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[1986] HCA 21
High Court of Australia
1975-01-01
Dawson JJ, Yeldham J
Original judgment source is linked above.
For the reasons I have given I would conclude that the deposit was not within the scope of the actual or apparent authority of Mr. Davis or within the ordinary course of the business of the firm and that Mr. Batty cannot be made liable for Mr. Davis' wrongful act in depositing them.
The alternative submission advanced on behalf of the Bank was that when the Bank credited the proceeds of the cheques to the trust account, the amount of the proceeds was had and received by the members of the firm to the use of the Bank. In argument before the Court of Appeal it was also submitted that the money was had and received by the firm at the times when the proceeds of the cheques were paid out of the account to or for the benefit of Mr. Davis. The Court of Appeal refused to entertain that submission, because it had not been made at first instance and because there was inadequate evidence regarding the circumstances in which the payments out were made. The submission was not repeated before us.
The argument now submitted on behalf of the Bank is that Mr. Batty received moneys of the Bank when the proceeds of the cheques were credited to the trust account. The question whether the moneys collected and credited to the account were the moneys of the Bank was not considered in the Supreme Court and was not fully argued before us. It is at the very least doubtful whether those proceeds were moneys of the Bank. There is nothing to suggest that the Bank acted otherwise than as an agent for collection in respect of the cheques and not as the holder for value, i.e. it received payment for its customer, the firm, and held the proceeds at the customer's disposal: see Capital and Counties Bank v. Gordon [13] . In Joachimson v. Swiss Bank Corporation [14] , Atkin L.J. said:
The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. If, in the present case, the firm had been entitled to the cheques, the position would have been that the Bank received payment from the paying bank as agent for the firm, and the proceeds of the cheques, when collected, would have been the firm's moneys; once they were credited to the firm's account the Bank would have become the debtor of the firm. Thereafter the proceeds would have become an asset of the Bank and the firm would have had a right to repayment on demand (Croton v. The Queen [15] ) but we are not concerned with the position after the moneys were credited to the account. In fact the cheques were the property of the company which could have sued the Bank for conversion (as it did) or could have elected to sue the Bank for money had and received. In these circumstances the money credited to the firm's account would appear to have been the money of the company and not the money of the Bank. No doubt once the company obtained judgment against the Bank, and the judgment was satisfied, the property in the cheques would pass to the Bank: Salmond on Torts, 18th ed. (1981), pp. 527-528. Obviously there was neither judgment nor satisfaction at the time when the proceeds of the cheques were paid to the credit of the firm's account. The remedy of the Bank, in the events which happened, was to claim to be indemnified for the loss occasioned to it by the false representation impliedly made by Mr. Davis when he deposited the cheques. It has of course made such a claim, but for reasons already given cannot succeed against Mr. Batty. For these reasons it appears difficult to contend that the moneys credited to the account were had and received to the use of the Bank. However, since this matter was not fully explored I shall proceed to consider whether Mr. Batty is liable, on the assumption that the moneys so credited were moneys of the Bank. 1. [1903] A.C. 240, at pp. 244-245. 2. [1921] 3 K.B. 110, at p. 127. 3. (1967) 117 C.L.R. 326, at p. 330.
The question whether Mr. Batty received the moneys has to be answered in the light of the finding that the cheques were not deposited with his authority or in the ordinary course of the business of the firm. If the moneys had been paid into the account of the firm in the ordinary course of the business of the firm, and Mr. Davis had then wrongly disposed of them, Mr. Batty would have been liable under s. 11(a) of the Partnership Act. However the present case cannot be decided on that basis. The question is whether Mr. Batty is liable because the moneys went into the firm's account, without his knowledge and without his actual or apparent authority. Mr. Batty did not deal with the money in any way nor expressly authorize anyone else to do so. Mr. Handley did not seek to challenge the finding of the Court of Appeal that Mr. Batty neither knew nor ought to have known that the moneys were credited to the account. He submitted that Mr. Batty had the means of knowing that the company's moneys were credited to the account, or rather, would have had the means of knowing if he had not left the operation of the account entirely to Mr. Davis. If, for example, Mr. Batty had insisted that he join in signing all deposit forms, he would have been in a position to know what deposits were made to the account. This, it was said, was enough to fix Mr. Batty with liability for the moneys paid into the account which he was entitled to control.
In support of this submission, reference was made to three decisions. In the first, Marsh v. Keating [16] , Fauntleroy, a partner in a bank, caused stock belonging to a customer to be sold out by a forged power of attorney. The proceeds were paid to the account of the bank, at the house of the bank's agents, and were appropriated by Fauntleroy. The partners of Fauntleroy were ignorant of the fraud but might, with common diligence, have known of it. It was held that the customer could maintain an action against the partners for money had and received. The opinion of the judges was delivered to the House of Lords by Park J. He dealt with the argument that the proceeds of the sale of the stock had never come into the hands of the defendants so as to be money received by them to the use of the plaintiff and said [17] that the consideration of this argument involved two questions:
First, did the money actually come into the possession of the Defendants? Secondly, if it ever was in their possession, had the Defendants the means of knowledge, whilst it remained in their hands, that it was the money of the Plaintiff and not the money of Fauntleroy? The first question having been answered in the affirmative on the facts, Park J. went on to deal with the question that is the critical one in the present case. He said [18] : But it is urged, that the present Defendants had no knowledge that the money was the property of the Plaintiff, being perfectly ignorant, as the special verdict finds, of the commission of the forgery, of the sale of the stock, or the payment of the produce of such sale into their account at Martin and Co.'s. It must be admitted, that they were so far imposed upon by the acts of their partner, as to be ignorant that the sum above mentioned was the produce of the Plaintiff's stock; but it is equally clear that the Defendants might have discovered the payment of the money, and the source from which it was derived, if they had used the ordinary diligence of men of business. If they had not the actual knowledge, they had all the means of knowledge; and there is no principle of law upon which they can succeed in protecting themselves from responsibility, in a case wherein, if actual knowledge was necessary, they might have acquired it by using the ordinary diligence which their calling requires. 1. (1834) 2 Cl. & F. 250 [6 E.R. 1149]. 2. (1834) 2 Cl. & F., at p. 288 [6 E.R., at p. 1163]. 3. (1834) 2 Cl. & F., at pp. 289-290 [6 E.R., at p. 1164].
This decision is an unsatisfactory one. It has been pointed out by writers of the highest authority (Lord Lindley and Sir Frederick Pollock) that in that case it was the business of the firm to sell stock belonging to their customers and to receive and bank the proceeds, and that the customers' property had come into the custody of the firm in the ordinary course of business: see the discussion by Dixon J. in James v. Oxley [19] . In modern law, at least, this would have been enough to render an innocent partner liable.
Marsh v. Keating was considered in Jacobs v. Morris [20] . In that case the London agent of Louis Jacobs, a Melbourne merchant, purporting to act on behalf of Jacobs under a power of attorney, borrowed money from Messrs Morris and paid it into Jacobs' London account and then misapplied it, without Jacobs' knowledge. Jacobs was held not to be liable to Messrs Morris. Farwell J., at first instance, following Marsh v. Keating, said that for Messrs Morris to succeed it was necessary to show that Jacobs knew or had means of knowing that the money had been paid into his account [21] . He regarded this test as the application of those equitable principles to which Lord Mansfield referred in Moses v. Macferlan [22] , and went on to consider whether "ex aequo et bono Messrs. Morris ought to succeed". He held that they should not because the power of attorney, which showed that the agent had no power to borrow, had been produced to them and they had not read it, and because Jacobs did not know of, or benefit from, the borrowing [23] . In the Court of Appeal, the judgment of Farwell J. was upheld. Vaughan Williams L.J. based his conclusion on the estoppel arising against Messrs Morris by reason that they had constructive notice, when they lent the money, that the agent had no authority to borrow it [24] . He doubted [24] whether Marsh v. Keating decided that "ignorance and want of means of knowledge will exonerate a person through whose account a sum of money has passed from responsibility" and said that the ignorance in such a case as Marsh v. Keating "seems evidence of negligence, or of the wide limits of actual authority given to an agent appointed by the principal to deal with strangers" [25] . Stirling L.J. also considered that the cause of the loss was the "neglect of ordinary business precautions" by Messrs Morris, but he went on to agree with the view taken by Farwell J. of the decision in Jacobs v. Morris [26] . Cozens-Hardy L.J. expressed agreement with Farwell J.'s judgment, but added that it would not be just to hold Jacobs liable for an act done by his attorney beyond the scope of his authority in favour of Messrs Morris, who knew the limits of the authority [27] . The case does not decide that means of knowledge would be enough to render liable a person into whose account money has been paid in circumstances like the present.
The matter came to be considered in this Court in James v. Oxley [28] . There a clerk to a firm of solicitors fraudulently obtained from the plaintiffs a cheque and paid it into the firm's trust account. The partners in the firm (the defendants) did not know of the cheque but one of them, believing the clerk's false story that another person had asked that the amount of the cheque should be exchanged for two cheques of the firm, drew two cheques and gave them to the clerk, who cashed them and misappropriated the proceeds. It was held that the plaintiffs were entitled to maintain an action for money had and received against the members of the firm. The cheque was not received in the ordinary course of the business of the firm. However the defendants knew that they had money belonging to someone else and one of the defendants dealt with the money in such a way that it was misappropriated [29] . This was enough to render them liable. However, Latham C.J. suggested that the elements of knowledge or means of knowledge might have been material [30] . Rich J. did not deal with the question. Dixon J. [31] (with whom McTiernan J. agreed) recognized the difficulty that arises when an agent, acting outside the course of his authority, pays the money of a stranger into a bank account in the name of his principal and then withdraws it under a general authority to sign cheques on the account. He said [31] :
As the money has been credited to the principal or master, it has been placed at least theoretically under his control and received on his behalf. But it is evident that in such a case the agent may from first to last retain the power of dealing with the money as he chooses. Though the bank account is in the name of his principal, the latter may have no effective means of controlling the money and excluding the agent. After discussing Jacobs v. Morris and Marsh v. Keating, Dixon J. continued [32] : The explanation of the introduction into the question of the element of "means of knowledge" may lie in the peculiarity of the position of partners in relation to a partnership bank account upon which each partner may be empowered to draw by himself. In substance, money, though temporarily there, may never be in the actual de-facto control of any member of the firm except the fraudulent partner. He may pay a cheque to the credit of the account and immediately draw against it. In such circumstances the technical "receipt" by the firm may be considered as insufficient to make payment into the account a receipt to the use of the plaintiff unless the other partners knew or ought to have known of the credit and of its nature. In the same way, if an agent who operates on his principal's account free of his actual control or supervision pays in money fraudulently obtained from a stranger and forthwith draws it out again, the principal may be regarded as never having really received it to the use of the stranger unless he knew or ought to have known of its presence before it was withdrawn. 1. (1939) 61 C.L.R. 433. 2. (1939) 61 C.L.R., at pp. 444, 449-450, 456. 3. (1939) 61 C.L.R., at p. 445. 4. (1939) 61 C.L.R., at p. 454. 5. (1939) 61 C.L.R., at p. 454. 6. (1939) 61 C.L.R., at p. 456.
Although Dixon J. did not need to express a concluded opinion on this question, in my respectful opinion the solution which he tentatively suggested is the correct one. It is quite unnecessary for present purposes to discuss the theoretical basis of the action for money had and received. Whether the action is based on an implied promise to pay, or on a principle designed to prevent unjust enrichment, the emphasis on justice and equity in both old and modern authority on this subject supports the view that the action will not lie unless the defendant in justice and equity ought to pay the money to the plaintiff: see Moses v. Macferlan [33] ; Campbell v. Kitchen & Sons Ltd. and Brisbane Soap Co. Ltd. [34] ; R. v. Brown [35] ; Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [36] ; Watney v. Mass [37] ; Fischler v. Administrator of Roumanian Property [38] . Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of that fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part. That conclusion is not inconsistent with the words of Park J. in Marsh v. Keating or with the actual decision in Jacobs v. Morris and is supported by the remarks of Dixon J. in James v. Oxley. In the present case Mr. Batty was not guilty of any want of ordinary diligence for failing to become aware that the money was paid into the account. He in fact discovered some time after the event what had occurred, but that was too late to enable him to prevent the misappropriation. From the time when the money was credited to the account until the time when it was withdrawn (some time during February 1976) Mr. Batty neither knew nor ought to have known that he had (technically) possession or control of it. In these circumstances he is not liable to the Bank as for money had and received.
For these reasons the judgment given in favour of Mr. Batty on the cross-claim was rightly affirmed by the Court of Appeal.
I have had the advantage of reading the reasons for judgment prepared by the Chief Justice. I agree in substance with those reasons and with the conclusion to which they lead. Save for the observation I am about to make there is nothing that I wish to add.
Counsel for the appellant, in advancing the claim for money had and received, argued that it was sufficient to show that the respondent had the means of knowledge that the money had been credited to the firm's account notwithstanding that he neither knew nor ought to have known of that fact. The phrase "means of knowledge" appears to have its origin in the opinion of the judges which was provided by Park J. to the House of Lords in the case of Marsh v. Keating [39] . It was repeated in Jacobs v. Morris [40] and again in this Court in James v. Oxley [41] . A consideration of the context of the references to "means of knowledge" in these cases inclines me to the view that it is a misconception to perceive any distinction between a case where it is said that a person had the means of knowledge and a case where it is said that a person "ought to have known". In Marsh v. Keating [42] , Park J., speaking of the defendants, said:
If they had not the actual knowledge, they had all the means of knowledge; and there is no principle of law upon which they can succeed in protecting themselves from responsibility, in a case wherein, if actual knowledge was necessary, they might have acquired it by using the ordinary diligence which their calling requires. By coupling the means of knowledge available to the defendants with the diligence which their calling required his Lordship was plainly saying that if the defendants did not have actual knowledge of the payment of the money, they ought to have known of it. In Jacobs v. Morris the finding of Farwell J. at first instance is expressed to be an application of the "means of knowledge" test enunciated in Marsh v. Keating illuminated by the principles of equity and justice to which Lord Mansfield referred in Moses v. Macferlan [43] . The decision was upheld in the Court of Appeal and it is unnecessary to repeat the analysis of the reasoning of their Lordships that appears in the reasons of the Chief Justice. It suffices to say that there is no authority to be found in Jacobs v. Morris for the proposition that the means of knowledge available to a defendant is a criterion of liability independent of any consideration of what, in the circumstances of a particular case, a defendant ought to have known. Of course a finding that a defendant, having no means of knowledge, could not have known of the payment will render any further consideration of the element of knowledge unnecessary. 1. (1834) 2 Cl. & F. 250 [6 E.R. 1149]. 2. [1901] 1 Ch. 261 (on appeal [1902] 1 Ch. 816). 3. (1939) 61 C.L.R. 433. 4. (1834) 2 Cl. & F, at pp. 289-290 [6 E.R., at p. 1164]. 5. (1760) 2 Burr. 1005, at p. 1012 [97 E.R. 676, at pp. 680-681].
Finally, I understand Dixon J. in James v. Oxley to take up the references in the earlier cases to "means of knowledge" and to accord to them an operation consistent with that which I have indicated. His Honour said [44] :
The explanation of the introduction into the question of the element of "means of knowledge" may lie in the peculiarity of the position of partners in relation to a partnership bank account upon which each partner may be empowered to draw by himself. In substance, money, though temporarily there, may never be in the actual de facto control of any member of the firm except the fraudulent partner. He may pay a cheque to the credit of the account and immediately draw against it. In such circumstances the technical "receipt" by the firm may be considered as insufficient to make payment into the account a receipt to the use of the plaintiff unless the other partners knew or ought to have known of the credit and of its nature. In other words, that which in the circumstances of a particular case a defendant ought to have known is intimately related to the means of knowledge available to him. 1. (1939) 61 C.L.R., at p. 456.
Mr. Batty became a partner in Mr. Davis' accountancy practice on 1 January 1975. They carried on their practice under the firm name Davis Batty & Co. Mr. Batty described the practice as "basically taxation work with a little bit of auditing, investment and financial advice and some secretarial work". The practice was not large. Mr. Davis became a director of Robert Bushby Pty. Ltd. (which I shall call "Bushby") and had its authority to receive on its behalf two cheques drawn respectively by I.A.C. and Esanda. The I.A.C. cheque was drawn in favour of "Robert Bushby Pty. Limited or order"; the Esanda cheque in favour of "Robert Bushby Pty. Ltd. or bearer". The former was crossed "not negotiable account payee"; the latter was crossed "not negotiable". Mr. Davis indorsed the former cheque by writing on the reverse "Robert Bushby Pty. Ltd. A.A. Davis (Director)". He had no authority to do so. Bushby was and remained the true owner of the cheques. On 21 January 1976, without the owner's authority, Mr. Davis deposited the cheques for collection by the appellant Bank for the credit of the Davis Batty & Co. Trust Account. The Bank presented the cheques for payment and received the proceeds. The proceeds were credited to the firm's trust account. Until the middle or latter half of 1976, Mr. Batty had no knowledge of Mr. Davis' possession of Bushby's cheques, his depositing them with the Bank to the credit of the trust account or the Bank's crediting of the trust account with the proceeds collected. By that time, Mr. Davis had withdrawn from the trust account and had misappropriated an amount representing the whole of the proceeds of the cheques. Subsequently, the partnership was dissolved. In December 1976, the trust account was closed. At the trial, the transactions on the account after the collection of Bushby's cheques were not investigated, except to show that amounts representing the proceeds of the cheques had been withdrawn from the account by February 1976. It was not established that the firm or Mr. Batty personally had derived any benefit from the proceeds of the cheques credited to the trust account. Nor was it established that Mr. Batty did anything to ratify Mr. Davis' acts in depositing Bushby's cheques to the credit of the trust account and in withdrawing the amounts representing the proceeds of the cheques. Mr. Davis died in August 1981, shortly after the present action was commenced. Bushby recovered a judgment against the Bank in an amount equivalent to the face value of the cheques together with interest.
The action against the Bank was brought in the Supreme Court of New South Wales. The Bank cross-claimed against the former partners, but the cross-claim against Mr. Davis or his estate was stood over by consent. Nevertheless, the cross-claim against Mr. Batty was brought to enforce an alleged liability of the firm. Two causes of action were pleaded by the Bank in its cross-claim: fraudulent misrepresentation and breach of an implied warranty that the firm had the authority of the true owner of the cheques to deposit them to the credit of the trust account. The cross-claim for breach of warranty was dismissed at first instance and is not now pressed. The cross-claim for fraud was dismissed against Mr. Batty on the ground that Mr. Davis had not acted in the ordinary course of the firm's business in depositing the cheques to the credit of the trust account. That ground arises pursuant to s. 10 of the Partnership Act 1892 N.S.W. which provides:
Where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act. The liability of partners under s. 10 for a tort committed by one partner is joint and several: s. 12.
During the final addresses at the trial, the Bank sought leave to add a further count to the cross-claim, alleging that Mr. Batty had had and received the proceeds of the cheques to the use of the Bank when the Bank credited the proceeds of the cheques to the trust account. Leave to amend was refused, Yeldham J. holding that the claim was bound to fail. The Court of Appeal also held the claim was bound to fail. The Bank submits the Courts below were in error. The proposed claim against Mr. Batty for moneys had and received to the use of the Bank is founded on the crediting of the firm's trust account with the proceeds of the cheques. The proposed claim raises a number of questions, but the basic question is whether the firm received the proceeds of the cheques when the Bank credited the trust account. It is hardly necessary to say that a claim for money had and received to the use of another must fail if the defendant has not received the money: Scott v. Miller [45] . Counsel for Mr. Batty submitted that the mere crediting of the trust account is insufficient to found a claim against Mr. Batty and that it would be necessary to show that Mr. Batty knew or ought to have known of the proceeds credited to the account whilst they remained there. Evidence material to the issue could have been called, it was submitted, if the claim had been raised before the final addresses. However, for reasons presently to be stated, the absence of an opportunity to call evidence on the issue does not prejudice Mr. Batty. In considering whether the proceeds of the cheques were had and received by the firm to the use of the Bank, it is helpful to analyse the transaction which was put in train by Mr. Davis' deposit of the cheques.
The Bank did not purport to deal with the cheques as a holder for value: cf. Westminster Bank Ltd. v. Zang [46] ; Barclays Bank v. Astley Industrial Trust [47] . The Bank purported to act merely as the firm's agent for collection of the cheques, having no title to the proceeds: In re Farrow's Bank Ltd. [48] . Nevertheless, by presenting the cheques for payment and collecting the proceeds on behalf of the firm, the Bank wrongfully converted Bushby's cheques: A.L. Underwood Ltd. v. Bank of Liverpool; Same v. Barclays Bank [49] . Bushby's judgment against the Bank is founded on that tort. But the Bank did not cross-claim for an indemnity as an agent who innocently converted the property of a third party on the defendants' instructions: cf. Kai Yung v. Hong Kong Banking Corporation [50] . The loss incurred by the Bank in converting Bushby's cheques is said to be damage suffered by the Bank in consequence of the fraud of Mr. Davis.
Yeldham J. found that Mr. Davis had been guilty of fraud, though there was no direct evidence that a Bank officer had been induced to collect the cheques or pay money in reliance on any representation that Mr. Davis had made. The absence of such evidence was not necessarily a bar to recovery, however, for inducement may be inferred from the doing of something after the making of a representation calculated to induce the doing of that thing: Smith v. Chadwick [51] . Whether inducement should be inferred is a question of fact dependent on all the circumstances, not a question of law. Such an inference may be drawn in criminal as well as in civil cases, as the House of Lords held in Reg. v. Lambie [52] (though I should wish to reserve consideration of that case for the future if other issues there discussed should arise). The representation on which the Bank relies - that the firm was duly authorized by Bushby to deposit the cheques to the credit of the trust account or that the firm was the true owner of the cheques - is said to have been made simply by Mr. Davis' depositing of the cheques. Yeldham J. found that the depositing of the cheques to the credit of the trust account amounted to fraudulent misrepresentation by Mr. Davis that he had the owner's authority to do so. Assuming that that finding was rightly made, the question for decision in relation to the claim in fraud against the firm is whether Mr. Davis, in depositing the cheques and thereby making that representation, was acting in the ordinary course of business of the firm. Otherwise Mr. Davis had no special authority from Mr. Batty which would have authorized his depositing of the cheques to the credit of the trust account. A similar question arises in relation to the proposed cross-claim for money had and received to the use of the Bank. I shall state why that is so.
A bank which credits a customer's account with the proceeds of a collected cheque has both accounted to the customer for the proceeds and borrowed the proceeds from the customer: per Scrutton L.J. in Underwood [53] ; Joachimson v. Swiss Bank Corporation [54] . The borrowing results in a credit item in favour of the customer in the account between the bank and its customer. The debt represented by such an item cannot exist unless the customer has authorized the bank to collect the cheque on behalf of the customer, to pay the proceeds of the collected cheque to and to borrow the proceeds from the customer, or the customer knows and acquiesces in the bank's doing so. Mr. Batty had no knowledge of the Bank's collection of the cheques and crediting of the trust account. The firm did not do anything to accept the credit and it derived no benefit from it. It is not liable for money had and received to the use of the Bank merely by reason of the posting of a credit entry in a statement of account. As between the firm and the Bank, the firm became the Bank's creditor in respect of the proceeds of Bushby's cheques only if Mr. Davis had the firm's actual or ostensible authority to authorize the Bank to collect the cheques and to pay the proceeds to and borrow the proceeds from the firm. By depositing the cheques, Mr. Davis purported to authorize the Bank to take those steps on behalf of the firm, and the proposed claim must fail unless the firm is bound by that purported authorization. Therefore the primary question for decision in relation to the proposed claim is whether Mr. Davis had or, as between the firm and the Bank, he is to be taken to have had, the firm's authority to deposit the cheques to the credit of the trust account. There is no evidence of any special authority having been given by the firm to Mr. Davis, nor is there evidence of any representation of such an authority having been made to the Bank, either by Mr. Davis or by Mr. Batty. Mr. Davis had no wider authority than the ordinary authority he had as a partner.
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 [55] . 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. In this case, the partnership would be bound by the authority purportedly given by Mr. Davis to the Bank on behalf of the firm to collect the cheques and to credit the proceeds to the firm's account if, but only if, the act of depositing the cheques was "an act for carrying on in the usual way" the firm's business. An act which is not done "in the ordinary course" of a firm's business cannot be "an act for carrying on in the usual way" the firm's business. (I do not need to consider the converse proposition.) Therefore, if Mr. Davis' act in depositing the cheques was outside the ordinary course of the firm's business (so that no liability in tort arose pursuant to s. 10), it was not "an act for carrying on in the usual way" the firm's business (so that the firm did not authorize the Bank to collect the cheques and to credit the firm's account with the proceeds). If the Bank fails on the claim founded on fraud, the proposed claim for moneys had and received to the use of the Bank must also fail.
The Bank relies on the principle, as applicable to the relationship of firm and partner as it is to the relationship of principal and agent, stated by Willes J. in Barwick v. English Joint Stock Bank [56] :
In all these cases it may be said, as it was said here, that the master has not authorized the act. It is true, he has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which the agent has conducted himself in doing the business which it was the act of his master to place him in. The validity of that principle was not diminished - indeed, it was reaffirmed - by Lloyd v. Grace, Smith & Co. [57] . That case, explaining the true principle in Barwick v. English Joint Stock Bank, held that a principal is liable for the torts of an agent committed in the course of the business the agent is authorized to transact whether or not the tort is for the benefit of the principal. Thus a firm is liable for the fraud of a partner when the fraudulent act belongs to a class of acts which the partner is authorized to do in the ordinary course of the firm's business: Hamlyn v. Houston & Co. [58] . The question in this case is whether the act of depositing the cheques was an act of a class which Mr. Davis was authorized to do (or to have an employee do) in the ordinary course of the business of Davis Batty & Co. 1. (1867) L.R. 2 Ex. 259, at p. 266. 2. [1912] 1 A.C. 716. 3. [1903] 1 K.B. 81, at pp. 85-86.
Before addressing the question whether the depositing of the cheques was an act of a class authorized to be done by Mr. Davis in the ordinary course of the firm's business, it is desirable to refer to a line of cases in which it has been stated or suggested that a claim for money had and received to the use of another cannot succeed against an innocent principal or partner whose agent or partner has received and fraudulently misappropriated the other's money unless, while the other's money was in the control of the firm, the innocent principal or partner knew or had the means of knowledge that that money was in the control of the firm.
The first case is Marsh v. Keating [59] . Fauntleroy, a partner in the firm of Marsh and Co., forged a power of attorney for the sale of stock belonging to Mrs Keating, a customer of the firm. The broker who made the sale of Mrs Keating's stock on Fauntleroy's instructions paid the proceeds to the credit of the firm's account with their bank, Martin and Co. Fauntleroy withdrew the money by the firm's cheque signed by him and misappropriated it. The firm was held liable though Fauntleroy's partners had known nothing of the forgery, the receipt of the money into the firm's account or the withdrawal of the money received. The proceeds of the sale of Mrs Keating's stock had been paid into the firm's bank account by the broker in the ordinary way and, while in the account, the proceeds were under the firm's control. As Park J. said in delivering the opinion of the judges to the House of Lords [60] , "there can be no doubt but that it was as much money under their control as any other money paid in at Martin and Co.'s, by any customer under ordinary circumstances". Once it was established that the firm had received Mrs Keating's money, the innocent partners' ignorance of Fauntleroy's fraud did not save the firm from liability to repay to Mrs Keating the proceeds of the sale of her stock. Park J. said [61] :
It must be admitted, that they were so far imposed upon by the acts of their partner, as to be ignorant that the sum above mentioned was the produce of the Plaintiff's stock; but it is equally clear that the Defendants might have discovered the payment of the money, and the source from which it was derived, if they had used the ordinary diligence of men of business.
If they had not the actual knowledge, they had all the means of knowledge; and there is no principle of law upon which they can succeed in protecting themselves from responsibility, in a case wherein, if actual knowledge was necessary, they might have acquired it by using the ordinary diligence which their calling requires.
The next case is Jacobs v. Morris [62] . Louis Jacobs, the sole owner of a business carried on in the name of Jacobs, Hart & Co., lived in Melbourne. He appointed his brother Leslie Jacobs to be the London agent of the firm and he armed him with a power of attorney which, as it was held, did not empower Leslie Jacobs to borrow money though it did authorize him to operate on the firm's London bank account. Leslie borrowed money purportedly on behalf of the firm, the borrowed moneys were paid into the firm's bank account whence they were withdrawn by Leslie and misappropriated. Louis Jacobs had no knowledge of the transactions until long after the misappropriation. The issue for determination was whether Louis Jacobs was liable to the lenders for money had and received. Farwell J. at first instance said [63] :
It is not sufficient to shew that the money went into the plaintiff's account: it is necessary to shew further that the plaintiff knew or had the means of knowing that it had been so paid in. This is the principle involved in the opinion of the judges in Marsh v. Keating. And his Lordship said [64] : They therefore lent money, not to him, but to Jacobs, Hart & Co., knowing that Leslie had no power to borrow for Jacobs, Hart & Co. Knowing that, it is not sufficient for them to prove that they paid the money into Jacobs, Hart & Co.'s account, on which they knew, or ought to have known, that Leslie Jacobs had power to draw. They must go further, and shew that Louis Jacobs knew of that payment in - either that he had the benefit of it, or that he knew of it and adopted it. The money lent had been in the firm's account and thus, for a time, legally under the control of Louis Jacobs. 1. [1901] 1 Ch. 261 (on appeal [1902] 1 Ch. 816). 2. [1901] 1 Ch., at p. 269. 3. [1901] 1 Ch., at p. 271.
When the case went on appeal, Vaughan Williams L.J. adopted a different interpretation of Marsh v. Keating. He said [65] :
I am not sure that in Marsh v. Keating either the House of Lords or the judges whose opinion was taken meant to decide either that ignorance and want of means of knowledge will exonerate a person through whose account a sum of money has passed from responsibility, or that knowledge of the fact is essential to liability. Nothing more seems to me to have been decided than that there the defendants could not rely upon ignorance if they had the means of knowledge. The opinion does not say that knowledge was necessary. His Lordship found that, but for the lender's knowledge that Leslie was receiving their cheque for a purpose foreign to the purpose for which Louis had given him authority to operate on the London bank account, the payment of the proceeds of the cheque into the bank account by Leslie acting with Louis' authority would have sufficed to make Louis liable. He said [66] : this liability arises in the present case, if at all, from the fact that Leslie Jacobs was in fact acting under the general authority actually given by Louis Jacobs when he indorsed Messrs. Morris's cheque, and thus authorized its presentation on behalf of Louis Jacobs by the London and Westminster Bank with whose name it was crossed, and the payment of it to the London and Westminster Bank by the bank on whom Messrs. Morris had drawn the cheque. It seems to me that Louis Jacobs, by so doing, himself lent the proceeds of the cheque to the London and Westminster Bank. It seems to me that that which was done was done under an actual authority; and I doubt whether one need resort to ostensible authority or estoppel to found a charge against Mr. Louis Jacobs. However, as Messrs Morris, knowing the terms of the power of attorney, were not misled into thinking that Leslie Jacobs had authority to borrow on behalf of Louis Jacobs and as Louis Jacobs received no benefit from the loan, his Lordship held that Louis Jacobs was not liable for the money lent [67] . 1. [1902] 1 Ch., at pp. 830-831. 2. [1902] 1 Ch., at p. 831. 3. [1902] 1 Ch., at p. 832.
In James v. Oxley [68] a fraudulent clerk, one Rees, employed by a firm of solicitors, had the firm's authority to indorse cheques drawn by clients in favour of the firm and to deposit them with the firm's bank for collection to the credit of the firm's trust account. Rees induced clients, trustees of an estate, to draw and deliver to him a cheque payable to the firm for the purpose of investing the proceeds of the cheque on the security of a mortgage. The mortgage was fictitious. Rees was acting outside the real and ostensible scope of his employment in receiving the cheque from the trustees. He indorsed the cheque, had it deposited for collection to the credit of the firm's trust account (as he was authorized to do), fraudulently induced a partner to draw cheques on the trust account for a like amount, cashed those cheques and misappropriated the proceeds. The partners had no knowledge of the fraud. The trustees were held entitled to recover against the firm on a count of money had and received to their use. Rich J. said [69] :
I think the conclusion that the solicitors were liable to the trustees for money had and received was perfectly right, however little authority the clerk possessed to do business on behalf of the firm with the trustees. He had complete authority to indorse cheques and thus instruct the bank to collect them. He exercised that authority, with the result that the solicitors' bank collected on their behalf the trustees' money from the trustees' bank. I cannot see how it could be pretended, if the matter stopped there, that the solicitors were not bound to pay it back to the trustees. And Dixon J. noted [70] : The defendants' actual receipt of the plaintiffs' money into their trust account was pursuant to a chain of authority, that is, the indorsement of the instrument by Rees and its collection by the bank. Latham C.J. alone held the authority of Rees to have the cheque deposited to be irrelevant [71] . He held it to be sufficient that the partner who drew the cheque knew that the money against which it was drawn was in the account and did not belong to the firm. 1. (1939) 61 C.L.R. 433. 2. (1939) 61 C.L.R., at p. 449. 3. (1939) 61 C.L.R., at p. 453. 4. (1939) 61 C.L.R., at p. 443.
In each of these cases, the fraudulent partner or servant had procured the payment of money into the firm's account. Pursuant to the actual authority of the person making the deposit to the credit of the firm's account, money had been credited to the account. As between the firm and the defrauded third party, the firm had obtained control of the third party's money. There was no doubt as to the receipt of the money by the firm. If a firm receives the money of a third party in the course of its business and it is misapplied by a partner while it is in the custody of the firm, the firm is liable irrespective of the knowledge or means of knowledge of the innocent partners (s. 11(b)); it is only when the money is received otherwise than in the course of the business and is misapplied that the knowledge or means of knowledge of the innocent partners may be relevant. As Dixon J. pointed out in James v. Oxley [72] :
The explanation of the introduction into the question of the element of "means of knowledge" may lie in the peculiarity of the position of partners in relation to a partnership bank account upon which each partner may be empowered to draw by himself. In substance, money, though temporarily there, may never be in the actual de facto control of any member of the firm except the fraudulent partner. He may pay a cheque to the credit of the account and immediately draw against it. In such circumstances the technical "receipt" by the firm may be considered as insufficient to make payment into the account a receipt to the use of the plaintiff unless the other partners knew or ought to have known of the credit and of its nature. 1. (1939) 61 C.L.R., at p. 456.
In Marsh v. Keating, where the firm was held liable, either the money was received in the ordinary course of business or the partners had the means of knowledge that Mrs Keating's money was in their custody. In Jacobs v. Morris, where the firm was held not liable, the money was not received in the ordinary course of the firm's business. In the view of Farwell J., the third party failed because Louis Jacobs had no means of knowledge of the receipt. Vaughan Williams L.J. appeared to think that mere receipt would be enough, but the third party failed because he knew that Leslie Jacobs had no authority to borrow. In James v. Oxley, where the firm was held liable, the third party's money had been received but not in the course of the firm's business and the partner who drew the cheque which withdrew the money from the firm's bank account knew that the money against which the cheque was drawn had been paid into that account.
In none of these cases was the critical issue the issue on which this case turns, namely, did the firm receive the proceeds of the cheques? That question can be answered affirmatively only if the Bank was authorized by the firm to collect the cheques and to credit the proceeds to the trust account. If Mr. Davis did not have the firm's authority to put the Bank in motion to collect the cheques, to pay the proceeds of the cheques to the firm and to borrow the proceeds from the firm, the mechanical entry of a credit item in the statement of the account could not suffice in itself to establish that the firm had received the moneys which the Bank seeks to recover. If the Bank presented the cheques for collection and purported to credit the trust account with the proceeds without the firm's authority to do so, the Bank's unauthorized conduct could hardly be the source of the liability which the Bank seeks to sheet home to the firm. On the other hand if, as between the firm and the Bank, Mr. Davis is taken to have had the firm's authority to deposit the cheques, the collection of the cheques and the crediting of the trust account with the proceeds of the cheques was done under a chain of authority linking the firm with the credit.
If there were such a chain of authority, it existed simply because the depositing of the cheques was an act done in the usual way of carrying on the firm's business. And if that link in the chain were established, the liability of the firm to make good any loss suffered by the Bank in accounting to the firm for the proceeds of the cheques would be imposed by s. 11(b) of the Partnership Act by reason of the firm's receipt of the proceeds "in the course of its business"; the liability would not arise by reason of Mr. Batty's knowledge or means of knowledge that the proceeds of Bushby's cheques were for a brief time in the trust account. Therefore the question as to the necessity for knowledge or means of knowledge which was left open by Dixon J. in James v. Oxley does not arise for determination in this case. Here, the case turns on whether the firm received the money at all, not whether Mr. Batty knew or had means of knowledge that the money had been received. And so it is necessary to return to the question earlier posed: was the depositing of the cheques an act of a class which Mr. Davis was authorized to do (or to have an employee do) in the ordinary course of the business of Davis Batty & Co.?
A difficulty arises in identifying the relevant class. If an act is fraudulent, a definition of the relevant class which picks up the fraudulent element will carry the act outside the scope of the authority of a partner in the ordinary course of business, whereas a more general definition which omits the fraudulent element may leave the act within the scope of that authority: cf. Uxbridge Permanent Benefit Building Society v. Pickard [73] and Kooragang Ltd. v. Richardson & Wrench [1] . The problem of classification is acute when the relevant act is distinguishable from the class of acts done with authority in the ordinary course of business by reference only to the circumstances which make the act fraudulent. It is not the law that an act must be treated as being within the scope of the authority of a partner in the ordinary course of business if the person who relies on the act to establish the firm's liability knows the facts which take the act outside the scope of such authority. The limits on Leslie Jacobs' authority to borrow in Jacobs v. Morris were known to the third party from the terms of the power of attorney and, in the view of Vaughan Williams L.J., the payment of the borrowed money into Louis Jacobs' bank account did not make the latter liable for the money thus received. In determining whether the relevant facts are known to the other party regard is had to the facts as they appeared to that party: Polkinghorne v. Holland [2] .
In the present case, if the relevant class of acts which Mr. Davis was authorized to do within the ordinary course of business be defined simply as the making of deposits to the credit of the trust account, Mr. Davis' deposit of Bushby's cheques to the credit of the trust account, being an act of that class, would be within the scope of his authority. On the other hand, if the relevant class of acts be defined by reference to the kinds of cheques which a partner is authorized to deposit to the credit of the trust account, the deposit of Bushby's cheques was within the scope of Mr. Davis' authority only if those cheques answer the defined description.
The evidence does not support a finding that in the ordinary course of the firm's business with the Bank partners were authorized to deposit third party cheques to the credit of the trust account. The firm had given the Bank a mandate when the trust account was opened which expressly limited the Bank's authority to accept cheques for the credit of the account. The mandate was in these terms: "to accept for the credit of the said account any cheques drafts bills of exchange promissory notes or other instruments made payable to any one or more of us". The form of the mandate is not free from difficulty, and it was submitted that the qualification "made payable to any one or more of us" applies only to "other instruments", not to cheques, drafts, etc. That is not the natural construction of the phrase. I construe the qualification as applicable to all the preceding classes of instruments. The qualification has obvious significance when applied to cheques and other negotiable instruments. The bank is under no obligation to accept for collection cheques the title to which cannot be ascertained by reference to the terms of the cheque itself as, for example, where it is a bearer cheque and title may pass by delivery. In the same way, the limitation gives some protection to a customer to the credit of whose account another's cheque might be deposited by an agent without the customer's knowledge and who might become liable to the other if the proceeds are collected and credited to the customer's account. I take a cheque to be "made payable" to a named party when the party is the payee or the person to whom a cheque is specially indorsed; but a cheque is not made payable to a party who, not being the payee or person to whom the cheque is specially indorsed, claims to have acquired title to the cheque merely by delivery after indorsement in blank or by delivery without indorsement.
However, it is true that, as Mr. Batty acknowledged, some cheques "payable to third parties, clients and the like" were paid into the trust account, although Mr. Batty could not recall any identifiable instance of a third party cheque being paid in and there was no examination of the circumstances of the indorsement, delivery or deposit of any such cheque. Mr. Batty said that the deposit of third party cheques was the exception rather than the rule. The third party cheques which Mr. Batty had in mind may, for all that appears, have been indorsed specially to the firm so that they were "cheques made payable" to the firm covered by the mandate. It needs more than evidence of dubious exceptions to establish a course of business as between the firm and the Bank different from that contemplated by the mandate.
Some reliance was placed on the frequency with which third party cheques are deposited to the credit of trust accounts by solicitors, accountants or others. It appeared from the evidence of experienced bankers that third party cheques are regularly accepted by banks for collection and crediting to trust accounts where the customer has a good reputation, although in some circumstances the bank would think it right to make an inquiry. Two bankers agreed in evidence that third party cheques are known by banks as potential avenues of fraud. A bank's primary concern in collecting a third party cheque deposited to the credit of a customer's account is, of course, to avoid breaching the bank's duty of care to the true owner of the cheque - a breach which deprives the bank of its statutory protection under s. 88D of the Bills of Exchange Act 1909 Cth. The Bank's instructions to its officers show that its concern is allayed if the Bank can obtain effective recourse on the customer. The instructions caution officers against acceptance of third party cheques without careful inquiry to establish "that the presenter has good title" but the caution is qualified when the customer is reliable, is agreeable to the Bank's recourse on him for any claim by the drawer or payee, and the amount is "reasonable and within the customer's known financial resources". It may be an ordinary incident of banking business to accept for collection third party cheques deposited to the credit of customers' trust accounts, but that is not to say that it is part of the ordinary business of solicitors, accountants or others who have trust accounts to deposit third party cheques for collection and crediting to those accounts. It depends on the nature of the customer's business and the way in which the customer usually carries it on.
It was not shown that accountants ordinarily offer their clients the facility of having cheques made payable to the clients collected through their trust accounts or that it is otherwise part of the ordinary business of accountants to deposit third party cheques to the credit of their trust accounts. The depositing of third party cheques to the credit of an accountant's trust account may frequently happen, and it may be in the ordinary course of a banker's business to allow it to happen, but that is not to say that it is part of the ordinary course of business of accountants generally. The depositing by accountants of third party cheques to the credit of a trust account is not analogous to the giving of advice and guidance on matters affecting the worth of investments which the Court held in Polkinghorne v. Holland [3] to be within the province of a solicitor whose client seeks such advice and guidance. There may be some accountancy firms where the depositing of third party cheques to the credit of a trust account is a usual way of carrying on the business, for the ordinary course of carrying on a professional practice may be expanded by special circumstances: Marwedel v. Hamilton and Garde [4] ; Cleather v. Twisden [5] . Davis Batty & Co. was not shown to be such a firm. If the Bank sought to show that the depositing of third party cheques to the firm's trust account was within the scope of Mr. Davis' authority irrespective of the prima facie limits on that authority created by the mandate given to the Bank, evidence was needed to show that the ordinary course of the firm's business included the making of such deposits.
The evidence does not support a finding that the partners had authority to deposit third party cheques generally. However, evidence of the nature of the firm's business, though extremely sketchy, might support a finding of an authority beyond the limits created by the mandate. Let it be assumed that the nature of the firm's business was such that the ordinary way of carrying on the business included the depositing to the credit of the trust account of any cheques to which the firm was entitled as trustee for a client, whether or not the cheques were "made payable" to the firm or to either partner. Even if the partners' authority extended to the depositing of such cheques, there were features of the deposit of the Bushby cheques which put the Bank on notice that that deposit was not in the ordinary course of the firm's business. The firm of Davis Batty & Co. had a modest practice and the transactions on the trust account were, for the most part, for small amounts. The amounts of Bushby's cheques were large by comparison with most other amounts deposited to the credit of the trust account; the cheques were third party cheques; neither had been indorsed specially to the firm; an indorsement in blank appeared on one cheque signed by Mr. Davis as a director of the payee company; and the other cheque was crossed and marked "account payee only". The cheques were being deposited to the credit of a trust account that had earlier been overdrawn. In those circumstances, the form of the cheques called for an inquiry as to why a director of a company had indorsed the company's cheque in blank and deposited it for the credit of his firm's trust account and as to why the cheques were not deposited to the credit of Bushby's account despite the marking of one cheque "account payee only". Denning J. said in Nelson v. Larholt [6] :
if the circumstances were such as to put a reasonable man on inquiry, and he made none, or if he was put off by an answer that would not have satisfied a reasonable man, or, in other words, if he was negligent in not perceiving the want of authority, then he is taken to have notice of it. I would put the proposition somewhat differently: if a transaction appears not to be in the ordinary course of a firm's business, though on inquiry it may prove to be so, a person who deals with a partner in that transaction and makes no inquiry or fails to obtain a satisfactory answer to his inquiry, cannot hold the firm liable if the partner does not have the authority of the firm to act in the transaction. That proposition relates to the ostensible authority of the partner and it must be applied to what appeared at the time of the transaction to the person dealing with the partner. Here the Bank made no inquiry to ascertain whether Bushby's cheques were in fact cheques to which the firm was entitled as trustee. Had an inquiry been made, even an inquiry of Mr. Davis, his want of authority might well have been discovered. The Bank cannot hold the firm liable on the ground that Mr. Davis had ostensible authority to deposit Bushby's cheques. 1. [1948] 1 K.B. 339, at p. 343.
It follows that the firm is not liable for any fraud committed by Mr. Davis in depositing the cheques and did not authorize the collection of the Bushby cheques and the payment of the proceeds to the credit of the trust account. The claim in fraud was therefore rightly dismissed against Mr. Batty and the claim for moneys had and received to the use of the Bank could not have succeeded against him. The appeal should be dismissed.
The combined effect of the conditions pursuant to which special leave to appeal was granted and of the course of argument is that there remain but two substantive issues in this case. The first is whether the late Mr. Davis was acting in the ordinary course of business of the then subsisting partnership between the respondent, Mr. Batty, and himself ("the partnership") when he deposited two cheques to be collected and credited to the partnership's trust account ("the trust account") with the Katoomba Branch of the appellant Bank ("the Bank"). If he was, the case comes within the provisions of s. 10 of the Partnership Act 1892 N.S.W. ("the Partnership Act ") and Mr. Batty is liable as a member of the partnership for the loss caused to the Bank by Mr. Davis' fraudulent representation that the partnership had the authority of the owner of each cheque to deposit it to the credit of the partnership trust account. The second is whether, if the first issue be resolved adversely to the Bank, Mr. Batty is liable to the Bank for the proceeds of the two cheques on the ground that the partnership had and received those proceeds to the use of the Bank.
The two cheques had been misappropriated by Mr. Davis. They were the property of a company, Robert Bushby Pty. Ltd. ("the firm"), of which he was a director. They were drawn by different drawers on the Australia and New Zealand Banking Group Ltd. One was in the amount of $19,690.61 and was drawn in favour of "Robert Bushby Pty. Limited or order". It had been crossed (by parallel transverse lines) with the added words " not negotiable account payee " as part of the crossing. On the back of that cheque, there had been written, in Mr. Davis' handwriting, the words "Robert Bushby Pty. Ltd., A.A. Davis (Director)". The other cheque, crossed (again by parallel transverse lines) with the added words " not Negotiable ", was for $10,000 and was drawn in favour of "Robert Bushby Pty. Ltd. or bearer". Mr. Davis himself paid in the two cheques to the Bank as part of a single deposit. It is common ground that the proceeds of the cheques were subsequently withdrawn by Mr. Davis and applied by him for his own, as distinct from partnership, purposes. Subsequent to the dissolution of the partnership between Mr. Batty and Mr. Davis, Mr. Davis died.
Where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.
The "act" upon which the Bank relies in the present case is the making of the representation involved in Mr. Davis' depositing of the cheques to the credit of the trust account, namely, that the partnership had the authority of the owner of each cheque to deposit it to the credit of that account: cf. Reg. v. Lambie [7] . That representation was fraudulent in that it was false to the knowledge of Mr. Davis and was made by him to induce the Bank to collect and apply the proceeds of the cheques without the authority of the true owner. As between the two partners, its fraudulent character would, of itself, suffice to take it outside Mr. Davis' actual authority. Section 10 of the Partnership Act is not, however, concerned with the limits of actual authority as between the partners themselves. It is concerned with the relationship between a non-partner ("any person not being a partner of the firm") and one or more of the partners. It operates to protect the non-partner who sustains loss or injury caused by the wrongful act or omission of a partner in circumstances which satisfy the requirement that the act in question was done by the partner acting in the ordinary course of the business of the partnership. The mere fact that a particular act or omission was wrongful or in fact unauthorized does not preclude it from being within the ordinary course of that business. If it did, the protection of s. 10 would be illusory. What is decisive in determining whether the requirement is satisfied, is the capacity in which the errant partner was acting, viewed in the context of his relationship with the person who sustained loss or injury and from the viewpoint of that person, at the time he performed the wrongful act: "the part taken by [the partner] in the transactions must be regarded as upon the surface it appeared to" the injured party: per Rich, Dixon, Evatt and McTiernan JJ. in Polkinghorne v. Holland [8] . Where, as in the present case, the wrongful act takes the form of a fraudulent representation, the content of the representation and the circumstances in which it was made, rather than its fraudulent character, will determine whether, viewed in the context of that relationship and from the viewpoint of that other person, the representation was made by the partner acting in the ordinary course of the firm's business. In such a case, the essential question will commonly be whether the making of that representation in those circumstances came within the scope of a " class " of act which would normally be transacted in the course of a business of the relevant kind: cf. Uxbridge Permanent Benefit Building Society v. Pickard [9] ; Lloyd v. Grace, Smith & Co. [10] ; Barwick v. English Joint Stock Bank [11] .
The relationship between the Bank and the partnership in the present case was the ordinary one of banker and customer. It will subsequently be necessary to give closer consideration to what came within the ordinary course of that business for the purposes of s. 10 of the Partnership Act. For the moment, it suffices to say that, on any approach, the ordinary course of that business encompassed the day to day conduct of the firm's banking activities which, of necessity, included the deposit of cash and cheques to be credited to one or other of the partnership's accounts with the Bank and the making of the implied representation that the partnership had the authority of the owner (be it the partnership itself or some client or other person) of any such cash or cheque to deal with it in that way. The Bank obviously treated the deposit of the two cheques to be credited to the trust account, and the implied representation which it involved, as being within the ordinary course of the partnership's business with it. The question arises whether there was anything about the cheques themselves or in the circumstances surrounding their deposit which had the effect that those particular acts were not within the classes of act encompassed by the ordinary course of the business of the partnership. The general character of the relevant act, namely the deposit by one partner of a cheque to be collected and credited to the partnership's own bank account, would plainly be within the ordinary course of the business of almost any partnership. As the learned trial judge (Yeldham J.) pointed out, however, some of the circumstances relating to the deposit of the two cheques call for special consideration. First, the cheques were in amounts larger than had commonly been credited to the trust account of the partnership. Secondly, they were deposited by Mr. Davis personally whereas the partnership's banking was ordinarily done by a secretary. Thirdly, Mr. Davis used a deposit slip and not the ordinary deposit book of the partnership trust account. Fourthly, the recent history of the partnership trust account was unusual in that the account had, for significant periods, been in overdraft; it was, however, in credit at the time the cheques involved in the present case were deposited. Fifthly, the larger cheque was drawn in favour of a company and not to the partnership and was crossed "account payee only". And, sixthly, the larger cheque and another cheque, which was drawn in favour of the same company, were paid into a trust account of a partnership of which the person who had indorsed the larger cheque as a "Director" of the payee company was a partner.
The first three of the above catalogue of special circumstances could not, either singly or in combination, suffice to take the depositing of the two cheques and the making of the associated representation outside the ordinary course of business of the partnership. From the viewpoint of the Bank, it would be unlikely that anyone would compare the amounts of the cheques with the amounts of previous deposits. Even if such a comparison had been made and it had been observed that the amounts were larger than those ordinarily credited to the trust account of the particular firm, the amounts in question were not of themselves so large as either to call for inquiry or, from the viewpoint of the Bank, to take the transactions out of the classes of act encompassed by the ordinary course of the firm's business. The fact that the cheques were deposited by Mr. Davis instead of by the employed secretary who ordinarily did the banking could not properly be seen as a basis for taking the transaction outside the ordinary course of the business of the firm of which Mr. Davis was the senior partner. To the contrary, it would tend to avoid, rather than give rise to, any need for inquiry. Indeed, if an observant and inquisitive teller had noticed that the amount of the cheques was unusually large and that Mr. Davis himself was doing the banking, the one circumstance would readily enough have been seen as explaining, rather than compounding, the other. The fact that Mr. Davis used a deposit slip and not the ordinary deposit book could not take either the transaction or the associated representation out of the ordinary course of the business of the partnership. It could well have been caused by any number of contingencies arising in the ordinary course of that business.
The fourth of the above unusual features, i.e. that the trust account had on occasion been in overdraft in the past, plainly called for some general inquiry by the Bank at the time of such overdraft. The evidence is silent about the precise content of any inquiry that was made and what, if any, response was forthcoming. The fact that the account had been in overdraft in the past would not however be relevant to whether the subsequent deposit of the two cheques was in the ordinary course of the business of the partnership unless it provided a foundation for the conclusion that the trust account was not, in truth, a trust account at all. No submission was, however, made to that effect. If it had been, it would have been contrary to the clear effect of the evidence viewed as a whole including the express evidence of Mr. Batty about the ordinary transactions relating to that account.
One is left then with particular features of the two cheques and of the indorsement on the back of the larger of them. Those features are: they were "third party cheques" in that they were drawn in favour of the firm "or order" in the case of the larger cheque and of the firm "or bearer" in the case of the other; both cheques were crossed "not negotiable"; the larger cheque also contained the words "account payee" between the lines of the crossing; the indorsement of the name of the firm on the back of the larger cheque was signed by Mr. Davis as a director. The question whether these matters took the deposit and representation outside the classes of act included within the ordinary course of the business of the partnership calls for a closer consideration of what was encompassed within "the ordinary course of the business" of the partnership for the purposes of s. 10 of the Partnership Act.
The notion of the ordinary course of a business presupposes a flow of transactions and activities within a common course. It will usually comprehend all those transactions and activities which would normally be involved in carrying on a business of the kind carried on by the particular firm: "all things that it is part of the business of [an accountant] to do": cf. Rich, Dixon, Evatt and McTiernan JJ. in Polkinghorne [12] . Thus, in the case of a firm of accountants, it covers not merely dealings with and acting for clients but all the other transactions and activities involved in carrying on an accountancy practice. In referring to a business "of the kind" carried on by the particular firm, I have in mind considerations of scale as well as character. It would, for example, be little to the point to assess what was in the ordinary course of the business of a firm of accountants such as the partnership in the present case by reference to the activities of a leading international firm of accountants which might be customarily involved in activities of a kind which would be well beyond the ordinary course of business of an ordinary country firm.
It is highly likely that the conduct of any modern accountancy practice will, from time to time, involve the receipt and holding of moneys on account of clients. High likelihood approaches inevitability in the case of a practice which, like the partnership in the present case, provides an investment service in the course of which it receives and applies moneys on behalf of its clients. For that reason, the ordinary firm of accountants will, as a matter of course, maintain a separate bank account, a "trust account", into which cash or cheques received to be held and applied on behalf of clients are paid pending their application for the purpose for which they are held. Indeed, as the "Ethical Pronouncements" of the Australian Society of Accountants make plain, it is difficult to envisage how an ordinary accountancy practice could be carried on, in compliance with the ethics of the profession, without maintaining a "separate Trust Bank Account" into which it is an "absolute necessity" that cheques or cash "received on behalf of another person or entity shall be deposited": see Australian Society of Accountants Members' Handbook, vol. II, at pp. 13,038, 15,041. While some of the moneys held to the credit of such an account may be the partners' own moneys representing, for example, unappropriated fees (ibid., p. 13,038), it is unusual for cheques or cash owned by the partners themselves to be paid into such a trust account. The cheques or cash paid to the credit of such an account will, as a matter of the ordinary course of business of a firm of accountants, usually be beneficially owned by others. Among such cheques, it is likely that there will on occasion be "third party" cheques made payable to, and received on behalf of, clients as distinct from cheques drawn by clients in favour of the firm of accountants. So much is, I would have thought, common practice and common knowledge. It was, in any event, confirmed by the express evidence in the present case which was not, and really could not be, disputed.
Mr. Durkin, who had had many years of experience in banking and as a branch manager, gave the following evidence:
Q. In the course of your experience with the Bank, have you been engaged in working at branches which held trust accounts? A. Yes, I have.
Q. And have the majority of branches you have been at had trust accounts? A. Yes, I would say so.
Q. Have you had experience of persons seeking to deposit third party cheques to trust accounts? A. Yes, I have.
Q. And by third party cheques I mean cheques in favour of someone other than the customer - A. Depositing a cheque, yes.
Q. What frequency have you found in your experience that third party cheques are lodged for credit to trust accounts? A. I would say it is quite common for third party cheques to be lodged for the credit of trust accounts.
Q. Have you seen third party cheques being lodged for deposit, both in your capacity as teller, and while in supervisory roles? A. Yes, I have.
Q. And have you, over your experience in banking, become aware of any practice as to the lodging of third party cheques to trust accounts? A. Well I would consider it - it is common practice in my experience. It is common practice for such people as solicitors, accountants, and probably real estate agents to lodge third party cheques to trust accounts.
Q. Do you know of any practice as to how occasions such as that are dealt with by banks? A. It is normal practice for banks to accept those cheques.
Q. Are there any limits on that practice that you know of, Mr. Durkin? A. Well we would - only by virtue of an instructions [sic] to our tellers - we would limit it in some cases, but normally we advise our tellers that our customers who do have good reputations and operate trust accounts, we wouldn't normally limit that to amounts.
Q. Is there any peculiarity of a trust account which causes it to differ from other accounts with the Bank? A. Well in practice, third party cheques are accepted to trust accounts rather than normal bank accounts.
Q. Is there anything different in the nature of the deposits to trust accounts from deposits to other accounts that you know of? A. Well, the funds are normally funds that are held by the solicitor, or by our customer, as the case may be, in trust for their own clients. (Emphasis added.)
Mr. Yorke, who had also had experience in banking over a long period and was (at the time of his testimony) the manager of the Royal Exchange branch of the appellant Bank in Sydney, gave evidence to like effect:
Q. Have you, in your career with the Bank, dealt at branches with trust accounts? A. Yes, at numerous branches, yes.
Q. And would nearly all of the branches at which you have been employed have had trust accounts of one sort or another? A. Yes.
Q. And you have got them at the Royal Exchange Branch? A. Yes.
Q. And a substantial number there? A. I would consider a substantial number. I would not know the exact number off the top of my head, yes.
Q. Have you struck occasions in which the customer has sought to deposit third party cheques to trust accounts? A. Yes.
Q. And would you take it that by "third party cheques" I mean cheques in favour of somebody other than the customer? A. Yes.
Q. How frequently have you struck the deposit of third party cheques to trust accounts? A. Well, it is hard to measure in number but it would be quite frequently. Quite an everyday occurrence really. (Emphasis added.)
As has been indicated, the question whether an act falls within the ordinary course of the business of a firm will usually be determined by reference to whether it comes within the scope of a " class " of act which would normally be encompassed within the flow of the business activities of a firm carrying on a business of the relevant kind and size. The reason is that the question whether a particular act was within the ordinary course of business of a particular firm for the purposes of s. 10 of the Partnership Act must be determined by reference to what appeared upon the surface to the injured third party. Thus, unless the third party is aware of it, the fact that an act is fraudulent or part of a wider course of unlawful conduct which is engaged in for some collateral non-partnership purpose or benefit will not of itself take the act outside the ordinary course of the business of the firm if it is of a class of act which comes within the ordinary course of that business: see Polkinghorne v. Holland [13] ; Lloyd v. Grace, Smith & Co. [14] . Again, if the third party lacks actual knowledge of the precise limits of the activities of the particular firm, the appearance of things will be likely to reflect what normally comes within the ordinary course of a business of that kind and size: cf. Uxbridge Permanent Benefit Building Society [15] . The evidence in the present case does not disclose the extent of the Bank's actual knowledge of the precise limits of the classes of act which comprised the partnership business. Ultimately, however, that is unimportant because Mr. Batty's evidence established that the classes of transaction and activity involved in the course of the partnership business closely corresponded, in relevant respects, with what one would expect of such an accountancy practice. The partnership of Mr. Davis and Mr. Batty did provide an investment service in the course of which it received and applied moneys on behalf of clients. It did maintain a separate trust account. The moneys paid into that separate trust account, in the ordinary course of business, included (as Mr. Batty noted in his testimony) "dividends and interest payments collected through the firm" which were beneficially owned by clients. Third party cheques were, albeit very much as the exception rather than the rule, paid into that trust account in the ordinary course of the partnership business. While, not surprisingly, Mr. Batty could not remember precise instances, his evidence in relation to such cheques was quite unambiguous:
Q. I take it, again, so far as use of the trust account to hold dividends and interest payments collected through the firm goes, you cannot recall any instance where a cheque paid in was a cheque not payable to the firm or to Mr. Davis personally? A. I recall that there would have been some cheques that were payable to third parties, clients and the like. 1. (1934) 51 C.L.R., at pp. 156-157, 169. 2. [1912] A.C., at pp. 724-725, 730-739. 3. [1939] 2 K.B., at p. 258.
In these circumstances, it is impossible to accept that the deposit by a partner of third party cheques to the credit of the partnership's own trust account and the implied representation which it involved were, as such, outside the ordinary course of the business of the partnership. It becomes necessary to consider the effect of the more particular features of the two cheques.
While not strictly necessary to make the cheques negotiable (see Bills of Exchange Act 1909 Cth, s. 13), the words "or order" and "or bearer" underlined that prima facie negotiability. The insertion of the name of the company as the primary payee did not affect that negotiability as a matter of principle. Nor did it impair negotiability as a matter of practice since there is nothing unusual in this country for cheques drawn in favour of a named person to be paid into the bank account of another person. Thus, the 1964 Report of the Committee appointed by the Commonwealth Government to review the Bills of Exchange Act 1909-1958 (chaired by the late Sir Kenneth Manning and hereafter referred to as "the Manning Committee's Report") estimated that, at that time, approximately 69,000,000 cheques were each year "either cashed or paid to the credit of an account other than that of the payee": par. 55. The Report continued (par. 56):
The holder of a cheque has always had the right to negotiate or transfer it (as the case may be) in lieu of paying it to the credit of his own account and it is obvious, from the figures given in the preceding paragraph, that each year millions of cheques are negotiated or transferred and are not paid to the credit of the payees' accounts. What then was the effect of the crossings "not negotiable" (in the case of both cheques) and "account payee" (in the case of the larger cheque)?
The crossing "not negotiable" does not prevent a cheque from being negotiated or transferred: see Universal Guarantee Pty. Ltd. v. National Bank of Australasia Ltd. [16] . Its effect is that the holder of the cheque cannot have, and cannot give, a better title to the cheque than that of the person from whom he obtained it: Bills of Exchange Act 1909, s. 87. When the cheque is, as in the case of the smaller cheque in the present case, made payable to "[a named payee] or bearer", the holder can, notwithstanding the crossing, transfer his title to the cheque by delivery of it: s. 36(2). When the cheque is, as in the case of the larger cheque, made payable to "[a named payee] or order", the holder can transfer his title to another by indorsement completed by delivery: s. 36(3). Plainly, the crossing "not negotiable" did not have the effect that the banking of a third party cheque to the credit of the partnership's trust account was outside the ordinary course of the business of the firm.
The words "account payee" as part of a crossing enjoy no statutory recognition and have no statutory significance. The addition of those words between the lines of a crossing on a cheque do not destroy its negotiability or transferability: see Universal Guarantee Pty. Ltd. [17] . The words operate as a warning to a collecting bank that, if it pays the proceeds of the cheque to an account other than that of the named payee, it is put on inquiry and it may be in difficulty in relying on any defence under s. 88D of the Bills of Exchange Act 1909 against a true owner of the cheque: see A.L. Underwood Ltd. v. Bank of Liverpool [18] ; Universal Guarantee Pty. Ltd. [17] . There is, however, no impropriety involved in the owner of such a cheque indorsing it to enable it to be deposited to the credit of a solicitor's or accountant's trust account and, as the Manning Committee's Report noted (par. 75), it is "certain that many cheques marked "account payee only" are, in fact, paid to the credit of an account other than that of the payee". Nor was there anything in the "account payee" crossing which would take the banking of the larger of the third party cheques in the present case to the credit of the partnership's trust account outside the ordinary course of the business of the firm. To the contrary, the fact that the Bank was, without inquiry, prepared to collect that cheque on behalf of the partnership merely serves to indicate that, from the Bank's point of view, the partnership was an "undoubted" (i.e. solvent and reputable) customer: see Weaver and Craigie, The Law Relating to Banker and Customer in Australia (1975), pp. 518ff.
There remains the circumstance that the larger cheque was indorsed by Mr. Davis as a director of the firm. Again, this circumstance could not have the effect of taking the banking of the cheque to the credit of the partnership's trust account outside the ordinary course of the business of the firm from the viewpoint of the Bank. It is commonplace for accountants and solicitors to act as directors of proprietary companies. It is also commonplace for the firms of which such accountants or solicitors are members to have such proprietary companies as clients. The fact that the payee of a third party cheque being paid into the trust account of a firm of accountants was a proprietary company of which the senior partner of the firm of accountants was the director who had indorsed the cheque would tend to assuage, rather than arouse, doubts about the regularity of the transaction. Again, it is essential to remember that the cheque was not being credited to the personal account of Mr. Davis or the ordinary account of the partnership. It was being credited to a trust account in which moneys would be expected to be, and were, customarily held in trust for clients.
It follows from the above that the circumstances surrounding the deposit by a partner of the two cheques to the credit of the partnership's own trust account were not such as to take the implied representation involved in the deposit outside the classes of act encompassed by the ordinary course of the business of the firm. To the contrary, detailed examination of those circumstances confirms that, as things appeared on the surface to the Bank, the deposit and the associated representation came within the flow of the ordinary banking business of the partnership. It is true that, viewed from the point of view of the partnership, the transaction was undoubtedly as outside the ordinary course of business of the firm as it was outside the scope of the authority of Mr. Davis as a partner of the firm. That is not, however, to the point. As has been said, the question whether a wrongful act falls within the ordinary course of the business of a partnership for the purposes of s. 10 of the Partnership Act falls to be determined not from the viewpoint of the other partner or partners but from the viewpoint of the "person not being a partner of the firm" who sustains loss or injury as a result of the wrongful act. Nor is it permissible to use the fact that the wrongful act was criminal or dishonest or fraudulent to smudge with grey the simple fact that, as things appeared to the injured third party, the deposit of the two cheques by the firm's own senior partner to be credited to the firm's own trust account was patently of a class which fell within the ordinary course of business of the firm. It may well commonly be a hardship for a partner "to be [held] liable for the fraud of [his] partner". It certainly would be so in the unfortunate circumstances of the present case. "But", as Lord Macnaghten commented in Lloyd v. Grace, Smith & Co. [19] , "that is the law under the Partnership Act ".
There are three further matters to which brief reference should be made. The first is that the learned trial judge did not make a specific finding that the Bank had been induced to collect the cheques by the fraudulent representation of Mr. Davis which was implicit in the deposit of the cheques to the credit of the partnership account. Such a finding appears to me, however, to be implied by some of his Honour's comments. Be that as it may, it is an inference which should, in the circumstances, be drawn from the facts notwithstanding the absence of direct evidence in that regard: see, generally, Smith v. Chadwick [20] ; Spencer Bower and Turner, Law of Actionable Misrepresentation, 3rd ed. (1974), pp. 154-156 and cases there cited. Indeed, as I followed the argument, no submission to the contrary was made on behalf of Mr. Batty. The second matter is that the terms of the authority given to the Bank by Mr. Davis and Mr. Batty in respect of the partnership trust account expressly authorized the Bank to accept for the credit of that account "any cheques drafts bills of exchange promissory notes or other instruments made payable to any one or more of us". There are strong grounds for reading the words "made payable to any one or more of us" as applying only to "other instruments" with the consequence that the present case would fall within the limits of the express authority. Even if those words are read as governing "cheques" however, the terms of the express authority plainly would not preclude the Bank from accepting third party cheques or, for that matter, cash (which is not relevantly mentioned in the authority) to be credited to the account when such cheques or cash were deposited by one or other of the partners acting in what bore the appearance of being the ordinary course of business of the firm.
The third matter is that it was submitted on behalf of Mr. Batty that there were concurrent findings of fact by the learned primary judge and the Court of Appeal to the effect that the relevant acts were outside the ordinary course of the business of the firm. If the findings to that effect were, as they can in some cases be, pure findings of fact, there would be considerable force in that submission. The primary and contextual facts are not however in dispute and the question whether the making of the representation involved in the deposit of the two cheques was within the ordinary course of the business of the partnership is, in the present case, at least in part a question of law in that the answer to the question turns, to no small extent, upon the approach to be adopted in ascertaining whether an act falls within "the ordinary course of the business" of a firm for the purposes of s. 10 of the Partnership Act: cf. Uxbridge Permanent Benefit Building Society [21] .
In the result, I would allow the appeal. Since a majority of the Court is of the view that the appeal should be dismissed, it is unnecessary that I consider the precise form of order which should be made. Nor is it necessary for me to examine the alternative ground, that of money had and received, upon which the Bank sought to base its claim for relief against Mr. Batty.
The first of two questions for determination in this appeal is whether the respondent, Mr. Batty, is liable for the fraud of his former partner, Mr. Davis. The fraud consisted of Mr. Davis' depositing cheques with the Bank in circumstances which gave rise to a false representation that he was the owner of the cheques or was acting with the authority of the true owners. The answer to that question depends entirely upon whether in committing that fraud Mr. Davis was acting in the ordinary course of the business of the firm. If he was, then Mr. Batty is liable under s. 10 of the Partnership Act 1892 N.S.W. for Mr. Davis' wrongful acts as his former partner. I agree with the Chief Justice, for the reasons which he gives, that Mr. Davis was not acting in the ordinary course of the business of the partnership in depositing the cheques and it follows that Mr. Batty is not liable for his fraud. I would emphasize that Mr. Davis was acting outside the ordinary course of the firm's business, not because his acts were fraudulent, but because they were of a kind which did not ordinarily form any part of that business. I wish only to add the following observations.
Section 10 of the Partnership Act, which deals with wrongs, speaks of liability for acts or omissions in the ordinary course of the business of the firm and may be contrasted with s. 5, which deals with the power of a partner to bind the firm by acts done for the carrying on in the usual way business of the kind carried on by the firm. The ordinary course of the actual business of a firm may be narrower than the course of business of the kind carried on by a firm and requires an examination of the actual practices of the particular firm: cf. Mercantile Credit Co., Ltd. v. Garrod [22] . Whilst it may nevertheless be relevant to refer to practice generally - in this case the practice of the accountancy profession - in considering the application of s. 10, it will only be as a guide to the determination of the course of business of the particular firm which, in the absence of evidence to the contrary, may ordinarily be assumed to follow the usual course: see Polkinghorne v. Holland [23] . With matters, such as banking practice, which will vary considerably from firm to firm, little assistance may be gained for the purposes of s. 10 from an examination extending beyond the firm in question.
Whether the wrongful acts of Mr. Davis in this case were done in the ordinary course of the business of the partnership is a question of fact which was determined in the negative by both the trial judge and the Court of Appeal so that there are concurrent findings of fact in the courts below. Some assistance is to be gained from this when, as I think to be the case here, the evidence is finely balanced. As was pointed out in Baffsky v. Brewis [24] , this Court must give weight to such concurrent findings and an appellant has a difficult task in persuading it to set them aside: see also The Commonwealth v. Introvigne [25] .
The second question is whether Mr. Batty is liable to the Bank for money had and received to the use of the Bank. The basis upon which that claim is made is that the proceeds of the cheques were moneys paid by the Bank to the partnership under a mistake of fact induced by the fraudulent misrepresentation of Mr. Davis. The pursuit of this claim to a successful conclusion may have involved the question whether the Bank was required to waive the tort of fraud in order to recover upon a count of money had and received: United Australia Ltd. v. Barclays Bank Ltd. [26] . It does not seem to me to matter for the purposes of this claim whether or not Mr. Davis' fraud was in the ordinary course of the partnership business; what matters is whether the Bank by reason of the fraud paid money to the firm under a mistake of fact. Of course, as the Chief Justice recognizes in his reasons for judgment, it may be necessary for the Bank to succeed on this count for the money paid to have been the money of the Bank. That was not established, but, even upon the assumption that it was, the Bank was not entitled to recover it from Mr. Batty for the reasons given by the Chief Justice and Wilson J. The credit entry in the partnership bank account was, for the purposes of the claim for money had and received, sufficient to establish that the money was paid, but the question remained whether it was paid to the firm having regard to the circumstance that it was not in fact used in, and did not otherwise enter into, the course of the partnership business. If that had been the case, then whether Mr. Batty knew of it or not, he would have been liable as a partner, but as it was not, the question was whether, as explained by Dixon J. in James v. Oxley [1] , the receipt by the partnership of the money in its bank account was a mere technical receipt involving no de facto control on the part of Mr. Batty as a partner or whether he knew or ought to have known of its presence before it was withdrawn so that the firm, and he as a partner, might properly have been regarded as holding it to the use of the Bank. There is no basis upon which it might be properly said that Mr. Batty knew or ought to have known of the presence of the money.
National Commercial Banking Corporation of Australia Ltd
Batty
High Court of Australia Gibbs C.J. Wilson, Brennan, Deane and Dawson JJ. National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21