CONCLUSION
58 For those reasons, in my opinion, the following order should be made: Appeal dismissed with costs.
59 Since writing the above, I have read the judgment of Basten JA. His analysis of the consequences of the cheque being crossed "not negotiable" seems to be correct; but I would prefer not to express a concluded view on this, as it was not the subject of submissions. However, this analysis would appear to be another route to the same conclusion.
60 IPP JA: I agree with Hodgson JA and the order he proposes.
61 BASTEN JA: The original proceedings in this matter were brought by Mr Malouf, seeking to recover an amount of $165,000 from MBF Australia Ltd ("MBF"). In the Equity Division, Einstein J declared that MBF held the sum on trust for Mr Malouf and had done so since 8 December 2000. His Honour further ordered that MBF pay Mr Malouf that sum together with interest. I agree with Hodgson JA that the appeal should be dismissed and that MBF should pay Mr Malouf's costs of the appeal.
62 Because of the manner in which the case was pleaded, the focus of the argument has at all stages been on the proposition that MBF, and prior to it, Mr Hill, held the money on trust for Mr Malouf. That conclusion was supported on a number of alternative bases, including, first, that the money, having been obtained by fraud, was equivalent to stolen funds so that the thief held the money on trust for the owner, in accordance with Black v S Freedman & Company [1910] HCA 58; 12 CLR 105. Alternatively, it was suggested that a resulting trust arose in the moneys as a result of the failure of the purpose for which the cheque was provided to Mr Hill, in accordance with Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. However, the prior question is whether any legal title passed to MBF. If it did not, no question of any resulting trust arose. MBF argued that because neither Mr Malouf nor Mr Hill had any title in the cheque, no resulting trust could have arisen in favour of Mr Malouf.
63 If Mr Malouf obtained title to the cheque and transferred it to Mr Hill, the title so transferred was undoubtedly "defective" for the purposes of s 3(3) of the Cheques Act 1986 (Cth) because the cheque was obtained by fraud. In that event, Mr Hill's title was either void or voidable and he could give no better title to MBF. If the title were void, MBF converted the cheque by collecting and appropriating the funds received. If it were voidable, it was arguable that no different result would eventuate.
64 On 13 February 2001 Mr Malouf received a letter from Mr Hill, on behalf of Isagila Investments Pty Ltd ("Isagila") purporting to terminate the contract. (There are documents in evidence giving different versions of the company name, but the same ACN 085 593 200.) By that stage, Mr Malouf had already reported the matter to the police. It seems likely that Mr Malouf rescinded the contract at about that time, although there is no factual finding in that regard. In any event, if there were no other act of rescission, the commencement of proceedings in the Equity Division would have had that effect. An effective rescission of a voidable agreement would have revested the property in Mr Malouf. As explained by Giles J in Hunter BNZ Finance Ltd v C G Maloney Pty Ltd (1988) 18 NSWLR 420 at 433E:
"For present purposes, if A rescinds the transaction whereby as a result of fraudulent representations by B he transferred goods to B he may regain his property, inter alia, by claiming its value in an action for conversion, or the proceeds thereof as money had and received. This is because at least where no formality is required the rescission causes the property which has passed to revest …."
65 If the correct analysis is that the transaction by which title in the cheque was passed to Mr Hill and hence to MBF was voidable and that the revesting of title in Mr Malouf depended upon rescission of the transaction, a question would arise as to whether Mr Malouf could rescind the transaction, so as to recover title to the cheque or its proceeds, in circumstances where rights of an innocent third party had intervened. On the other hand, if the fraud prevented any genuine contract coming into existence, "the payments were not pursuant to merely voidable transactions, which would need to be avoided before there was entitlement to recover; but rather were induced by a thorough-going fraudulent scheme, in respect of which any purported consideration was non-existent or illusory": see Citibank Ltd v Papandony [2002] NSWCA 375 at [64] (Hodgson JA, Meagher and Heydon JJA agreeing). The latter description fits the present case on the findings of fact properly made by the primary judge.
66 On this approach, there would be no reason to deny the relief obtained by Mr Malouf in the Equity Division, it not being argued that he failed because he sought a remedy in equity, rather than at common law. What was relied upon by the appellant was the premise underlying relief on either basis, namely that Mr Malouf obtained any property in the cheque, which would permit him to obtain relief against MBF for conversion, money had and received or by way of a resulting trust. MBF argued that Mr Malouf never obtained any title to the cheque and could not have obtained payment on the cheque, could not have negotiated it and could not have "stopped it".
67 Further, no question would arise as to whether MBF purchased the cheque for value without notice of the fraud. As the cheque was payable to bearer, it was transferable by negotiation which means by delivery by the holder to another person: Cheques Act, ss 29 and 40(3). The cheque was delivered by or for Mr Malouf to Mr Hill and by Mr Hill, on behalf of SRL Technology Corporation Pty Ltd ("SRL"), to MBF. However, the cheque was crossed, with the result that MBF could not be a holder in due course for the purposes of s 50 of the Cheques Act. Although the cheque could be transferred by delivery, the person receiving the cheque received no better title than that of the person from whom it took the cheque: Cheques Act, s 55 and see Mark Hapgood (ed), Paget's Law of Banking (13th ed, 2007) par 15.27.
68 The cheque was drawn by the National Australia Bank Ltd ("the NAB") on itself, in consideration of funds supplied by Jarong Pty Ltd ("Jarong"), at the request of Mr Malouf. The loan from Jarong was arranged by an officer of Mr Malouf's bank, HSBC. At Mr Malouf's request, the cheque was made payable to MBF. NAB had no intention with respect to the cheque other than to comply with the directions of Jarong, which provided the funds for the cheque. Jarong intended the funds to be provided to, or at the direction of, Mr Malouf. Mr Malouf was entitled to have the cheque and do with it what he wished. No person other than Mr Malouf had any entitlement to dispose of the cheque, once issued. As it was a bearer cheque, he would have been entitled to deposit it in his account, although some explanation might have been required by his bank as he was not the payee: see Commercial Bank of Australia Ltd v Flannagan [1932] HCA 51; 47 CLR 461. Mr Malouf could have held the cheque or arranged for its discharge. None of Jarong, the NAB nor Mr Malouf had any obligations of payment to MBF. Accordingly, Mr Malouf obtained title to the cheque whether it was handed to his agent, the HSBC officer or to himself personally. Either he or the agent handed the cheque to Mr Hill, an act which was the product of Mr Hill's fraud. In accordance with the reasoning in Papadony, Mr Hill obtained no legal title to the cheque.
69 It follows that MBF, not having obtained title to the cheque, converted the cheque which was still owned by Mr Malouf, by depositing it in its account. It must account to Mr Malouf for the proceeds: Great Western Railway Company v London and County Banking Co Ltd [1901] AC 414 at 418 (Earl of Halsbury LC) and 424 (Lord Lindley); and Morison v London County and Westminster Bank Ltd [1914] 3 KB 356 at 364-365 (Lord Reading CJ), 378-379 (Phillimore LJ). Mr Malouf was entitled to recover the proceeds of the cheque from MBF.
70 If, contrary to the view that Mr Hill obtained no title to the cheque, he obtained a voidable title, in accordance with the approach adopted in Midland Bank Plc v Brown Shipley & Co Ltd [1991] 1 Lloyd's Rep 576 (Waller J), then the relevant question is whether collection and appropriation of the funds prior to notice of rescission renders the rescission ineffective: see Bavins Junior & Sims v London and South Western Bank Limited [1900] 1 QB 270 (UKCA) at 277 (Collins LJ).
71 If it were necessary to deal with the case on the basis that the transaction between Mr Malouf and Isagila was voidable, rather than void, it would be necessary to inquire whether MBF gave value for the cheque prior to receiving notice of the defect in the title of Mr Hill (for SRL). In this respect, two dates are relevant. The first is that on which SRL entered into occupation of premises owned by MBF, being on or shortly after 6 December 2000. The second is the earliest date upon which MBF could be treated as being on notice of the defect in SRL's title to the cheque, namely 13 January 2001, when there was a conversation between Mr Malouf and Mr Hartley of MBF, set out at [46]-[47] above. As explained by Hodgson JA, when MBF took the cheque, it had a limited interest in the proceeds and held at least part of the proceeds on a resulting trust for SRL. It then received information which put it on notice as to the defect in title of SRL. Accordingly, so long as it is permissible to treat differentially parts of the proceeds of the cheque for the purposes of rescission, the receipt of the cheque by MBF should not prevent rescission to the extent that it had not, at the time it received notice of the defect in title, validly appropriated part of the proceeds. If it had appropriated part of the proceeds, it was at least arguable that rescission would be permitted subject to an adjustment with respect to those amounts which it had taken prior to being put on notice. Such a result would have minimised any demonstrated injustice to MBF.
72 Because the transaction is to be viewed, in accordance with Papandony, as void and because, as Hodgson JA explains, a similar result may be reached by considering the equitable interests in the proceeds of the cheque, it is not necessary to reach any final conclusion with respect to the availability of rescission in respect of a voidable transaction.
73 The primary judge stated at [22] - set out at [34] above - that "there was a complete 'disconnect' between the purpose for which the cheque was proffered (namely to be held in escrow pending the execution by MBF of a lease) and the decision by MBF to permit SRL into possession". As explained by Hodgson JA, that appears to be a finding that the receipt of the cheque did not entitle MBF to the proceeds: at [36]. However, if MBF obtained title to the cheque, it undoubtedly obtained title to the proceeds of the cheque. The question is therefore whether it gave value for the cheque.
74 The answer to that question cannot depend upon an assessment of the value of the consideration provided. It is sufficient that it gave valuable consideration, by handing over possession of identified premises to SRL. There was no suggestion that the cheque would not be cashed, or that the proceeds would be returned intact, if, after a period, SRL failed to enter into a lease.
75 As explained by Hodgson JA, it does not follow that MBF had obtained, prior to 13 January 2001, a beneficial entitlement to all of the proceeds of the cheque. However, as it did not seek to establish any more limited entitlement than a beneficial entitlement to the full face value of the cheque, the appeal must be dismissed.
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