Fried v National Australia Bank Limited - [2001] FCA 907 - FCA 2001 case summary — Zoe

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Fried v National Australia Bank Limited

[2001] FCA 907

Federal Court of Australia|2001-07-01|Before: Gray J

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Source facts

Court

Federal Court of Australia

Decision date

2001-07-01

Before

Gray J

Source

Original judgment source is linked above.

Judgment (62 paragraphs)

[1]

Introduction 1 This proceeding is now much less complex than it was when the trial began. Before going to details of the issues that remain for determination, it is appropriate to set out some facts about the parties and the way in which the litigation involving them has unfolded.

[2]

2 The first applicant, Tab Fried, was born in Budapest, Hungary, in 1939. He left Hungary in 1956 and lived for a time in London. In 1958, he came to settle in Australia. While in Hungary, he had completed part of an apprenticeship as a toolmaker. His partial qualification was recognised and he was able to complete his apprenticeship and qualify as a toolmaker in Victoria. 3 The second applicant, Eva Fried, was born in Antwerp, Belgium, in 1946. She immigrated to Australia with her family. In due course, Tab and Eva Fried married. They have three children, two sons and a daughter. The older of the sons is named David Fried and is the third applicant. 4 In the 1970s Tab Fried started his own business, making precision tools for industrial use. The business was very successful. The Fried family took over another engineering business and later merged the two. In the course of two decades, by this means, the business grew from a one-man operation to a multi-million dollar enterprise, employing more than 130 people. By the mid-1990s, the business was conducted by a public company named TED Engineering Australia Limited. Although it was a public company, all of the shares in TED Engineering Australia Limited were held by a Fried family company named TED Engineering Investments Pty Ltd. In 1996, Mr and Mrs Fried began to consider the sale of the business. After some negotiation, all of the shares in TED Engineering Australia Limited were sold by TED Engineering Investments Pty Ltd to Hawker Richardson Limited. The sale was settled on 22 November 1996. It was a complex transaction, because the intention was to separate the business aspects from the family aspects of TED Engineering Australia Limited, and to sell only the former. In effect, the business was sold for some $26,000,000. Following the settlement of the sale, TED Engineering Investments Pty Ltd changed its name to Evatab Investments Pty Ltd. It is the fifth applicant in this proceeding. 5 While Mr and Mrs Fried were running the business, it was very profitable. From time to time, sums of money from the profits were invested through the firm of Aroni Colman, solicitors. That firm had been founded originally in the 1980s by Eva Fried's brother, Benni Aroni, and Adrian Colman. In the late 1980s, a new firm under the same name was formed by the addition of two partners, Richard Cornish and Mark Wollan. In 1990, the firm moved to conduct its practice from offices at 600 St Kilda Road, Melbourne. 6 As from 1 April 1994, the firm was again reconstituted. Three new partners were admitted. They were Bruno Charlesworth, Norman Fryde and Max Green. The firm subsequently changed its location, moving to offices on Level 32 of the Rialto Building at 525 Collins Street, Melbourne. Because of the greater size of the firm, Benni Aroni was designated as managing partner. Other partners specialised in various aspects of legal practice. In particular, Mark Wollan dealt with the firm's mortgage practice, which included the investment of clients' monies on mortgages through a company called Investlaw Mortgages Pty Ltd. Max Green was the partner who specialised in taxation law. 7 In the early 1990s, Max Green practised as a solicitor and as a partner in a firm known as Shugg & Green. That firm dissolved in 1993. Mr Green then practised for a time as a sole practitioner under the name Max Green & Associates. He moved into an office in the premises of Aroni Colman in St Kilda Road. The purpose of this arrangement was to enable the existing four partners of Aroni Colman to assess whether Mr Green should be admitted to the firm. While he was a sole practitioner, Mr Green maintained four bank accounts with the National Australia Bank Limited ("the NAB"). At a branch of the NAB in St Kilda Road he kept an account styled Max Green and Associates Trust Account and an account styled Max Green and Associates General Account. Similarly, at the Carlton branch of the NAB, he kept an account styled Max Green and Associates Trust Account and an account styled Max Green and Associates General Account. For a time, the two accounts at the St Kilda Road branch were transferred to the Carlton branch. Two accounts were then closed, leaving one account at the Carlton branch styled Max Green and Associates Trust Account and one account styled Max Green and Associates General Account. Although designated as a trust account, the former of these accounts was not declared to the Law Institute of Victoria as required by the Legal Profession Practice Act 1958 (Vic) or, after 1 January 1997, to the Legal Practice Board as required by the Legal Practice Act 1996 (Vic). The account was therefore never audited as a trust account. Max Green kept the account in operation for a considerable time after he became a partner of Aroni Colman. 8 Aroni Colman kept its general trust account with the NAB. The firm also from time to time opened, operated and closed bank accounts into which the funds of individual clients were paid. By this means, the clients were able to receive interest on funds held in the accounts. In the case of a solicitor's trust account into which the funds of various clients are paid, the interest that would otherwise be received by an account holder is paid into a central fund to be used for purposes authorised by statute. The accounts into which the funds of individual clients were paid were generally styled as "Aroni Colman in trust for", followed by the name of the client. When the offices of Aroni Colman were in St Kilda Road, these accounts were generally kept with the Advance Bank, although some were kept with the Bendigo Building Society. In the years following the move to the Rialto building, greater use was made of Bendigo Bank Limited ("Bendigo Bank"). 9 Bendigo Bank was the product of successive amalgamations of financial institutions, one of which was Capital Building Society. Following the successive mergers, its business was carried on as the Bendigo Building Society. On 27 June 1995, the society received a licence to operate as a bank, pursuant to s 9 of the Banking Act 1959 (Cth), and changed its name to Bendigo Bank. Between that time and the dissolution of the firm of Aroni Colman, Aroni Colman maintained or opened some 263 separate accounts with Bendigo Bank. Each of these was an account in the name of Aroni Colman, with the addition of words indicating that the account was held in trust for a particular named client. These accounts included some maintained in trust for companies owned by Tab and Eva Fried. 10 On 25 March 1998, news reached Aroni Colman that Max Green had been found dead in a hotel room in Cambodia. Initially, the news suggested that he had died of natural causes. This was followed quickly by news that Mr Green had in fact been murdered. An investigation of his files in the office of Aroni Colman soon revealed that all was not well. Mr Green was found to have misappropriated tens of millions of dollars of the money of clients of Aroni Colman and of other persons. Several tax avoidance schemes proposed by Mr Green turned out to have been complete shams. Instead of applying the monies of clients and other monies received by him in the ways in which they were expected to be applied, Mr Green had applied them to his own purposes. In most cases, he had transmitted the funds overseas. In so doing, he made considerable use of his account in the name of Max Green and Associates Trust Account at the Carlton branch of the NAB. 11 On 30 July 1998, Tab, Eva and David Fried, as well as Compack Packaging Employee Share Plan Pty Ltd, Evatab Leasing Pty Ltd (formerly TED Engineering Investments Pty Ltd), Invotin Pty Ltd, Windina Pty Ltd and Evatab Leasing Pty Ltd, commenced this proceeding. Initially, they sued the NAB and Aroni Colman in its firm name. Subsequently, they amended to sue, instead of the firm Aroni Colman, its surviving partners: Benni Aroni, Adrian Colman, Richard Starling Cornish, Mark Wollan, Norman Samuel Fryde, Bruno John Charlesworth, Bruce David Josem and Effie Kavadas. The last two were salaried partners, and the applicants did not press their claims against them. In the course of the interlocutory stages of the proceeding, the applicants sought non-party discovery of documents against the Bendigo Bank. In consequence of what they learned from the documents, in May 1999, they amended their claim so as to add Bendigo Bank Limited as a respondent. 12 Prior to the commencement of the trial, the applicants entered into a settlement with Messrs Aroni, Colman, Cornish, Wollan, Fryde and Charlesworth, the surviving equity partners of the firm Aroni Colman. By that settlement, the partners consented to the entry of judgment against them in the sum of $11,000,000. They also declared that they were unable and unwilling to pursue any claim they might have as trustees for the applicants against anyone else. The applicants have not yet entered judgment in accordance with the consent. 13 Also in the interlocutory stages of the proceeding, there were filed a number of cross-claims by which the respondents sought indemnity or contribution from each other and from WF Titchener & Co Pty Ltd, a firm of accountants which audited the trust accounts of Aroni Colman during the relevant period.

[6]

Babcock & Brown Pty. Ltd., a Sydney based investment bank, has put a proposal to us for use as a tax planning vehicle by clients of Aroni Colman, in conjunction with other investors, similar to a structure which was operated during the 1993/94 tax year and in respect of which a favourable private ruling from the Australian Taxation Office ('the ATO') was obtained at the time. 1. The proposal centres around the formation of a joint venture with a nominee company acting as Trustee and custodian thereof for the purpose of acquiring and leasing to Australian Gas Light Company Ltd. (a partially privatised gas authority in New South Wales) a number of domestic gas meters. The cost of each gas meter is below the $300 threshold provided for in Section 55 of the Income Tax Assessment Act ('the Tax Act') and therefore the entire cost of each gas meter can be written off by the partnership in the current year of income. It is also clear from Income Tax Ruling IT 2685 that each gas meter will be treated as a separate article of plant and therefore, separately depreciable under section 55. 2. The investment required by a taxpayer is an amount of $500,000. This amount will then be geared on a 4-1 basis so that a taxpayer who invests $500,000 will receive a tax deduction in 1995/96 of $2,000,000. 3. In addition to obtaining the tax deduction of $2,000,000 in the first year, a taxpayer who invests $500,000 will receive a distribution from the joint venture of $150,000 per annum 5 years, with the first distribution being in the 1996/97 year of income. The amounts will be subject to tax in the hands of the taxpayer/investor. 4. The $1.5 million loan will be underwritten by the investment bank and paid out from the rental income payable by AGL without any recourse to the investors. 5. In order to participate in this arrangement, it is necessary to commit the $500,000 investment by close of business on 3rd April, 1996 so that the funds can then be forwarded to the investment bank's Solicitors in Sydney for retention in an escrow account. 6. The funds invested will be retained by the Solicitors in Sydney acting for Babcock & Brown (Dunhill Madden Butler) until all satisfactory document (sic) in relation to the acquisition and leasing of the gas meters to AGL and the underlying joint venture agreements have been executed AND a satisfactory private ruling has been obtained from the Australian Taxation Office. 7. In the event that the conditions referred to in paragraph 6 are not met prior to 30th June, 1996 the $500,000 together with interest from the date of payment until the date of repayment will be refunded."

[8]

20 This proposal led to the withdrawal of $500,000 from an account maintained by Aroni Colman with the Bendigo Bank, described as "Aroni Colman in trust for TED Engineering Australia Limited"; the account number was 4225868/B101 ("the B101 account"). The withdrawal took place on 3 April 1996. The amount concerned was misappropriated by Mr Green. The transaction was designated as transaction A3 for the purposes of this proceeding. It is no longer the subject of a claim by the applicants against Bendigo Bank. It will be necessary, however, to deal with the circumstances of the withdrawal later in these reasons for judgment. 21 The gas meter leasing scheme was a sham throughout. Babcock & Brown, which is in fact a merchant bank with an office in Sydney, knew nothing about it. Neither did the Australian Gas Light Company Ltd or Dunhill Madden Butler. The escrow account, later said to be an account with the Colonial State Bank in Sydney, never existed. The scheme was used by Mr Green solely to steal funds from the Fried group. 22 Mr Green must have considered the scheme to be a reliable means for this purpose. Prior to the end of the financial year in 1996, he recommended a revised version of the scheme. By letter to Mr Rado, dated 24 June 1996, Mr Green wrote: "Enclosed is amended executive summary of the Gas Meter leasing deal. In view of the still favourable gearing ratio for the depreciation deduction and the fact that the ATO has given its verbal OK and the fact that we can 'undo' the transactions if the favourable ruling is not forthcoming, I recommend that TED proceed." 23 The amended executive summary was in the following terms: "GAS METER LEASING PROPOSAL AMENDED EXECUTIVE SUMMARY Following on from previous executive summary, which was submitted to you on 2 April 1996 and our subsequent discussions, the following is an updated summary which details some changes to the financial structure and timing of the arrangement: These changes have occurred due to an upward movement in the final cost of each gas meter to $275.00 per unit (still well below the $300.00 per item below which the entire cost of each item can be written off fully in the year of purchase) and the requirement of the N.S.W. gas company and the lending bank that here (sic) be no more than 4 lessor participants in the deal. Accordingly, the amended arrangements are as follows: 1. Each participant is required to invest $775,000.00 (instead of the original $500,000) for a 3 year period. This investment will be returned over the 3 year period together with a return of 10.5% per annum on this amount. 2. The investors will have a geared investment in the gas meters of a total of 3:1, making a total of $2,275,000 of deductible depreciation. Due to timing issues on delivery of the total shipment of meters, this deduction will be split as follows: $2,000,000 depreciation deduction in the year of income ending 30 June 1996 $275,000 depreciation deduction in the year of income ending 30 June 1997 The gearing will be non-recourse in the sense that the Lease payments by the Gas Company will fully repay the loan and finance charges and interest associated therewith. 3. The client investment of $775,000 will be returned in 3 annual instalments of $250,000, $250,000 and $275,000 respectively with interest on a pro rata basis. All these amounts will be assessable income to the investor in the respective year (sic) in which they are received. However, the balance of the geared investment will not be subject to income tax in subsequent years in the hands of the investor, but will be taxed in the hands of the financier. 4. A tax ruling has been sought and, discussions have occurred earlier this month with the ATO concerning the ruling. The ATO has indicated that a favourable ruling is likely to be forthcoming, but because each investor is now to own a portion of the meters in their own right and not as part of a partnership, as previously envisaged, fresh ruling applications on behalf of each respective investor were required to be lodged. These have been lodged and an answer is expected within the next 30 days. 5. Accordingly, it is proposed that documentation of the transaction proceed with all documents and funds being held in escrow so that if a favourable tax ruling is not obtained, the transactions will, at the investor's election, not proceed and the funds invested together with interest at the agreed rate will be repaid to the investors. 6. Draft documentation has been reviewed by us and some changes are presently being made by the financier's solicitors in Sydney. Once documents have been completed, they will be executed later this week in the ACT under Power of Attorney to overcome significant Stamp Duty costs which will otherwise apply in N.S.W. 7. Please confirm as soon as possible that TED is still to proceed so that final documents can be prepared and arrangements made for the balance of the funds to be remitted."

[12]

The TED Engineering Australia Employee Bonus Unit Trust 28 In or about June 1996, Mr Green proposed to Tab Fried the establishment of an Employee Bonus Unit Trust Scheme for TED Engineering Australia Limited. The proposal was designed to have taxation advantages. 29 On 26 June 1996, a new company called Windina Pty Ltd was incorporated. The directors were Tab Fried and Eva Fried. In the offices of Aroni Colman, a deed was drawn up between Windina Pty Ltd and TED Engineering Australia Limited. The common seal of each of those companies was affixed to the deed. In each case, Tab Fried signed as a director and Eva Fried as director/secretary. The deed was dated 28 June 1996. It named Windina Pty Ltd as trustee of the TED Engineering Australia Employee Bonus Unit Trust. 30 In evidence were documents purporting to be the minutes of three meetings on 28 June 1996. In fact, no meetings ever took place. The minutes were drawn up, probably in the office of Mr Rado. They were signed by Tab Fried, so as to give the appearance that meetings had taken place. The first minute recorded a meeting of the directors of Windina Pty Ltd at 2.30 pm, at which Tab Fried was present as chairperson and Eva Fried was also present. According to the minute, Tab Fried tabled the Employee Benefit Unit Trust Deed. It was resolved that Windina Pty Ltd accept and undertake the office of trustee of the TED Engineering Australia Employee Bonus Unit Trust and that it execute the deed by affixing the company seal in the presence of any director. The next minute recorded a meeting of the directors of TED Engineering Australia Limited at 3.00 pm. Tab Fried was present as chairperson. Benni Aroni and Eva Fried were also present. Again, the minute records that Tab Fried tabled the Employee Benefit Unit Trust Deed and that it was resolved that the company execute the deed by affixing the company seal in the presence of any director. The minute also recorded that Tab Fried tabled the names of employees who had contributed to the profitability and growth and development of the company over and above other employees and/or directors of the company. The names were Tab Fried, Eva Fried and David Anthony Fried. The minutes record a resolution that the company, in recognition of those employees' contribution to the company, reward those employees by nominating them to acquire units in the TED Engineering Australia Employee Bonus Unit Trust. The third minute purported to record a meeting taking place on the same day at 3.30 pm. It was said to have been a meeting of the directors of Windina Pty Ltd. According to the minute, the meeting resolved to issue to TED Engineering Australia Limited one manager unit of $1. It also resolved that Windina Pty Ltd advance loans to Tab Fried, Eva Fried and David Fried to enable them to acquire employee units and issue the employee units set out opposite the employee's name. Tab Fried was allocated 480,000 units, Eva Fried 50,000 and David Fried 75,000. Each unit was valued at $1. Other resolutions recorded in the purported minutes included a resolution that Windina Pty Ltd open a bank account. 31 Again, the scheme was merely a vehicle to enable Mr Green to misappropriate money from TED Engineering Australia Limited. A withdrawal by means of a bank cheque payable to Windina Pty Ltd was unlikely to arouse suspicion.

[13]

The Impugned Transactions 32 Against this background, it is appropriate to examine the details of the seven transactions in the course of which the applicants allege that Bendigo Bank wrongfully debited bank accounts. For convenience, each transaction has been designated by a letter and a number, the particular designations having been chosen for the purposes of the pleadings in this proceeding. The designations are therefore not random, although they may appear so in the context of these reasons for judgment. 33 Although I set out in detail the course of each of the seven transactions that remain in issue, it must be remembered that these were seven among a number of transactions instigated by Mr Green as part of his systematic theft of funds from the Fried family and their companies. 34 It should be noted that, prior to the finalisation of the sale of TED Engineering Australia Limited to Hawker Richardson Limited on 22 November 1996, the B101 account was maintained by Aroni Colman for funds of TED Engineering Australia Limited. The account was entitled "Aroni Colman in trust for TED Engineering Australia Ltd". The B101 account was described as an "11 am at call account", meaning that a withdrawal from it could be effected on the same day if application for the withdrawal was made prior to 11.00 am. The account was administered through Bendigo Bank's branch at 406 Collins Street, Melbourne. This was where any record of the persons authorised to operate the account was kept. The nature of the record, and its significance, are explained later in these reasons for judgment. The usual method of making a withdrawal was by using Bendigo Bank's withdrawal form, which had provision for a signature, or signatures, required to operate the account. If a withdrawal was sought by means other than this form, for instance by a letter, the practice was for the bank officer handling the transaction to fill out a withdrawal form and to attach the application for withdrawal to that form. On the back of a withdrawal slip is a heading "signature verified by", followed by five boxes, designated respectively as "Black Light", "Plastic Card", "Drivers Licence", "Signature Card" and "Known".

[14]

Transaction A4 35 Ostensibly for the purposes of the gas meter leasing scheme, in late June 1996, Mr Green sent a written instruction to Lisa Andrews, the accounts manager of Aroni Colman, in the following terms: "please draw $275,000 from TED Engineering Australia Limited investments either Bendigo or St George and make bank cheque payable to Babcock & Brown Pty Ltd". 36 Pursuant to this instruction, Ms Andrews, or someone in the accounts department of Aroni Colman, prepared a withdrawal slip dated 26 June 1996, seeking the withdrawal of $275,000 from the B101 account. The withdrawal slip was signed by Mr Green. On the back, it was endorsed with an instruction to the effect that the withdrawal was to be by cheque payable to Babcock & Brown Pty Ltd. 37 The withdrawal slip was presented at the Bendigo Bank at its branch at 406 Collins Street, Melbourne. There is no evidence as to who presented the withdrawal slip at 406 Collins Street. The transaction was processed on behalf of Bendigo Bank by John Lowther, who was employed as a customer service officer at the branch at that time. His evidence was that he had no recollection of the transaction, but was able to say that he had ticked the "Known" box on the back of the withdrawal slip, entered on the back of the withdrawal slip the number of the bank cheque drawn in response to the request, stamped the face of the withdrawal slip with the bank's date stamp and signed the bank cheque. Mr Lowther's evidence was that he did not know either Mr Green or Aroni Colman. He had recently arrived in Melbourne from Bendigo and was not familiar with the customers of the branch at which he was then working. All he can say is that, in accordance with his usual practice, he would have made an inquiry of another customer service officer, the agency officer who had conduct of the customer's file, or the supervisor, before ticking the "Known" box. He does not now recall to whom he made the inquiry, but would not have ticked the "Known" box without checking with someone else. The agency officer responsible at the time was Sandra Barac, who gave evidence before me, but not about this transaction. The supervisor was Paul McMahon, who was not called to give evidence. 38 The bank cheque, number 439790, was countersigned by another officer of Bendigo Bank. It was received by the accounts department at Aroni Colman, where a photocopy of it was made and endorsed "as per MG/client instructions". It was also endorsed with a receipt number. The bank cheque was never transmitted to Babcock & Brown Pty Ltd in Sydney. Nor was it ever used to place funds in an escrow account in Sydney, as contemplated by the executive summary of the gas meter leasing scheme. Instead, Mr Green paid it into the account styled Max Green and Associates Trust Account at the Carlton branch of the NAB. At the time of payment in, that account was in credit to the extent of $138.24. On the same day as the payment in, Mr Green drew a cheque on the account, payable to Sphere Business Systems Pty Ltd in the sum of $125,005. Two days later, on 28 June 1996, he drew a further cheque payable to Drewvale Investments Pty Ltd in the sum of $110,000. On 4 July 1996, he drew a further cheque payable to Drewvale Investments Pty Ltd in the sum of $15,000. In this way, most of the proceeds of the Bendigo Bank bank cheque for $275,000 were passed through Mr Green's account with the NAB. Drewvale Investments Pty Ltd was a company associated with Mr Bill Lewski, who had business dealings with Mr Green. 39 It was the practice of Aroni Colman to produce at the end of each quarter a statement of the investments of the Fried family and their companies. At the request of Tab Fried, the statement was produced in a relatively simple form, so that Mr Fried, who was in charge of the investments, could understand it. The statement was produced by Lisa Andrews, or someone under her direction. It was usually produced by taking the statement for the previous quarter and updating it. Where transactions had been undertaken on the instructions of a partner, the draft statement was sent to that partner for updating of the relevant items. Thus, Mr Green had input into the quarterly statements when he initiated transactions relating to the Fried interests. 40 The statement produced in respect of the quarter ended 30 June 1996 showed two withdrawals from the B101 account in favour of Babcock & Brown Pty Ltd. One was the withdrawal of 3 April 1996, transaction A3. The other was the withdrawal of 26 June 1996, transaction A4. Together, those withdrawals totalled the $775,000 contemplated by the amended executive summary of the gas meter leasing scheme. Although that summary had contemplated that the money would be held in an escrow account until a satisfactory private ruling of the Commissioner of Taxation was received, the quarterly statement in respect of the quarter ended 30 June 1996 did not show any investment in such an escrow account. It may have been this lack of any reference to the fate of the total sum of $775,000 that led to an inquiry on behalf of TED Engineering Australia Limited. By a facsimile message dated 19 September 1996, Ross Shilston, the internal accountant for TED Engineering Australia Limited inquired of Aroni Colman: "Would you please arrange for confirmation that TED Engineering Australia Limited has equity of $775,000.00 in Babcock & Brown Pty Ltd to be forwarded to our auditors."

[17]

Transaction A5 43 This transaction again involved a withdrawal from the B101 account. Any written instruction to the Aroni Colman accounts department in respect of the withdrawal is not in evidence. A withdrawal slip dated 8 July 1996 was prepared in the accounts department. It was signed by Max Green. The sum specified was $875,000. There is no evidence as to who was involved in the presentation of the withdrawal slip to Bendigo Bank at its branch at 406 Collins Street. For Bendigo Bank, the transaction was handled by Margaret Helen Annand, who was then a customer service officer at that branch. Ms Annand ticked the "Known" box on the back of the withdrawal slip. Beneath the tick she wrote the name "Sandra Barac". Ms Barac was at that time an agency/client relations officer employed by Bendigo Bank at that branch. She had specific responsibility for Aroni Colman as a customer, and for the accounts kept by Aroni Colman. 44 Ms Annand does not now have any recollection of the circumstances in which she ticked the "Known" box and wrote Ms Barac's name beneath the tick. Her best recollection is that an employee of Aroni Colman requested the transaction. Ms Barac does not now have any recollection of how her name came to be endorsed on the withdrawal slip. Her usual practice was to sign the reverse of the withdrawal slip near the "Known" box with her initials and staff number, if she was asked to verify a signatory or to authorise a transaction. Her initials and staff number do not appear on the document. 45 On the reverse side of the withdrawal slip was an instruction that the withdrawal be by cheque payable to Babcock & Brown. Ms Annand prepared the bank cheque and signed it. It was countersigned by Ms Barac. Ms Annand entered the number on the back of the withdrawal slip. 46 A photocopy of the bank cheque, number 446735, was kept in the records of the accounts department at Aroni Colman. The cheque itself was collected by the NAB and its proceeds were paid into the Max Green and Associates Trust Account at the Carlton branch of the NAB on 8 July 1996. Prior to that, the account was in credit to the extent of $25,133.24. 47 In the quarterly statement of investments sent by Aroni Colman to Tab Fried, the amount of $875,000 was shown as having been withdrawn from the B101 account and paid to TED Investments Pty Ltd, for the purposes of the gas meter leasing program. TED Investments Pty Ltd was a company apparently formed to be the vehicle for investment in the gas meter leasing scheme. After the settlement of the sale of the shares in TED Engineering Australia Limited to Hawker Richardson Limited, TED Investments Pty Ltd changed its name to Evatab Leasing Pty Ltd. As I have said, it is the eighth applicant. The accounts did not show that amount, nor the earlier payments totalling $775,000, as an investment by TED Investments Pty Ltd. 48 Over a period of eight days, the bulk of the funds in the Max Green and Associates Trust Account were paid out by various cheques drawn on the account. On 8 July 1996 there was a cheque drawn on the NAB with the instruction "pay Aroni Colman by bank cheque", in the sum of $250,005. This resulted in a NAB bank cheque dated 8 July 1996, in the sum of $250,000 (the additional $5 being used to pay the fee for the bank cheque). That bank cheque was deposited into the Aroni Colman trust account at the NAB branch at 271 Collins Street, Melbourne, on the same day, along with other amounts. Again on the same day, a cheque was drawn on the Aroni Colman trust account, signed by Adrian Colman and by Darren Lea, the office manager at Aroni Colman in the sum of $250,000. The payment instructions were "NAB T/T T. Doyle - Bankok (sic) Public Co. Ltd". $250,000 was therefore despatched by the NAB by telegraphic transfer to the Bangkok Bank Public Co Ltd, for the credit of a specific account in the name of T J Doyle. 49 Mr Green drew other cheques against the amount standing in the Max Green and Associates Trust Account on 8 July 1996. One was to "H and S Hornstein by bank cheque" in the sum of $200,874.32. Another was to Drewvale Investments Pty Ltd in the sum of $210,000. On 12 July 1996, Mr Green drew a cheque on the account in favour of Geddeson Finance Pty Ltd, in the sum of $15,000. Geddeson Finance Pty Ltd was a company associated with Mr Green. On 15 July 1996, Mr Green drew another cheque payable to Aroni Colman by bank cheque in the sum of $12,500. On 16 July 1996, he drew another cheque in favour of Aroni Colman in the sum of $15,872. This withdrawal was by way of three bank cheques, each dated 16 July 1996 and each payable to Aroni Colman. The amounts were $5001, $4,426 and $6,440. The balance of the withdrawal was consumed by fees for the bank cheques. These amounts were paid into the Aroni Colman general account, as payments of fees due to the firm. There was also a further cheque drawn by Mr Green on the Max Green and Associates Trust Account, dated 15 July 1996, in favour of Drewvale Investments Pty Ltd, in the sum of $105,000. 50 All of these withdrawals left the Max Green and Associates Trust Account in credit to the extent of $90,881.92, at 16 July 1996. In other words, not all of the proceeds of the cheque for $875,000 had been disbursed by that time.

[18]

Transaction B3 51 By an undated memorandum addressed to "Accounts", Mr Green instructed the accounts department at Aroni Colman to transfer $500,000 that day from the B101 account to the Aroni Colman trust account. The memorandum bears a handwritten endorsement "contribution in respect of employees". This is apparently a reference to the TED Engineering Australia Employee Bonus Unit Trust. In accordance with the instruction, a withdrawal form was prepared and dated 19 August 1996. It was signed by Mr Green. On the back was an instruction that the withdrawal was to be by cheque payable to Aroni Colman trust account in the sum of $500,000. 52 Again, there is no evidence as to how the withdrawal form was taken to Bendigo Bank. It was processed on 19 August 1996, at the branch at 406 Collins Street, by John Lowther. He ticked the "Known" box on the back of the form and wrote the number of the bank cheque, which was made payable to "Aroni Colman trust account". Mr Lowther said that, in accordance with his usual practice, he would have relied on the advice of other officers of Bendigo Bank before he ticked the "Known" box. Mr Lowther was also one of the signatories of the bank cheque. 53 The proceeds of the bank cheque were paid into the Aroni Colman trust account at the NAB on 19 August 1996. Two payments out of that trust account can be attributed to those funds. The first was a withdrawal by way of bank cheque payable to Windina Pty Ltd, in the sum of $200,000, on 3 September 1996. The proceeds of that bank cheque were then collected by the NAB and paid into the Max Green and Associates Trust Account on 3 September 1996. The second payment out of the Aroni Colman trust account was by way of a second bank cheque payable to Windina Pty Ltd, in the sum of $300,000, on 9 September 1996. The proceeds of that bank cheque were also collected by the NAB and deposited in the Max Green and Associates Trust Account on the same day. 54 The deposit of $200,000 to the Max Green and Associates Trust Account was converted to US dollars and forwarded by telegraphic transfer to the Bank of New York for the credit of Y and H Awaad, pursuant to a written instruction of Mr Green dated 3 September 1996. The deposit of $300,000 was converted to US dollars and forwarded by telegraphic transfer to the Bangkok Bank for the benefit of David Lee Wolf, pursuant to a written instruction of Mr Green dated 9 September 1996. 55 The statement of investments as at 30 September 1996, sent by Aroni Colman to Tab Fried, showed a withdrawal of $500,000 on 19 August 1996 as being a withdrawal in favour of TED Investments Pty Ltd in respect of the gas meter leasing program. The statement did not mention Windina Pty Ltd.

[19]

Transaction B4 56 By an undated memorandum addressed to "Accounts", Mr Green instructed: "Please draw $400,000 from Bendigo Bank payable to Babcock & Brown the notation will be loan to TED Investments Pty Ltd re Gas Meter Leasing program". In accordance with this instruction, a withdrawal form was completed and dated 20 September 1996 (the same date as Mr Green's facsimile to Mr Rado with the false letter purporting to acknowledge receipt of the deposit by the State Bank of New South Wales), in respect of the B101 account. On the back of the form was an instruction that the withdrawal be by cheque payable to Babcock & Brown in the sum of $400,000. Mr Green signed the form. There is no evidence as to how the form came to be conveyed to Bendigo Bank. 57 At the time, Adam Hawking was employed by Bendigo Bank as a relieving customer service officer. He worked at various branches where staff were on annual leave or where there were staff shortages for other reasons. He was therefore not a regular employee at the Bendigo Bank branch at 406 Collins Street. The computer records of Bendigo Bank apparently show that the withdrawal was processed using Mr Hawking's log-on. This does not necessarily mean that he processed the transaction. It may have been that another customer service officer was at his teller position, relieving him during a break. It was not usual for a customer service officer to log off whilst being relieved, so that someone else might have processed the transaction using Mr Hawking's log-on. From looking at the back of the withdrawal form, Mr Hawking was able to say that he wrote the number of the bank cheque, by which the withdrawal was effected, on the back of that form. He was also able to recognise his signature on the bank cheque and the fact that he had written his staff number on the bank cheque. He had no independent recollection of dealing with the transaction. No initial appears on the front of the withdrawal form. It was normal for a customer service officer to stamp the front of the withdrawal form and to add his or her initials, to enable identification of the person processing the transaction. Although no such initial appears, it is likely that Mr Hawking processed the transaction, because of his involvement in the production of the bank cheque and the recording of its number. The "Known" box on the back of the withdrawal form has a tick in it. Because of Mr Hawking's lack of recollection of the transaction, there is no evidence as to what inquiries were made before the box was ticked. 58 The bank cheque in the sum of $400,000, payable to Babcock & Brown and dated 20 September 1996, was collected by the NAB and the proceeds were credited to the Aroni Colman trust account on 20 September 1996. On the same day, a cheque was drawn by Aroni Colman, signed by Mr Green and Mr Charlesworth. The cheque requested a bank cheque payable to Babcock & Brown. This instruction was complied with by the NAB on the same day. The resulting bank cheque was collected by the NAB and the proceeds deposited to the credit of the Max Green and Associates Trust Account. 59 By written instruction, again dated 20 September 1996, Mr Green requested of the NAB the transfer of $US 250,000 from the Max Green and Associates Trust Account to the Bangkok Bank for the benefit of David Lee Wolf. This resulted in a debit of $317,077.70 of the Max Green and Associates Trust Account. On 24 September 1996, Mr Green withdrew a further $60,000 from the Max Green and Associates Trust Account, by way of bank cheque payable to Geddeson Finance Pty Ltd. That withdrawal left the Max Green and Associates Trust Account in credit to the extent of more than $87,000. This was because the account had been in credit in excess of $64,000 prior to the deposit of $400,000. It is therefore difficult to attribute further withdrawals from the account specifically to the $400,000. On 4 October 1996, in accordance with a written instruction of Mr Green sent by facsimile from New York, $30,000 was transferred to a joint account that Mr Green and his wife maintained with the NAB. That amount was then withdrawn by bank cheque payable to American Express and apparently used to pay an outstanding credit card bill. On 1 November 1996, Mr Green withdrew a further sum of $20,000, by bank cheque payable to Aroni Colman. This sum was paid into the general account of Aroni Colman by way of receipt of fees. 60 The quarterly statements of investment as at 30 September 1996, sent by Aroni Colman to Tab Fried showed a withdrawal of the sum of $400,000 on 20 September 1996 in favour of TED Investments Pty Ltd, in respect of the gas meter leasing program.

[20]

Transaction A6 61 By another undated memorandum addressed to "Accounts", Mr Green instructed the withdrawal of $750,000 from the B101 account, payable to Windina Pty Ltd. The memorandum also instructed that the transaction be noted as an inter-company loan and stated that the bank cheque was needed at 2.15 pm. In accordance with this instruction, a withdrawal form dated 3 December 1996 was prepared. It was signed by Mr Green. Again, there is no evidence as to how the withdrawal form came to be presented to Bendigo Bank, other than that the presentation took place at the branch at 406 Collins Street. The transaction was processed using Mr Hawking's log-on. According to Mr Hawking's evidence, handwriting appearing on the front and back of the withdrawal slips is not his and the initial which appears on the date stamp on the front of the withdrawal slip is not his. The bank cheque was signed by two other staff members, named King and Dobelle, who were not called to give evidence. Mr Hawking has no recollection of the transaction. It is unlikely that he was involved in it and there is no other evidence as to who processed the withdrawal. 62 The bank cheque for $750,000, payable to Windina Pty Ltd and dated 3 December 1996, was collected by the NAB and the proceeds paid into the Max Green and Associates Trust Account. Prior to that deposit, the account was in credit to the extent of $7,502.47. On the same day, 3 December 1996, Mr Green gave a written instruction to the NAB to transfer $US 400,000 from the Max Green and Associates Trust Account to the Bangkok Bank for the benefit of David Lee Wolf. That transaction was carried out, resulting in a debit of $503,018.11 to the account. On 5 December 1996, Mr Green withdrew $100,000 from the Max Green and Associates Trust Account by means of a cheque payable to Geddeson Finance Pty Ltd. On 9 December 1996, Mr Green withdrew a further $100,000 by bank cheque, payable to the Aroni Colman trust account. The proceeds of that bank cheque were credited to the Aroni Colman trust account on that day. As a result of these withdrawals, the Max Green and Associates Trust Account was in credit to the extent of $54,484.36 before the amount involved in transaction A7 was paid into that account on 11 December 1996. 63 The quarterly statement of investments as at 31 December 1996, sent by Aroni Colman to Tab Fried, showed a withdrawal on 3 December 1996 from the B101 account in the sum of $750,000, in favour of Evatab Leasing Pty Ltd, described as an inter-company loan and a term deposit with the Colonial State Bank of NSW. In this statement, for the first time, there was a reference to funds in the Colonial State Bank of NSW. It appears that Mr Green had realised that the quarterly statements were not giving any indication of the existence of the escrow account contemplated by the terms of the gas meter leasing scheme. The investment was said to be in the name of Evatab Leasing Pty Ltd (the company formerly known as TED Investments Pty Ltd). The statement purported to show that, as at 30 September 1996, $3,150,000 had been held at the Colonial State Bank of NSW. The statement also showed the further deposit of $750,000 on 3 December 1996.

[22]

66 There is no evidence as to how the withdrawal form was conveyed to the Bendigo Bank branch at 406 Collins Street. The withdrawal was effected under the log-on of a Bendigo Bank employee called Karen Stanek, who did not give evidence in this proceeding. Mr Hawking was also involved. According to his evidence, he wrote the number of the bank cheque on the back of the withdrawal form. He also said that he wrote the words "Evatab Leasing Pty Ltd", although those words appear on the copy of the withdrawal form retained by the accounts department of Aroni Colman, apparently in place of some other form of instruction for the transaction. Mr Hawking also signed the bank cheque and marked it with his staff number. It is unlikely that Mr Hawking was the primary customer service officer in the processing of the withdrawal. At all events, the withdrawal was processed, in the form of a bank cheque payable to Evatab Leasing Pty Ltd. 67 On the same day, NAB collected the proceeds of the bank cheque and paid the sum of $1,500,000 into the Max Green and Associates Trust Account, putting the account in credit to the extent of $1,554,484.36. 68 On 13 December 1996, Mr Green sent a facsimile message to the NAB at its Carlton branch, requesting the transfer of two amounts of $US 500,000 from the Max Green and Associates Trust Account to the Bangkok Bank and the Thai Farmers Bank respectively, each transfer for the benefit of David Lee Wolf. The bank executed these transfers on the same day. The account was debited by $633,713.56 in respect of each transfer, although the second debit does not show on the statement until 16 December, because it was initially debited to the wrong account in error. 69 Also on 13 December 1996, the NAB debited the Max Green and Associates Trust Account by a further $66,000, which it transferred to its Western Branch in Brisbane, for the benefit of Asian Pacific Homes. A telephone instruction for this transaction was confirmed by facsimile message from Mr Green to the NAB on 16 December 1996. On 19 December 1996, the NAB further debited the Max Green and Associates Trust Account by $86,000, which was transferred to a branch of the Westpac Bank, for the benefit of Geddeson Finance Pty Ltd. An amount of $86,000 was deposited in the Aroni Colman trust account in cash on 18 December 1996 and paid out again on the same day by trust account cheque to Alvamart Pty Ltd, another of Mr Green's companies. The trust account cheque was signed by Mr Green and Mr Lea. The NAB collected the proceeds of this cheque and paid them into the Max Green and Associates Trust Account on 23 December 1996. It is reasonable to infer that Mr Green passed $86,000 of the money withdrawn in transaction A7 through Geddeson Finance Pty Ltd and the Aroni Colman trust account to Alvamart Pty Ltd. 70 On 23 and 24 December 1996, Mr Green drew cheques for $6,000 and $5,000 respectively against the amount standing to the credit of the Max Green and Associates Trust Account. Each cheque was payable to "National Australia Bank" and was used to purchase a bank cheque payable to "Aroni Colman". Each bank cheque was paid into the Aroni Colman general account and received by way of fees. 71 The quarterly statement of investments as at 31 December 1996, sent by Aroni Colman to Tab Fried, showed a withdrawal from the B101 account in the sum of $1,500,000 in favour of Evatab Leasing Pty Ltd. This was described as an inter-company loan - term deposit with Colonial State Bank of NSW. The statement also showed the same sum being deposited to the credit of Evatab Leasing Pty Ltd with the Colonial State Bank of NSW, bringing the total said to have been invested for Evatab Leasing Pty Ltd in the Colonial State Bank of NSW to $5,400,000.

[24]

The letter was signed by Mr Green. 74 Mr Green attended personally at the Bendigo Bank branch at 406 Collins Street. The transaction was dealt with by Sandra Barac. It took some time, because fifteen or twenty minutes were spent trying to get authority from a senior officer of Bendigo Bank in Bendigo for the early closure of a three month term deposit account. There was a penalty attached to such early closure. Ms Barac asked Mr Green whether he was aware that early withdrawal would incur a penalty. Mr Green indicated that he did not mind. He did not appear to mind that he was kept waiting. 75 A withdrawal form, dated 9 April 1997, was prepared. It was signed by Mr Green. Because the transaction was initiated by letter, it is probable that this form was prepared at the Bendigo Bank branch, although it may have occurred in the office of Aroni Colman. The amount of the withdrawal was inserted at the bank, because it was necessary to make a calculation of the credit balance in the account and to deduct the amount of the penalty. The withdrawal was in the sum of $2,390,964.91. Sandra Barac ticked the "Known" box. Ms Barac did this because, by that time, she understood Mr Green to have become an authorised signatory, in circumstances to which I refer later in these reasons for judgment. 76 As instructed, the withdrawal was effected by bank cheque payable to "Aroni Colman Trust A/C". The proceeds of the cheque were deposited in the Aroni Colman trust account on the same day. 77 The bulk of the deposit, namely $2,350,000, was disbursed immediately by trust account cheque dated 9 April 1997 drawn in favour of Australian Property Syndications Pty Ltd. The cheque was signed by Mr Green and Mr Lea. The cheque was accompanied by a bank cheque application, which resulted in the NAB drawing a bank cheque payable to Australian Property Syndications Pty Ltd, dated 9 April 1997, in the sum of $2,350,000. This bank cheque was then collected by NAB and the proceeds paid into the Max Green and Associates Trust Account on the same day. 78 From the Max Green and Associates Trust Account, $1,825,195.80 was paid out by means of a cheque, dated 9 April 1997, signed by Mr Green in favour of DL Wolf. This cheque was used to fund the telegraphic transfer of $US 1,420,000 to the Bangkok Bank for the benefit of David Lee Wolf. 79 Subsequently, on 17 April 1997, Mr Green drew a cheque on the Max Green and Associates Trust Account, in favour of Geddeson Finance Pty Ltd, in the sum of $420,000. On 22 April 1997, a further sum of $103,015 was withdrawn from the Max Green and Associates Trust Account on the signature of Mr Green. This amount was disbursed by three separate bank cheques for $90,000, $6,000 and $7,000, each payable to Aroni Colman. The balance of the withdrawal, $15, was used to pay the bank charges for those bank cheques. The cheque for $90,000 was deposited in the Aroni Colman trust account. The other two were deposited in the Aroni Colman general account, purportedly as the payment of fees. 80 Of the original sum withdrawn in this transaction, $40,964.91 was transferred immediately to another Bendigo Bank account in the name of Aroni Colman in trust for Evatab Investments Pty Ltd. Only the sum of $2,350,000 is claimed by the applicants in respect of this transaction, for that reason. 81 The quarterly statement of investments sent by Aroni Colman to Tab Fried in respect of the quarter ended 30 June 1997 showed that $2,390,964.91 had been withdrawn from a Bendigo Bank interest bearing term deposit account held in favour of Evatab Investments Pty Ltd on 9 April 1997, and that the account had a nil balance at 30 June 1997. The transaction was described as a loan to Evatab Leasing Pty Ltd. The statement also showed the deposit of $40,964.91, described as "Balance of Term Deposit for re-investment (3 month)". The statement showed the funds said to be deposited in the Colonial State Bank of NSW as having been augmented by a loan from Evatab Investments Pty Ltd "for interest payment" in the sum of $2,350,000.

[25]

The relationship of banker and customer 82 Most discussions of the relations between a banker and a customer begin with the proposition that the relationship is one of debtor and creditor. This is usually followed by the citation of a list of cases, often headed by N Joachimson v Swiss Bank Corporation [1921] 3 KB 110. In truth, as an examination of the authorities shows, this statement is not particularly helpful. The relationship between banker and customer depends primarily upon the terms of the agreement made between them. Depending upon the content of those terms, they may be supplemented to a greater or lesser degree by terms implied by law, as a matter of policy, into banker-customer contracts as a class of contracts. Once these obligations implied by law are examined, it becomes apparent that the relationship will usually differ from the ordinary relationship of debtor and creditor in a number of respects. For instance, as N Joachimson established, the usual obligation of a debtor to seek out the creditor and pay the debt is absent. Neither the banker nor the customer would ordinarily require money deposited in an account to the credit of the customer to be repaid immediately by the banker. Instead, a demand for repayment is necessary before such repayment must be made. 83 When a banker maintains an account in credit for a customer, the banker has an obligation not to debit that account without the customer's authority. If it does so, it will be regarded as having paid away its own money and will be obliged to reinstate the credit balance in the customer's account to what it would have been, but for the unauthorised debit. See National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 at 396 - 397 per Clarke JA. For this reason, bankers are usually keen to ensure that they have a written contract with each customer, specifying the circumstances in which they are entitled to debit that customer's account. 84 In one respect, the characterisation of the relationship of banker and customer as one of debtor and creditor may be useful. It makes it plain, as did Aitken LJ in N Joachimson at 127, that a banker is not ordinarily a trustee of money received from, or on behalf of, its customer. Of course, it is open to a bank to become an express trustee of money or other property or, by its wrongful act, to become a constructive trustee. The essential point, however, is that, despite the usual existence of an obligation to maintain a credit balance in a customer's account, unless the customer otherwise directs, the banker will not ordinarily be a trustee of any specific money for the customer. It will simply owe the customer that amount of money. 85 It is usual for a bank to enter into a written contract with a customer. As a matter of practice, that contract will often refer to standard terms and conditions attaching to the keeping of an account. The bank may reserve to itself the right to alter the standard terms and conditions as it sees fit. The contract may make provision for the manner in which those alterations are to be communicated to the customer. These methods are not exhaustive of those by which variations to a contract between a banker and a customer may be brought about. Even without an express provision as to the making and notification of variations, the contract may be varied by some form of notice by one party of an alteration to the terms, coupled with the continued operation and maintenance of the account by the other party. 86 The written contract between a banker and a customer will usually provide for the manner in which the customer is to operate upon a particular account. That is to say, the document will identify the person or persons upon whose signature or signatures the bank is entitled to debit the account and whatever number or combination of signatures the customer requires before the account is to be debited. It will usually contain a specimen signature of each person whose signature is or may be required, with which bank officers may compare the signature or signatures on any document presented to them containing an instruction as to the debiting of the account. Persons who have been specified as signatories, and whose specimen signatures have been provided, are generally known as authorised signatories. A document directing the bank to debit the relevant account in a particular sum, signed by the requisite number of specified persons, is often described as a mandate to the bank. A written contract of the kind I have described can be used to relate to more than one account maintained by the bank for a customer. 87 The purpose of a written contract is to protect the bank. Provided that the mandate accords with the terms of the written contract, the bank is obliged to debit the customer's relevant account in accordance with the mandate and is enabled so to debit the account without risk to the bank. By carrying out the customer's written mandate, the bank discharges its obligation to the customer and is protected from any accusation that it has wrongfully debited the customer's account, paid away its own money, and is obliged to reinstate the credit balance in the customer's account. 88 The existence of a written contract containing authorised signatories also protects the customer. If a bank debits a customer's account without having received a mandate in accordance with the contract between the banker and the customer, the bank takes the risk that it will have debited the customer's account wrongly, have paid away its own money, and be obliged to reinstate the customer's credit balance. The failure to comply with the terms of a written contract is not, however, necessarily fatal to the bank. As Clarke JA said in National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 at 396: "It has been established for a very long time that, in the absence of a written cheque or order, or some obligation or entitlement arising out of an express or implied contract with a customer or recognised or laid down by the law, a banker is only entitled to make debits to its customer's account in accordance with the customer's authority: Price v Neal (1762) 3 Burr 1355; 97 ER 871; Kepitigalla Rubber Estates Ltd v National Bank of India Ltd [1909] 2 KB 1010; London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777; Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304 at 310."

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89 With the actual authority of the customer, the bank is entitled to do with the amount standing to the customer's credit whatever the customer demands. To act outside the written contract, however, the bank needs to satisfy itself that it has the authority of the customer to debit the account. It acts at its own risk of the absence of authority when it acts outside the terms of the written contract. Thus, the presence of a written contract does not provide the exclusive means by which the bank may debit a customer's account. There are many circumstances in which customers wish to have their bank accounts debited but are not in a position to give instructions in accordance with a written contract. The authorised signatories may be dead or otherwise unavailable, or it might be impossible to transmit a document to the bank. Various examples of circumstances in which a bank would accept its customer's instructions in ways not contemplated by the written contract between them were canvassed in this proceeding in cross-examination of John Thomas Crough. He is a retired bank officer of long experience and, ultimately, high rank, who was called to give expert evidence as to banking practice on behalf of the applicants. He conceded that, as a banker, he would have accepted instructions from the bank's customer and debited the customer's account, even though the instructions did not conform to the written contract between the banker and the customer. In each case, however, he insisted that, as a matter of caution, he would have requested that the non-conforming instruction be followed by a written instruction, signed by an authorised signatory, as soon as practicable after the transaction had been carried out. In this way, Mr Crough recognised the risk undertaken by a bank in receiving and acting upon the instruction of the client in a form and by a means not contemplated by the written contract. 90 There may be circumstances in which a customer acts so as to clothe a person with ostensible authority to give instructions to the bank for the debiting of the customer's account. If that should occur, and the bank should accept that the ostensible agent of the customer has the customer's authority and is conveying it to the bank, in the absence of actual knowledge to the contrary the bank will be absolved from what would otherwise have been a wrongful debiting of the customer's account. This principle is simply a particular application of the general rule with respect to the provision of ostensible authority where no actual authority exists. 91 One further aspect of the law relating to banker and customer needs to be noted. In general, the bank is not bound to see to the proper application of the customer's money. If it acts in accordance with the customer's written mandate, or with the customer's authority, so that it debits the account in accordance with the customer's instructions, it is not bound, and indeed is not generally able, to refuse to carry out the transaction on the ground that the money is to be applied for some improper, or unwise, purpose. Subject to a limited range of exceptions, the bank has no business to inquire why the customer is debiting the account or how it proposes to use the money. Thus, although an account may be styled as being in the name of the customer but in trust for some other person, the bank is not obliged to see to the proper application of funds withdrawn, as if it were itself a trustee of those funds. The bank's customer in such circumstances is the trustee of the account. The beneficiary of the trust on which the account is held is not the customer. The principle that a bank is not responsible for the proper application of the monies held in a bank account of which its customer is a trustee was reflected in s 43(1) of the Legal Profession Practice Act 1958 (Vic) and is now found in s 175(1) of the Legal Practice Act 1996 (Vic), but was not created by those Acts.

[27]

The contract between Bendigo Bank and Aroni Colman 92 In the present case, the firm of Aroni Colman was the customer of Bendigo Bank in respect of each of the accounts styled "Aroni Colman in trust for …" followed by the name of the client. The person for whom the account was held in trust was not the customer. The ascertainment of the terms of the contract between Bendigo Bank and Aroni Colman is not easy. There is in evidence a document, entitled "Professional Blanket Authority", dated 13 April 1992. It is a document of the Capital Building Society, one of the institutions whose mergers resulted in the formation of Bendigo Bank. The document bears the specimen signatures of Benni Aroni, Adrian Colman, Richard Cornish and Mark Wollan, who were then the partners in Aroni Colman. It is accompanied by documents designed to establish the "100 point check" required by what was then called the Cash Transaction Reports Act 1988 (Cth), in respect of each of the four partners. The document states: "We authorize any one of the persons whose signatures appear below to operate this account." 93 On 30 April 1992, Capital Building Society merged with Bendigo Building Society. The merged business was carried on in the name of Bendigo Building Society. By a document entitled "Account Application", dated 25 February 1994, Aroni Colman applied to open an account with Bendigo Building Society in the name "Aroni Colman in trust for TED Engineering Australia Ltd". The document specified that the Bendigo Building Society was to open a new account. It stated that Aroni Colman authorised any one of the persons whose signatures were recorded to operate the account. The four signatures recorded were those of Richard Cornish, Adrian Colman, Mark Wollan and Benni Aroni. Parts of the document were filled in after the signatures had been placed on the document. 94 Each of the Capital Building Society blanket authority and the Bendigo Building Society account application came into existence while the firm of Aroni Colman had its offices at 600 St Kilda Road. Each related to the opening of an account at the Prahran branch of what was initially the Capital Building Society and later the Bendigo Building Society. The second application related to the opening of the account which subsequently became the term deposit account from which funds were withdrawn for transaction B5. 95 Although Aroni Colman opened, operated and in many cases closed many accounts with Bendigo Bank, no other form of application to open an account appears to have come into existence. With the exception of a letter of 7 April 1997, to which I shall refer in detail, no other form of authority to operate an account appears to have been signed. In particular, after the firm of Aroni Colman was reconstituted by the admission of Norman Fryde, Bruno Charlesworth and Max Green as partners, no action was taken to have the new partners registered as signatories on the accounts maintained by Aroni Colman with Bendigo Bank. 96 At some stage, there came into existence an amended version of the Bendigo Building Society account application dated 25 February 1994. This document was prepared using a photocopy of the completed account application. Correcting fluid was then used to white out some of the details in the original document. This included the obliteration of the words "TED Engineering Australia Ltd" from the name of the account, leaving only the words "Aroni Colman in trust for". On the copy with these deletions the words "Master Authority" have been written with what appears to be a blue ball-point pen. The copying and alteration of the account application appear to have been done by a person or persons employed by Bendigo Bank. 97 The resulting document has been retained in the records of the Bendigo Bank. It was kept at the branch at 406 Collins Street during the period relevant to this proceeding. It was kept in what is described as an agency folder, available to officers of Bendigo Bank to check whether a signature on a withdrawal form corresponded with any of the signatures of the authorised signatories. It bears a customer number allocated to Aroni Colman. It appears to have been used as a record of the authorised signatories for all of the Aroni Colman accounts linked to that customer number. Aroni Colman was allocated two other customer numbers. The reason for this was that the Bendigo Bank computer system did not permit more than ninety-nine accounts to be linked to one customer number, so other numbers were needed to cater for the 263 accounts created in the course of the relationship between Aroni Colman and Bendigo Bank. The three customer numbers were linked together. Information from the altered version of the account application was entered into the Bendigo Bank computer system. It included information as to the authorised signatories on all of the linked Aroni Colman accounts. In other words, prior to 7 April 1997, Bendigo Bank's records showed that there were four authorised signatories for each of the accounts open in the name of Aroni Colman in trust for a named client. The four authorised signatories were Richard Cornish, Adrian Colman, Mark Wollan and Benni Aroni. 98 The Capital Building Society blanket authority contained a term that those applying for the opening of the account "accept the terms and conditions applying … and acknowledge that we and our clients are bound by those terms and conditions." Within that term was provision for description of the type of account opened, which was left blank. The Bendigo Building Society account application did not make express reference to terms and conditions. In fact, Bendigo Bank had printed standard terms and conditions applicable to various kinds of accounts, including term deposits (of which the account the subject of the transaction B5 was one) and 11 am call accounts, of which the B101 account was one. The version of these terms and conditions that came into evidence was that adopted at a meeting of the Bendigo Bank Group Forms and Advertising Compliance Committee on 11 December 1996. The general terms and conditions applicable to an 11 am call account included the following:

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"17. The Account Authority completed and lodged at the time of opening your account is conclusive evidence of your instructions for the operating of the account. If you choose to revoke the authority or change the information contained thereon, such as change of address or change in signing authorities, you are required to immediately notify the Bank in writing. 18. Each party to a joint account acknowledges that the signatories to the account, as authorised by the account operating instructions, may operate the account and the Bank may accept instructions given in accordance with those operating instructions. The account operating instructions may only be varied by written notification to the Bank signed by each party to the joint account. Each party to a joint account is jointly and severally liable to the Bank for any indebtedness on the account." Clauses 40 and 41 of the general terms and conditions relating to term deposits were identical with those clauses. 99 Counsel for Bendigo Bank did not concede that either the master authority or the general terms and conditions were part of the contract between Bendigo Bank and Aroni Colman. There is no evidence that anyone at Aroni Colman was ever made aware of the general terms and conditions. Nevertheless, I find that both the master authority and the general terms and conditions were part of the relevant contract. In a letter dated 19 October 1999 from the solicitors for Bendigo Bank to the applicants' solicitors, Bendigo Bank made certain admissions. The letter was a response to a letter written on behalf of the applicants, seeking more information in respect of further and better particulars of Bendigo Bank's defence. The relevant admissions were in the following terms: "The terms on which each of the accounts were to be conducted is contained in the attached brochures. … By way of an explanation we advise that the Master Authority was used to record signatory information for all accounts registered under Aroni Colman's customer numbers."

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The letter of 3 April 1996 102 There was one significant occasion on which the fact that Max Green was not an authorised signatory resulted in Bendigo Bank refusing to allow him to withdraw money. The circumstances of a transaction designated as A3, no longer the subject of any claim in this proceeding, were as follows. A letter was typed on the letterhead of Aroni Colman, dated 3 April 1996 and addressed to Bendigo Bank. It requested the withdrawal of $500,000 from the B101 account by a cheque payable to Babcock & Brown Pty Ltd. It contained the sentence: "If you need any further information please contact Lisa Andrews of our office." The letter was signed by Mr Green, over his typewritten name and the words "Authorised Signatory". As I have already found, in the early stages of his promotion of the gas meter leasing scheme, Mr Green had been pressing Tab Fried to commit funds by 3 April 1996. According to the evidence of Lisa Andrews, the letter was one of a number of standard form letters available through Aroni Colman's word processing system. She said she had no recollection of typing the letter and it could have been typed by Mr Green or his secretary. 103 On this occasion, Mr Green attended at the Bendigo Bank branch at 406 Collins Street and presented the letter. His initial contact was with Margaret Annand, who had been working at the branch for two months and did not know Mr Green or his signature. According to Ms Annand's evidence, Bendigo Bank would accept a letter as a withdrawal form. It was her practice also to write out a withdrawal form and staple it to the letter. She did so on this occasion. 104 Because she did not know Mr Green, Ms Annand consulted Sandra Barac, the agency/client relations officer responsible for the Aroni Colman accounts. This was the first occasion on which Ms Barac had had any involvement with Mr Green. Ms Annand showed her the letter. Ms Barac took it to check Mr Green's signature on the account authority in the agency folder for Aroni Colman. She checked the signature against the Master Authority. Not having found a signature that matched Mr Green's, Ms Barac returned to the counter and spoke to Mr Green, who was waiting there. Mr Green was polite about the refusal to process the transaction. He was under the impression that he should have been an authorised signatory. He said that there must have been some mistake at his end and that he would go back to his office and fix matters up. 105 Ms Barac was concerned that the refusal to process the transaction at the request of Mr Green might have offended him or Aroni Colman. Later in the day, she telephoned Lisa Andrews and explained her concern and her need to ascertain that Mr Green was in fact a partner of Aroni Colman. Ms Barac told Ms Andrews that Mr Green's signature was not on the Bendigo Bank's records. She said that, to make him a signatory, she needed something in writing, on letterhead, signed by an authorised signatory. Ms Barac knew that Mr Aroni was the managing partner and regarded his approval as sufficient to effect a change of signatories. Ms Andrews indicated that Mr Green was a partner, she thought he was an authorised signatory and he should have been an authorised signatory. At the time, Ms Andrews assumed that every partner had authority to operate Aroni Colman accounts. She said that his signature ought to have been at Bendigo Bank, that he was to be an authorised signatory and that she would attend to the necessary paperwork. 106 At some time, probably on 3 April 1996, Benni Aroni also signed the letter of that date on which Mr Green's signature appeared. At some time, some person unknown drew an arrow from the words "Authorised Signatory" towards the signature of Mr Aroni. There is no evidence as to how or when this amended version of the letter found its way to Bendigo Bank, nor as to when or where the arrow was placed on it. The transaction was completed on that day. Ms Annand stamped the date 3 April 1996 on the front of the withdrawal slip, wrote her initials on the date stamp and completed all the other information on the withdrawal form. She and another officer of Bendigo Bank signed the bank cheque payable to Babcock & Brown Pty Ltd, which was raised on that day. 107 The transaction of 3 April 1996 did not result in Mr Green becoming an authorised signatory in the sense that Bendigo Bank would have been required to accept a written mandate signed by him to operate any of the Aroni Colman accounts. Nor did it effect any variation of the contract between Aroni Colman and Bendigo Bank. The provision of the letter with the signature of Benni Aroni, who was an authorised signatory, served to emphasise that Mr Green was not. No action was taken to communicate to Bendigo Bank that any signature should be added to its record of those authorised to sign to operate the accounts. No such alteration to the Bendigo Bank records was made. Lisa Andrews thought that she might have prepared a letter designed to effect such an alteration at some stage, and that it might have sat on a partner's desk for some weeks and then been forgotten. If she did this, she had no recollection as to whether she did it in consequence of the events of 3 April 1996.

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The addition of Max Green as an authorised signatory 108 There may have been other occasions, after 3 April 1996 and before 20 March 1997, when Bendigo Bank declined to allow Aroni Colman accounts to be operated on the signature of Max Green. Ms Barac had some recollection to this effect, but there is no clear evidence of any such occasion. The transaction designated as transaction C2, which occurred on 20 March 1997, was such an occasion and appears to have been significant. 109 On 20 March 1997, Mr Green attended at the Bendigo Bank branch at 406 Collins Street. He requested the telegraphic transfer of $US 500,000 from the B101 account to the Bangkok Bank for the benefit of DL Wolf. Ms Annand handled the transaction. She filled out one of the Bendigo Bank forms, a request for a telegraphic transfer or bank draft, in accordance with Mr Green's instructions. Mr Green signed the form. Ms Annand took the form to the rear of the premises to check the signature against the Master Authority in the agency folder, or to ask another officer to approve the signature (she does not now recall which). She ascertained that Mr Green was not an authorised signatory for the B101 account. She told him this. He said that the money was required urgently to be transferred that day and expressed surprise that he was not an authorised signatory. He was a little annoyed, but pleasant. Ms Annand had taken action to debit the B101 account with the required amount, $636,900. She reversed this entry. Later in the day, she again debited the B101 account in the amount of $636,900. She has no recollection of doing this, but it appears that she did so on the authority of a withdrawal form for that sum, signed by Richard Cornish. The telegraphic transfer was effected. The funds were among those stolen by Mr Green. They are not among those now claimed in this proceeding because the B101 account was debited on the authority of Mr Cornish, an authorised signatory. 110 The importance of transaction C2 is that it appears to have resulted in action to add Bruno Charlesworth, Norman Fryde and Max Green as authorised signatories in respect of the Aroni Colman accounts with Bendigo Bank. By letter dated 7 April 1997, Aroni Colman wrote to Bendigo Bank, specifically to "Sandra" (ie Ms Barac). The letter said: "Further to our telephone conversation this morning, I confirm that the following signatories need to be added to our listing".

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There then followed the signatures of Max Green, Bruno Charlesworth and Norman Fryde. The letter continued: "Copies of their current drivers licences' & passports are attached for their 100 point verification. If you require any further information, please do not hesitate to contact Lisa Andrews of this office." 111 The letter was signed by Benni Aroni on behalf of Aroni Colman. Ms Barac's evidence was that this letter was received at the Bendigo Bank branch at 406 Collins Street on 7 April 1997. The instruction to add the signatories and the information necessary for their addition were not processed into the Bendigo Bank computer system until 16 April 1997. The processing was performed by Ms Barac, although the computer record shows that some change was made on 17 April 1997, under the log-on of the branch manager. Counsel for the applicants challenged Ms Barac's evidence that she had received the letter on 7 April 1997. She was adamant that she had done so. Her habit was to ensure that documents bore the date on which they had arrived. If the letter had arrived on a different date from that which it bore, she would have written the date of receipt on it. I accept Ms Barac's evidence on this point. I found her to be a conscientious person, who made every effort to recount the facts as they occurred. She did not attempt to reconstruct matters she could not recollect, except where she reconstructed them in accordance with her usual practices, in which case she was clear as to the process of her reconstruction. Although still employed by Bendigo Bank, she gave no indication that she was prepared to tailor her evidence to suit the interests of her employer. She impressed me as someone of integrity. 112 I therefore find that, on 7 April 1997, Bendigo Bank had received a written instruction, signed by Benni Aroni on behalf of Aroni Colman, to add as authorised signatories to all of Aroni Colman's accounts with Bendigo Bank the three Aroni Colman partners who were not already authorised signatories. These three included Max Green. The significance of such a finding of fact is that, if the receipt of such an instruction were sufficient to make Mr Green an authorised signatory, Aroni Colman has no claim for wrongful debiting of the term deposit account in respect of transaction B5. If Max Green had become an authorised signatory by 9 April 1997, Bendigo Bank acted in accordance with its mandate in closing the account and paying out the proceeds by means of a bank cheque. Counsel for the applicants advanced three arguments in support of a submission that receipt of the written instruction was ineffective to add Mr Green as an authorised signatory. The first of those arguments depended upon the construction of one of Bendigo Bank's standard terms and conditions. The second was based on the suggested need for actual authority of all existing signatories. The third depended upon the construction of the Financial Transaction Reports Act 1988 (Cth). 113 Clause 41 of the general terms and conditions relating to Bendigo Bank term deposits dealt with account operating instructions in respect of joint accounts. It provided that the account operating instructions may only be varied by written notification to Bendigo Bank signed by each party to the joint account. The argument put by senior counsel for the applicants was that, because Aroni Colman was a partnership, any bank account opened by it was a joint account of the partners for the time being. He contended that cl 41 therefore operated to require written notification signed by every partner before the account operating instructions could be varied. 114 It is true that joint and several liability of the partners is at the heart of the concept of partnership. It is also true that a partnership does not have its own legal personality, as does a natural person or a corporation. It does not follow from these propositions that the phrase "joint account" in condition 41 of the Bendigo Bank terms and conditions is apt to cover a bank account opened in the name of a partnership. Despite the absence of legal personality, a partnership is often regarded as a trading entity. The notion of the firm as a trading entity is not at all foreign to the law. The widespread use of a firm name as the name in which a partnership trades reinforces the notion that it is trading as a single entity. From the bank's point of view, when it deals with a firm of solicitors, it deals with a single entity, the firm. This was the evidence of the Bendigo Bank witnesses cross-examined about this matter. They did not regard the Aroni Colman accounts as joint accounts. If there be such a thing as a "trade" meaning of the phrase "joint account", on the evidence before me, that meaning does not encompass an account opened in the name of a firm. In my view also, the ordinary meaning of the phrase "joint account" does not include an account opened in the name of a firm, or of an unincorporated association. An account opened in a single name, whether a firm name or the name of an unincorporated association, is to be regarded as something other than a joint account. A joint account is one opened in a combination of names, whether of natural persons, corporate persons, firms or unincorporated associations. The essence of such an account is that the entitlement to the debt constituted by the account is held jointly by the combination of entities in whose names the account is opened. In the case of a firm, from the bank's point of view, there is only one entity entitled to the debt constituted by the account. The entity so entitled is the firm. How the entitlement would be adjusted as between the partners is a matter that does not concern the bank. For these reasons, I am of the view that cl 41 of Bendigo Bank's general terms and conditions for the operation of term deposit accounts was inapplicable to the term deposit account the subject of transaction B5. 115 The second argument of counsel for the applicants was that the contract between Bendigo Bank and Aroni Colman could not be varied so as to change the identity of the authorised signatories without the knowledge, consent or approval of all existing signatories. There was no evidence that Adrian Colman, Richard Cornish and Mark Wollan knew of or approved the addition of the three additional signatories. This argument cannot be sustained. The letter of 7 April 1997 was signed by Benni Aroni. As managing partner, he had the authority of the other partners to deal with Bendigo Bank on behalf of the firm. This authority included authority to bring about the situation which was assumed to have existed, namely that all partners were authorised signatories in respect of the accounts held with Bendigo Bank. Any partner would probably have had authority to bind the firm in this kind of matter but, even if that were not the case, the managing partner must be taken to have such authority. In any event, by affixing their own signatures to the letter, Bruno Charlesworth, Norman Fryde and Max Green must be taken to have approved the addition of their names to the list of authorised signatories. Together with Benni Aroni, they constituted a majority of the partners. The partnership deed of Aroni Colman provided that a decision of a majority of partners bound all. Aroni Colman could not have contended against Bendigo Bank that the three new signatories lacked authority to sign once Bendigo Bank received the letter of 7 April 1997. 116 The third argument on behalf of the applicants was based on the Financial Transactions Reports Act 1988 (Cth). Section 18 provides relevantly as follows: "(1) This section applies where: (a) on a day (in this subsection called the transaction day) after the commencement of this section, a person: (i) opens an account (other than a facility or arrangement for a safety deposit box or for any other form of safe deposit) with a cash dealer; or (ii) becomes a signatory of such an account with a cash dealer; and either of the following subparagraphs applies: (iii) on a day (in this section called the infringement day), being the transaction day or a later day, the credit balance of the account exceeds $1,000; (iv) on a day (in this section also called the infringement day), being at least 30 days after the transaction day, the aggregate of the amounts credited to the account within the last 30 days exceeds $2,000; … (2A) If, at the end of the infringement day, the cash dealer does not have the signatory information about the person (unverified signatory), the account is blocked with respect to that signatory until the cash dealer has that information or the Director gives a notice under subsection 19(2). (3) At the end of the infringement day, the cash dealer commits an offence against this subsection unless it has made reasonable efforts, on or before that day, to obtain … the signatory information. … (4) If: … (b) the unverified signatory, knowing that the account is blocked,

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the cash dealer commits an offence against this subsection. … (6) An offence against subsection (3), … or (4A) is punishable, upon conviction, by imprisonment for not more than 2 years". 117 Having regard to various definitions in s 3(1) of the Act, there is no doubt that Bendigo Bank is a cash dealer for the purposes of s 18. The term deposit account was clearly also an "account" within the meaning of the definition of that term in s 3(1). The definition of "signatory" is as follows: "Signatory, in relation to an account with a cash dealer, means the person, or one of the persons, on whose instructions (whether required to be in writing or not and whether required to be signed or not) the cash dealer conducts transactions in relation to the account." 118 The term "signatory information" is also defined as follows: "Signatory information, in relation to a signatory to an account with a cash dealer, means information and documents (whether obtained by the cash dealer in relation to that account or another account), as follows: (a) The name used by the signatory as his or her name in relation to that account; (b) If the account is held in the name of an unincorporated association - a copy of the instrument authorising the signatory to sign; (c) Any other name by which the signatory is commonly known, being a name disclosed to the cash dealer; (d) An identification record for the signatory in accordance with s 20A." 119 Section 20A contains a definition of an identification record. There are various kinds of records, the most common of which is a record of what is commonly known as the "100 point check", prescribed under the Act. Such a check involves an examination of documents verifying the identity of a person, with various "points" being assigned to different categories of documents. The production of a combination of such documents, adding up to not less than 100 "points" is regarded as sufficient to identify a person for the purposes of the Act. Such an examination is a prescribed verification procedure, used to identify a signatory. A record of such a procedure is an identification record. Section 20 obliges a cash dealer to maintain, in relation to each account, in a way that can be audited, (among other things) any signatory information obtained by the cash dealer in relation to each signatory to the account. 120 The argument put by counsel for the applicants was that the identification record in relation to, in particular, Max Green had not been created until Sandra Barac had examined the letter of 7 April 1997 and the attachments, which constituted the documents making up the 100 points for each of the proposed new authorised signatories, and had entered the relevant information into Bendigo Bank's computer system. Until those events occurred, the argument went, Bendigo Bank did not have the signatory information about Mr Green (ie the identification record for him) and the account was blocked by s 18(2A) on 9 April 1997 when Mr Green withdrew the balance of the term deposit account. These propositions may be accepted. It is the next proposition in the argument put on behalf of the applicants that is difficult. That is that the effect of the blocking of the account was to treat the withdrawal as if it had not happened and to oblige Bendigo Bank to reinstate the balance in the account. In order to evaluate this proposition, it is necessary to determine what the Act contemplates as being the result of the blocking of an account. The objects of the Act are set out in s 4 as follows: (1) The principal object of this Act is to facilitate the administration and enforcement of taxation laws. (2) A further object of this Act is to facilitate the administration and enforcement of laws of the Commonwealth and of the Territories (other than taxation laws). (3) Without prejudice to the effect of this Act by virtue of subsections (1) and (2), a further object of this Act is to make information collected for the purposes referred to in subsection (1) or (2) available to State authorities to facilitate the administration and enforcement of the laws of the States." 121 The scheme of the Act is that there should be collected by a central authority information about transactions that might be part of attempts to evade laws relating to taxation and other laws. The effect of the blocking of an account is specifically dealt with in s 18 of the Act. A signatory, knowing that an account is blocked, and making a withdrawal commits an offence against subs (4). Similarly, under subs (4A), the cash dealer commits an offence where a withdrawal is made from a blocked account. Provision is made for penalties in respect of those offences. There is no provision to the effect that a withdrawal that constitutes an offence is to be regarded as void. There is no provision making a cash dealer pay twice in respect of a withdrawal made from a blocked account. Given the objects of the Act, and its scheme, there would be no point in construing the Act as making the cash dealer liable to reinstate an amount withdrawn from a blocked account. To do so would have the effect of imposing on the cash dealer a penalty additional to that provided for by the Act. The extent of the penalty would be fixed by reference to the amount withdrawn from the account and without reference to the degree of culpability of the cash dealer. Further in most cases, the effect would be to provide a bonus for the customer, who would receive twice what had been withdrawn once at its direction and in its favour. In many cases, the effect would be to reward an offending signatory. Such an irrational purpose should not be attributed to the legislature when its express purpose can be achieved without construing the Act in this way. I am therefore of the view that the Financial Transaction Reports Act 1988 (Cth) did not prevent the addition of Bruno Charlesworth, Norman Fryde and Max Green as authorised signatories on the Aroni Colman accounts with Bendigo Bank from being effective when the bank received the written instruction to add them as signatories.

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Actual authority 124 The written partnership agreement, dated 1 September 1994, pursuant to which the seven partners carried on in partnership the practice known as Aroni Colman, is entirely silent as to the authority of partners to sign on behalf of the partnership in respect of bank accounts. The agreement is not the source of any actual authority for Mr Green to sign on the B101 account. As was the case with Bendigo Bank, the firm had an arrangement with the NAB that any one authorised signatory could sign in respect of the firm's accounts, including the Aroni Colman trust account. In October 1995, after Mr Lea had become the office manager and had been added as a signatory, the decision was made to require two signatories before the Aroni Colman trust account, the Aroni Colman office account or the account of the service company Fifty-Sixth Comet Pty Ltd could be operated. This decision was communicated to the NAB by letter dated 24 October 1995. No such express decision was made with respect to the Aroni Colman accounts with Bendigo Bank, each of which at all times could be operated by only one signature. 125 Prior to April of 1997, it appears that no express decision was made at any meeting of the partners of Aroni Colman to add signatories to the list of authorised signatories in respect of the accounts with Bendigo Bank. The matter was simply overlooked. Both Bruno Charlesworth and Mark Wollan were cross-examined about the authority of individual partners to sign. Each assumed that any partner was authorised to sign in respect of the Bendigo Bank accounts. Mr Charlesworth, who was not an authorised signatory until 7 April 1997, opened, operated and closed accounts with Bendigo Bank in the name of Aroni Colman with the addition of the words "in trust for" and the name of a specified beneficiary. The assumption that authority existed cannot be a substitute for the actuality of authority. Whatever various partners assumed (and the assumptions of only two out of the seven were the subject of evidence) the partners themselves did not resolve that each of them should be authorised to sign on the Bendigo Bank accounts. Until April 1997, they did not advert to the situation. 126 Counsel for Bendigo Bank was driven to rely on the terms of s 9 of the Partnership Act 1958 (Vic). That section provides: "Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner." 127 It is well established that this section has two limbs. The first limb deals with actual authority and the second with ostensible authority. In National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 at 275, Brennan J said of the equivalent provision in New South Wales: "By the first limb of s.5 of the Partnership Act, 'every partner is an agent of the firm and his other partners for the purpose of the business of the partnership'. By the second limb, the authority of a partner to bind the firm extends to the doing of an act for carrying on in the usual way the business of the firm unless the partner's authority to do a particular act is excluded 'and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner'. The general authority of a partner to bind the firm is limited. 'Each partner is an agent only in and for the business of the firm; and, therefore, his acts beyond that business will not bind the firm': Bank of Australasia v. Breillat. If a partner's act is not in fact 'for the purpose of the business of the partnership' the firm is bound by his act only if it is 'an act for carrying on in the usual way business of the kind carried on by the firm' and the absence of authority is unknown to the person with whom he is dealing. Acts done in the usual way of carrying on a partnership business are usually done for the purpose of the business and unless the person with whom the partner is dealing knows that the act is not done for that purpose, he may assume that it is." 128 Bendigo Bank can only claim the protection of the first limb of the section if what Mr Green did was in fact for the purpose of the business of the partnership. In other words, if Mr Green acted for the purpose of the business actually carried on by Aroni Colman, his act bound the other partners. Counsel for Bendigo Bank endeavoured to argue that the relevant act was the act of withdrawing money from a bank account held by the firm in trust for a client, and that such an act was within the business of the firm. As Brennan J said, however, it is necessary to determine whether the act is in fact for the purpose of the business of the partnership. Mr Green's purpose in making the withdrawals was not that of the business of the partnership. His purpose in making each of the withdrawals from the B101 account was fraudulent. It was to steal the money of a client of Aroni Colman. Stealing the money of its client was not the business of Aroni Colman. The act of withdrawing the money was therefore not within the purpose of that business. Section 9 of the Partnership Act 1958 (Vic) does not therefore assist Bendigo Bank in establishing that Mr Green had actual authority to withdraw money from the B101 account. 129 Aroni Colman, through Benni Aroni, had general authority to make withdrawals of money considered appropriate for transfer to other investments, including to the gas meter leasing scheme. Benni Aroni did not give evidence. It is therefore not possible to make a finding as to whether Benni Aroni, on behalf of Evatab Investments Pty Ltd, gave instructions to Mr Green to make withdrawals, or whether Mr Green simply made the decisions himself. It must have been the case that Mr Green was acting from the outset pursuant to his own scheme to misappropriate the funds. The consistent nature of the withdrawals still at issue in this case, as well as other withdrawals, is such as to rule out any suggestion that, having made a withdrawal for genuine purposes, Mr Green later decided to divert the funds to his own use and benefit. Consequently, no conclusion can be drawn as to whether he had specific instructions from Benni Aroni to make specific withdrawals, or whether he simply took it into his own head to make the withdrawals under the guise of reinvesting the funds. In the circumstances, the latter is perhaps more likely. Even if Benni Aroni gave instructions for the withdrawals, it is unlikely that he was party to the fraudulent purpose which took the acts of withdrawing money outside the purpose of the business of the partnership. If he were also deceived by Mr Green into giving the instructions, the instructions would not confer actual authority on Mr Green. If the fraudulent purpose could be attributed to Benni Aroni, that would certainly not bring the transactions within the purpose of the business of the partnership; it would simply mean that two partners, instead of only one, were acting outside that business. 130 It is therefore not possible to make a finding that Max Green had actual authority to make the withdrawals involved in the first six transactions on the basis of any decision of the partners of Aroni Colman, the application of s 9 of the Partnership Act 1958 (Vic), or the specific authority of Benni Aroni.

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Ostensible authority 131 Counsel for Bendigo Bank also argued that Mr Green had ostensible authority to withdraw funds from the B101 account, both in fact and by operation of the second limb of s 9 of the Partnership Act 1958 (Vic). 132 In order to establish that Mr Green had ostensible authority in fact, it is necessary to identify some act or acts of Aroni Colman by which Bendigo Bank was encouraged to believe that Mr Green had actual authority to operate the B101 account. There is some evidence that Aroni Colman often did business with Bendigo Bank through one of the employees in the Aroni Colman accounts department. Each day, one of the Aroni Colman employees would undertake a banking round. As often as required (not on every day, but on most days of the week) the banking round included taking to the Bendigo Bank branch at 406 Collins Street such documents as were necessary to conduct the business that the various partners desired to conduct with Bendigo Bank. The employee would present to a customer service officer at the bank all of the necessary documents, including withdrawal forms, and would collect and return to Aroni Colman's office all necessary documents, including bank cheques representing the proceeds of withdrawals from the various accounts. 133 Counsel for Bendigo Bank invited me to draw the inference that the occasions on which Mr Green was able to make withdrawals from the B101 account on his own signature must have been occasions when the withdrawal forms were taken to the Bendigo Bank branch in the course of the ordinary banking round. He argued that this gave to the presentation of those withdrawal forms the appearance that they were presented with the authority of Aroni Colman. 134 There are a number of difficulties about this argument. As I have said in relation to each of the transactions, there is no evidence at all as to how the withdrawal form made its way to the Bendigo Bank branch at 406 Collins Street on the occasion in question. No doubt Bendigo Bank would have records that would indicate whether other Aroni Colman accounts had been operated on the same day as any of the transactions on the B101 account relevant to this proceeding. No attempt was made to provide evidence of that kind, which might have rendered it more probable that the withdrawal forms in respect of the B101 account had come to the bank with the banking round. Lisa Andrews, who was in charge of the accounts department at Aroni Colman, was called by Bendigo Bank to give evidence but was unable to shed any light on the question. 135 Even more significant is the absence of any evidence of reliance by Bendigo Bank on presentation of withdrawal forms as part of the ordinary banking round as conferring some form of apparent authority on Mr Green. The customer service officers who were called to give evidence about the various transactions on the B101 account had no recollection as to why they ticked the "Known" box on the back of the withdrawal form in each case. Where there was some evidence to suggest that Ms Barac had been consulted before the "Known" box was ticked, she had no recollection as to why she had given approval to the transaction. Despite the evidence that customer service officers who did not know a signature would consult other customer service officers, or a supervisor, no attempt was made to call other customer service officers, or any supervisor other than Ms Barac, to say why they might have given approval. The consequence is that there is no witness who has said that a withdrawal effected by means of Mr Green's signature was so effected because the withdrawal form was presented in company with documents emanating from Aroni Colman and as part of its ordinary banking round. Bendigo Bank has not even begun to make a case that it relied on any ostensible authority of Green. 136 Nor can it simply be assumed that Bendigo Bank would not have allowed the withdrawals to be made unless it had relied on some apparent authority of Mr Green. In some circumstances, this might be an appropriate inference. In the present case, it is not. It cannot be assumed that all employees of Bendigo Bank followed correct procedures at all times. Whether through pressure of business, or sheer carelessness, it might be that a customer service officer, or a supervisor to whom a customer service officer turned for information about an unknown signature, gave approval to avoid the necessity to take the trouble of checking the signature. The assumption that a customer service officer acted in reliance of the banking round is no more nor less valid than the assumption that a customer service officer simply took the risk, for whatever reason. 137 It must also be remembered that, in respect of the transactions on the B101 account, Bendigo Bank had in its possession the record of four authorised signatories. Further, through the events surrounding the letter of 3 April 1996, Bendigo Bank had actual notice that Mr Green was not an authorised signatory on the B101 account. It will be recalled that that letter was signed by Mr Green over the words "authorised signatory". When Bendigo Bank declined to allow the withdrawal to be made, and the letter was returned to Aroni Colman and came to the attention of Benni Aroni, he did not react by communicating to the bank that Mr Green was in fact an authorised signatory. Instead, he added his own signature, knowing that he was himself authorised to make the withdrawal. By this means, it was brought to the attention of Bendigo Bank that Mr Green was not in fact authorised to operate that account. 138 It is true that, in her conversation with Ms Andrews on 3 April 1996, Ms Barac was told that Mr Green should have been, and would be, authorised to operate the B101 account. Ms Barac did not give evidence that she, or anyone else at Bendigo Bank, relied on this assertion in relation to any subsequent transaction. 139 The events of 3 April 1996 exclude the possibility that the second limb of s 9 of the Partnership Act 1958 (Vic) could apply. It may be that, in signing withdrawal forms on the B101 account, Mr Green did acts for carrying on in the usual way business of the kind carried on by Aroni Colman. He had in fact no authority to act for the firm in the particular matter and Bendigo Bank knew, as a result of the events of 3 April 1996, that he had no authority. 140 For these reasons, Bendigo Bank cannot resist the claims that it wrongfully debited the B101 account on the basis that Mr Green had either actual or ostensible authority. Even if it be the case that Aroni Colman had armed Mr Green with apparent authority, there is nothing to show that Bendigo Bank relied on this apparent authority.

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Ratification and adoption 141 The next stage in Bendigo Bank's defences was to contend that, even in the absence of authority for Mr Green to make the withdrawals, the transactions had been ratified and adopted by Aroni Colman or by Evatab Investments Pty Ltd by its directing mind and will, Tab Fried. The accounts department at Aroni Colman knew of each withdrawal. In each case, a record was kept within the office of Aroni Colman of any instruction given for a withdrawal, of a copy of the withdrawal form and of a copy of the resulting bank cheque. Bendigo Bank sent regular statements of the accounts to Aroni Colman. Those statements were similarly kept amongst the records. From the records were prepared the quarterly statements that were sent to Tab Fried so that he could understand the state of the applicants' investments. It is perhaps an ironic twist that the quarterly statements for the quarters to 30 June and 30 September 1996 showed the true state of affairs, in that they showed withdrawals having been made but did not show the funds withdrawn as having been invested elsewhere on behalf of the applicants. Reliance was placed on the records of Aroni Colman in the preparation of the accounts and the tax returns of TED Engineering Australia Limited and later of Evatab Investments Pty Ltd. In addition to the quarterly statements, Benni Aroni sent a special statement of investments, as at 17 November 1997, to Tab Fried, who was in Israel at the time. In its annual report to the Law Institute of Victoria of trust monies, for the year ended 31 March 1997, Aroni Colman reported the withdrawals. Finally, in respect of transactions B3, B4 and B5, Aroni Colman deposited the Bendigo Bank bank cheques into its general trust account, from which the proceeds of those bank cheques were then paid out by means of cheques signed in accordance with the mandate of the NAB. On the basis of these facts, Bendigo Bank contended that Benni Aroni (who was a director of TED Engineering Australia Limited, as well as managing partner of Aroni Colman) and Tab Fried came to know of the withdrawals and took no step to complain about them, or to cause the deficiencies in the B101 account to be rectified. It was argued that this amounted to ratification of the transactions, or to adoption of them by acquiescence in them, by Aroni Colman, TED Engineering Australia Limited and Evatab Investments Pty Ltd. 142 It is a well-established principle that a principal will not be held to have ratified an act of his or her agent unless, at the time when the principal did the ratifying act, he or she had full knowledge of the circumstances of the act of the agent, or displayed an intention to ratify no matter what the circumstances. See Taylor v Smith (1926) 38 CLR 48 at 54 - 55 per Knox CJ, 59 per Higgins J, 60 per Rich J and 62 per Starke J, Marsh v Joseph [1897] 1 Ch 213 at 246 - 247 and Victorian Professional Group Management Pty Ltd v The Proprietors "Surfers Aquarius" Building Units Plan No. 3881 [1991] 1 QdR 487 at 496 - 497 per Connolly J and 499 - 500 per Thomas J. It is easier to state the principle that full knowledge is required than to apply it. On the one hand, the withdrawal of the funds from the B101 account was the very thing that Aroni Colman, and its clients, desired. Had the funds withdrawn been applied to the purposes for which they were ostensibly withdrawn, there would never have been any cause for complaint against Bendigo Bank for debiting the B101 account on the ground that it could not act on Mr Green's signature. In these circumstances, there is some justice in Bendigo Bank's argument that, so far as its part in the transaction is concerned, the result should not change because the funds withdrawn turned out to be misappropriated. On the other hand, it is clear that, if Benni Aroni and Tab Fried had known that the withdrawals from the B101 account had been made in pursuance of Green's fraudulent scheme, there would undoubtedly have been no act of ratification. As I have said, Mr Green did not make the withdrawals for a legitimate purpose and subsequently decide to misappropriate the funds. The history of his earlier withdrawals demonstrates conclusively that the withdrawals from the B101 account were done in the execution of a pre-conceived plan to misappropriate the funds. Mr Green's fraud was an inseparable part of each transaction, so that it cannot be ignored in considering whether Mr Green's acts were ratified and adopted, by Aroni Colman through Benni Aroni, or by TED Engineering Australia Limited or Evatab Investments Pty Ltd through Tab Fried. As I have held, the fraudulent purpose prevented Mr Green from being regarded as having actual authority by the operation of s 9 of the Partnership Act 1958 (Vic). It would be strange if such authority could be conferred on Mr Green retrospectively, by ratification or adoption, in the absence of knowledge of the fraud. 143 In my view, it is not possible to hold that Mr Green's acts in making the withdrawals from the B101 account were ratified. At the time when the transactions were processed and recorded in the accounts department at Aroni Colman and the information was conveyed to Tab Fried, and at the time of the subsequent silence of Aroni Colman and the applicants up to the discovery of Mr Green's fraud in March 1998, nobody had full knowledge of all of the material circumstances of Mr Green's acts. This applies equally to the transactions in which the funds passed through the Aroni Colman trust account on their way to Mr Green's appointed fraudulent destinations. Apart from Mr Green, everyone at Aroni Colman was unaware of his fraudulent intent, and of the misappropriation of the funds until long after they had passed through the Aroni Colman trust account. 144 For these reasons, I am of the view that lack of full knowledge of the circumstances of the transactions prevented ratification or adoption of the withdrawals made by Mr Green from the B101 account, where acts that would otherwise have amounted to ratification or adoption occurred prior to the discovery of Mr Green's fraud. The possibility of ratification by acts of Aroni Colman or the applicants after that time is dealt with below in conjunction with other defences relied on by Bendigo Bank.

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Estoppel 145 Bendigo Bank sought to raise the defence of estoppel in two ways. The first was, in effect, the same as the allegation that Mr Green had ostensible authority from Aroni Colman to operate the B101 account. It was that Aroni Colman represented to Bendigo Bank that Mr Green had authority to operate the B101 account on his own signature, and could not resile from that position after withdrawals had been made. For the same reasons that have caused me to hold that Bendigo Bank could not rely on ostensible authority, I hold that it cannot rely on estoppel in this way. Even if Aroni Colman, through those who worked in its accounts department, did hold out Mr Green as having authority to sign withdrawal forms in respect of the B101 account, there is no evidence that Bendigo Bank relied on such holding out or acted on it in processing the withdrawals. 146 The second form of estoppel relied upon was of a different character. It was said that a customer owes to a bank a duty to inform the bank of instances of which it is aware when instructions have been signed without authority. It was argued that Aroni Colman, as customer, owed to Bendigo Bank a duty to inform it of any unauthorised withdrawals that came to the attention of Aroni Colman. The accounts department at Aroni Colman was aware that Mr Green had signed withdrawal forms and that funds had been withdrawn from the B101 account by the use of those forms. If these withdrawals were in fact unauthorised, Bendigo Bank argued, it was entitled to be told of the lack of authority, so that it could take precautions to prevent repetition. If this were correct, at some point in the series of unauthorised withdrawals, Aroni Colman would become estopped, by its silence about earlier withdrawals, from alleging wrongful debiting of the B101 account. 147 It is well established that a customer owes to a banker a duty to refrain from drawing a cheque in such a manner as may facilitate fraud or forgery and a duty to inform the bank of any forgery of a cheque purportedly drawn on the account as soon as the customer becomes aware of it. The first duty was clearly recognised by the House of Lords in London Joint Stock Bank Ltd v Macmillan & Arthur [1918] AC 777. The second was laid down by the House of Lords in Greenwood v Martins Bank Ltd [1933] AC 51. These duties, sometimes styled duties of care, operate in a restricted way. A breach of such a duty does not give rise to any right of action for damages on the part of the bank. Rather, a breach of the duty gives rise to an estoppel, which the bank is able to set up as a defence to a claim by the customer for wrongful debiting of the account. If a customer therefore signs a cheque which is drawn in such a way as to leave blanks, so that the amount can be changed, the customer will be unable to sue the bank for wrongfully debiting the account to the extent of the altered amount. Similarly, if a customer becomes aware that a forger is operating the account and fails to inform the bank that this is the case, the customer cannot afterwards complain that the bank has wrongfully debited the account in satisfaction of subsequent forged cheques. 148 In recent times, attempts have been made to argue that the law should impose on the customer a broader duty of care than the two established duties. Banks have endeavoured to escape from their liability for debiting accounts without the customer's written mandate or authority, by alleging want of care on the part of the customer so as to induce the debiting, or silence by the customer when there existed a duty to inform the bank that all was not well. These attempts have been unsuccessful. In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80, the Privy Council was invited to hold that the failure of the customer to check periodic bank statements and to notify the bank of unauthorised withdrawals gave rise to an estoppel preventing the customer from suing the bank in respect of later unauthorised withdrawals. The Privy Council held that such a duty was not to be imposed by law on the customer, implied into the contract between the banker and the customer (because it was not necessary for the relationship), regarded as existing in tort, or part of the defence of estoppel. 149 Similarly, in National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377, the New South Wales Court of Appeal refused to extend the Macmillan and Greenwood duties any further than the terms in which they had been laid down in those cases, regarding them as the only qualifications to the general principle that, in the absence of estoppel by representation, a bank is only entitled to debit the customer's account with authority. In that case, the court refused to impose on a customer a duty to take reasonable care to ensure that forgery did not occur. The facts of the case would have lent strength to the argument that the recognised duties should be broadened. The principal of a business permitted an employee to forge his signature on cheques to operate a bank account for the purposes of the business. The employee also forged his signature for the purpose of withdrawing monies for her own purposes. Nevertheless, the court would not hold that the customer was estopped from claiming that its accounts had been wrongfully debited by means of the unauthorised forged cheques. 150 These two cases make it clear that the law remains that the principle that a banker is only entitled to debit a customer's account pursuant to the customer's written mandate or with the customer's authority remains subject only to limited exceptions. The duties of a customer to the banker, breach of which will justify debiting of the customer's account without a written mandate or authority, are limited to those laid down in Macmillan and Greenwood. No occasion arises in the present case for the extension of the exceptions. 151 It is clear, therefore, that Aroni Colman owed no duty in law to Bendigo Bank to inform it that any withdrawals were being made from the B101 account by a person not authorised to operate it. In those circumstances, the silence of Aroni Colman with respect to that matter cannot give rise to any estoppel. It must also be said that, even if such a duty did exist, the bank offered no evidence that any of its officers or employees relied upon the failure of Aroni Colman to inform it that Max Green was not authorised to operate the B101 account. The bank knew from its own records that Mr Green was not one of the authorised signatories in respect of the account. On 3 April 1996, when it refused to allow the withdrawal to be made in reliance on the letter signed by Mr Green, the letter was withdrawn and later returned to the bank with Benni Aroni's signature on it. The only indication given to Bendigo Bank on that occasion, therefore, was that Mr Green did not have authority to operate the B101 account. If there had been a duty to inform the bank that Mr Green was not authorised, it was at least fulfilled on that occasion. Thereafter, apart from the presentation of further withdrawal forms signed by Mr Green, which the bank would have rejected if it had checked its records as to the authorised signatories, no silence on behalf of Aroni Colman could have been taken to have lulled the bank into the belief that Mr Green was authorised to withdraw monies from the B101 account.

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Defences based on events after the discovery of the frauds 152 Following the discovery that Max Green had been murdered, the partners of Aroni Colman made a search of such files as he had kept in the offices of the firm. They found very few documents suggesting that Mr Green had performed significant legal work. The partners called in Mr Bill Lewski, who had been a director of the companies that were supposedly engaged in a scheme (which also turned out to have been a sham) to lease items to the City Link joint venture. Mr Lewski appeared to have been as much a victim of Mr Green's fraud as was anybody. At an early stage, Mr Wollan gave preliminary notice to the firm's professional indemnity insurer. A claim was made subsequently. 153 On 28 July 1998, three of the corporate applicants in this proceeding made a claim against the Legal Practitioners' Fidelity Fund in respect of losses caused by Mr Green's defalcations. Tab Fried made a statutory declaration on that date in support of the claim. The claim was made on the footing that the withdrawals made by Mr Green from accounts with the Bendigo Bank held by Aroni Colman in trust for applicants were valid withdrawals, in accordance with authority given by the applicants to withdraw money for reinvestment in various schemes. 154 On 30 July 1998, the original application in this proceeding was filed with the Court. As I have said, the applicants originally sued the firm of Aroni Colman. By amendment, the firm name was deleted from the title to the proceeding and the names of the surviving partners were substituted. The claim was on the footing that the partners were responsible for the fraud of their former partner Mr Green. In substance, it was alleged that the withdrawals from Bendigo Bank accounts had been made by Aroni Colman and that the funds had been thereafter misappropriated. Bendigo Bank was not a party to the proceeding at that time. A series of amended statements of claim continued the claim in the same form so far as Aroni Colman and Bendigo Bank were concerned. As against the NAB, the applicants alleged that it was liable for having knowingly assisted, and participated in, Mr Green's fraudulent misappropriations, for having converted bank cheques payable to third parties by collecting their proceeds and depositing them in the Max Green and Associates Trust Account at its Carlton branch, and for breach of an alleged duty of care. 155 On 28 May 1998, the applicants' solicitors wrote to Bendigo Bank, requesting assistance by way of the provision of copies of documents involved in the withdrawals of funds from Aroni Colman accounts held in trust for applicants. Among the documents sought were copies of documents relating to the opening and conduct of the accounts themselves. Bendigo Bank declined to assist. On 10 March 1999, the applicants sought preliminary discovery from Bendigo Bank in respect of a transaction no longer in issue in this proceeding. After receiving some documents in April 1999, the applicants applied to join Bendigo Bank as a respondent in respect of that transaction. The applicants did not become aware that Mr Green was not an authorised signatory to the accounts until after the middle of April 1999. On 11 May 1999, the applicants' solicitors requested details of authorised signatories to certain Bendigo Bank accounts, not including the B101 account. This request was refused. On 17 May 1999, Bendigo Bank was joined as a party to the proceeding. 156 On 24 December 1998, the remaining Aroni Colman partners began a legal proceeding against their professional indemnity insurer, claiming indemnity in respect of the claims made against them by clients of the firm as a result of Mr Green's defalcations. On 21 June 1999, the Aroni Colman partners and the applicants in this proceeding entered into terms of settlement of the applicants' claim against the surviving equity partners. As part of that settlement, specified sums were paid by a professional indemnity insurer of Aroni Colman, at the direction of the partners of Aroni Colman, in satisfaction of the partners' liability in respect of two transactions no longer in issue in this proceeding and in partial satisfaction of a third, which is also no longer in issue in this proceeding. It was also a term of the settlement that, in relation to the balance of the applicants' claim against the surviving equity partners of Aroni Colman, the partners consented to the entry of judgment against them in the sum of $11,000,000 in favour of the applicants, or some of them. Judgment has not yet been entered pursuant to this term. 157 In the course of the trial, the applicants also entered into terms of settlement with the NAB. Pursuant to those terms, on 17 November 2000, the NAB paid to the solicitors for the applicants the sum of $6,000,000. By agreement between the applicants and the NAB, this sum was appropriated to losses incurred as a result of two specified transactions no longer in issue in this proceeding, including interest and legal costs. In consequence, all claims by the applicants against the NAB were discontinued. 158 Relying on these acts of Aroni Colman, the surviving equity partners of Aroni Colman and the applicants, Bendigo Bank contended that Aroni Colman, the partners and the applicants had ratified and adopted any unauthorised withdrawals made by Mr Green, elected to pursue remedies inconsistent with the proposition that those withdrawals were unauthorised, and approbated the withdrawals. In consequence, it was said that the withdrawals had been retrospectively authorised or that no proceeding could now be brought based on the proposition that they were unauthorised, because to do so would be to act inconsistently with the election, or now to attempt to reprobate the acts of Mr Green. 159 Ratification or adoption will only occur if the principal on whose behalf an agent has purported to act does an unequivocal act, with knowledge of all the material facts, demonstrating an intention to treat the purported act of the agent as having been done on behalf of the principal. Brennan J in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 421 defined election as follows: "Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights". After referring to a number of authorities supporting that proposition, his Honour went on to say: "A doctrine closely related to election, and sometimes treated as a species of election, is the doctrine of approbation and reprobation. This doctrine precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he exercised".

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160 In each case, the defence is available whether or not any other party has acted in reliance on the act constituting ratification or adoption, election between inconsistent rights or approbation of a situation by the exercise of a right. Only if one or more of the acts relied on by Bendigo Bank was inconsistent with a claim that Mr Green had no authority to make withdrawals from the B101 account will Bendigo Bank have a good defence on these bases. 161 The pursuit of alternative claims, even if they are inconsistent claims, does not of itself give rise to any election or to any defence of approbation and reprobation. It is usually only at the time of the entry of judgment that an election between such claims is required. See United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 18 - 19 per Viscount Simon LC. At 21, his Lordship even suggested that satisfaction of a judgment was necessary to constitute an election. At 30 - 31, Lord Atkin expressed the view that the entry of judgment was the time at which both causes of action merged in the one on which judgment was entered. It follows, therefore, that the pursuit of remedies against the Legal Practitioners Fidelity Fund, the surviving equity partners of Aroni Colman and the NAB, all of which rested on the assumption that various bank accounts held by Aroni Colman in trust for one or other of the applicants had been properly debited, could not found a defence by Bendigo Bank to a claim for wrongful debiting. The claim against the Legal Practitioners Fidelity Fund has not been pursued to any conclusion. The consent by the surviving equity partners of Aroni Colman to the entry of judgment is merely an indication that the partners do not see it as being in their interests to contest the applicants' claims. As judgment has not been entered in accordance with the consent, no election, or approbation, has occurred. The alternative causes of action remain alive. To the extent to which the applicants have received satisfaction from the surviving equity partners of Aroni Colman, by reason of the payment made by their insurer, the satisfaction is of causes of action other than those currently being pursued against Bendigo Bank. Similarly, the settlement between the applicants and the NAB involves a payment of money by the NAB appropriated to causes of action other than those still pursued against Bendigo Bank. It is permissible for a payment of money to be appropriated to the satisfaction of particular debts or claims by agreement between the payer and the payee. This follows from the proposition that either the debtor or, if the debtor has not done so, the creditor, is entitled to appropriate a payment to a particular debt. See Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) (1982) 42 ALR 727 at 728 - 729. Bendigo Bank cannot complain that the Aroni Colman partners or the NAB should have devoted their resources to satisfying causes of action which lie against Bendigo Bank, or that the applicants should have appropriated monies received by them to the extinguishment of Bendigo Bank's liability. 162 I am therefore of the view that, by pursuing the claims in the way they have, the applicants have not made an election not to pursue their claims against Bendigo Bank. Nor have they approbated the acts of Mr Green so as now to be prevented from contending that those acts resulted in wrongful debiting of the B101 account. In taking this view, I am fortified by the fact that Weinberg J reached a similar conclusion when allowing the applicants to amend their statement of claim so as to raise the allegations of wrongful debiting now being pursued against Bendigo Bank. See Fried v National Australia Bank Ltd [2000] FCA 910 at [27] - [38]. 163 For similar reasons, I am of the view that the actions of the applicants in pursuing other claims did not amount to ratification or adoption of the acts of Mr Green. The pursuit of other claims did not amount to unequivocal acceptance of Mr Green's authority to withdraw money from the B101 account. Whether or not Mr Green had such authority, it would still have been open to the applicants to pursue claims against the surviving Aroni Colman partners as co-trustees in respect of defalcations committed by Mr Green. Similarly, it was open to the applicants to seek redress from the Legal Practitioners Fidelity Fund. In respect of those defalcations that involved the use of the Max Green and Associates Trust Account, the applicants could sue the NAB in respect of whatever part it may have played in those defalcations (though I do not suggest here that it did play any such part) without condoning, approving or adopting the acts of Mr Green in withdrawing money from accounts kept at the Bendigo Bank.

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The assignment of the Bendigo Bank accounts 165 To determine the first of these arguments, it is necessary to examine in more detail the sale of TED Engineering Australia Limited to Hawker Richardson Limited. 166 The sale was by agreement in writing dated 28 October 1996. Four companies of the Fried group, as well as Hawker Richardson Limited, were parties. TED Engineering Investments Pty Ltd, as beneficial owner of the shares in TED Engineering Australia Limited, agreed to sell those shares to Hawker Richardson Limited. The agreement therefore contemplated that Hawker Richardson Limited would acquire ownership and control of TED Engineering Australia Limited, with all its assets. This gave rise to some difficulty, because some assets were, in essence, assets of the Fried family not related to the business of the company. The scheme adopted in the agreement was that TED Engineering Australia Limited would sell these family assets, described as "Unrelated Assets", to TED Engineering Investments Pty Ltd on the settlement date. The term "Unrelated Assets" was defined in the agreement as follows: "'Unrelated Assets' means the assets to be sold by the Company immediately after the Settlement Date to the Vendor pursuant to Clause 8 and more particularly set out in the Deed of Assignment of the Unrelated Assets which forms the Second Schedule". 167 Clauses 8 and 9 of the agreement provided as follows: "8 SALE OF UNRELATED ASSETS 8.1 In consideration of these presents, the Company as beneficial owner agrees to assign to the Vendor all of its right, title and interest in and to the Unrelated Assets (together with all rights, benefits and entitlements accrued or attaching to the Unrelated Assets) for the Unrelated Asset Price on terms contained in the Second Schedule. 8.2 The Company and the Vendor will jointly determine the date of settlement of the assignment of the Unrelated Assets at which time: 8.2.1 the Company will deliver to the Vendor duly executed transfers to effect the assignment of the Unrelated Assets to the Vendor together with all certificates of title and other title documents in respect of the Unrelated Assets and any documents which may be required to vest title in the Vendor as reasonably requested by the Vendor or its advisers; and 8.2.2 the Vendor will deliver to the Company or as it may direct in writing payment of the Unrelated Asset Price for the assignment of the Unrelated Assets. 9 LOANS 9.1 The Vendor and the Purchaser acknowledge that there are loans by the Vendor or its Associates to the Company and by the Company to the Vendor or its Associates as at the date of this Agreement more particularly described in the Company Financial Statements. 9.2 On the Settlement Date: 9.2.1 Save for any loans considered in calculating the Unrelated Assets, the Purchaser will procure that

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the Company repays all the loans owed by the Company to the Vendor or its Associates; and 9.2.2 Save for the loans listed as Unrelated Assets, the Vendor must repay or must procure repayment of all the loans owed by the Vendor or its Associates to the Company." 168 The second schedule to the agreement consisted of a deed of assignment of the unrelated assets. It was intended that this agreement should be executed on the settlement date to effect the transfer of the unrelated assets from TED Engineering Australia Limited to TED Engineering Investments Pty Ltd, contemplated by cl 8 of the agreement. The unrelated assets were listed in the draft deed of assignment in the following terms: "List of Assets and Contracts

Loan to Compack Packaging Employee Share Plan Pty Ltd
Loan to Invotin Pty Ltd
Loan to T.E.D. Investments Pty Ltd
Freehold Property - 286 Bay Road, Cheltenham comprised in Certificate of Title Volume 9001 Folio 942
Investment - Advantage Australia Group
Investment - Mortgage Investments
Deposits with Savings Banks
Cash at Bank
Any other assets in the books of the Assignor as may have arisen after 30 June 1996 which are not employed in or related to the business of the Company." 169 As I have said, settlement of the sale was effected on 22 November 1996. Prior to that date, Gideon Meltzer, a solicitor employed by Aroni Colman, made preparations for the settlement. He prepared check lists of the steps required to effect the settlement. He prepared documents which were to be executed on the settlement date. Those documents were executed on 22 November 1996. They included the deed of assignment of unrelated assets, contemplated by the sale agreement. They also included several letters of demand, signed on that day by Graeme Lester Salthouse, who became a director of TED Engineering Australia Limited on that day and was at the time a director of Hawker Richardson Limited. These letters requested payment of the sums of money recorded in the accounts of TED Engineering Australia Limited as having been lent by that company to Compack Packaging Employee Share Plan Pty Ltd, Invotin Pty Ltd and TED Investments Pty Ltd. On the same day, Mr Salthouse signed a letter to each of Compack Packaging Employee Share Plan Pty Ltd, Invotin Pty Ltd and TED Investments Pty Ltd, acknowledging receipt of a sum of money representing payment in full of all monies due from that company in respect of funds advanced by TED Engineering Australia Limited to that company. Mr Salthouse also signed a letter addressed to Aroni Colman requesting payment in full of the sum of $8,754,168.79 "which Aroni Colman has invested in various interest bearing term deposits and interest bearing at call accounts with various banks on our behalf." On behalf of Aroni Colman, Benni Aroni signed a letter addressed to the directors of TED Engineering Investments Pty Ltd in the following terms: "We advise that we have received a request from T.E.D. Engineering Australia Ltd for repayment of the sum of $8,754,168.79 which Aroni Colman has invested in various interest bearing term deposit accounts and interest bearing at call accounts with various banks on its behalf and in accordance with your instructions as evidenced by the Minutes of Meeting passed by you today we confirm that appropriate funds will be made available by T.E.D Engineering Investments Pty Ltd to enable the above repayment to occur." 170 Mr Salthouse on behalf of TED Engineering Australia Limited signed a letter on the same day in the following terms: "We advise that the Company has received payment in full of the value of the deposit accounts held by Aroni Colman as Trustee and Nominee for T.E.D. Engineering Australia Limited from T.E.D. Engineering Investments Pty Ltd. You are hereby instructed to delete the name T.E.D. Engineering Australia Ltd from your records as the beneficiary of the saving deposit accounts and from this date to hold the sum of $8,754,168.79 presently deposited as follows:
Bendigo Bank Interest Bearing Term Deposit (3 months) $2,328,341.01
Bendigo Bank Interest Bearing Term Deposit (1 month) $ 68,908.17
Bendigo Bank Interest Bearing At Call Account $5,249,822.61
St George Bank (Flexi Rate Issue Passbook) $1,107,097.00 upon trust for T.E.D. Engineering Investments Pty Ltd on behalf of the Trust in lieu of and to the exclusion of T.E.D. Engineering Australia Ltd." 171 The reason for the letters of demand and letters acknowledging receipt of payment remains a mystery, despite the best efforts of counsel for the applicants and counsel for Bendigo Bank to explain, or perhaps to gloss, their effect. At best, I can only surmise that Mr Meltzer was acting under a misapprehension as to the effect of the sale agreement. It is plain from the terms of cl 8 of that agreement that the loans by TED Engineering Australia Limited to Compack Packaging Employee Share Plan Pty Ltd, Invotin Pty Ltd and TED Investments Pty Ltd were intended to be assigned to TED Engineering Investments Pty Ltd by means of the deed of assignment of the unrelated assets, executed on 22 November 1996. Those loans were therefore not the subject of cl 9 of the Sale Agreement and were therefore not required to be repaid in accordance with cl 9. Clause 9 specifically excluded loans considered in calculating the unrelated assets. 172 Counsel for Bendigo Bank sought to rely on the demand for repayment to TED Investments Pty Ltd, and the acknowledgment of receipt of payment from TED Investments Pty Ltd by way of defence. The amount of $2,550,000 was the amount standing in the books of TED Engineering Australia Limited as having been lent to TED Investments Pty Ltd. The amount was the total of four withdrawals from the B101 account in respect of the gas meter leasing scheme. They included transactions A4, B3 and B4. The argument was that, as the loan amount had been acknowledged as having been repaid on 22 November 1996, TED Engineering Australia Limited had nothing to assign to TED Engineering Investments Pty Ltd, as the loan had been extinguished. 173 This argument would give to the letters signed by Mr Salthouse on 22 November 1996 a significance that they do not merit. As I have said, those letters were apparently prepared and signed in the mistaken belief that they were required for the operation of cl 9, when the loans to which they related were expressly excluded from that operation. The unchallenged evidence of Tab Fried is that no money changed hands in respect of the loans repayment of which was requested and receipt of payment of which was acknowledged. The letters simply did not accord with reality. The reality was that, on 22 November 1996, the deed of assignment of unrelated assets was executed by TED Engineering Australia Limited and TED Engineering Investments Pty Ltd. The price for the unrelated assets was paid by means of a transaction involving a bank cheque handed over by Hawker Richardson Limited to TED Engineering Investments Pty Ltd and immediately endorsed by the latter and delivered to TED Engineering Australia Limited. The price of the unrelated assets was calculated on the basis that the loan standing in the books of TED Engineering Australia Limited in favour of TED Engineering Investments Pty Ltd was included. The effect of this transaction was that the assignment of those assets listed in the deed of assignment of unrelated assets was effected. Having acted in this way in accordance with the agreement between them, the parties to the transaction cannot be taken to have destroyed the effect of their agreements and their actions by the mistaken signing of the letters of request for repayment and receipt of payment, unaccompanied by any actual payment. Any loan from TED Engineering Australia Limited to TED Investments Pty Ltd was not extinguished. It was acquired by TED Engineering Investments Pty Ltd. Similarly, the letters concerning the sum of $8,754,168.79 held in bank accounts appear to have been written and signed on the assumption that the entitlement of TED Engineering Australia Limited to these sums was not part of the unrelated assets as defined. 174 Counsel for Bendigo Bank contended that this assumption was correct and that the deed of assignment of the unrelated assets was ineffective to pass to TED Engineering Investments Pty Ltd any right which TED Engineering Australia Limited might have had in respect of the B101 account. The basis of this argument was the assertion that a claim for wrongful debit of a bank account was not covered by the terms in which the unrelated assets were defined in the deed. As a consequence, it was said, any claim to reinstatement of any amount in the B101 account was a right belonging to TED Engineering Australia Limited and not to any of the applicants. Although TED Engineering Australia Limited was joined by the applicants as a respondent to the proceeding, for the purpose of ensuring that it would be bound by a judgment in the proceeding, it has not participated in the proceeding, and has not made any claim with respect to reinstatement of any amount debited to the B101 account. 175 It is clear that the items numbered 7 and 8 in the list of assets and contracts which defined the unrelated assets, coupled with cl 6 of the deed by which the assets and contracts were assigned, was effective to pass to TED Engineering Investments Pty Ltd the entitlement to amounts which ought to have been standing to the credit of Aroni Colman in the B101 account. Those items are "Deposits with Savings Banks" and "Cash at Bank". If, on 22 November 1996, TED Engineering Australia Limited had an entitlement to have a particular amount standing to the credit of Aroni Colman in the B101 account, even though the statements of account as between Bendigo Bank and Aroni Colman did not show that amount, such an amount was aptly described as a deposit with a savings bank, or as cash at bank. 176 The submissions on behalf of Bendigo Bank tended to rely on the fact that the price paid for the unrelated assets was calculated by reference to the amounts shown as standing to the credit of Aroni Colman in trust for TED Engineering Australia Limited at the date of the assignment. Whilst the calculation of the price in this way was no doubt an attempt to arrive at an accurate valuation of the assets assigned, it could not preclude the deed of assignment of the unrelated assets from having effect according to its terms. As at 22 November 1996, Bendigo Bank was obliged to Aroni Colman to reinstate in the B101 account the amounts withdrawn in transactions A4, A5, B3 and B4. Had it fulfilled this obligation, the amount standing to the credit of Aroni Colman in the B101 account on 22 November 1996 would have been increased by the total of the withdrawals involved in those transactions. The amount of the debt by Bendigo Bank to Aroni Colman was appropriately described as a deposit with a savings bank, or as cash at bank. The fact that a total price was paid for the unrelated assets, which may have been less than their true value, does not mean that there was anything other than good consideration for the assignment. In any event, there is a question as to whether valuable consideration for the assignment was required when the assignment was by way of deed under seal. The deed of assignment of unrelated assets contained the words "EXECUTED AS A DEED" immediately prior to the clauses recording the affixing of the common seal of each of the parties to the deed. Those words were intended to, and had the effect of, making the deed operative as a deed under seal. The assignment was therefore effective even if the consideration paid was less than the total value of the assets. 177 Counsel for the applicants also argued that the right to reinstatement of amounts wrongfully debited to the B101 account was assigned by item 9 in the list of assets and contracts in the deed of assignment of unrelated assets. That item was, "Any other assets in the books of the Assignor as may have arisen after 30 June 1996 which are not employed in or in relation to the business of the Company". The use of the word "other" indicates that this item was only intended to be relied upon to cover assets not otherwise in the list. If I am right with respect to items 7 and 8, consideration of item 9 cannot arise. Item 9 is also restricted in that it contemplates assets in the books of the assignor that may have arisen after 30 June 1996. Arguably, this would exclude the wrongful debit resulting from the withdrawal in transaction A4, which occurred four days prior to 30 June 1996. It would be relevant only to the withdrawals involved in transactions A5, B3 and B4, which occurred between 30 June 1996 and the date of the deed. In view of my conclusions as to items 7 and 8, it is unnecessary for me to consider this question. 178 Notice of the assignment was given to Bendigo Bank by letter from Aroni Colman, received by Bendigo Bank no later than 9 December 1996. On that date, Bendigo Bank altered its records to show that the B101 account, and other accounts formerly described as held by Aroni Colman in trust for TED Engineering Australia Limited were thenceforth to be entitled "Aroni Colman in trust for Evatab Investments Pty Ltd". Evatab Investments Pty Ltd is the name by which TED Engineering Investments Pty Ltd has been known after 22 November 1996. The receipt of notice perfected the assignment. From 9 December 1996, Evatab Investments Pty Ltd became entitled to sue for the prior wrongful debits of the B101 account. It held the equitable interest in the debts owed by Bendigo Bank to Aroni Colman in respect of the amounts wrongfully debited. 179 Of course, the amounts withdrawn in transactions A6 and A7 were not covered by the assignment at all. They occurred after the entitlement to the deposits with savings banks and the cash at bank had been assigned by TED Engineering Australia Limited to TED Engineering Investments Pty Ltd (which then became Evatab Investments Pty Ltd). Transaction A6 took place on 3 December 1996, prior to the receipt of notice of the assignment, but the receipt of that notice perfected Evatab Investments Pty Ltd's entitlement to the amount wrongfully debited. Transaction A7 occurred after the receipt of notice, at which time Evatab Investments Pty Ltd was unarguably entitled to the balance standing to the credit of Aroni Colman in the B101 account.

[47]

183 In Scott on Trusts, 4th ed. 1989, Vol IV at p. 31, appears the following passage: "if the trustee holds in trust a contract right against a third person and the trustee improperly refuses to bring an action to enforce the contract, the beneficiaries can maintain a suit in equity against the trustee joining the obligor as a co-defendant." As well as citing United States authority for this proposition, the learned editor of Scott on Trusts cites Gandy v Gandy (1885) 30 ChD 57. That case concerned a deed of separation of a married couple. The deed was made between the husband and trustees for the wife, because the law then prohibited a wife from suing her husband. When the trustees refused to enforce the covenants in the deed against the husband, the wife was permitted to join the trustees as party to the proceeding and thus to enforce the covenants in the deed. 184 In Re Atkinson [1971] VR 612 at 616 - 618, Gillard J refused to direct a trustee company, acting as executor of a will and trustee of the estate of the testator, to take a proceeding to recover an equitable interest in property alleged by a beneficiary to be part of the estate. His Honour permitted the beneficiary to sue directly to recover the alleged trust property. 185 It will be noted that, in the authorities to which I have referred on this question thus far, no mention has been made of either the inability of the trustee to sue, or of the need for any special circumstances to arise before the beneficiary can sue in his or her own right, provided that the trustee is joined to the proceeding. The rationale for a rule of this kind appears to be a simple one. It is of no importance at all to the person who is sued whether the party suing is the party to whom the legal obligation is owed, or the party for whom that party holds the legal obligation in trust. What is of concern to the person sued is that he or she not be vexed by more than one proceeding making the same claim. So long as all of the beneficiaries and the unwilling trustee are joined as parties to the proceeding, this concern will be eliminated. The trustee will be bound by a judgment given in the proceeding and will therefore be unable to have a change of heart and commence a proceeding as trustee. Of course, if there is more than one beneficiary of the trust, all beneficiaries would have to be joined as parties, to preclude the possibility of a multiplicity of proceedings. Where it is not yet possible to ascertain the identity of all members of a class of beneficiaries, it might be necessary to restrict the right of a beneficiary to sue in his or her own right to enforce the trust, because not all possible parties can be joined. In the absence of such a situation, there is no need to restrict the right of the beneficiary to sue, provided all necessary parties are joined. 186 Ramage v Waclaw (1988) 12 NSWLR 84 was a case similar to Atkinson. A beneficiary under a will was held entitled to sue to recover property alleged to be part of the estate of the testator when the executor of the will and trustee of the estate refused to bring the proceeding. At 91, after discussing earlier authorities, Powell J quoted a passage from Jacobs' Law of Trusts in Australia, 4th ed. 1977 at p. 531. Part of the passage quoted was as follows: "But where a trustee refuses to institute proceedings against a debtor or to recover trust property, the beneficiary may wish to institute proceedings himself, either in his own name or in the name of the trustee. The rule here is that a beneficiary may sue in his own name only where the relief sought is in the equitable jurisdiction of the court and even then only where the circumstances are exceptional. If they are not exceptional or if the proposed action is to be commenced in the common law jurisdiction, the beneficiary's remedy is to sue the trustee for the execution of the trust and then apply for the appointment of a receiver and for leave to sue in the name of the trustee or of the receiver… Where there are special circumstances and the relief sought is in the equitable jurisdiction of the court a beneficiary may take proceedings in his own name, the trustee and other beneficiaries being added as defendants." The learned editors of Jacobs' did not refer in the footnotes to this passage to any of the authorities to which I have referred. Powell J in Ramage approved the passage from Jacobs' and went on to consider what might amount to exceptional or special circumstances. In the 6th ed. of Jacobs' Law of Trusts in Australia, at p. 690, Ramage now appears in a footnote as authority for the proposition that the relief sought must be in the equitable jurisdiction and the circumstances must be exceptional before the beneficiary can sue. 187 In Lidden v Composite Buyers Ltd (1996) 67 FCR 560, Finn J dealt with a case in which a trustee of a unit trust had declined to pursue a claim the result of which might have benefited the beneficiaries of the trust. Some of the beneficiaries sought to institute proceedings in their own names, joining the trustee as a respondent. The claims were under statute, at common law and in equity. At 563 - 564, Finn J referred to a passage from Jacobs' Law of Trusts in Australia, 5th ed. 1986, in similar terms to the passage in the fourth edition. His Honour also referred to Ramage. He reached the conclusion that the right of a beneficiary to claim should not be limited to equitable relief. He undertook the task of determining whether exceptional or special circumstances existed. He seems to have taken the view that that requirement was satisfied, even though there was no evidence as to the reason for the unpreparedness of the trustee to commence a proceeding. He held that it was more appropriate that the trustee be joined as an applicant than as a respondent. 188 Finally, in Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432, at 436 - 438, Cohen J referred to Ramage and to the 4th ed. of Jacobs'. His Honour pointed out that not all of the authorities seem to support the view that a beneficiary cannot sue to protect his or her interest at common law. Among the authorities he cited were Vandepitte and Lidden. His Honour concluded, at 437, that: "the exceptional circumstances which permit a beneficiary to bring proceedings apply to claims in common law as well as those in equity." The exceptional circumstances found to exist in that case were that the trust had come to an end, so that the trustee was no longer a trustee. His Honour pointed out that this would not prevent the trustee from bringing proceedings but, without funds and the status of trustee, it could not be expected to do so. In that case, his Honour approved the joining of the trustee as a defendant. 189 My survey of the authorities leads me to the view that, at least where the obligation owed to the trustee is a debt, an obligation under a contract, or a covenant in a deed, it is unnecessary for exceptional or special circumstances to exist before a beneficiary of the trust has the right to sue to enforce the obligation. It is sufficient that the trustee be unwilling to bring the proceeding. How the fact of unwillingness is to be established will depend upon the circumstances of the case, but there are cases in which unwillingness on the part of the trustee may be inferred from the fact that a sufficient period has elapsed since the obligation arose and the trustee has not yet sued. There is no requirement that the trustee be proved to be unable to sue. In the present case, the unwillingness of the trustees, the surviving equity partners of Aroni Colman, to sue is established by their execution of the deed which recites that unwillingness. Counsel for Bendigo Bank sought to extract in cross-examination of the two former partners who gave evidence admissions to the effect that they would be prepared to sue, particularly if offered an indemnity in respect of costs by the applicants. Even if he had been successful in this endeavour, in my view counsel for Bendigo Bank would not have defeated the proposition that the trustees (ie all of the surviving former partners) were unwilling to sue. 190 It follows from what I have said that I am of the view that no relevant distinction exists between claims at common law and claims in equity for the purposes of the rule permitting a beneficiary to sue when the trustee is unwilling to do so. If, as Cohen J suggested in Lamru, such a distinction was to be drawn in jurisdictions where legislation of the type found in the Judicature Act 1873 (UK) had not been passed, it is plainly a distinction irrelevant to this Court. 191 In case I am wrong as to the content of the rule allowing a beneficiary to sue when a trustee is unwilling to do so, and exceptional or special circumstances are required, then in my view they exist in the present case. As was the case in Lamru, the trust has come to an end. Aroni Colman ceased to act as trustee, the accounts it held with Bendigo Bank in trust for the applicants were closed and the proceeds of them were remitted to the relevant applicants before the applicants sued Bendigo Bank. As was the case in Lamru, the former trustees lack the status of trustees. They would still be entitled to sue in that capacity, but cannot be obliged to do so without an order of a court. There is no sound reason why Evatab Investments Pty Ltd cannot sue in its own name, instead of arranging for a costs indemnity and borrowing the names of the former equity partners of Aroni Colman. See Fried v National Australia Bank Ltd [1999] FCA 737 at [14] - [18]. That was the judgment given on the joinder of Bendigo Bank as a party to this proceeding. Weinberg J rejected the argument put on behalf of Bendigo Bank that the surviving equity partners of Aroni Colman, and not the applicants, were the proper parties to sue in respect of the wrongful debiting of the bank accounts held by Aroni Colman with Bendigo Bank. In doing so, his Honour held that there were special or extraordinary circumstances, such as to permit the applicants to sue in their own right. 192 Counsel for Bendigo Bank sought to argue that exceptional or special circumstances did not exist because Bendigo Bank was disadvantaged by having to face Evatab Investments Pty Ltd as applicant, instead of the former partners of Aroni Colman. The substance of this argument was that, if the former partners of Aroni Colman had been the applicants, they would have been obliged to give discovery of documents to Bendigo Bank on a broader basis than was obtained. Bendigo Bank might then have been in a better position to defend the proceeding. It would therefore be inequitable to permit Evatab Investments Pty Ltd to sue in its own name. I do not accept this argument. The former partners of Aroni Colman are all respondents in the proceeding. The Court possesses ample power to order them to make discovery of such documents as might be considered to assist the case of another respondent. If necessary, documents can be obtained by subpoena. In fact, Bendigo Bank did seek wide-ranging discovery of documents from the former partners of Aroni Colman. Its application in this respect was unsuccessful in part. See the judgment of Weinberg J in Fried v National Australia Bank [2000] FCA 604 at [81] - [88]. It cannot now claim that it would have been in a better position if it had sought discovery of documents against the Aroni Colman partners as applicants. 193 The final requirement to enable the beneficiary to sue, that all necessary parties be joined in the proceeding, has been satisfied in the present proceeding. There are no beneficiaries of the trust of the B101 account other than Evatab Investments Pty Ltd. The former partners of Aroni Colman are all respondents. I note that, in Lidden, Finn J took the view that it was more appropriate to join the unwilling trustee as an applicant. All of the other authorities to which I have referred make it clear that the requirement of joinder is satisfied if the unwilling trustee be joined as a defendant. As I have said, the purpose of this requirement appears to be to avoid the possibility of a multiplicity of suits in respect of the same claim. 194 For these reasons, I am of the view that it is open to Evatab Investments Pty Ltd to sue Bendigo Bank in respect of the wrongful debiting of the B101 account in transactions A4, A5, B3, B4, A6 and A7.

[48]

Bendigo Bank's claim for credits 195 On 30 June 1997, the sum of $1,884,787.50 was paid into the B101 account and the sum of $426,195 was paid into another account held by Bendigo Bank for Aroni Colman in trust for Windina Pty Ltd. The source of both of these accounts was the Max Green and Associates Trust Account with the Carlton branch of the NAB. Bendigo Bank claimed that any amount for which it might be found to be liable to Evatab Investments Pty Ltd in respect of wrongful debit of the B101 account should be reduced by the total of these two deposits. 196 In the findings I have made about each of the transactions still in dispute in this case, I have referred to the destination of each of the amounts withdrawn from the B101 account, to the extent to which the evidence discloses that destination. It is clear that the source of the two deposits made on 30 June 1997 was not the funds withdrawn from the B101 account in any of those transactions. The recovery by Evatab Investments Pty Ltd and Windina Pty Ltd of other monies stolen them by Max Green, and the deposits of those funds in accounts held by Bendigo Bank, cannot be relied upon by Bendigo Bank as a partial defence to the claims made by Evatab Investments Pty Ltd. When Bendigo Bank wrongly debited the B101 account, it paid away its own funds and became obliged to reinstate the balance in the B101 account to the extent to which it was depleted by each of the transactions. Bendigo Bank cannot claim that deposits by others satisfy in part its obligations to reinstate the balance in the account. It would be different if it had been possible to trace the stolen funds and to recover them, or some of them. In that case, Evatab Investments Pty Ltd would not have suffered loss as a result of the wrongful withdrawal. The withdrawn funds would have been applied to its use and benefit. That is not the case. Bendigo Bank remains liable to reinstate the balance of the B101 account to the extent to which it was depleted by the unauthorised withdrawals by Max Green.

Parties

Applicant/Plaintiff:

Fried

Respondent/Defendant:

National Australia Bank Limited

Legislation Cited (7)

Financial Transaction Reports Act 1988(Cth)

Partnership Act 1958(Vic)s 9

Banking Act 1959(Cth)

Legal Profession Practice Act 1958(Vic)

Legal Practice Act 1996(Vic)

Cash Transaction Reports Act 1988(Cth)

Financial Transactions Reports Act 1988(Cth)

Cases Cited (14)

Fried v National Australia Bank Limited [2001] FCA 907

N Joachimson v Swiss Bank Corporation [1921] 3 KB 110, considered National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377, considered National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251, applied Taylor v Smith (1926) 38 CLR 48, cited Marsh v Joseph [1897] 1 Ch 213, cited Victorian Professional Group Management Pty Ltd v The Proprietors "Surfers Aquarius" Building Units Plan No. 3881 [1991] 1 QdR 487, cited London Joint Stock Bank Ltd v Macmillan & Arthur [1918] AC 777, considered Greenwood v Martins Bank Ltd [1933] AC 51, considered Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80, considered Commonwealth of Australia v Verwayen (1990) 170 CLR 394, referred to United Australia Ltd v Barclays Bank Ltd [1941] AC 1, followed Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727, cited Fried v National Australia Bank Ltd [2000] FCA 910, referred to Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70, considered Gandy v Gandy (1885) 30 ChD 57, considered Re Atkinson [1971] VR 612, considered Ramage v Waclaw (1988) 12 NSWLR 84, not followed Lidden v Composite Buyers Ltd (1996) 67 FCR 560, considered Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432, applied Fried v National Australia Bank Ltd [1999] FCA 737, referred to Fried v National Australia Bank [2000] FCA 604, referred to

(1996) 39 NSWLR 377

(1986) 160 CLR 251

(1926) 38 CLR 48

(1990) 170 CLR 394

(1982) 42 ALR 727

(1988) 12 NSWLR 84

(1996) 67 FCR 560

(1998) 44 NSWLR 432

(1981) 148 CLR 304

[2000] FCA 910

[1999] FCA 737

[2000] FCA 604

Cited By (3)

Frigger v Kitay

Katwell Pty Ltd and Anor v National Australia Bank Limited

Turner (Trustee) v Ackerman; in the matter of Schipper