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[2002] QSC 316
Supreme Court of Queensland
2002-10-10
Helman, J.
Original judgment source is linked above.
TRUSTS AND TRUSTEES - BREACH OF TRUST - accessory liability - whether solicitor acted dishonestly
NEGLIGENCE - DUTY OF CARE - whether duty of care owed by solicitor to non-client
TORT - CONVERSION - liability of financial institution re cheque - whether defence of estoppel available
BANKS AND BANKING - CHEQUES - Cheques Act 1986 - whether payment of cheque received in good faith and without negligence
Agip (Africa) Ltd v. Jackson [1990] 1 Ch. 265, referred to
Baden v. Société Générale S.A. (note) [1993] 1 W.L.R. 509, discussed
Barnes v. Addy (1874) L.R. 9 Ch. App. 244, referred to
BCCI (Overseas) Ltd v. Akindele [2001] Ch. 437, referred to
Citadel General Assurance Co. v. Lloyds Bank Canada [1997] 3 S.C.R. 805, referred to
Commonwealth Trading Bank of Australia v. Sydney Wide Stores Pty Ltd [1981] HCA 43; (1981) 148 C.L.R. 304, referred to
Consul Development Pty Ltd v. D.P.C. Estates Pty Ltd [1975] HCA 8; (1975) 132 C.L.R. 373, discussed
El Ajou v. Dollar Land Holdings plc [1993] EWCA Civ 4; [1994] 2 All E.R. 685, referred to
Heydon v. N.R.M.A. Ltd [2000] NSWCA 374; (2000) 51 N.S.W.L.R. 1, applied
Hill v. Van Erp (1997) 188 C.L.R. 159, referred to
Hilton v. Noss (unreported, no. 50261 of 1994, 16 May 1995), discussed
Lloyds Bank v. The Chartered Bank of India, Australia and China [1929] 1 K.B. 40, referred to
London Bank of Australia Ltd v. Kendall [1920] HCA 53; (1920) 28 C.L.R. 401, discussed
Marfani & Co. Ltd v. Midland Bank Ltd [1968] 1 W.L.R. 956, discussed
National Australia Bank v. Hokit [1996] NSWSC 198; (1996) 39 N.S.W.L.R. 377, referred to
Noss v. Hilton (CA 40349/95, 29 September 1997), referred to
Parsons v. The Queen (1999) 195 C.L.R. 619, referred to
Penfolds Wines Pty Ltd v. Elliott [1946] HCA 46; (1946) 74 C.L.R. 204, referred to
Perre v. Apand Pty Ltd [1999] HCA 36; (1999) 198 C.L.R. 180, referred to
Queensland Art Gallery v. Henderson Trout [2000] Q.C.A. 93, referred to
Royal Brunei Airlines v. Tan [1995] UKPC 4; [1995] 2 A.C. 378, applied
United States Surgical Corp. v. Hospital Products International Pty Ltd [1983] 2 N.S.W.L.R. 157, referred to
Young v. Grote [1827] EngR 527; (1827) 4 Bing. 253; 130 E.R. 764, discussed
Bills of Exchange Act 1909 (Cth), s.88(1)
Cheques Act 1986 (Cth), s.98
State Financial Institutions and Metway Merger Facilitation Act 1996 (Qld)
Suncorp Insurance and Finance Amendment Act 1996 (Qld)
Mr D.C. Andrews S.C. with Mr K.S. Howe for the plaintiffs
Mr W. Sofronoff Q.C. with Mr D. Kelly for the third defendant
Brian Bartley & Associates for the first defendants
[1] This proceeding concerns two cheques: one for $600,000 and the other for $500,000. They came into existence as a result of a swindle of which Mr Eric Voss and his wife Betty were the victims. Mr and Mrs Voss seek redress, not from the swindler, but from parties to the proceeding who were not parties to the swindle, but who had dealings with the swindler.
[2] On 25 November 1994 Mrs Maria Ripper, wife of Mr Nicholas Ripper, an accountant practising as Nicholas Ripper & Co at Bundaberg and Toowoomba, entered into a written contract to buy `Gabbinbar', house and land (11.516 hectares) at 370 Ramsay Street, Toowoomba for $2,000,000. The vendors were
Mr Treveren Liesegang and his wife Joan. Mrs Ripper paid a deposit of $10,000. There were two lots the subject of the sale, one vacant (lot 1 on registered plan no. 130899) and the other referred to in correspondence as the `Homestead block' (lot 2 on registered plan no. 142240). The date for completion provided for in the contract was 31 May 1995. Both vendors and purchaser retained solicitors in connexion with the sale: the vendors Clewett Corser & Drummond, and Mrs Ripper
Davidson & Sullivan. The date for completion provided for in the contract was not met, but on 2 June 1995 there was completion of the sale of lot 1 for a consideration of $300,000, leaving by agreement $1,700,000 payable for lot 2. A further deposit of $170,000 was then paid, and Mrs Ripper was permitted by the vendors to enter into possession of lot 2. Mrs Ripper did not have the money to complete the purchase by the date provided for in the contract. There were extensions of the date for completion agreed upon by the parties to the contract on various conditions until, on 7 June 1996, completion took place. Mrs Ripper was able to settle, not because she had all the money even then, but because her husband had dealt fraudulently with the proceeds of a cheque for $600,000 provided to him by his clients Mr and Mrs Voss: he used $500,000 of the proceeds of the cheque to enable Mrs Ripper to complete the purchase of Gabbinbar. It was conceded in final written submissions on behalf of Mr and Mrs Voss (paras. 25 and 86) that Mrs Ripper has repaid $23,000 - although I note the sum Mr Voss mentioned in giving evidence was $22,000.
[3] Mr Ripper is named as the second defendant in this proceeding, but I was told at the beginning of the trial that he had not been served and that he is `in fact a bankrupt'. A certificate issued by the Deputy Registrar of the District Court at Brisbane on 8 July 2002 shows that on 15 November 1999 Mr Ripper pleaded guilty in that court to a charge of the offence of misappropriation with a circumstance of aggravation committed between 8 May 1995 and 15 February 1997 at Toowoomba or elsewhere in Queensland and that on 16 November 1997 he was sentenced to imprisonment for ten years. It was recommended that he be considered eligible for early release after serving three years and nine months of the term of imprisonment. The name of the victim shown in the certificate is `Erick Voss'.
[4] On 22 May 1996 Mr and Mrs Voss purchased, on Mr Ripper's advice, a cheque drawn by the Suncorp Building Society Limited on its account at the Westpac bank, Brisbane for $600,000 payable to Southern Pacific Equities Unit Trust or order. It was crossed and endorsed `NOT NEGOTIABLE CREDIT ACCOUNT PAYEE ONLY'.
[5] Mr and Mrs Voss first consulted Mr Ripper in early 1995, when they discussed minimizing the impact of income tax, and Mr Ripper told them that it could be done in two ways: `one was to pay money into superannuation and the other was to send money overseas'. In late 1995 or early 1996 they sought advice from him about the investment of the proceeds of the sales of an interest their trust company,
Buttbury Pty Ltd, had in a harvesting contract, and of a sugar cane farm they had acquired in January 1994. Remembering Mr Ripper's previous advice, Mr Voss raised the subject of investing overseas. Mr Ripper told them that investment of funds overseas was `not a problem at all', adding, `You send money overseas for a minimum of six months and you only have to pay ten cents in the dollar' and that he always dealt through Ernst & Young. He had used other people, he said, but
Ernst & Young were the best, and it would be done through them. Mr Ripper produced an Ernst & Young brochure, but Mr Voss did not ever read it.
[6] On 1 March 1996 the proceeds of the sale of the interest in the harvesting contract, $220,679.40, were, on Mr Ripper's advice, deposited to the credit of an account identified by number only at the Advance bank. Mr Ripper gave Mr Voss a deposit slip and Mr Voss deposited his company's cheque for the proceeds assuming they were `going to Ernst & Young or whoever they nominated' as an `overseas investment'. It was not until about three or four weeks before 22 May 1996 that
Mr Voss received a receipt from Mr Ripper for the $220,679.40. It was as follows:
ALL ENQUIRIES TO : NICHOLAS RIPPER & CO 311 MARGARET STREET TOOWOOMBA QLD 4350
[7] On 22 May 1996 Mr Voss, acting for himself and Mrs Voss, took the cheque for the proceeds of the sale of the farm to Mr Ripper at his Bundaberg office.
Mr Ripper advised Mr Voss to deposit the cheque, which was for about $691,000, to the credit of Mr and Mrs Voss's account with Suncorp, have the cheque cleared, and obtain a cheque for $600,000 payable to Southern Pacific Equities Unit Trust, and then bring the cheque back to Mr Ripper. Mr Voss did as he was advised and obtained the cheque for $600,000 to which I have referred. He handed it to
Mr Ripper who gave him a photocopy of the cheque and a receipt:
ALL ENQUIRIES TO : NICHOLAS RIPPER & CO 311 MARGARET STREET TOOWOOMBA QLD 4350
Mr Voss handed the cheque to Mr Ripper intending that Mr Ripper would `invest it through Ernst & Young' for him and Mrs Voss. Mr Voss intended that the cheque would be deposited to the credit of an account with a bank or other financial institution in the name of Southern Pacific Equities Unit Trust, and that the bank or other financial institution would receive the proceeds of the cheque into the account. It did not matter to Mr and Mrs Voss who held their money provided they got it back. Having received the cheque for $600,000, Mr Ripper produced it, or a photocopy of it, to Davidson & Sullivan. At all events a photocopy came to
Mr Thomas Sullivan and it was placed on the Davidson & Sullivan file concerning Mrs Ripper's purchase.
[8] On 23 May 1996 Mr Ripper went to the Margaret Street, Toowoomba branch of Suncorp, of which he was already a customer, to open a `savings-plus' account in the name of the payee on the cheque for $600,000. Mr Ripper presented a letter dated that day requesting the opening of the account of which he was to be the only signatory and completed a new-account application form. Mr Ripper produced his driver's licence for inspection to enable his identity to be checked. A document purporting to be a unit trust deed prepared by Toowoomba solicitors
Edwin Dean & Associates and executed on 23 May 1996, showing a settlement sum of $10 with Mr Edwin Dean as settlor and Mr Ripper as both trustee and sole original unit holder holding ten units, was produced and a copy of it was kept by Suncorp. The application form provided for an endorsement by two
I confirm that I have sighted the original documents indicated and verified the identity of the account holder/signatory according to the Financial Transactions Reports Act 1988
The employee who dealt with the application, Ms Rhonda Haeusler, who was one of the managers of the branch, endorsed the application form on 23 May 1996, and another employee did so on 29 May 1996.
[9] The account was opened when Mr Ripper deposited Mr and Mrs Voss's cheque to the new account. Suncorp credited the $600,000 to the account, and then, almost immediately, Mr Ripper was permitted to make a number of withdrawals from it because the cheque for $600,000 was a Suncorp counter cheque, after, as I accept, Ms Haeusler had confirmed with Suncorp's Treasury department that the withdrawals could be made. Cheques were obtained drawn by Suncorp. The largest was $500,000 drawn in favour of the Westpac bank which was then to draw a bank cheque in favour of Davidson & Sullivan's trust account. The remaining withdrawals by cheque came to $94,850: $7,850 to Clayton Utz, $45,000 to Sandbank Pty Ltd, $8,000 and $4,000 to N.V. Ripper, and $30,000 to
Goss Downey Carne's trust account. In addition, $5000 in cash was withdrawn.
[10] At 8.40 a.m. on 23 May 1996 Mr Ripper had telephoned Mr Sullivan to tell him that he, Mr Ripper, had a bank cheque for $500,000, he was `getting' a further $325,000, and the HongkongBank would advance $700,000. (It would seem from the time when Mr Ripper made that call that he did so before he had been to the Suncorp branch.) Five minutes later Mr Sullivan telephoned Mr Glen McCracken of Clewett Corser & Drummond to tell him what Mr Ripper had said. Mr Sullivan also told Mr McCracken - in the latter conversation or another that day - that
Mr Ripper had provided to Mr Sullivan a copy of the cheque for $600,000 and that Mr Ripper had funds available to complete Mrs Ripper's purchase. On the same day the bank cheque for $500,000 was deposited to the credit of
Davidson & Sullivan's trust account for Mrs Ripper.
[11] The sum paid on the settlement of 7 June 1996 was $1,569,069.33. It is not necessary to explain how that sum was calculated. It is sufficient to note that that was the sum agreed upon by the Liesegangs and Mrs Ripper. It is important to record, however, details of the way in which the $1,569,069.33 was made up on behalf of Mrs Ripper: $700,000 was borrowed from the HongkongBank, $529,069.33 from moneys held in trust for Mrs Ripper by Davidson & Sullivan, and the remainder of $340,000 by way of loan from the vendors. The $529,069.33 came from a fund of $537,385.30: $1,227, the balance held on 22 May 1996; the $500,000 traceable to Mr and Mrs Voss's funds; $1,158.30 interest earned on authority on moneys held in trust; and $35,000 provided from Bundaberg by
Mr Ripper by telegraphic transfer to Davidson & Sullivan on the day of the settlement.
[12] Mr and Mrs Voss's case against Messrs Davidson and Sullivan was pleaded in three ways: first, that by causing, permitting, or authorizing the payment of the sum of $500,000 from the Davidson & Sullivan trust account to the vendors of Gabbinbar, they knowingly participated in a breach of trust by Mr Ripper; secondly, that they were negligent in failing in a duty of care they owed to
Mr and Mrs Voss `to make reasonable inquiries to ensure that the use of $500,000 to assist in the purchase of "Gabbinbar" did not involve a breach of the [Southern Pacific Equities Unit] Trust'; and thirdly, that they have been unjustly enriched at the expense of Mr and Mrs Voss to the extent of $500,000 and Mr and Mrs Voss are entitled to restitution of that sum. In the course of the final addresses I was told that the third formulation of the case was abandoned. Mr and Mrs Voss claim $477,000 (the $500,000 less the $23,000 recovered from Mrs Ripper) and interest from Messrs Davidson and Sullivan.
[13] The member of the firm Davidson & Sullivan chiefly responsible for dealing with Mrs Ripper's purchase was Mr Lionel Davidson, although Mr Sullivan was responsible from time to time when Mr Davidson was absent - for example, on holidays. It was usual for Mr Davidson to take holidays in December and for
Mr Sullivan to take his in January. Each would handle the other partner's files when the latter was absent. Of particular relevance in this case was Mr Sullivan's assuming responsibility for Mrs Ripper's land-purchase file on 20 May 1996 to the date of settlement.
[14] It is reasonable to conclude that although on 20 May 1996 Mr Sullivan was not familiar with every detail of what had happened from the signing of the contract, he was aware of the essential parts of the history of the matter - he had been responsible for it before. First and foremost, there was the fact that Mrs Ripper had been unable to assemble the necessary funds to complete the purchase despite her husband's efforts. Secondly, Mr Davidson would have been aware that
Mr and Mrs Liesegang, although still willing to settle with Mrs Ripper, had begun proceedings against her for recovery of possession of lot 2 and that various defaults had been made in meeting obligations to pay agreed weekly sums.
[15] Finance for the purchase was sought on behalf of Mrs Ripper by Mr Ripper, and in some instances Mr Davidson, from a number of banks apart from the HongkongBank: the Westpac, St. George, Macquarie, and Metway banks. Other lenders too were approached: Wide Bay Acceptance, Henry Lep Finance &
Finance & Leasing Pty Ltd, Mr Gary Moe, R. & R. Funds Management Pty Ltd, and Mortgage Bankers (Aust). Mrs Ripper's evident difficulty in obtaining finance could not of course have failed to lead Messrs Davidson and Sullivan to the conclusion that Mrs Ripper had apparently overreached herself in purchasing the property.
[16] In response to a request made on 30 May 1995 by Davidson & Sullivan on behalf of Mrs Ripper to Mr McCracken at Mr Ripper's behest,
Clewett Corser & Drummond notified Davidson & Sullivan in a letter dated
31 May 1995 that Mr and Mrs Liesegang were prepared to extend the date for completion of the sale to `a date which is 45 days from the 2nd June 1995 or such earlier date as your clients may wish' on certain conditions, including completion of the purchase of lot 1 on 2 June 1995 for $300,000 - which, as I have related, was done. Other conditions were the payment of a further sum by way of deposit and a penalty for failure to complete on the day provided for in the contract. On behalf of Mrs Ripper, Davidson & Sullivan agreed to Mr and Mrs Liesegang's proposal. In a letter to Davidson & Sullivan dated 5 June 1995, Clewett Corser & Drummond confirmed that the new date of settlement was 17 July 1995. Then, by a letter dated 18 July 1995 Clewett Corser & Drummond notified Davidson & Sullivan that
Mr and Mrs Liesegang offered to allow Mrs Ripper until 4.00 p.m. on 24 July 1995 to provide confirmation of approval of finance and then another fourteen days to complete. Davidson & Sullivan responded on behalf of Mrs Ripper in a letter also dated 18 July 1995 accepting the offer.
[17] In a letter dated 28 July 1995 to Davidson & Sullivan,
Clewett Corser & Drummond confirmed a further agreement reached that morning under which the date for completion was extended to 31 August 1995 on certain conditions including the payment by Mrs Ripper to Mr and Mrs Liesegang of $3,898 weekly in advance by way of penalty for default. In a letter dated
29 August 1995, Clewett Corser & Drummond confirmed that Mr and Mrs Liesegang were agreeable to an extension of the date for completion until
18 September 1995 on a certain condition, but in a letter dated 18 September 1995 to Davidson & Sullivan, Clewett Corser & Drummond confirmed that their clients were prepared to wait until 29 September 1995 to allow Mrs Ripper to endeavour to obtain finance, adding that rather than making a projected settlement date, their clients would reconsider their position once the outcome of the application for finance was known.
[18] In a letter dated 12 February 1996, Clewett Corser & Drummond confirmed to Davidson & Sullivan that their clients had reached the stage where they believed `the fate of the contract should be brought to a head', adding, `As you are aware, your client is substantially in default in complying with her obligations to complete the contract and whilst our clients have given more and more time, they have never agreed to further extensions of the settlement date'. In a letter to
Davidson & Sullivan dated 19 February 1996, Clewett Corser & Drummond recorded their understanding that `your client contacted ours' on 16 February, and confirmed that Mr and Mrs Liesegang had agreed to withhold further instructions until 23 February. In a letter dated 22 February 1996 to Davidson & Sullivan, Clewett Corser & Drummond advised that their clients intended to terminate the contract if written approval of finance to the satisfaction of Mr and Mrs Liesegang was not provided by the following day.
[19] The contract was kept on foot however, and in a letter dated 4 March 1996 to Davidson & Sullivan, Clewett Corser & Drummond confirmed that their clients were prepared to allow Mrs Ripper until 4 April 1996 to complete, provided that, in the event of late payment of the weekly sum of $3,898, the payment required for the relevant week would increase to $5,000. Mrs Ripper agreed to that. On
4 April 1996 Mrs Ripper failed to complete, and in a letter dated that day to Davidson & Sullivan, Clewett Corser & Drummond gave notice that the contract was at an end and that all moneys paid pursuant to it had been forfeited to their clients. But in a letter dated 18 April 1996 to Davidson & Sullivan,
Clewett Corser & Drummond advised that their clients were prepared to consider their position subject to Mrs Ripper's providing `satisfactory proof in relation the availability of funds'. In a letter dated 23 April 1996 to Davidson & Sullivan, Clewett Corser & Drummond advised that their clients were `not prepared to allow the matter to go on' and Mrs Ripper was to vacate. In a letter dated 26 April 1996 to Davidson & Sullivan, Clewett Corser & Drummond confirmed that the contract was `at an end' and gave notice that Mrs Ripper was required to vacate the property `forthwith in the terms of the contract'.
[20] There were further negotiations between Clewett Corser & Drummond on behalf of Mr and Mrs Liesegang and Davidson & Sullivan on behalf of Mrs Ripper in late April and early May 1996, but still Mrs Ripper was unable to complete the contract. By a letter dated 9 May 1996 to Davidson & Sullivan, Clewett Corser & Drummond again demanded that she `vacate immediately' and advised that they were issuing proceedings for recovery of possession. On 14 May 1996 a writ issued out of the Toowoomba District Registry of this court in which Mr and Mrs Liesegang claimed from Mrs Ripper recovery of possession of lot 2 was served.
[21] It is evident from Davidson & Sullivan's file that Mrs Ripper had great difficulty in meeting obligations to the Liesegangs which she undertook in return for extensions of the completion date. In letters and facsimile transmissions from Clewett Corser & Drummond to Davidson & Sullivan of 8 August 1995,
6 September 1995, 27 September 1995, 20 October 1995, 8 November 1995,
19 December 1995, 18 January 1996, 23 January 1996, 14 February 1996,
21 February 1996, 4 March 1996, 25 March 1996, 1 April 1996, and 3 April 1996 there are complaints of various failures: the dishonouring of cheques, late payments, short payments, and failure to make payments. In a letter dated
22 May 1996 from Davidson & Sullivan written by Mr Sullivan to Mr Ripper, it is noted that the latter's cheque deposited to the Davidson & Sullivan trust account on 13 May 1996 for the credit of Mrs Ripper, was returned unpaid by the bank.
[22] Clayton Utz, solicitors acting for the HongkongBank, sought information from Davidson & Sullivan about the Rippers' financial position. In a letter dated
12 April 1996 they had sought information concerning a creditor's bankruptcy petition presented on 19 February 1996 against Mr Ripper. In a letter dated
30 May 1996 to Davidson & Sullivan, Clayton Utz requested inter alia lists of
Mr and Mrs Ripper's personal assets and liabilities. Mr Ripper supplied that information directly to the bank by facsimile transmission on 3 June 1996. A statutory declaration concerning the $500,000 drafted by Mr Sullivan and made by Mr Ripper - also requested by Clayton Utz - was sent to them by
Davidson & Sullivan with a letter dated 3 June 1996. The declaration was made before Mr Sullivan on the same day. Mr Ripper had told Mr Sullivan `he had moneys in a trust that he was using', `it was in a trust - one of the trusts he and his wife had', and `it was one of the trusts he controlled'. Mr Ripper swore as follows:
(1) I deposited into the Trust Account of Messrs. Davidson & Sullivan the sum of $500,000 for the credit of my wife Maria Teresa Ripper, which funds are to be held by Messrs. Davidson & Sullivan in its Trust Account and used for the purchase by my wife of property situated 370 Ramsay Street Toowoomba.
(2) The said funds are funds under my control and I am at liberty to use those funds as I direct.
[23] It is not in issue that Mr Sullivan failed to make any enquiry as to the terms of the Southern Pacific Equities Unit Trust, the identity of the beneficiaries of the trust, and whether the use of the sum of $500,000 to assist in the purchase of Gabbinbar was a use or investment permitted by the Trust.
[24] In response to a request in a letter dated 4 June 1996 to Davidson & Sullivan from Clayton Utz, a statement of the Rippers' assets and liabilities as at 31 May 1996 was provided. It showed total assets valued at $2,172,590 and total liabilities of $436,903 thus leaving a figure for net assets of $1,735,687. The $500,000 deposited in Davidson & Sullivan's trust account did not appear among the assets. Also provided was a statement of the Rippers' financial position as at 5 June 1996, `Income & Outgoing Position (Monthly Average)', which showed their total monthly income at $39,460 and their total monthly outgoings at $24,205 leaving their uncommitted monthly income as $15,255.
[25] The first formulation of the case against Messrs Davidson and Sullivan rests on the dictum of Lord Selborne L.C., sitting in the Court of Appeal in Chancery, in
Barnes v. Addy (1874) L.R. 9 Ch. App. 244 at pp. 251-252, in which the liability of a non-trustee to account in equity to a beneficiary of a trust was explained. Two circumstances are discussed: knowing receipt of trust property, and knowing assistance to a trustee's breach of trust.
[26] The liability of a stranger to a trust to a beneficiary on the ground of knowing receipt applies only to one who receives or applies the trust property in his or her personal capacity, for his or her own use and benefit, rather than as an agent of the trustee: see Citadel General Assurance Co. v. Lloyds Bank Canada [1997] 3 S.C.R. 805 at p.821 per La Forest, Gonthier, Cory, McLachlin, Iacobucci, and Major JJ.; and also Agip (Africa) Ltd v. Jackson [1990] 1 Ch. 265 at p.292, El Ajou v. Dollar Land Holdings plc [1993] EWCA Civ 4; [1994] 2 All E.R. 685 at p.700 per Hoffmann L.J. and BCCI (Overseas) Ltd v. Akindele [2001] Ch. 437 at p.448 per Nourse L.J., with whom Ward and Sedley L. JJ. agreed. There can be no suggestion that
Messrs Davidson and Sullivan received the bank cheque or applied its proceeds for their own use or benefit. It is the liability of an accessory to a trustee's breach of trust relied on by Mr and Mrs Voss. The focus of this part of their claim was of course on the knowledge and actions of Mr Sullivan as the partner who had responsibility for the file at the relevant time, which was when the completion of the purchase took place and in the fortnight or so before it.
[27] For Mr and Mrs Voss to succeed against Messrs Davidson and Sullivan, they must prove that Mr Sullivan, assisted, in Lord Selborne's words, `with knowledge in a dishonest and fraudulent design'. In the advice of the Privy Council in
Royal Brunei Airlines v. Tan [1995] UKPC 4; [1995] 2 A.C. 378 the accessory-liability principle was formulated in this way:
Drawing the threads together, their Lordships' overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. `Knowingly' is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden [1993] 1 W.L.R. 509 scale of knowledge is best forgotten.
In Baden v. Société Générale S.A. (note) [1993] 1 W.L.R. 509 Peter Gibson J. accepted a five point scale of knowledge: (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious, or `Nelsonian knowledge'; (iii) wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and (v) knowledge of circumstances which would put a reasonable man on enquiry (pp. 575-576, 582). More accurately, as his Lordship explained, apart from actual knowledge, the types of knowledge mentioned are `formulations of the circumstances which may lead the court to impute knowledge of the facts to the alleged constructive trustee even though he lacked actual knowledge of those facts' (p. 576). As I shall explain, in Australia, the scale is not as easily dismissed as their Lordships suggested in Royal Brunei Airlines v. Tan. Dishonesty remains, however, the touchstone of liability.
[28] As explained in Royal Brunei Airlines v. Tan, the standard of honesty is not subjective although it is applied in the context of what the person in question actually knew at the relevant time:
Whatever may be the position in some criminal or other contexts ... in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.
In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless. (p. 389)
The concept of honesty in this context was further elaborated:
Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.
Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did. (pp. 390-391)
[29] In Consul Development Pty. Ltd. v. D.P.C. Estates Pty. Ltd. [1975] HCA 8; (1975) 132 C.L.R. 373 Stephen J., with whom Barwick C.J. agreed, excluded from the ambit of accessory liability those with only `that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry'. His Honour continued:
If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from enquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant. (p. 412)
Gibbs J. did not express a final view, but his tentative conclusion was, I think, consistent with Stephen J.'s:
It may be that it is going too far to say that a stranger will be liable if the circumstances would have put an honest and reasonable man on inquiry, when the stranger's failure to inquire has been innocent and he has not wilfully shut his eyes to the obvious. On the other hand, it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man. However, for reasons that will appear, it is unnecessary for me to express any concluded view on these questions ... (p. 398)
See also, on this subject, the decision of the New South Wales Court of Appeal in United States Surgical Corp. v. Hospital Products International Pty Ltd [1983] 2 N.S.W.L.R. 157.
[30] From those decisions it may be concluded that knowledge sufficient to show the dishonesty required to establish accessory liability may be found in all but the last of the categories in the five-point scale referred to in Baden v. Société Générale S.A. The state of the Australian authorities is summarized in Meagher and Gummow, Jacobs' Law of Trusts in Australia, 6th ed., (1997):
[1336] In Australia, the High Court (Barwick CJ, Gibbs, Stephen JJ, McTiernan J dissenting) has eschewed constructive notice as generally applicable to the second limb of Barnes v Addy, in favour of the narrower formulation which has become the fourth of Gibson J's categories: Consul Development Pty Ltd v DPC Estates Pty Ltd. And the New South Wales Court of Appeal in United States Surgical Corp v Hospital Products International Pty, while likewise eschewing constructive knowledge in the full sense, accepted the first four of Gibson J's categories. (p.335)
[31] I am not in the least satisfied that Mr and Mrs Voss have established that
Mr Sullivan was guilty of acting dishonestly. It is beyond doubt that Mr Sullivan had no actual knowledge of Mr Ripper's deceit, and I am not persuaded that he wilfully shut his eyes to what with hindsight might seem clear, or acted in a wilful, reckless, or unreasonable way such that his actions should be described as dishonest. True it is that Mrs Ripper had great difficulty in assembling the necessary funds to purchase lot 2, and numerous defaults were made, but such things are far from uncommon in ordinary business affairs and do not generally signify anything more than miscalculation or imprudence - certainly not criminal fraud. Mr Sullivan, in giving evidence, described Mr Ripper as `probably as flamboyant as any accountant that I've run across to be honest', `a fairly interesting bloke', and `a very charismatic bloke'. Mr Sullivan appeared to be suggesting that Mr Ripper had attributes unusual in those who practise accountancy, but such qualities in an accountant would not, I think, then lead an honest and reasonable man to conclude that he was dealing with a criminal. Furthermore, the picture presented to Mr Sullivan by no means showed that Mr and Mrs Ripper were without resources. Mrs Ripper had been able to settle with the Liesegangs for lot 1 for $300,000 and to pay a further $170,000 by way of deposit on lot 2. The Rippers had eventually been able to negotiate a large loan from the HongkongBank. But perhaps most important of all is Mr Ripper's standing as an accountant.
Mr Sullivan made such enquiries as the HongkongBank required concerning the source of the $500,000 and was, I think, justified in not taking his enquiries further, presuming, as he said in evidence, the trust was one with which Mr or Mrs Ripper was associated. The use of such trusts was `just standard procedure for accountants', Mr Sullivan explained. There is no reason to doubt the correctness of that evidence.
[32] On behalf of Mr and Mrs Voss it was argued that the circumstances of this case reveal that Messrs Davidson and Sullivan owed them a duty of care, and the breach of that duty entitles Mr and Mrs Voss to succeed against
Messrs Davidson and Sullivan in proceedings for damages for negligence. Reliance was placed upon cases in which it has been accepted that solicitors retained by a client to draw a will for the client owed a duty of care to intended beneficiaries under the will: Hill v. Van Erp (1997) 188 C.L.R. 159 and Queensland Art Gallery v. Henderson Trout [2000] Q.C.A. 93. Also relied upon was Hilton v. Noss the trial of which was heard by Giles J. in the Commercial Division of the Supreme Court of New South Wales. In that case a cheque was received by a solicitor on behalf of a joint venture company. He allowed its proceeds to be used without authority from the company for the private purposes of one joint venturer to the detriment of other joint venturers who had provided the cheque. The solicitor was held to have owed a duty of care to those who had provided the cheque and they recovered damages for negligence against him: unreported, no. 50261 of 1994, 16 May 1995; affirmed by the New South Wales Court of Appeal, Noss v. Hilton, CA 40349/95,
29 September 1997. Also referred to were the general principles discussed in
Perre v. Apand Pty Ltd [1999] HCA 36; (1999) 198 C.L.R. 180.
[33] I am not persuaded that those authorities establish the existence of a duty of care of the kind contended for in the circumstances of this case. No authority of direct relevance to this case was cited. The limits of liability of one who has assisted a trustee in a breach of trust are well settled. The question of the availability of a claim in negligence in a case in which accessory liability on the ground of dishonesty has been alleged but rejected was discussed in Royal Brunei Airlines v. Tan:
This question, it should be remembered, is directed at whether an honest third party who receives no trust property should be liable if he procures or assists in a breach of trust of which he would have become aware had he exercised reasonable diligence. Should he be liable to the beneficiaries for the loss they suffer from the breach of trust?
The majority of persons falling into this category will be the hosts of people who act for trustees in various ways: as advisers, consultants, bankers and agents of many kinds. This category also includes officers and employees of companies in respect of the application of company funds. All these people will be accountable to the trustees for their conduct. For the most part they will owe to the trustees a duty to exercise reasonable skill and care. When that is so, the rights flowing from that duty form part of the trust property. As such they can be enforced by the beneficiaries in a suitable case if the trustees are unable or unwilling to do so. That being so, it is difficult to identify a compelling reason why, in addition to the duty of skill and care vis-à-vis the trustees which the third parties have accepted, or which the law has imposed upon them, third parties should also owe a duty of care directly to the beneficiaries. They have undertaken work for the trustees. They must carry out that work properly. If they fail to do so, they will be liable to make good the loss suffered by the trustees in consequence. This will include, where appropriate, the loss suffered by the trustees, being exposed to claims for breach of trust.
Outside this category of persons who owe duties of skill and care to the trustees, there are others who will deal with trustees. If they have not accepted, and the law has not imposed upon them, any such duties in favour of the trustees, it is difficult to discern a good reason why they should nevertheless owe such duties to the beneficiaries.
There remains to be considered the position where third parties are acting for, or dealing with, dishonest trustees. In such cases the trustees would have no claims against the third party. The trustees would suffer no loss by reason of the third party's failure to discover what was going on. The question is whether in this type of situation the third party owes a duty of care to the beneficiaries to, in effect, check that a trustee is not misbehaving. The third party must act honestly. The question is whether that is enough.
In agreement with the preponderant view, their Lordships consider that dishonesty is an essential ingredient here. There may be cases where, in the light of the particular facts, a third party will owe a duty of care to the beneficiaries. As a general proposition, however, beneficiaries cannot reasonably expect that all the world dealing with their trustees should owe them a duty to take care lest the trustees are behaving dishonestly. (pp. 391-392)
There are, in my assessment, no particular facts in this case removing it from the category of those to which the `general proposition' applies.
[34] I should add to that conclusion, however, that I accept the evidence of
Mr Robert Gregory, a solicitor admitted to practise in February 1968 with great experience in the fields of conveyancing and property law, to the effect that it is not the usual practice for a reasonably prudent, competent, and diligent solicitor practising in Queensland in the position in which Mr Sullivan found himself when acting for Mrs Ripper to enquire of his or her client, or his or her client's representative, as to the source of funds proffered to complete a purchase. I also accept Mr Gregory's evidence to the effect that the only circumstance in which it would be the usual practice for such a solicitor to enquire of his or her client as to the source of funds paid into the solicitor's trust account would be that the solicitor believed that the vendor or the vendor's solicitor might seek reassurance that a bank or financial institution cheque to be tendered at settlement was in fact what it purported to be and not of a nature that would justify the bank or financial institution in refusing payment on it.
[35] If one assumes, contrary to what I have said, that a claim in negligence could be made by Mr and Mrs Voss in the circumstances of this case, I should conclude that they had failed to prove negligence on the part of Messrs Davidson and Sullivan. I should reach that conclusion with or without Mr Gregory's evidence. There is, I think, no reasonable ground for suggesting that Mr Davidson's enquiry about the Rippers' finances should have gone further than it did. I said `with or without
Mr Gregory's evidence', because it must be borne in mind that in a case of this kind it is for the court to determine what is the appropriate standard of care and whether it has been breached: Heydon v. N.R.M.A. Ltd [2000] NSWCA 374; (2000) 51 N.S.W.L.R. 1, at p.55 per Malcolm A-J.A.
[36] It follows that the claim against Messrs Davidson and Sullivan fails. To summarize the reasons for its failure: first, it has not been established that
Messrs Davidson and Sullivan acted dishonestly in dealing with the cheque for $500,000 and its proceeds; and secondly, the claim in negligence in such a case as this is not available to the claimants - but, as I have said, if a claim in negligence had been available I should not have been satisfied that negligence had been established.
[37] Mr and Mrs Voss's claim against Suncorp Metway Ltd is that it converted their cheque. From it they claim $577,000 (the $600,000 less the $23,000 recovered from Mrs Ripper) and interest.
[38] It is not in issue that Suncorp Metway is a company duly incorporated, and, by virtue of the Suncorp Insurance and Finance Amendment Act 1996 (Qld) and the State Financial Institutions and Metway Merger Facilitation Act 1996 (Qld) and a scheme of arrangement under those Acts, the transferee of all the liabilities of Suncorp the subject of this proceeding.
[39] The essence of the tort of conversion is, in Sir Owen Dixon's words, `a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel': Penfolds Wines Pty Ltd v. Elliott [1946] HCA 46; (1946) 74 C.L.R. 204 at p. 229. A cheque, being a piece of paper, is a chattel: see Parsons v. The Queen (1999) 195 C.L.R. 619 at p. 632.
Mr and Mrs Voss claim that they were at the relevant time the true owners of the cheque for $600,000 and that Suncorp converted it when it collected the proceeds of the cheque for Mr Ripper and allowed him to draw on them. In Marfani & Co. Ltd. v. Midland Bank Ltd. [1968] 1 W.L.R. 956, the plaintiff company's employee, Kureshy, obtained payment to himself of a cheque for £3,000 drawn by the plaintiff company on its account with the Bank of India in favour of a firm called Eliaszade as payee. The cheque was crossed. To carry out his fraudulent scheme Kureshy needed a bank account, so he opened one with the defendant bank in the name of Eliaszade and handed the cheque to the bank for collection. The defendant bank presented it for payment to the Bank of India and received payment of it. The funds were credited to the account of Eliaszade out of which Kureshy, described by Diplock L.J. as `a cunning, calculating rogue', drew nearly all of the £3,000. His Lordship explained the history of claims of the kind made by Mr and Mrs Voss thus:
It may seem odd that, in the 1960s, the liability of the defendant bank for the part which they were deceived into playing in this transaction should be affected by the series of legal fictions by use of which the lawyers of the 16th century evolved from the ancient real action of detinue sur trover a personal action on the case of trover which, with the abolition of forms of action, became the modern tort of conversion. It may also seem odd that the basis of their liability is that the piece of paper on which the cheque was written was `goods' belonging to the plaintiff company, and that the defendant bank's acts in accepting possession of that piece of paper from Kureshy, in presenting it to the Bank of India, and in accepting payment of it, constituted an unjustifiable denial by them of the plaintiff company's title to its goods, from which damage flowed. Such, however, is the common law of England, and one of the consequences of the historic origin of the tort of conversion and its application to negotiable instruments as `goods' is that the tort at common law is one of strict liability in which the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part.
At common law, one's duty to one's neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour's interest in the goods. The duty is absolute; he acts at his peril.
A banker's business, of its very nature, exposes him daily to this peril. His contract with his customer requires him to accept possession of cheques delivered to him by his customer, to present them for payment to the banks upon which the cheques are drawn, to receive payment of them, and to credit the amount thereof to his own customer's account, either upon receipt of the cheques themselves from the customer or upon receipt of actual payment of the cheques from the banks upon which they are drawn. If the customer is not entitled to the cheque which he delivers to his banker for collection, the banker, however innocent and careful he might have been, would at common law be liable to the true owner of the cheque for the amount of which he receives payment, either as damages for conversion or under the cognate cause of action, based historically upon assumpsit, for money had and received.
So strict a liability, so absolute a duty upon bankers, would have discouraged the development of banking business. It was, accordingly, progressively mitigated by statute ... (pp. 970-971)
[40] Suncorp Metway resists the claim against it on a number of grounds. The first is that Mr and Mrs Voss have failed to prove that the cheque for $600,000 was converted, the second that if there was a conversion Mr and Mrs Voss are estopped from making their claim, and the third that in any event it is entitled to the benefit of the defence provided for in s.98(1) of the Cheques Act 1986 (Cth) because Suncorp received payment of the cheque in good faith and without negligence. In Suncorp Metway's further amended defence issues of Mr and Mrs Voss's negligence and of the unlawfulness of their agreement with Mr Ripper are raised but were not pursued by Mr Sofronoff in his final address on behalf of Suncorp Metway.
[41] In support of the first of those grounds it was argued that Mr and Mrs Voss were not the true owners of the cheque after it was handed to Mr Ripper and so they could not make good their claim of conversion. That argument proceeds on the premiss that the title to the cheque passed to Mr Ripper when it was handed to him. While that is a possible view of the facts, I conclude that the better view - the correct one - is that Mr Ripper received the cheque as the agent for
Mr and Mrs Voss, entrusted by them to deposit it to an account in the name of Southern Pacific Equities Unit Trust as the first step in their investing the proceeds through Ernst & Young.
[42] Another argument in support of the first ground was that if Mr and Mrs Voss remained the true owners of the cheque - as I conclude they did - Suncorp did not deal with it in a way unauthorized by them. Suncorp did what Mr and Mrs Voss had actually or apparently authorized: the depositing of the cheque into an account in the name of Southern Pacific Equities Unit Trust. Having thus been authorized to do what it did, Suncorp could not be guilty of converting the cheque, for the grievance in conversion is the unauthorized assumption of the powers of the true owner: Pollock on Torts 14th ed. (1939) p.286, quoted with approval by
Latham C.J. in Penfolds Wines Pty Ltd v. Elliott, at pp. 218-219. That is, I conclude, a correct analysis of what happened to the cheque for $600,000, and so Mr and Mrs Voss's claim against Suncorp Metway must fail for that reason.
[43] That conclusion renders it unnecessary for me to consider the defences of estoppel and of good faith and absence of negligence, but I think it desirable that I discuss each of those subjects.
[44] The estoppel argument rested on an application of the principle recognised in Young v. Grote [1827] EngR 527; (1827) 4 Bing. 253; 130 E.R. 764 that a banker could successfully defend a claim against him by a customer where he had been induced to pay out upon the fraudulently altered cheque, the fraudulent alteration having been facilitated by the negligent way in which the cheque had been drawn by the person delegated to do so by the customer. There has been controversy as to theoretical basis of the decision in Young v. Grote, but not as to the existence of the principle that the drawer of a cheque was guilty of negligence vis-à-vis his banker in so drawing a cheque as to facilitate forgery: Commonwealth Trading Bank of Australia v. Sydney Wide Stores Pty Ltd [1981] HCA 43; (1981) 148 C.L.R. 304 at p.315 per
Gibbs C.J. and Stephen, Mason, Aickin, Wilson, and Brennan JJ. In National Australia Bank v. Hokit [1996] NSWSC 198; (1996) 39 N.S.W.L.R. 377 Mahoney P., with whom Waddell A-J.A. agreed, explained the decision as proceeding from a defence of estoppel : `[Best C.J.], after categorising the customer's action as negligent, found against the customer because the negligence had misled the bank into paying upon the forged cheques' (p.388). So in this case, it was argued on behalf of Suncorp Metway, Suncorp was misled by Mr and Mrs Voss's entrusting the cheque for $600,000 to Mr Ripper thereby representing that Mr Ripper had authority to do what he did in his dealings with it.
[45] Mr and Mrs Voss did act with surprising complacency in their dealings with
Mr Ripper, in particular once they had paid the $220,679.40 and been given - a lot later - the receipt dated 5 March 1996 for that sum. The mysterious destination of the cheque for $220,679.40 in a bank account identified by number only, the tardiness in the provision of a receipt, the absence of any reference to the usual trappings of business (floor number in a large building, telephone number, or facsimile number) and of any reference to Ernst & Young in the receipt, and the fact that Mr Ripper's firm was given as the sole place for enquiries concerning the investment should have alerted Mr and Mrs Voss to the possibility that all was not as it should be with Mr Ripper. Their dealings with Mr Ripper were such that by
22 May 1996 their suspicions should have been aroused, but they nonetheless entrusted their cheque for $600,000 to him. Suncorp acted to its detriment in allowing the $600,000 to be drawn on, so it would be unconscionable to allow
Mr and Mrs Voss to recover from Suncorp Metway the loss they suffered. I should add that the estoppel arises as a result of the representation inherent in entrusting to Mr Ripper the cheque made out as it was. Mr and Mrs Voss's complacency in doing so is not the foundation of the estoppel but is relevant in explaining how the representation came to be made.
[46] Section 98(1) of the Cheques Act 1986 at the relevant time, then the Cheques and Payment Orders Act 1986, provided as follows:
Protection of non-bank financial institution collecting cheque for customer
(a) a non-bank financial institution, in good faith and without negligence-
(i) receives payment of a cheque for a customer; or
(ii) receives payment of a cheque and, before or after receiving payment, credits a customer's account with the sum ordered to be paid by the cheque; and
(b) the customer has no title, or has a defective title, to the cheque,
the non-bank financial institution does not incur any liability to the true owner by reason only of having received payment of the cheque.
It is not an issue that Suncorp was a non-bank financial institution. There is no doubt I find that Suncorp acted in good faith. The question then arises, Has Suncorp Metway established that Suncorp acted without negligence? In this context there is no material distinction between a bank and a non-bank financial institution. Suncorp Metway alleges that Suncorp did act without negligence. Although the onus on this issue lay upon Suncorp Metway it is convenient to set out the particulars of the denial of absence of negligence in paragraph 2(c) of Mr and Mrs Voss's amended reply to Suncorp Metway's defence:
(iii) Nicholas Ripper was named as trustee by the SPEU Trust deed, and also as the only beneficiary;
(iv) The name of the SPEU Trust, and the fact that it was a unit trust indicated that it was intended to have more than one beneficiary;
(v) The cheque was a crossed order cheque but was made out to the SPEU Trust rather than to a person;
(vi) A cheque made out in the name of a trust may readily be converted, as trusts are not legal or natural persons; and
(B) A trust may easily be created in any name, whether or not another trust bears that name;
(ix) The cheque was marked `credit account payee only';
(A) Suncorp Building Society made no inquiries to establish who was the true owner of the cheque and what their instructions or intentions were with regard to the cheque;
(B) Suncorp Building Society did not inquire of itself as to the identity of the purchaser of the cheque and seek instructions of that person;
(C) Suncorp Building Society did not insist that Ripper replace the cheque with one drawn in favour of a person;
At the trial another issue concerning negligence was raised on behalf of
Mr and Mrs Voss: non-compliance by Suncorp with the requirements of the Financial Transaction Reports Act 1988 (Cth), then the Cash Transaction Reports Act 1988. That issue was not raised in the pleadings, and so it is not necessary for me to deal with it, although I should add that I accept Mr Sofronoff's submission that there is no merit in it anyway.
[47] London Bank of Australia Ltd v. Kendall [1920] HCA 53; (1920) 28 C.L.R. 401 concerned a claim against a bank to which s.88(1) of the Bills of Exchange Act 1909 applied. That provision was in substantially the same terms as s.98 of the Cheques Act 1986 as it was at the relevant time. Referring to the requirement to establish absence of negligence, Isaacs and Rich JJ., with whom Gavan Duffy J. agreed, observed:
The onus of establishing circumstances showing the absence of negligence is on the banker. It is a matter of defence, and does not give a substantive cause of action. This is plain from the tenor of the section, and was admitted by learned counsel for the Bank. It is implied in the words of Lord Lindley (then Lindley J.) in Matthiessen v. London and County Bank [5 C.P.D., 7, at pp. 16-17] and in Great Western Railway Co. v. London and County Banking Co. [(1901) A.C., 414, at pp. 424-425] and in Capital and Counties Bank Ltd v. Gordon [(1903) A.C., 240, at p.247] and of Lord Sterndale (then Pickford J.) in Crumplin v. London Joint Stock Bank [109 L.T., 856, at p.858]. It was decided by Greer J. in Souchette Ltd.v. London County Westminster and Parr's Bank [36 T.L.R., at p.196]. The `negligence' referred to in sec. 88 is in relation to the true owner. The banker is bound, in cases within sec. 88, if he desires to have the protection of that section, to take whatever precautions in the interests of the true owner the circumstances as they present themselves to the banker reasonably require (Bissell & Co. v. Fox Brothers & Co. [51 L.T., 663 ; 53 L.T., 193] Ladbroke & Co. v. Todd [111 L.T., 43, at p.44]. The test of whether, in the absence of precautions, the banker has been negligent in any particular case is now finally settled by the to be this : Was the transaction of paying in the given cheque, coupled with the circumstances antecedent and present, so out of the ordinary course that it ought to have aroused doubts in the bankers' minds and caused them to make inquiry? As Lord says [36 T.L.R., at p.306] `the question is necessarily a question of fact.' And, as we are reminded by the same judgment, `it is really impossible to lay down rules or statements which will determine what is negligence and what is not. Each case must be determined on its own circumstances.' (pp.410-411)
As to the nature of any enquiry that may be prompted by circumstances, their Honours said:
Learned counsel on both sides dealt with the question of what inquiry should have been made in order to test the problem of negligence. This, like the question of negligence in general, is purely dependent on the circumstances. The only guiding principle is that, where doubt is once aroused as to the nature and true ownership of the cheque, the nature and extent of the inquiry proper to allay it must be measured by what, in the circumstances, a fair-minded banker, paying due regard to the reasonable exigencies of banking business in relation to the person depositing the cheque, would consider it prudent to do in order to protect the interests of the true owner whoever he might be. (p.417)
[48] The bank in that case was unsuccessful in establishing absence of negligence. An important feature of the case leading to the bank's failure was the fact that the perpetrator of the fraud, who had opened an account late on one day and then drawn upon it the next day leaving only a small sum in credit, had been a stranger to the bank.
[49] I do not think it is necessary to deal in detail with the particulars set out in
Mr and Mrs Voss's reply save to say that all of the matters (i) to (ix) were matters that, particularly with the benefit of hindsight, might conceivably be regarded as suspicious. Against that consideration, however, was the important fact that
Mr Ripper was already a customer of Suncorp, and an apparently respectable accountant practising in Toowoomba who produced the necessary documents including a unit trust deed prepared by Toowoomba solicitors. The Suncorp officer who dealt with his opening of the account and drawing upon its proceeds adhered to the procedures laid down in Suncorp's Branch Operations Manual as it was in
May 1996. Furthermore, those procedures conformed to standard banking practices at that time, as was shown in the evidence of Mr Antonino Trimboli who was able to speak of such matters from his considerable knowledge and experience.
Ms Haeusler established Mr Ripper's identity, and no doubt his standing as an accountant and as an existing customer of Suncorp would have allayed any concerns that a prudent officer might possibly have had about the transactions. But in any event Ms Haeusler did not know, and in my view had no reasonably available means of knowing, that Mr Ripper was acting dishonestly. In those circumstances, I conclude that Suncorp Metway has established the absence of negligence.
[50] In London Bank of Australia Ltd v. Kendall the perpetrator of the fraud was not, as I have mentioned, a customer of the bank. Isaacs and Rich JJ. contrasted that circumstance with one in which the person dealing with the bank officer is a customer of the bank:
Where a customer is once properly established, his convenience and the Bank's general duty toward him are additional elements in the situation, and of more or less relative force according to the circumstances. Lord Dunedin gives effect to this consideration in a passage in the judgment in the English, Scottish and Australian Bank Case [36 T.L.R., at p.306], where it is said: `For if it was laid down that no cheque should be collected without a thorough inquiry as to the history of the cheque, it would render banking business as ordinarily carried on impossible; customers would often be left for long periods without available money.' Here, however, the matter was uncomplicated by any such consideration. (p.414)
[51] The standard of prudence required of an officer in the circumstances revealed in this case is not, it should be noted, that of the amateur detective: see Lloyds Bank v. The Chartered Bank of India, Australia and China [1929] 1 K.B. 40 at p.73; nor does it require, as was submitted on behalf of Mr and Mrs Voss, that an officer, placed in the circumstances in which Ms Haeusler found herself, consider the validity or otherwise of the trust the subject of a trust deed. As to the latter matter, it was submitted on behalf of Mr and Mrs Voss that Suncorp, by including in section 60.7 of its Branch Operations Manual the requirement that an officer obtain a copy of the trust deed when opening an account in the name of a trust `to verify the authenticity of the trust', acknowledged that it was part of the duty of the officer to consider the validity of the trust. I do not accept that argument. That requirement in the manual went no further, as I construe it, than requiring the officer to verify the existence of the trust by that means.
[52] A prudent officer must of course be aware of the possibility that an established and apparently respectable customer may be acting dishonestly and ultimately it will be a question of judgment - which may later be exposed to the scrutiny of a court - as to what, if any, steps are called for, beyond those required by the established routine. Adherence to that routine, although a relevant matter for consideration, is not of course conclusive as to absence of negligence. As with the question of solicitors' negligence, it is for the court to determine what is the appropriate standard of care and whether it has been breached. In this case, however, all steps that could reasonably have been expected to have been taken were taken.
[53] It follows that Mr and Mrs Voss fail against Suncorp Metway too: there was no conversion of the cheque for $600,000, Suncorp Metway can rely on the defence of estoppel, and Suncorp Metway has established good faith and absence of negligence.
[54] There will be judgment for the first and third defendants.