceased died in about 1992.

9. The plaintiff alleges that on about 26 March 1992 Petrilli forged the signature of the plaintiff on relevant documents required by various financial institutions that held the invested monies. In due course a number of cheques were drawn by those institutions in favour of either the estate of the deceased, the plaintiff or the first defendant, Camando Nominees Pty Ltd, a company of which Mr Petrilli was a director. The cheques were variously marked "account payee only" and/or crossed and marked "not negotiable". Ultimately, the cheques came to be deposited into either an account in the name of Camando Nominees Pty Ltd operated at the Commonwealth Bank of Australia ("CBA") or an account in the name of C. Petrilli Trust Account at ANZ. It is alleged that Petrilli embezzled the invested moneys and that the plaintiff never received those moneys. It appears that the plaintiff discovered the actions of Petrilli in about April 1996 but did not seek to draw on the invested moneys until about January 1998 when the various financial institutions that held the invested moneys refused to pay the plaintiff.

12. The plaintiff issued these proceedings on 24 January 2000 making claims against Camando Nominees Pty Ltd and the relevant financial institutions lying variously in breach of trust, conversion, contract and detinue. The plaintiff has also claimed relief against CBA and ANZ. There are a total of nine defendants.

The claim against ANZ, its defence and the plaintiff's reply

16. The claim made by the plaintiff against ANZ was that she was the owner of a number of cheques deposited into the ANZ account in the name of C. Petrilli Trust Account. The plaintiff's claim as pleaded in the statement of claim is based solely in negligence. The plaintiff alleges that ANZ owed her a duty to ensure that the cheques paid into the ANZ account in the name of C. Petrilli Trust Account were in fact paid into the plaintiff's account. It is not alleged in the statement of claim as to whether the plaintiff in fact had an account with ANZ or another bank. The plaintiff alleges in the statement of claim that ANZ breached the duty of care it owed to her in a number of ways. In summary, the allegation is that ANZ breached the duty of care it owed to the plaintiff by paying the relevant cheques into an account other than one operated by her.

19. In its defence ANZ admitted that particular cheques were paid into an account called "C. Petrilli and Associates, Trust Account" but otherwise denied the duty of care alleged to be owed by it to the plaintiff and any breach of such duty. In its defence, also, ANZ relied upon s. 5(1)(a) of the Limitation of Actions Act 1958 and alleged that the claim against it was statue barred.

22. Section 5(1)(a) of the Limitation of Actions Act provides that claims cannot be brought after the expiration of six years from the date on which the cause of action accrued in actions including actions founded in tort. It was the defence of ANZ that all claims against it accrued in 1992 when the relevant cheques were paid to the account of C. Petrilli and Associates Trust Account and as the proceeding was issued on 21 January 2000 it was outside the six year limitation period and, therefore, statute barred.

25. In a reply the plaintiff answered the limitation defence on three bases. First, that the cause of action did not accrue until January 1998 when the various financial institutions failed to pay the relevant amounts to her. Second, the plaintiff relied on section 27 of the Limitation of Actions Act on the basis that the running of time under the statute was postponed by the fraud of Petrilli through whom ANZ claimed as its agent. Third, she relied on s. 21(1)(b) of that Act on a similar basis but specifically the basis that ANZ received the investment moneys as a constructive trustee.

28. Each of the other financial and bank defendants (that is excluding Camando Nominees) pleaded the limitations defence. ANZ issued the present application under Order 23.01 to dismiss the action against it. Hence the court is concerned with three issues: whether the cause of action did not accrue until the various financial institutions failed to pay the plaintiff upon request in about January 1998? Whether the limitation defence is overcome by s. 21(1)(a) of the Limitation of Actions Act. Whether the limitation defence is overcome by s. 27 of the Act?

31. The starting point in an application under Order 23.01 is an acknowledgment of the very high burden that faces the defendants on the basis of the principles expressed by Dixon J in Dey v Victoria Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, 92, also, Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598, 603 and, more recently, by the Court of Appeal in Coles Myer Limited v Bowman [1996] VicRp 31; (1996) 1 VR 446. With respect, the statement of the relevant principles set out by Charles JA (with whom Brooking and Callaway JJA concurred) in Coles Myer (at 549) conveniently states the law:

"In my view, the decision of the primary judge to dismiss the appeal was plainly correct. One does not need to cite authority for the propositions that: (a) an application to strike out a statement of claim on the grounds that it does not disclose a cause of action is to be refused unless the claim which is attacked is so clearly untenable that it cannot possibly succeed; and (b) the plaintiff's right to state his own case as he will, and to plead the facts which he contends will ground his claim, is not to be restricted unless it appears on the face of the pleading that the connection contended for between the facts alleged and the claims which are made is bound to fail."

36. As is apparent from the pleadings ANZ asserts that the cause of action of the plaintiff accrued in 1992 when the relevant cheques were deposited in the account known as the "C. Petrilli Trust Account" and those cheques were cleared by ANZ. At that point, it is said, the cause of action of the plaintiff against the bank accrued. The plaintiff asserts that the cause of action accrued when she first discovered the actions of Petrilli on about 26 April 1996, alternatively, when the various financial institutions failed to pay in about January 1998. Other than the basic assertion contained in the plaintiff's reply there is no material to support the plaintiff's assertion such as an affidavit setting out the circumstances relied upon.

39. Mr R. Randall who appeared for the plaintiff submitted that the cause of action did not accrue until the plaintiff suffered loss and damage. He submitted that loss and damage was not sustained by the plaintiff in 1992 at the time the cheques were cleared by ANZ rather in January 1998 when the financial institutions refused to redeem the relevant investments. Mr Randall submitted that at that point the plaintiff's position became irremediable.

42. In Hawkins v Clayton and Others (1988) 164 CLR 539 a limitations defence was pleaded against a solicitor's negligence claim. The facts were that a testatrix died leaving a will. Upon her death the solicitors who held the will made no attempt to locate the executor appointed under the will for a period of six years during which period a house property that constituted an asset of the estate remained vacant and fell into disrepair. The executor sued the solicitors for failing to take reasonable steps to inform him of his interest under the will. The Court of Appeal of New South Wales held that the claim was statute barred. In a minority judgment, McHugh JA identified special or different circumstances that were capable of distinguishment from the authorities concerned with the limitation periods that apply to claims for damage to the person or property. McHugh JA observed that where a person does not suffer physical damage or economic loss consequential on physical damage, a cause of action cannot accrue until that person has a legal right or interest infringed. On appeal from the Court of Appeal the majority of the High Court held that the action was not statute barred. Brennan J (at 562) held that a cause of action does not accrue unless there is someone who can institute the action. His Honour appeared to acknowledge the special case identified by McHugh JA below and observed that in some cases damage is not the last element of the cause of action to occur. In Hawkins, Brennan J held that the cause of action did not accrue until the other element crystallised, namely, the appointment of an executor of the estate and that as a consequence the claim was not statute barred.

45. In Hawkins v Clayton Deane J (at 588) similarly accepted that there may be special cases where the limitation principles applied in personal and physical injury claims may be subject to qualification in cases of pure economic loss. Deane J (at 587-8) held that a cause of action lying in negligence accrues when the damage is sustained. Deane J drew a distinction between cases involving physical injury to person or property or present economic loss and cases where all or part of the damage "is directly sustained in the sense that it does not merely reflect diminution in value or other consequential damage which occurs or is sustained only when a latent defect which has existed at all relevant times becomes manifest. In those cases, damage is sustained when it is inflicted or first suffered and the cause of action accrues at that time". Whilst Mason CJ and Wilson J were in dissent in Hawkins v Clayton they expressed their agreement (at 543) with the substance of the judgment of Deane J except with respect to the issue of duty of care. Deane J (at 590) held that it was not the legislative intent of a limitations statute that a cause of action for a wrongful act should be barred as a result of the running of time "during a period in which the wrongful act itself effectively precluded the institution of proceedings".

48. Gaudron J (at 600) appeared to adopt a similar view as to the special case that can arise for limitation purposes in negligence claims where a right has been infringed. Her Honour (at 601) by way of obiter observed that in relation to the recoupment of monies the time of accrual of the cause of action might be fixed when recoupment becomes impossible as it is only at that time that the actual loss is sustained. Her Honour held that loss was suffered by the executor when first informed of the existence of the undisclosed will.

51. Mr Randall submitted for the plaintiff in the present case that the remediability principle expounded by Gaudron J in Hawkins v Clayton arises when the position of the plaintiff becomes beyond rescue. He submitted that the plaintiff's position became beyond rescue when the various financial institutions declined to pay the plaintiff the moneys. It was said that if the institutions had paid the plaintiff in 1998 no loss or damage would have been sustained by the collection of the cheques by ANZ in 1992. Once the institutions declined to pay the plaintiff's position was only capable of remediability by virtue of these proceedings. It was submitted, therefore, that the cause of action did not accrue until January 1998 when the refusal to pay occurred notwithstanding that the plaintiff knew of the breaches from some time in April 1996.

54. In Crisp and Others v Blake and Others (1992) ATR 81-158 Mathews J of the Supreme Court of New South Wales considered a solicitors' negligence action where the defendants relied upon the limitation defence. The plaintiffs were directors and controlling shareholders of a company and the owners of a property that was subject to a mortgage. The defendants included solicitors who advised the plaintiffs in 1978 that the property could be transferred to the company to be used as security to facilitate funding for the company. The solicitors advised the plaintiffs that the transfer could be effected so that the plaintiffs had the right to reacquire the property at any time in the future. The solicitors prepared documents to facilitate the transaction that was signed in 1978 on behalf of the plaintiffs and the company by attorneys appointed under powers of attorney prepared by the same solicitors. The plaintiffs believed the documents preserved their right to reacquire the property when in fact there was no such provision or term. However, the documents contained a term to the effect that the company could terminate the arrangement or agreement at any time. The plaintiffs did not discover the true effect of the documents until June or July 1983. In May 1984 the company was wound up and a liquidator appointed who purported to treat the property as an asset of the company and, ultimately, the property was sold by the liquidator.

57. The plaintiffs in Crisp issued proceedings against the solicitors and others. The claim against the solicitors was based in negligence. It was alleged that the solicitors failed to advise and warn the plaintiffs of the true effect of the transfer documents and failed to prepare documents to preserve the plaintiffs' right over the property. The proceedings were commenced in April 1990. The solicitors as defendants pleaded that the claim against them was statute barred, the cause of action having accrued once the plaintiffs were exposed to the possibility of future loss, that being when the transfer documents were executed. The solicitors argued that upon execution the plaintiffs acquired diminished contractual rights compared with the actual contractual rights they should have acquired but for the solicitors' negligence. The plaintiffs argued that the cause of action accrued when the company was wound up in May 1984. They argued that the situation was reversible until the company was wound up as they retained control over the company up until that point in time and could at any stage have terminated the agreement or arrangement.

60. After considering the Australian[1] and English and Canadian Authorities[2] Mathews J observed (at 61, 225):

"An analysis of the Australian cases reveals that there are a number of issues within this area of the law which remain to be resolved. However a few conclusions can be drawn. One is that discoverability of damage is unlikely to be regarded as an acceptable criterion for the accrual of a cause of action even in relation to claims for pure economic loss. Another is that whilst the Forster and Pirelli principles are likely to be applied in relation to claims for personal injury and property damage, they may well not be followed in claims for pure economic loss. So far as these claims are concerned, it is relevant to examine the precise nature of the right said to have been infringed. The concept of 'remediability', not generally regarded as significant in the English decisions, might well be applicable to claims for pure economic loss, particularly where the right which has been infringed is one to recoup money or property."

64. In Crisp her Honour (at 61,226) held that assuming that the scheme advised to the plaintiffs was capable of implementation and that the solicitors were negligent in failing to implement the transaction so as to effectively protect the plaintiffs' rights it was appropriate to apply the formula enunciated by Gaudron J in Hawkins v Clayton. Upon adopting that position Mathews J identified the precise interest of the plaintiffs that was infringed by the solicitors' negligence as being the right to unilaterally re-acquire the beneficial ownership of the property at any time. Her Honour determined that upon the date of liquidation of the company the plaintiffs lost control of the company and thereupon real damage was first sustained by the plaintiffs and their cause of action accrued.

67. Mathews J rejected a submission by the solicitors that the dye was cast for the plaintiffs once the relevant documents were executed because there was nothing the plaintiffs could do to alter the situation. Her Honour observed (at 61,226):

"This is unquestionably right, but it is not to the point. For it is remediability at the hands of the plaintiff which is of importance."

Ultimately, Matthews J declined to strike out the statement of claim as statute barred. The judgment went on appeal. By consent the judgment was set aside[3].

72. Two steps have been identified for the purposes of ascertaining the accrual date in economic loss cases initially by McHugh JA in the Court of Appeal in Hawkins and subsequently developed by Gaudron J in Hawkins (at 600) and by Mathews J in Crisp (at 61,223-4). First, the interest that is alleged to have been infringed should be identified. Second, if the interest is an interest in recouping moneys it is necessary to fix the time when recoupment became impossible, that is, to identify the point in time at which the situation ceased to be remedial at the hands of the plaintiff. The approach of Gaudron J in Hawkins was cited with approval by the High Court in Wardley Aust Ltd & Anor v State of Western Australia, supra, 527, 533 (per Mason CJ, Dawson and Gaudron and McHugh JJ) and 555-6 (per Toohey J). The approach of Gaudron J had earlier been cited and applied by the Full Court of the Federal Court in Magman International v Westpac, supra, at 13 (by Beaumont J with whom Black CJ and Gummow, von Doussa and Hill JJ agreed). The approach in Crisp by Mathews J was also cited with approval by Toohey J in Wardley (at 556).

75. In Wardley v Western Australia the State claimed damages under the Trade Practices Act 1974 alleged to have been suffered as a result of a representation made by Wardley, a merchant banker, that led the State to provide an indemnity to the National Australia Bank. Wardley relied upon the limitation defence under s.82 of the Trade Practices Act. The High Court held after citing Gaudron J in Hawkins (at 533) that it was unjust to expect a plaintiff to commence proceedings before the contingency is fulfilled. In Wardley the indemnity was executed on 26 October 1987. On the very next day the party that was the subject of the indemnity drew down a substantial bank facility for which the indemnity had been provided by the State. The facility was repaid almost a year later in October 1988 but came to be challenged as a voidable preference by the payee in November 1988. The bank called on the indemnity. The plaintiff in Wardley commenced its claim on 24 October 1990. It did not allege the relevant representations against the defendant until January 1991. The defendant pleaded in its defence that the cause of action accrued when the indemnity was given in October 1987 and that the new plea concerning the representation was statute barred having been introduced in January 1991. The majority of the High Court (at 532-533) held that a plaintiff first suffers loss in respect of a contingent loss or liability when recoupment becomes impossible.

78. In Wardley, the majority of the High Court cited also with approval the judgment of von Doussa J of the Federal Court in S.W. Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) 6 ANZ Ins. Cases 61-002. In that case an insured sued an insurer for loss suffered arising from a representation as to the extent of cover provided by a contract of insurance. Von Doussa J held that the insured's loss occurred only when the insured faced a call by a third party for payments for which the insured could have sought to be indemnified by the insurer. The case was one where the defendant insurer relied upon the limitation defence on the basis that the loss was suffered by the insured when the policy was issued. His Honour rejected the argument and characterised the insured's interest as contingent until the third party claimed moneys from it. The premise that the judgment in S.W. Hoists appears to have been based upon was that the insurer's failure to provide appropriate insurance could have been remedied by the insured at any time before a claim was made.

81. In an earlier authority in Gillespie v Elliott (1987) 2 Qd R 509 the Queensland Full Court considered another solicitors' negligence claim where the limitation defence was taken. The defendant solicitors acted for the plaintiffs in the purchase of a hotel business. The contract contained terms of a leasehold interest to be acquired. The contract was executed in November 1975. The leases were executed in December 1975. Eighteen months later in July 1977 the plaintiffs found they were unable to assign their interests in the leases because they were considered unenforceable. The plaintiffs commenced their negligence claim on 30 June 1983. The Full Court held that the plaintiffs' damage first accrued either when the contract for purchase was executed or when their leases were executed, that is, in 1975 and hence the claim became statute barred in 1981.

84. In the leading judgment Macrossan J followed the established English approach in Pirelli General Cable Works Limited v Oscar Faber and Partners, supra. The Full Court did not have the benefit of the subsequent judgment of the High Court in Hawkins v Clayton but considered the New South Wales Court of Appeal judgment in Hawkins. Macrossan J (at 516) considered with apparent approval the judgments of Kirby P and Glass JA in Hawkins who followed the traditional approach of Pirelli. Macrossan J (at 514) acknowledged that Pirelli was a case concerned with physical damage. Macrossan J appeared to not accept the view of McHugh JA who drew a distinction between economic loss cases and physical damage cases and accepted the concept of the time of invasion of an identifiable right as being relevant in determining whether an economic loss claim is statute barred. Macrossan J in his reasons relied upon the English authority Forster v Outred & Co, supra, which has been the subject of reservation and rejection by some Australian authorities.[4] I do not consider that Gillespie v Elliott accurately reflects the law in economic loss cases with respect to the limitation defence as it stands at present. The law has moved on and developed in Hawkins, S.W. Hoists, Crisp, Wardley and Magman.

87. In the judgment of the Full Court of this court in Doundoulakis v Antony Sdrinis & Co [1989] VicRp 68; (1989) VR 781 Ormiston J, with whom McGarvie and Marks JJ agreed, held that a cause of action against a solicitor for negligently failing to institute proceedings within the limitation period is complete when the limitation period for bringing the client's action expires. Ormiston J held (at 787-8):

"In substance, the appellant's remedy was lost in August 1978 when his unfettered right to sue his employer became statute barred, subject only to the employer choosing not to rely upon its rights. The damage was suffered then and his cause of action complete. If one accepts that economic harm may amount to damage and that it need not be evidenced by immediate direct financial loss, such as the incurring of a liability or unconditional loss of a right, then it would have been and is wholly artificial to compel the appellant plaintiff to await the outcome of the pleadings before saying that he had suffered damage. The right, indeed the remedy, may survive the three year period, but in such an attenuated form that one could not assert that the very right and remedy were not gravely affected by the respondent's negligence. The respondent's acts of omission led directly to the conclusion that upon the expiration of the period the appellant's rights and remedies against his employer were well nigh worthless. At that point the appellant could sue and the circumstances leading to his subsequent inactivity, while provoking sympathy, cannot hide the fact that the cause of action against the respondent was stale in November 1986 when the present proceeding was commenced."

91. Since Doundoulakis the law in relation to limitation periods and the time of the accrual of a cause of action has been revisited. However, at the time of the judgment in Doundoulakis the judgments in Hawkins v Clayton were known. The Doundoulakis judgment remains binding authority in this State in relation to solicitors' negligence claims where a solicitor has allowed a claim to become statute barred in the circumstances that arose in that case.

94. However, since the judgments of Brennan, Deane and Gaudron JJ in Hawkins v Clayton and the majority in Wardley, it can be said that the determination of the time of the accrual of the cause of action is not always a time that can be identified with ready precision. In Pullen and Anor v Gutteridge Haskins & Davey Pty Ltd [1993] VicRp 4; (1993) 1 VR 27 the Appeal Division of this court (at 65-71) followed the judgments of Deane J in Hawkins v Clayton and Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424. Brooking, Tadgell and Hayne JJ held that in cases of pure economic loss due to a latent defect in design, time begins to run when the latent defect first becomes known or manifest. The Appeal Division observed (at 66) that the statements of Deane J in Hawkins v Clayton concerning the topic of limitations of actions had the approbation of Mason CJ and Wilson J in that case. The Appeal Division stated (at 71):

"The position is then that Mason CJ and Wilson J have expressed agreement with the view of Deane J, while Brennan J is to be taken as disagreeing with it and Gaudron J is leaving the matter open. In these circumstances we think our proper course is to take the law as laid down in the reasons for judgment of Deane J. It should be noted that McHugh JA (as his Honour then was) in Hawkins v Clayton (1986) 5 NSWLR 109, at pp/143-4, appears to have subscribed to the view of Deane J in Sutherland Shire Council v Heyman that any loss involved in the inadequacy of foundations was sustained only when that inadequacy was first known or manifest; his Honour observed that it was by no means probable that the approach in Perelli's Case would prevail in Australia."

98. It is noteworthy that the majority of the High Court did not consider the views of Deane J in Hawkins v Clayton in the course of the judgments in Wardley. In his separate judgment in Wardley, Deane J restated the principle he expressed earlier in Hawkins v Clayton. His Honour stated in Wardley (at 540) after re-stating the rejection of discoverability as a qualification to limitation provisions in negligence cases for economic loss:

"The Court's rejection of such an overriding qualification does not, however, alter the fact that, in some of the cases where an action lies in negligence for pure economic loss, no relevant loss is actually sustained or suffered and no cause of action for damages accrues unless and until some actual adverse consequence of the negligence is known or becomes manifest."

102. Whilst the present case is not one relating to a latent defect in a building it is nevertheless a case involving economic loss. In order to distinguish the case from one of present economic loss it would be necessary for the circumstances to bear the traits, at least in part, of some other consequential damage that was sustained only when it became manifest in 1998. What then was the other consequential damage, if any, that became manifest in 1998 when the plaintiff learned of the actions of Petrelli and ANZ? The answer is that there was none.

105. The Court of Appeal of this court in Price Higgins & Fidge v Drysdale [1996] VicRp 22; (1996) 1 VR 346 referred (at 352) to the obiter of Deane and Gaudron JJ in Hawkins v Clayton with respect to the principle that accrual of a cause of action can be postponed in certain circumstances beyond the time when the damage is sustained. However, Winneke P, with whom Ormiston and Charles JJA agreed, whilst not rejecting the statements of Deane and Gaudron JJ in Hawkins did not have cause to determine the issues. The reference of the President to the judgments of Deane and Gaudron JJ in Hawkins appears to reflect the observation of Deane J in Wardley (at 540) that in Hawkins v Clayton " ... a majority of the Court implicitly or explicitly rejected a submission that the Court should recognise a general overriding qualification of the prima face position that a requirement of loss or damage as an ingredient of a cause of action is satisfied as soon as relevant loss or damage is in fact sustained".

108. Conversely, Batt J in C.E. Heath Underwriting and Insurance (Aust) Pty Ltd & Anor v Daraway Constructions Pty Ltd (unreported judgment dated 3 August 1995) did not accept the obiter of Deane J in Hawkins. Furthermore, Batt J in Daraway did not consider Mason CJ and Wilson J in their agreement with Deane J in Hawkins to have formed the ratio decidendi of the judgment. Whilst the observations of Batt J in Daraway were concerned with a case based in contract, not tort, a distinction noted by the learned judge himself, they do not appear to have been concerned with the earlier observations of the Appeal Division of this court in Pullen.

111. The view that the time when loss occurs is when recoupment is rendered impossible was reaffirmed by Gaudron J in Kenny and Good Pty Ltd & Anor v MGICA (1992) Limited [1999] HCA 25; (1998) 163 ALR 611, 618. In Kenny, Gummow J (at 636) expressed the view that damage may manifest at a time later than when it is first sustained. Both Gaudron and Gummow JJ in Kenny (at 618 and 636) were at pains to adopt the position that there was no distinction to be drawn between claims under trade practices legislation and claims brought in tort.

114. In these types of cases it is critical to characterise the nature of the transaction to ascertain whether the damage is actual or potential. In the present case the plaintiff was oblivious to the fact that Petrilli had paid the cheques into another account at ANZ and did not discover the action until 1996 or possibly as late as 1998. It appears to be established in Australia that the date of discovery is not the governing factor that determines accrual of a cause of action.[5]

117. Upon the payment and clearance of the cheques the plaintiff was in an irretrievable or irremediable position. The cheques were cleared and she could not stop payment because payment had been made on the cheques. The only course available to her in order to recoup her losses was to sue the bank or the financial institutions who acted upon the forged documents. There was no right left over of a potential character. In many respects, the position of the plaintiff in the present case equates with that of the mortgagor in Forster v Outred & Co (1982) 1 WLR 86; (1982) 2 All ER 753. There the plaintiff undertook to guarantee a loan to her son and provided a mortgage over her home as security. The court held that the loss was actual and not prospective and suffered by the plaintiff when, on the advice of her solicitors, she executed the mortgage; upon executing the mortgage the plaintiff was regarded as exposed to a risk that neither she nor the defendant solicitors could retrieve. The majority of the High Court in Wardley did not reject Forster v Outred & Co (at 529) but was critical of the reasoning in Jobbins v Capel Court Corporation Ltd [1989] FCA 538; (1989) 25 FCR 226 that was based upon the judgment in Forster. The majority in Wardley stated (at 523):

"If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred. A deferred liability may stand in a different position but there is no occasion here to discuss that matter."

121. The judgment in Forster v Outred has been the subject of critical reservation on the basis that the mortgagor did not lose anything when she entered into the mortgage. Rather, it has been suggested that her loss arose at the time of the default of her son for whose debt the mortgage was provided as security; it has been suggested that it could not be said with certainty that the mortgagor first suffered loss until she became bound to pay the indebtedness: Magman International v Westpac (1991) 100 ALR 575, 581-2 (per Shepherd J.); [1991] FCA 41; (1991) 32 FCR 1, 18, 19, 25 (Full Court of the Federal Court); also Wood & Anor v Wood & Ors (1997) 149 ALR 301, 306-07.

124. The outcome in Forster invites the observation: can a plaintiff be said to have suffered loss immediately upon entering into a transaction such as a mortgage where the plaintiff is thereafter capable of avoiding or reducing the risk of injury? In some cases risk minimisation or the capacity to reduce such risk is a factor: Magman International Pty Ltd v Westpac Banking Corporation [1991] FCA 41; (1991) 32 FCR 1. Nevertheless, in this case once the cheques were cleared the plaintiff suffered actual loss. The submission that the plaintiff was not in a position to take any action until she became aware of events in 1998 is not to the point. Her position became irremediable upon the clearance of the cheques.

127. There was no submission during argument before me to support the position of the plaintiff by relying upon the proposition stated by Deane J in Hawkins v Clayton (at 590):

"The present case falls, however, in an anomalous category where the applicability of a limitation provision such as s.14(1) would invariably involve prima facie hardship and injustice and where any compensating public benefit, apart from protecting the courts from being required to determine issues of distant fact, is absent. If a wrongful action or breach of duty by one person not only causes unlawful injury to another but, while its effect remains, effectively precludes that other from bringing proceedings to recover the damage to which he is entitled, that other person is doubly injured. There can be no acceptable or even sensible justification of a law which provides that to sustain the second injury will preclude recovery of damages for the first. It would, e.g., be a travesty of justice and common sense if the law provided that a cause of action lay for damages for false imprisonment but then went on to provide that that cause of action would be lost if the false imprisonment continued for six years after the cause of action first accrued. Likewise, it would be a travesty of justice and common sense if the law imposed a duty upon a solicitor to take positive steps to inform a third person of the contents of a document of which the solicitor was alone aware and then provided that any cause of action against the solicitor for damage caused by a negligent failure to perform that duty would be lost if the negligence continued for six years. It is arguable that the notion of unconscionable reliance upon the provisions of a Statute of Limitations which provides the foundation of the long-established equitable jurisdiction to grant relief in a case of concealment of a cause of action until after the limitation period has expired (cf. s.55(1) of the Limitation Act) should, by analogy, be extended to cover cases such as these where the wrongful act at the one time inflicts the injury and, while its effect remains, precludes the bringing of an action for damages. It seems to me, however, that the preferable approach is to recognize that it could not have been the legislative intent that the effect of provisions such as s.14(1) of the Limitation Act should be that a cause of action for a wrongful act should be barred by lapse of time during a period in which the wrongful act itself effectively precluded the bringing of proceedings. On that approach, the reference in s.14(1) of the Act to the cause of action first accruing should be construed as excluding any period during which the wrongful act itself effectively precluded the institution of proceedings." (Emphasis added.)

131. On the face of the pleadings it is not asserted that the effect of the actions of ANZ in clearing the cheques deposited into the accounts associated with Petrilli effectively precluded the plaintiff from bringing proceedings against ANZ. The approach of Deane J of overcoming the unfairness and unconscionability rendered by the limitations defence cannot be applied in the present matter. This matter falls within the same category as some New South Wales cases[6] wherein the principle stated by Deane J was cited but distinguished on the facts of the particular case. I am satisfied that the damage in this matter was sustained by the plaintiff upon the clearance of the cheques in 1992. It follows that the plaintiff's claim against ANZ would have become statute barred pursuant to s.5(1) of the Limitation of Actions Act six years after the cheques were cleared, that is, in about March 1998, almost three years before the proceedings were issued unless the period of limitation ceased to run at any time.

134. In this respect the plaintiff relies upon ss.21 and 27 of the Limitation of Actions Act. It is appropriate to consider first the application of s.27.

Section 27 of the Limitation of Actions Act (postponement of limitation periods in the case of fraud)

138. The section postpones limitation periods in cases of fraud or mistake. The applicable parts of s.27 provide:

"27. Postponement of limitation periods in case of fraud or mistake Where, in the case of any action for which a period of limitation is prescribed by this Act -

(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or

(b) the right of action is concealed by the fraud of any such person as aforesaid; or

(c) the action is for relief from the consequences of a mistake -

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it."

146. Upon ANZ pleading the statute bar in its defence the plaintiff pleaded by way of reply that her cause of action did not accrue until about January 1998 when each of the financial institutions failed to pay the amounts to which she alleged she was entitled. In the alternative, it was pleaded by the plaintiff in her reply that the claim of ANZ that it was entitled to deposit the cheques into the account in the name of Petrilli was a claim through Petrilli within the meaning of s.27(a) of the Limitation of Actions Act. It was alleged, further, that Petrilli concealed his actions and that the plaintiff did not discover the same until about 26 April 1996. No particulars were provided in the pleading. Mr D. Williams who appeared for ANZ attacked the pleading contained in the plaintiff's reply on three grounds. Firstly, that no plea was made that ANZ had concealed any matter from the plaintiff and, as a consequence, the pleas stood or fell upon the strength of the allegation that the claim of ANZ was a claim through Petrilli within the meaning of s.27(a) of the Limitation of Actions Act. Secondly, the pleading was attacked on the basis that ANZ did not make any claim through Petrilli. Thirdly, the pleading of the plaintiff in reply was attacked on the basis that no facts were alleged that could amount to fraudulent concealment of the right of action against ANZ.

149. Mr Randall on behalf of the plaintiff submitted that the ANZ had a mandate to pay the cheques into the bank accounts associated with Petrilli and that such mandate was derived from the banker/customer relationship between ANZ and Petrilli. He further submitted that ANZ received the cheques for collection from Petrilli. In either case, it was submitted that the ANZ by claiming to be entitled to pay the cheques into the account of Petrilli constituted a claim derived through Petrilli within the meaning of s.27(a) of the Limitation of Actions Act. The argument was continued on the basis that the fraud of Petrilli in forging the documents that gave rise to the issue of the cheques was perpetrated by Petrilli and Petrilli in turn concealed those matters from the plaintiff.

152. The relevant parts of s.27(a) of the Limitation of Actions Act are cast in identical terms to s.26 of the English Limitation Act 1939 considered by the English Court of Appeal in Eddis and Anor v Chichester Constable and Ors (1969) 2 Ch. 345. In the English case a tenant for life sold a painting that formed part of the settlement. Some 11 years later the life tenant died and the trustees discovered for the first time the absence of the painting. Subsequently, a total of 14 years after the sale of the painting, the trustees instituted proceedings against the personal representatives of the tenant for life claiming damages for breach of trust and against the agent of the life tenant who sold the painting claiming damages for conversion. The defendants took the limitation point. The trustees by their reply claimed that the conduct of the life tenant was a fraudulent breach of trust and amounted to fraudulent concealment of the trustee's right of action under the statute and that the agent knew or ought to have known that the sale of the painting was a fraudulent breach of trust. At first instance Goff J held that the statute operated to prevent the period of limitation from beginning to run against the trustees until the fraud was discovered. In dismissing the appeal the English Court of Appeal held that the statute enabled trustees to bring an action for damages for conversion otherwise statute barred because the right of action had been concealed by the fraud of the tenant for life and on the basis that the words "through whom he claims" in the statute meant that the tenant for life was the person through whom the agent claimed title to the painting and any right to deal with it exercised by them so that the period of limitation did not begin to run against the trustees until the fraud was discovered. The Court of Appeal in Eddis unanimously approved of and applied an earlier judgment of Danckwerts J in Baker (G.L.) Limited v Medway Building and Supplies Limited (1958) 1 WLR 1216.

155. In Baker the Court of Appeal was concerned with circumstances where a company entrusted to its auditor moneys which the auditor paid into his bank account that was overdrawn at the relevant time. The auditor accounted to the company for part of the moneys but diverted the balance to unauthorised purposes. The auditor drew two cheques in favour of a company of which he was a director from the funds entrusted to him by the company. The company did not discover the payments made on the cheques until some six years later. The plaintiffs issued proceedings alleging that the auditor had fraudulently and in breach of trust paid the moneys to his company who was the defendant. It was alleged by the plaintiffs that the defendants had knowledge of the fraud through the auditor in his capacity as the director and were consequently trustees for the plaintiffs. Danckwerts J (at 1223) considered the English provision contained in s.26 of the Limitation Act 1939, the statutory equivalent of s.27(a) of the Limitations of Action Act. His Lordship considered that the plaintiffs had been defrauded by the cheques drawn by the auditor in favour of the defendant company as the cheques were handed to the defendant by the auditor in respect of which the defendants were not holders for value in due course. His Lordship considered, further, that the defendants claimed the moneys through the auditor and no-one else and, therefore, they fell plainly within the provisions of the statute, that is, "the action is based upon the fraud of the defendant or of any person through him he claims". His Lordship held that the action was based upon the fraud of the auditor because the auditor made the payments in fraud of the plaintiffs and therefore within the terms of the statute. As a consequence, Danckwerts J held that the defendant company was unable to rely upon the statute bar. The defendant sought leave to amend its defence on other grounds and the application was refused. On appeal the English Court of Appeal allowed the appeal with respect to the application for leave to amend and did not consider the limitation point. A subsequent petition for leave to appeal to the House of Lords in Baker was dismissed (1959) 1 WLR 492.´ The principle propounded by Danckwerts J with respect to the position of third parties remained unfettered and was subsequently followed, as already cited, by the Court of Appeal in Eddis.

158. The principle in Baker and indeed in Eddis have received only passing attention, particularly in Australia.[7] The explanation for the lack of attention may lie with the focus in the Australian authorities upon the nature of constructive trusts and the position of third parties who deal with the property of such trusts. The position was conveniently described by Stephen J in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373,412:

"In my view the state of the authorities as they existed before Selangor did not go so far, at least in cases where the defendant had neither received nor dealt in property impressed with any trust, as to apply to them that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry. If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from enquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant."

162. When considering whether a third party who deals with the property of a constructive trust ought be elevated to the status of agent of the trustee the starting point is the statement of principle of Lord Selborne LC in Barnes v Addey (1874) LR 9 Ch. App. 244, 251-2:

"... strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers ... unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."

In these type of cases where a constructive trust is asserted and there is a dispute with respect to the title of the third party who obtains or deals with the property of the trust the general approach has been to require the person seeking to raise a defence to the effect that they were a bona fide purchaser for value without notice to prove that they did not have constructive notice of the prior equitable interest: Attorney-General v Biphosphated Guano Co (1878) LR 11 Ch. 327; G.L. Baker Limited v Medway Building, supra; Eddis v Chichester Constable, supra. Conversely, there is authority that a bank is presumed to be ignorant of prior equities to the extent that the onus lies on the prior equity-holder to prove that the bank in fact had notice of that equity: Union Bank of Australia Limited v Murray-Aynsley (1898) AC 693. Nevertheless, the usual rule is that the doctrine relating to a bona fide purchaser for value without notice is a defence which must be pleaded and proved by the person who wishes to rely on the defence: Daniell's Chancery Practice 7th ed. pp.429-31; Meagher, Gummow and Lehane op. cit., 259.

167. In this matter the question, among others, to be determined at trial is whether there was fraud perpetrated by the bank as agent of Petrilli. Mr Williams for ANZ put the position that as ANZ had not made a "claim" through Petrilli or, conversely, that Petrilli had not made a "claim" against or through ANZ a fundamental requirement of s.27(a) of the Limitation of Actions Act had not been met. It was said, therefore, that the section did not apply to give the plaintiff a reprieve from the limitation defence. The submission misconceives the purport of s.27(a). The words "through whom he claims" relate to the alleged title of the person who deals with the property that is the subject of the alleged constructive trust. Just as Danckwerts J in Baker (at 1223) considered that the defendant company that was the innocent victim of the fraudulent auditor claimed through that auditor so too in the present case does the bank claim that it had title or authority through Petrilli. In my view, therefore, on the facts presently before me the case falls within the ambit of the principle applied in Baker and subsequently in Eddis.

170. The challenge to the plaintiff's reliance upon s.27(a) of the Limitation of Actions Act was extended to the submission that there were no matters or facts alleged in the pleading that supported the requisite facts under s.27(a). However, as already observed the position at law appears to be that if ANZ asserts that it had title or was entitled to deal with the cheques as it did as it had no notice of the fraudulent actions of Petrilli it will be necessary for ANZ to bear the burden of proving those facts. It is not necessary for me to determine these matters at this point. I observe that in an affidavit filed on behalf of ANZ in support of the application no facts are asserted with respect to the knowledge or otherwise of ANZ in the course of dealing with the cheques in 1992. Furthermore, there is no evidence on affidavit to support the plaintiff's position.

173. In New South Wales equivalent provisions to s.27 of the Victorian statute are contained in s.55 of the Limitation Act 1969. In considering the New South Wales provisions in Hamilton v Kaljo & Ors (1987) 17 NSWLR 381 McLelland J considered (at 386) that the postponement of the limitation bar in matters where fraud, deceit or concealment are alleged require proof of some form of dishonesty or moral turpitude. Hamilton was considered by the New South Wales Court of Appeal in Seymour v Seymour (1996) 40 NSWLR 358. There, Mahony A-CJ, with whom Meagher JA and Abadee AJA agreed, held that the New South Wales provision required a consciousness of wrongdoing:

"In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who 'closes his eyes to wrong' or is so lacking in conscience that he is not conscious of his own lack of proper standards)."

177. A similar view was expressed in Grahame Allen & Sons Pty Ltd v Water Resources Commission; (2000) 1 Qd. R 523.

180. There is no allegation at this point made by the plaintiff against ANZ of a consciousness of wrongdoing. I agree with the approach of the New South Wales and Queensland authorities. It may be that the plaintiff will ultimately allege at trial that the bank fell into the latter category described by Mahony A-CJ in Seymour v Seymour as the party who closes its eyes to wrong. However, in my view these are matters that I cannot properly determine at this point. Rather, they are matters of such a serious nature that they ought be determined at trial.

183. On the basis of the principles expressed in Dey v Victorian Railways Commissioners, supra, I need be satisfied that the plaintiff's case is hopeless. I cannot be so satisfied at this point in time. It was further urged upon me by Mr Williams on behalf of ANZ that I should conduct an interlocutory hearing with evidence to determine the limitations issues. Mr Williams relied upon the principles expressed by the English Court of Appeal in Ronex Properties Limited v John Laing Construction Limited and Ors (1983) 1 QB 398 to the effect that such issues should be determined on a preliminary interlocutory basis. I do not consider that the observations of the English Court of Appeal in Ronex are consistent with the views expressed by the majority of the High Court in Wardley (at 533) to the effect that it is undesirable that limitation questions be decided on an interlocutory basis:

"We should, however, state in the plainest of terms that we regard it is undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question."

187. Deane J adopted (at 540-541) a similar view especially where issues of contingent liability arise:

"It is not possible to derive from the authorities or from settled principle a simple negative or affirmative answer to the abstract question whether, for the purposes of a limitation provision, the mere incurring of a contingent liability to make a monetary payment in the future suffices to give rise to a cause of action of which loss or damage is a necessary ingredient. Nor, in my view, is it practicable or desirable for the courts to attempt to provide in advance an unqualified affirmative or negative answer to that abstract question. For one thing, the answer may vary according to the facts of the particular case, including the nature and implications of the contingent liability and whether the circumstances were such that, even without the benefit of hindsight, the distinction between contingent and certain loss or damage was illusory rather than real."

191. It follows that I cannot be satisfied that the limitation period under s.5(a) of the Limitation of Actions Act was postponed by virtue of the application of s.27(a). However, the plaintiff's position is at least arguable. In my view it is a matter appropriate for determination at trial when the trial judge will have the benefit of all the evidence.

The application of s.21 of the Limitation of Actions Act

195. The last matter relied upon by the plaintiff with respect to the limitation defence was that as the cheques formed trust property the limitation period did not apply in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy. Section 21(1) provides:

"21. Limitation of actions in respect of trust property (1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action -

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use."

202. Mr Williams for ANZ criticised the plaintiff's pleading insofar as it purported to rely upon s.21(1) of the Act on the basis that the claim made by the plaintiff against ANZ was confined to negligence only. He submitted that the plea against ANZ in no way characterised the claim whereby the plaintiff was a beneficiary of a trust. The argument was further developed on the basis that the ANZ was not a trustee of any trust created by the will of the deceased. Mr Randall for the plaintiff submitted that each of the cheques were endorsed "not negotiable" and "a/c payee only" and that as a consequence ANZ was seized with knowledge that the cheques it received for collection were part of a trust estate. The submission was based on the assertion that each of the cheques were payable to the estate of the deceased. Copies of the cheques were before me by way of exhibits to the deponent of the affidavit filed on behalf of ANZ in support of this interlocutory application. Mr Randall submitted that as a result of the payee nominated on each of the cheques ANZ became the constructive trustee of the cheques or the funds collected and ultimately credited to the accounts associated with Petrilli. In essence, the position of the plaintiff in this respect was based upon Barnes v Addey. In Rasmussen v Rasmussen [1995] VicRp 38; (1995) 1 VR 613 Coldrey J held that s.21(1) was applicable where the defendant was a trustee but the actions of the original trustee constituted fraud in the relevant sense, the basis for such fraud being reliance upon the absolute character of title for the purpose of defeating the beneficial interest in land which belonged to another (see also Bannister v Bannister (1948) 2 All ER 133, 136; and Bahr v Nicolay (No. 2) [1988] HCA 16; (1987) 164 CLR 604 at 654-5). Insofar as it is necessary for me to form any view as to the application of s.21(1) of the Limitation of Actions Act, I take the same view as with regard to s.27(a) of the Act.

205. The allegations of fraud presently set out in the plaintiff's reply and the raising of a constructive trust are all matters that ultimately must be ventilated at trial. For the reasons expressed by the majority of the High Court in Wardley I do not consider it is appropriate to determine these matters on an interlocutory basis. Insofar as ANZ asserts that the claim against it is based in negligence and no allegation is contained in the pleading of a constructive trust and knowledge of the bank these are matters that the plaintiff ought address. The plaintiff has not made application for leave to amend the pleadings. In my view at some point in light of the foreshadowed complaints by ANZ against the pleadings it will be necessary for the plaintiff to reconsider the formulation of the allegations contained in the statement of claim. However, for present purposes it is not necessary for me to strike out the proceeding as sought by ANZ pursuant to Order 23.01 of the Rules.

209. In conclusion, therefore, notwithstanding my finding that the proceeding would be statute barred for the purposes of s.5(1) of the Limitation of Actions Act I consider that it is open to the plaintiff to rely upon the provisions of ss.21(1) and 27(a) of the Limitation of Actions Act. At the trial of the proceeding the trial judge can determine whether or not the necessary matters are made out under ss.21(1) and 27(a) of the Limitation of Actions Act.

212. It follows that the interlocutory application by the fifth defendant fails.

[1] Gillespie v Elliot (1987) 2 QD R 509; Jobbins v Capel Court Corp Ltd & Anor [1989] FCA 538; (1989) 25 FCR 226; State of Western Australia v Wardley Aust. Ltd. & Ors [1992] HCA 55; (1992) 175 CLR 514; Hawkins v Clayton, Supra.

[2] Cartledge v E Jopling {Sons} Ltd (1963) AC 758; Sparham-Souter v Town & Country Developments (Essex) Ltd (1976) QB 858; Pirelli General Cable Works Ltd v Oscar Faber & Partners (1983) 2 AC 1; Foster v Outread and Co (1982) 1 WLR 86; DW Moore & Co Ltd & Ors v Ferrier & Ors (1988) 1 All ER 400; Bell v Peter Browne & Co (1990) 2 QB 495; City of Kamloops v Nielsen (1984) 10 DLR (4th) 641; Central Trust Co v Rafuse (1986) 31 DLR (4th) 481.

[3] As revealed in Hetherington v Mirvac Pty Ltd & Ors (1999) Aust Torts Reps 81-514 at 66,023

[4] Doundoulakis v Antony Sdrinis & Co [1989] VicRp 68; (1989) VR 781; see also paragraph 36 below.

[5] Hawkins v Clayton, supra, 561-562, 587-588, 599-602; Wardley, supra, 540.

[6] Sampson v Zucker (New South Wales Court of Appeal judgment 11 December 1996, unreported); Heatherington v Mirvac Pty Ltd & Ors, supra, at 66,023 & 66,026; Wilson v Rigg (New South Wales Supreme Court judgment of Sperling J. 7 February 2000, unreported).

[7] "Redefining accessory liability" (1996) Syd. LR 234,243; "Restitution, misdirected funds and change of position" (1992) 55 Mod. LR 377; "Misdirected funds: problems of uncertainty and inconsistency" (1994) 57 Mod. LR 38; also, Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed., 257-259 [860].