[2012] FCAFC 6
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 329 FLR 149
Source
Original judgment source is linked above.
Catchwords
[2003] HCA 18
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1[2009] NSWCA 258
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447[1983] HCA 14
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89[2012] FCAFC 6
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 329 FLR 149[2018] NSWCA 15
JP SPC 4 v Royal Bank of Scotland International Ltd [2022] 3 WLR 261UKPC 18
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392[2013] HCA 25
Lease Collateral Pty Ltd v Johnson [2018] NSWSC 1157
MacDonald v Yakiti Pty Ltd (2021) 152 ACSR 284[2021] NSWCA 114
Olson v Keefe (No 3) [2018] FCA 2001
Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199[2015] FCAFC 50
Perre v Apand Pty Ltd (1999) 198 CLR 180[1999] HCA 36
Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75[2004] NSWCA 82
Rooty Hill RSL Club Ltd v Karimi [2009] NSWCA 2
Shaw v State of New South Wales (2019) 219 IR 87[2012] NSWCA 102
Stubbings v Jams 2 Pty Ltd (2022) 96 ALJR 271[2022] HCA 6
Tecnimont Arabia Ltd v National Westminster Bank Plc [2022] EWHC 1172
Thorne v Kennedy (2017) 263 CLR 85
Judy Jeanette Fleiter (Fourth Plaintiff)
Supercheap Security Pty Ltd (First Defendant)
Hassan Mehdi (Second Defendant)
National Australia Bank Limited (Third Defendant)
Representation: Counsel:
M Kalyk (Plaintiffs | Respondents)
M Ellicott (Third Defendant | Applicant)
[2]
Solicitors:
Carmody Lawyers (Plaintiffs | Respondents)
Herbert Smith Freehills (Third Defendant | Applicant)
File Number(s): 2022/241124
Publication restriction: None
[3]
Introduction
By a Notice of Motion filed on 14 October 2022, the third defendant, National Australia Bank Limited (NAB), seeks summary dismissal of all or part of the plaintiffs' claims against it pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 13.4 (UCPR) and/or the Court's inherent jurisdiction or alternatively seeks to strike out all or part of those claims under UCPR r 14.28.
UCPR r 13.4(1)(b) gives the Court power to dismiss proceedings or a claim relevantly where no reasonable cause of action is disclosed. It is common ground that that power should be exercised sparingly and only where the claim is "so obviously untenable that it cannot possibly succeed": see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 at 128-9 per Barwick CJ. As the Court of Appeal explained in Shaw v State of New South Wales (2019) 219 IR 87; [2012] NSWCA 102 at [32] per Barrett JA (Beazley, McColl, Macfarlan JJA and McClellan CJ at CL agreeing):
The question is … whether the claims in question are so obviously untenable or groundless that there is "a high degree of certainty" that they will fail if allowed to go to trial; and whether this is one of the "clearest of cases" in which the court may accordingly intervene to prevent the claims being litigated.
UCPR r 14.28(1) gives the Court power to strike out whole or any part of a pleading if the pleading:
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or
(c) is otherwise an abuse of the process of the court.
UCPR applies by analogy to List Statements: see Lease Collateral Pty Ltd v Johnson [2018] NSWSC 1157 at [31]-[32] per McDougall J citing Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 329 FLR 149; [2018] NSWCA 15 at [260]-[261] per Bathurst CJ.
In the proceedings, the plaintiffs allege that they were defrauded by the first and second defendants of substantial sums of money. The second defendant is the sole director and shareholder of the first defendant. Neither has appeared in the proceedings. The fraud involved an invitation published on a website to invest money at attractive interest rates. Following online enquiries through the website, the plaintiffs received telephone calls and emails purportedly from one or more employees of AMP Bank. The plaintiffs were directed to deposit the amount to be invested in an account held with NAB in the name of the first defendant (the SS Account). However, in each case, the name of the account given to the investor was the investor's name or the name of an entity associated with the investor and not the first defendant. Following the transfers, the funds in the SS Account were withdrawn and misappropriated.
[4]
The pleading
It is helpful to begin by providing an outline of the List Statement so far as it concerns NAB.
Paragraphs 50 to 51 set out various representations NAB is said to have made to the world at large arising from the Banking Code of Practice and representations on its website concerning its practices in relation to money laundering and, in particular, its compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AMLCTF Act) and the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth) (the AMLCTF Rules).
Paragraphs 52 and 53 of the List Statement pleaded that the first defendant was a "consumer" for the purposes of s 12BC of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and that NAB provided a "financial service" to the first defendant within the meaning of s 12BAB of the ASIC Act.
Paragraph 54 pleads:
In the premises, the provision of a non-cash payment system to the first defendant was provided on the basis of an implied warranty that the third defendant would exercise due care and skill in providing those non-payment systems.
Paragraphs 55 to 63 plead various obligations said to be owed by NAB under the AMLCTF Act and AMLCTF Rules including:
1. an obligation not to open an account or permit a customer to use an account without carrying out the applicable customer identification procedure;
2. an obligation to have in place appropriate risk-based systems and controls design to enable NAB to be reasonably satisfied that a customer company existed and who the beneficial owner of the customer company was.
Under the heading "Failure to comply with instructions to transfer" the plaintiffs plead in paras 64 to 68 their first cause of action against NAB. In substance, it is alleged that the plaintiffs gave instructions to transfer the money to an account with a particular account name, that NAB had no authority to credit the funds to an account with a different account name and therefore it held money on a constructive or resulting trust for the plaintiffs.
Paragraphs 69 to 74 plead a claim based on knowing receipt of trust property or knowing assistance in a breach of trust.
In para 70, the plaintiffs plead that "[a]t all material times and in any event by no later than 20 June 2022" NAB "knew or should have known" that the funds received were the result of fraudulent or suspicious activity involving the SS Account. That knowledge is said in para 69 to arise from various matters which the third defendant "knew or should have known" including:
a. the first defendant had not completed any customer application form;
b. the first defendant had only recently opened the SS Account;
c. very shortly after opening its account, the SS Account had received a number of very large transfers from different transferors within a short period of time;
d. the transferors had each consistently identified the account name to be a name other than, and in no way corresponding with or relating to, the first defendant;
e. the transferors had each consistently identified the account name to be name [sic] their own name or a name associated with the transferor;
f. the transferors believed that they were transferring the funds into an account in their own name or a name associated with them;
g. a number of the transferors used the term ''AMP" in the description of the payment;
h. very shortly after each transfer the funds were transferred out of the SS Account;
i. the first defendant operated no legitimate business;
j. while the first defendant was holding itself out as being a business called Supercheap Security, no publicly available material suggested the first defendant operated any such business or any legitimate business at all;
k. while the second defendant is listed as the director and shareholder of the first defendant, no publicly available material suggested that the second defendant had any legitimate role in relation to a business called Supercheap Security,
I. on or around 19 May 2022, AMP published a warning expressly identifying a fraud using AMP's name and using fake emails such as and XXX@amp enquiries.com.au; and
m. the persons perpetrating frauds purportedly representing AMP were encouraging victims to put funds into an account operated by the third defendant.
[5]
The claim for a constructive or resulting trust
The plaintiffs seek to defend the first cause of action on two bases. First, they submit, citing Wambo Coal Pty Ltd v Ariff (2007) 63 ACSR 429; [2007] NSWSC 589, that a constructive trust will be found to exist where a payment has been made by mistake to a person with knowledge of the mistake. Second, they submit that a resulting trust arises where the express purpose for which a payment was made fails.
Underlying these contentions is the assumption that the correct characterisation of what occurred was a payment to NAB with a direction to NAB to deal with that payment in a particular way. That assumption is inconsistent with the decision of the Court of Appeal in Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82. There, Spigelman CJ (with whom Handley and Santow JJA agreed) explained the position in these terms:
165 It has been well established, at least since Foley v Hill (1848) 2 HL Cas 28 at 36-37; 9 ER 1002, that money deposited with a bank becomes its own property which it can apply for its own use and benefit. There is, however, clear authority, which may appear to be in tension with this proposition, that a bank may be treated in equity as if money deposited with it was not deposited for its own use and benefit. (On the tension, see, for example, M Bryan "The Liability of Banks to Make Restitution for Wrongful Payments" (1998) 26 Australian Business Law Review 93 at 106-109. See also M Bryan, "When Does a Bank Receive Money" [1996] Journal of Business Law 165; C E F Rickett, "When is a Bank Liable for Receipt in Equity?" [1995] New Zealand Law Journal 78; William F Fratcher, ed, Scott on Trusts, 4th ed, (1987) Boston, Little Brown & Co, Vol 4, s324.)
166 There is no authoritative statement of the basis on which this special treatment of banks rests. It may be an application of the maxim that equity looks to the intent not to the form.
167 The best known example is where a bank credits and debits amounts to a current account in the normal course of operations of such an account. The bank is not treated as having "received" the money for purposes of this area of the law, unless it appropriates the receipt to a definitive reduction of the overdraft.
See also Tecnimont Arabia Ltd v National Westminster Bank Plc [2022] EWHC 1172 at [100] per HHJ Bird.
The plaintiffs point out that Spigelman CJ said (at [174]) that it was "not necessary to decide whether any term deposit with a bank is received as a 'mere depository' or 'channel' …". But that reservation does not affect the primary position that amounts credited to a current account, which is not in overdraft, are not treated as having been received by the bank for the purpose of imposing an obligation in equity on the bank to account to the person said to be the true owner of the funds.
[6]
The cases based on knowing receipt and knowing assistance
In order to make out a case of what is now commonly referred to as the "knowing receipt" limb of liability in accordance with the principles stated in Barnes v Addy (1874) LR 9 Ch App 244, the plaintiffs must plead and prove that trust property has been received by NAB for its benefit in the knowledge that the property was received in breach of trust: see Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [111]ff per curiam (Farah v Say-Dee). It is not necessary to consider in the present context whether the principle extends to property acquired through a breach of fiduciary duty. "Knowledge" in this context includes constructive knowledge in the sense of knowledge of circumstances which would indicate the facts to an honest and reasonable person. However, it does not include knowledge of circumstances which would put an honest and reasonable person on inquiry: see Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [267]ff per curiam.
In order to make out a case of what is now commonly referred to as the "knowing assistance" limb of Barnes v Addy the plaintiffs must plead and prove that NAB assisted the first defendant, who it may be assumed was a trustee of the funds deposited in its account, with knowledge of a dishonest and fraudulent design on the part of the first defendant: see Farah v Say-Dee at [160] per curiam. "Knowledge" in this context also includes constructive knowledge in the sense mentioned earlier: Farah v Say-Dee at [177]-[178] per curiam.
One difficulty with the case based on knowing receipt is that, for the reasons already stated, it is clear that NAB did not "receive" the funds for the purpose of the principle. The funds were received by the first defendant and became the subject of a trust because they were misappropriated by the first and second defendants. In my opinion, the claim based on knowing receipt must be dismissed for that reason.
Insofar as it is alleged that NAB "should have known" that the funds received (either by it or by the first defendant) were the result of fraudulent or suspicious activity involving the SS Account, it is necessary for the plaintiffs to plead the facts and circumstances that form the basis of that allegation. They have sought to do that in para 69 of the List Statement in relation to both the knowing receipt and knowing assistance limbs of the claim. However, that pleading is defective because it refers to facts which NAB "knew or should have known". There is nothing wrong in principle with an allegation that from actual facts and circumstances a reasonable person would appreciate other facts and from those facts would draw the required conclusion. In other words, the test of constructive knowledge does not rule out a chain of inferences. However, the relevant chain must start with what was actually known. To start with facts which should have been known simply begs the question of what matters justify the conclusion that NAB should have known those matters.
[7]
Breach of duty of care
In my opinion, there are at least two fatal difficulties with the claim based on negligence.
First, although the duty of care is pleaded to be a duty owed by NAB to the plaintiffs, as pleaded it is a duty said to be owed by NAB to the world at large. Such a duty is inconsistent with authority and is not reasonably arguable.
In JP SPC 4 v Royal Bank of Scotland International Ltd [2022] 3 WLR 261; UKPC 18 an application was made to strike out a claim brought by a Cayman Island based investment fund against the respondent bank. The investment fund had established a scheme by which investors lent solicitors in England and Wales money to finance their pursuit of high-volume low-value litigation. The loans were made through a company based in the Isle of Man, Synergy (Isle of Man) Ltd (SIOM), which was a customer of the bank. It was alleged that SIOM and two individuals associated with it had misappropriated money from the accounts held by SIOM with the bank. The fund alleged that the bank owed it a duty of care the effect of which was that "if the circumstances were such that a reasonable banker would have had grounds for considering that there was a serious or real possibility that the [Fund] was being defrauded and/or its funds were being misapplied …, [the Bank] was obliged not to honour instructions in relation to [the Accounts] until such time as it had made reasonable enquiry and satisfied itself as to the propriety of the conduct of [the Accounts]" (at [6]). The Privy Council, upholding the decision of the High Court of Justice of the Isle of Man Staff of Government (Appeal Division), held that the claim should be struck out. In reaching that decision Lord Hamblen and Lord Burrows (with whom Lord Briggs, Lord Kitchen and Lady Rose agreed) said (at [94]):
There is nothing in principle or in the cases to support the idea that the tortious duty of care owed by a bank to its customer to exercise reasonable care and skill, which is co-extensive with the contractual duty of care owed by a bank to its customer, can be extended across to a third party with whom the bank has no contractual relationship even if the bank knew or ought to have known that the third party was the beneficial owner of the moneys in the customer's account.
The decision of the Privy Council is not binding on this Court and, to some extent, the law in Australia relating to when a duty of care is owed has diverged from the law in the United Kingdom. Nonetheless, the decision supports a conclusion that the plaintiffs' claim is not reasonably arguable.
[8]
Misleading and deceptive conduct
The essential claim based on misleading and deceptive conduct is that NAB impliedly represented that it would only credit funds received by it to an account held in the name of the person who was named in the transfer as the recipient of the funds. That representation is said to be implied from NAB's general representations to the world at large by its adoption of the Banking Code of Practice and representations made on its website concerning the systems it had in place to deal with money laundering and fraud and the fact that NAB required the Commonwealth Bank of Australia (CBA) to identify the account name of an account to which a transfer was to be made. It is also said to be implied from the fact that NAB required CBA to identify the account name of the transferee.
NAB accepts that the question whether it engaged in misleading and deceptive conduct is a question of fact that should go to trial. However, it submits that the pleading of causation is inadequate. I accept that submission.
Accepting for present purposes that NAB represented that the name of the transferee was an essential characteristic of the instructions it was given before it would credit an electronic transfer to a customer's account and that representation was misleading or deceptive, it is unclear how the plaintiffs suffered loss "by" NAB's conduct so as to be entitled to recover damages under s 12GF of the ASIC Act. Having pleaded the representation and that it was misleading or deceptive in contravention of s 12DA(1) of the ASIC Act, the plaintiffs simply plead that "[i]n the premises, the plaintiffs suffered loss or damage as a result of the representations …". However, no facts are pleaded from which that conclusion could be reached. For example, is it alleged that if the representation had not been made, the plaintiffs would not have transferred the money into the NAB Account, or do the plaintiffs rely on some other causal chain? The pleading is defective for that reason and must be struck out.
[9]
Unconscionable conduct
Section 12CA of the ASIC Act provides that a "person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law …". It is well-settled that "the unwritten law" is a statutory expression of the equitable concept of unconscionable conduct at general law: see Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [82] per Gageler J (Kobelt); MacDonald v Yakiti Pty Ltd (2021) 152 ACSR 284; [2021] NSWCA 114 at [37] per White JA; see also Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 at [38] per Gummow and Hayne JJ.
In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 (Amadio), the High Court held that unconscionability involves a relationship in which one party is at a "special disadvantage", which the stronger party has knowledge of, and unconscientiously exploits: at 459-60 per Gibbs CJ, 461 per Mason J, 474 per Deane J. See also Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [124] per curiam; Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49 at [38] per Kiefel CJ, Bell, Gageler, Keane and Edelman JJ. As Kiefel CJ and Bell J stated in Kobelt at [15]:
In Kakavas v Crown Melbourne Ltd and Thorne v Kennedy it was said that a conclusion of unconscionable conduct requires not only that the innocent party be subject to special disadvantage, but that the other party must also unconscientiously take advantage of that special disadvantage. This has variously been described as requiring victimisation, unconscientious conduct or exploitation. (footnotes omitted)
The plaintiffs submit that a special disadvantage should no longer be regarded as an essential element of unconscionable conduct as a result of the decision of the High Court in Stubbings v Jams 2 Pty Ltd (2022) 96 ALJR 271; [2022] HCA 6. In that case, Kiefel CJ, Keane, and Gleeson JJ, after referring to the elements of the claim identified in Amadio, said (at [39]) that "these considerations should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort".
However, it is plain from the context of the passage relied on by the plaintiffs that their Honours were not intending to displace the test in Amadio and overturn a series of cases that has followed it. They were simply making the point that it was necessary to examine all the facts to reach a conclusion that the defendant's conduct was unconscionable. They were not dispensing with the requirement that an examination of those facts reveal that the plaintiffs suffered from some special disadvantage (which the stronger party unconscientiously exploits).
[10]
Conclusion and orders
For the reasons I have given, the claims contained in paragraphs 64 to 68 of the List Statement, the claim based on knowing receipt of trust property and the claim based on negligence should be summarily dismissed as disclosing no arguable claim. The other claims should be struck out. The plaintiffs should be given an opportunity to replead those claims. However, they should bear the onus of satisfying the Court that any repleaded claim should be allowed.
Accordingly, the orders of the Court are:
1. The claims made in paragraphs 64 to 68, 71 to 72 and 75 to 82 of the Commercial List Statement filed on 15 August 2022 (the List Statement) be summarily dismissed.
2. Paragraphs 69 to 70, 73 to 74, 83 to 90 and 91 to 93 of the List Statement be struck out.
3. Any application to file an amended Commercial List Statement be filed no later than 3 March 2023 and be made returnable on 10 March 2023.
4. The plaintiffs pay the third defendant's costs of the Notice of Motion filed on 14 November 2022.
[11]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 February 2023
In para 71 of the List Statement it is pleaded that NAB received the funds with the knowledge pleaded in para 70, which it is said imposes on NAB an obligation to account for the funds or pay equitable compensation. In para 73 it is alleged in the alternative that having the knowledge pleaded in para 70, NAB did not block the SS Account and continued to permit the SS Account to be used "in the furtherance of procuring and dealing with fraudulently obtained funds", which again is said to impose on NAB an obligation to account for the funds or to pay equitable compensation.
Paragraphs 75 to 82 of the List Statement plead a claim in negligence.
In paras 78 to 79, it is alleged that NAB owed the plaintiffs a duty:
1. to comply with the AMLCTF Act and AMLCTF Rules;
2. to put in place a reasonably efficient and efficacious system to ensure that its customers operated a legitimate business and were not engaged in fraud and to ensure that money was transferred to the correct account;
3. where NAB came into possession of information that would put a reasonable banker on notice that an account might be or was being used for the commission of a fraud, to take immediate steps to block transactions from occurring on the account.
Those duties are said to arise from a number of matters which can be summarised as follows:
1. the representations made by NAB;
2. the implied warranty;
3. the fact that the systems and processes involved in cashless payment systems are especially prone to frauds and scams;
4. the fact users had little choice in relation to and no control over such systems; and
5. the nature of such systems is that frauds and transfers by mistake of substantial sums of money can occur quickly and efficiently and in a manner that renders them difficult to trace or irretrievable for their true owners.
As a consequence of those matters it is alleged that the plaintiffs as transferors to an account held with NAB were:
1. reliant on NAB taking reasonable precautions against the risk that money would be transferred as a result of fraud or by mistake and become irrecoverable; and
2. vulnerable to loss or damage should NAB not do so.
NAB is said to be in breach of the duty it owed in the following respects:
a.. carrying out services without complying with the applicable customer identification procedure set out in the AMLCTF Rules in breach of the obligations pleaded at paragraph 55;
b. failing to have a system in place to collect and verify the first defendant and the beneficial ownership of the first defendant contrary to the obligations pleaded at paragraph 56 and 57;
c. failing to comply with its ongoing obligation to verify the first defendant and the beneficial ownership of the first defendant and the role of the second defendant contrary to the obligation pleaded at paragraph 58;
d. failing to either have in place an enhanced customer due diligence program or to apply such an enhanced customer due diligence program to the first defendant, second defendant and/or the SS Account contrary to the obligation pleaded at paragraphs 59 and 60;
e. failing to monitor, or have in place an appropriate system of monitoring, the first defendant, the second defendant and/or the SS Account with a view to mitigating and managing the risk of facilitating money laundering or failing to do so in accordance with the AMLCTF Rules contrary to the obligation pleaded at paragraphs 61 and 62;
f. allowing, permitting or facilitating the SS account to be opened and operated;
g. allowing, permitting or facilitating the second defendant to become and operate as a signatory to the SSS account;
h. allowing, permitting or facilitating transactions out of the SS Account or alternatively allowing, permitting or facilitating the extent of the transactions out of the SS Account;
i. making money available to the first defendant as a result of the related electronic funds transfer instruction, or alternatively making the extent of money available to the first defendant as a result of the related electronic funds transfer instruction;
j. failing to have in place a reasonably efficient and efficacious system that would culminate in the flagging, blocking or investigating of the SS Account and rather allowed or continued to allow the user of the SS Account to receive and transfer fraudulently obtained funds belonging to the plaintiffs out of the account; and
k. failing to flag, block or investigate the SS Account and rather allowing or continuing to allow the user of the SS Account to receive and transfer fraudulently obtained funds belonging to the plaintiffs out of the account.
In para 81 it is alleged that by reason of NAB's breach of duty the plaintiffs suffered loss or damage.
Paragraphs 83 to 90 plead a claim for misleading and deceptive conduct.
In para 84, it is alleged that NAB impliedly represented:
a. the nominated account name was an essential integer required by the third defendant to confirm the account into which funds were to be transferred;
b. the nominated account name was an essential integer required by the third defendant because it would play a meaningful role in ensuring the funds were transferred to the correct account; and
c. where it was clear that the nominated account name was not the account name of the transferee's bank account, that fact would be used by the third defendant to halt, flag or investigate the transaction.
Paragraph 87 pleads that contrary to those representations:
a. the nominated account name was not an essential integer required to confirm the account into which funds were to be transferred;
b. the nominated account name was not an essential integer required by the third defendant because it would play a meaningful role in ensuring the funds were transferred to the correct account; and
c. the fact that it was clear that the nominated account name was not the account name of the transferee's bank account did not cause the third defendant to halt, flag or investigate the transaction.
For those reasons, it is said that the representations were misleading and/or deceptive in contravention of s 12DA(1) of the ASIC Act.
Paragraphs 91 to 93 plead a case based on unconscionable conduct in contravention of s 12CA of the ASIC Act (conduct that is unconscionable within the meaning of the unwritten law) or s 12CB of the ASIC Act (conduct that is, in all the circumstances, unconscionable).
The relevant conduct is alleged to be conduct allowing the first and second defendants to open the SS Account and operate it. That conduct is said to be unconscionable for the same reasons that it is said NAB breached the duty of care it owed.
The plaintiffs also submit that the manner in which the funds were treated must be the subject of evidence before the Court can determine whether the principle stated by Spigelman CJ applies in this case. I do not accept that submission. It is for the plaintiffs to plead the facts that they say takes this case outside that principle. They have not done so.
Even if the correct characterisation of what occurred is that the plaintiffs made payments to NAB with a direction to NAB to deal with those payments in a particular way, the claim has not been properly pleaded. The first claim would require the plaintiffs to plead with precision the mistake each made and to plead that NAB knew of that mistake at the time of payment or at least before it permitted the first and second defendants to withdraw the payments. However, no attempt has been made to identify the mistake, and there is no pleading that NAB was aware of it.
The second claim appears to rest on the proposition that the funds were paid to NAB for the express purpose of crediting those funds to an account with the characteristics identified in the transfer. Since no such account existed, it is said that NAB held the funds on a resulting trust for the plaintiffs. However, such a case would require the plaintiffs to plead the purpose for which the payments were made and the fact that NAB knew of that purpose: see generally Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. There may be a question of whose purpose is relevant (the plaintiffs' or that of the transferor bank's). But assuming the correct position is that it is the plaintiffs' purpose, none of the relevant facts are pleaded.
In circumstances where both claims rest on the assumption that the payments were made to NAB, in my opinion they are bound to fail. Consequently, they ought to be summarily dismissed.
A further difficulty with the pleading is that what is pleaded is that NAB knew the relevant facts "[a]t all material times and in any event by no later than 20 June 2022". However, that pleading has a tendency to cause prejudice or embarrassment because it is not apparent how NAB could be liable for payments made out of the SS Account before 20 June 2022 if it did not acquire the relevant knowledge until 20 June 2022. It is necessary for the plaintiffs to identify clearly in relation to each payment the knowledge that NAB is said to have had at the time it provided the pleaded assistance - that is, at the time it permitted the funds to be withdrawn from the SS Account.
In my opinion, that is a defect in the pleading of both aspects of the claim. For that reason alone, the relevant paragraphs must be struck out.
There may also be a question whether the pleaded facts could arguably amount to the pleaded knowledge - that is, could arguably lead an honest and reasonable person to conclude that the funds received were the result of fraudulent or suspicious activity involving the SS Account. Having regard to the conclusions I have reached, it is not necessary to address this question. I propose to give the plaintiffs leave to replead the case based on knowing assistance. If the plaintiffs exercise that opportunity the issue can, if necessary, be addressed in the context of the amended pleading.
The principles for determining whether a duty of care exists in a novel case in Australia were summarised by Allsop P (with whom Simpson J agreed) in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 at [102]-[103] in these terms:
102 … If … the posited duty is a novel one, the proper approach is to undertake a close analysis of the facts bearing on the relationship between the plaintiff and the putative tortfeasor by references to the "salient features" or factors affecting the appropriateness of imputing a legal duty to take reasonable care to avoid harm or injury.
103 These salient features include:
(a) the foreseeability of harm;
(b) the nature of the harm alleged;
(c) the degree and nature of control able to be exercised by the defendant to avoid harm;
(d) the degree of vulnerability of the plaintiff to harm from the defendant's conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself;
(e) the degree of reliance by the plaintiff upon the defendant;
(f) any assumption of responsibility by the defendant;
(g) the proximity or nearness in a physical, temporal or relational sense of the plaintiff to the defendant;
(h) the existence or otherwise of a category of relationship between the defendant and the plaintiff or a person closely connected with the plaintiff;
(i) the nature of the activity undertaken by the defendant;
(j) the nature or the degree of the hazard or danger liable to be caused by the defendant's conduct or the activity or substance controlled by the defendant;
(k) knowledge (either actual or constructive) by the defendant that the conduct will cause harm to the plaintiff;
(l) any potential indeterminacy of liability;
(m) the nature and consequences of any action that can be taken to avoid the harm to the plaintiff;
(n) the extent of imposition on the autonomy or freedom of individuals, including the right to pursue one's own interests;
(o) the existence of conflicting duties arising from other principles of law or statute;
(p) consistency with the terms, scope and purpose of any statute relevant to the existence of a duty; and
(q) the desirability of, and in some circumstances, need for conformance and coherence in the structure and fabric of the common law.
Notwithstanding the fact that the issue generally requires a careful examination of the facts, in my opinion, it is apparent that, applying these principles, it is not reasonably arguable that NAB owes the alleged duty. A number of matters identified by Allsop P tend against the existence of such a duty and none points in favour of it.
The alleged duty is said to be a duty to avoid pure economic loss. It is one which, in effect, is said to be owed to the world at large. The alleged duty is broad and indeterminate in scope. Those factors, particularly in combination, count against the existence of the alleged duty.
There is no personal or other connection between the plaintiffs and NAB. The duty in effect is said to be a duty to take reasonable care to prevent the plaintiffs from being defrauded by customers of NAB. But none of the facts pleaded by the plaintiffs provide a basis for saying that NAB assumed that responsibility or that the plaintiffs reasonably relied on NAB to prevent them from being defrauded by NAB's customer. Moreover, the existence of the pleaded duty would raise the possibility of conflict between the duty a bank owes to its customer and a duty that it is said to owe to anyone who chooses to deal with that customer. The relevant obligations of a bank, and NAB in particular, are dealt with in detail by legislation. There is nothing in that legislation that suggests that breach of it gives rise to civil liability on the part of the bank to any person who deals with its customer.
Vulnerability to the harm said to be caused by the alleged conduct is an important, if not critical, indicator of the existence of a duty of care: see Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [118] per McHugh J. The List Statement suggests that the plaintiffs were vulnerable to harm caused by NAB's conduct - or, more accurately, inaction - and that the plaintiffs had limited ability to protect themselves. That submission cannot be accepted. It was open to the plaintiffs to make their own enquiries, including taking steps to check that they were dealing with persons employed by AMP by contacting AMP themselves.
The plaintiffs submit that the circumstances of this case are analogous to the position of occupiers of licensed premises who have been held in some circumstances to owe a duty of care to patrons in relation to the tortious or criminal conduct of other patrons: see generally Rooty Hill RSL Club Ltd v Karimi [2009] NSWCA 2 (Rooty Hill). However, the two cases are not analogous. Rooty Hill concerned a case in which one patron assaulted another. It was not a case concerning pure economic loss. The degree of control that the occupier could exercise (by excluding the offending patron) and the vulnerability of the injured patron were entirely different.
Second, in my opinion, the pleading of breach is inadequate because it does not identify with any precision what NAB should have done but did not do. In substance, what seems to be alleged is that NAB did not have in place adequate systems to check that the account it permitted to be opened would not be used to perpetrate a fraud. However, the List Statement does not identify why the systems were inadequate - that is, what NAB should have done but did not do. So, for example, it is alleged that NAB failed to comply with the applicable customer identification procedure set out in the AMLCTF Rules. However, there is no allegation of how it failed to comply with that procedure. Similarly, it is alleged that NAB failed to monitor or have in place an appropriate system of monitoring "the first defendant, the second defendant and/or the SS Account". However, it is not clear whether what is alleged is that there was no system in place or whether there was a system in place but it was inadequate in some respect. If the latter, no attempt has been made to identify in what respects the system was inadequate.
The plaintiffs answer to the point made in the previous paragraph is that they are matters of evidence. I do not accept that submission. NAB is entitled to know with some particularity the case it must meet. Consequently, it is entitled to know in what respects it is said its systems were inadequate. The pleading is inadequate for that reason and should be struck out.
On the conclusion I have reached, the negligence claim is not reasonably arguable. Although the claim is pleaded defectively and should be struck out for that reason, it also suffers a more fundamental problem. Consequently, it should be dismissed.
No attempt in this case has been made by the plaintiffs to plead facts which could arguably justify a conclusion that NAB had unconscientiously taken advantage of a special disadvantage from which they suffered; and no attempt was made during the course of submissions to identify any such facts. It follows for that reason alone that the claim under s 12CA of the ASIC Act must be struck out.
Section 12CB of the ASIC Act relevantly provides that a person "must not, in trade or commerce, in connection with … the supply, or possible supply of financial services to a person … engage in conduct that is, in all the circumstances unconscionable". It has a far wider reach than the unwritten law: see Kobelt at [83] per Gageler J, [257] per Nettle and Gordon JJ. That is especially apparent having regard to the non-exhaustive list of factors for courts to consider provided for in s 12CC of the ASIC Act. In Kobelt, Kiefel CJ and Bell J stated that "unconscionable" in its ordinary meaning was conduct "that objectively answers the description of being against conscience": at [14]. Similarly, Gageler J in that case described the proscription in s 12CB as "conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience": at [92]. The effect, as described by Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50, is that courts must determine if conduct is against conscience by reference to the norms and values of Australian society: at [262]ff.
Although the concept of unconscionable conduct is broader under s 12CB, it must still be conduct that answers the description of being against conscience. Here the relevant conduct is permitting a customer to open and operate a bank account without taking reasonable care to prevent the account from being used to perpetrate a fraud. It is very difficult to see how that alone can amount to unconscionable conduct.
In their submissions, the plaintiffs characterised the case put in their pleadings as the third defendant having profited from permitting (either knowingly or with constructive knowledge) the SS Account to be used to facilitate a fraud on the plaintiffs, in circumstances where the plaintiffs had no knowledge of the "evident and real flaws" in the bank's system of cashless transactions. That this is the plaintiffs' case is not obvious on the face of the pleadings. That the bank "profited" from the alleged conduct is not even pleaded. Taken at its highest, the pleadings fail to state how the conduct of the plaintiff at para 80 of the List Statement offends the conscience in the normative manner provided for in s 12CB. Pleadings must be sufficiently intelligible to enable a defendant to know the case it has to meet: UCPR r 15.1(1). It is not enough to "plead a set of facts and a bare conclusion that, in all the circumstances, what has taken place is unconscionable": see Olson v Keefe (No 3) [2018] FCA 2001 at [22] per Bromwich J.
There is a further difficulty with the pleading of the case under s 12CB of the ASIC Act. Section 12CC(1) provides that "[w]ithout limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to" a list of matters relating to the relationship between the supplier and service recipient. It is apparent from s 12CC that the person with which s 12CB is concerned is the service recipient. Consequently, s 12CB must be read as stating that a person must not in connection with the supply or possible supply of financial services to the recipient of those services engage in conduct that is in all the circumstances unconscionable. A person who suffers loss "by" that conduct is entitled to recover damages from the supplier under s 12GF. Consequently, in order to make out a case under s 12CB the plaintiffs must plead and prove the financial services that NAB supplied or proposed to supply to them and the conduct that NAB engaged in in connection with that supply or possible supply which could be said in all the circumstances to be unconscionable. The plaintiffs have made no attempt to identify what they say was the financial service provided to them. Indeed, the pleaded supply of financial services appears to be a supply to the first defendant. Finally, the plaintiffs have not pleaded any facts from which it could be said that they suffered the loss they claim "by" NAB's unconscionable conduct.
It follows that the claims based on unconscionable conduct in their current form must be struck out. There is a question whether the claims have any real prospect of success. It is difficult, for example, to see how it could be said on the basis of any of the alleged facts that NAB unconscientiously took advantage of some special disadvantage of the plaintiffs or engaged in unconscionable conduct in the broader sense as used in s 12CB of the ASIC Act. It is also difficult to see how it could be said that NAB's allegedly unconscientious conduct occurred in connection with the supply or possible supply of financial services to the plaintiffs. However, given the factual nature of the enquiry, before a final decision is made to dismiss the claim, the plaintiffs should be given one last opportunity to replead it.