FEDERAL COURT OF AUSTRALIA

Fried v National Australia Bank Ltd [1999] FCA 737

PRACTICE AND PROCEDURE – joinder of parties pursuant to O 6 r 2 Federal Court Rules – whether common question of fact arises – whether rights to relief are ‘in respect of or arise out of the same transaction or series of transactions’ – addition of parties pursuant to O 6 r 8 Federal Court Rules – whether addition necessary to ensure effectual and complete determination and adjudication of all matters in dispute in proceeding – standing – beneficiaries under trust – whether trustees proper applicants – effect of inability or unwillingness of trustees to institute proceedings – whether “exceptional” or “special” circumstances justifying beneficiaries suing in own names.

Federal Court Rules O 6 r 2, O 6 r 8

Partnership Act 1958 (Vic)

Bendir v Anson [1936] 3 All ER 326 referred to

Birtles v Commonwealth [1960] VR 247 referred to

Payne v Young (1980) 145 CLR 609 referred to

Qantas Airways Ltd v AF Little Pty Ltd [1981] 2 NSWLR 34 at 38 referred to

Vandervell Trustees Ltd v White [1971] AC 912 referred to

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 436-7 referred to

Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 referred to

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 referred to

TAB FRIED & ORS v NATIONAL AUSTRALIA BANK LIMITED

(ACN 004 044 937) & ORS

V 352 of 1999

WEINBERG J

17 MAY 1999

MELBOURNE

THE COURT ORDERS THAT:

1.                  Bendigo Bank Limited (ACN 068 049 178) be added as eleventh respondent to this proceeding pursuant to O 6 r 8 of the Federal Court Rules.

2.                  The trial date of 6 September 1999 be vacated.

3.         The costs of this application be reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

EX TEMPORE REASONS FOR INTERLOCUTORY JUDGMENT

1                     By motion, notice of which was given on 4 May 1999, the applicants seek to join Bendigo Bank Limited (“the bank”) as a respondent to these proceedings. The matters which are said to give rise to a potential liability on its part are set out in an annexure to an affidavit sworn by Frances Maria Blomeley, a solicitor acting on behalf of the applicants.

2                     In substance these matters involve claims (i) that the bank acted in breach of an agreement that it had entered into with the former partners of the firm of Aroni Colman (“the firm”) which acted as trustee for the fifth and sixth applicants in these proceedings, and (ii) that the bank was liable in negligence to the firm in its capacity as trustee for those applicants.  The claims made against the bank arise from a series of withdrawals from various accounts maintained by the firm on behalf of the fifth and sixth applicants.

3                     In essence, the applicants contend that the bank acted in breach of its contractual obligations to the firm in its capacity as the applicants’ trustee by permitting a number of withdrawals to be made by means of withdrawal slips which had not been signed by an authorised signatory.  It appears that these slips, or the majority of them, were signed by Max Green, who had recently become a partner in the firm, but who was not himself an authorised signatory to the accounts.  Mr Green is now, of course, deceased.

4                     The applicants have issued proceedings against the National Australia Bank (“the NAB”) and the former partners of the firm.  Those proceedings were commenced in mid- 1998.  The applicants did not become aware that Mr Green was not an authorised signatory to the accounts until some time after 14 April 1999.  They ascertained that fact only when considering whether or not to bring proceedings against the bank in respect of one particular transaction.  On 20 March 1997 a sum of $636,900 had been withdrawn from one of the accounts and sent by telegraphic transfer, at Mr Green’s behest, to Bangkok.  The sum withdrawn was, in that particular case, supported by a withdrawal slip which was signed by an authorised signatory.  There was no separate authorisation, however, for money to be sent by telegraphic transfer.  It was the absence of any such authorisation which gave rise initially to the applicants’ desire to join the bank to these proceedings.  The applicants, having now discovered that Mr Green was not an authorised signatory to any of the accounts, seek to broaden their case against the bank to include not merely the sum telegraphically transferred, but all sums paid out by the bank upon Mr Green’s signature.

5                     Some of these sums paid out by the bank found their way into an account maintained by Mr Green at the NAB.  These sums were said to have been misappropriated thereafter by him.  Those alleged misappropriations give rise to some of the claims made by the applicants against the NAB in these proceedings.

The formal requirements for joinder and addition of parties

6                     There is provision in the Federal Court Rules to join two or more parties as respondents in any proceeding (O 6 r 2). That rule provides as follows:

“Two or more persons may be joined as applicants or respondents in any proceeding -

            (a)        where -

(i)                 if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or  of fact would arise in all the proceedings; and

(ii)               all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or

            (b)       where the Court gives leave so to do.”

7                     There is also provision in the rules to add to an existing proceeding any additional party, whether applicant or respondent. Order 6 rule 8 provides:

“(1)       Where a person who is not a party -

(a)          ought to have been joined as a party; or

(b)          is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon,

the Court, on application by him or by any party or of its own motion, may order that he be added as a party and make orders for the further conduct of the proceeding.

(2)         A person shall not be added as an applicant without his consent.”

8                     The first issue to be determined is whether the proposed joinder of the bank as a respondent and its addition as a party to these proceedings can satisfy the formal criteria set out in O 6 r 2 and O 6 r 8 respectively.

9                     In my view, the requirements of O 6 r 2, as explained by Lord Wright MR in Bendir v Anson [1936] 3 All ER 326, are satisfied in relation to the proposed joinder of the bank.  Common questions of fact would arise in both proceedings if a separate action were to be brought by the applicants against the bank.  These common questions of fact revolve around Mr Green’s role in having misappropriated monies held on trust for the fifth and sixth applicants from trust accounts opened in the name of the firm.

10                  I am also of the view that all rights to relief which would be claimed in the proceeding are “in respect of or arise out of the same transaction or series of transactions”.  The meaning of this requirement has been authoritatively explained in Birtles v Commonwealth [1960] VR 247, and again in Payne v Young (1980) 145 CLR 609.  There are clear links between the proceedings which the applicants have instituted against the NAB and the firm, and the case which they seek to bring against the bank.  The common thread between these cases is the alleged misuse of the applicants’ funds, first by Mr Green having withdrawn them from the bank without authority and second, by his having concealed and later misappropriated them, utilising the NAB as the vehicle for implementing his criminal plan.

11                  In relation to O 6 r 8 (the proposed addition of the bank as a party to the proceedings), I have come to the view that it is necessary, in order to ensure that all matters in dispute in the proceedings may be effectually and completely determined, that the bank be added as a party.  That course will avoid the need for the applicants to institute separate proceedings against the bank, with the likelihood of cross-claims of various sorts, leading to a multiplicity of proceedings, and extra cost and delay.  It will also avoid the risk of there being divergent results on essentially the same facts.

12                  The principles which govern the proper construction of O 6 r 8 are to be found set out in the judgment of the New South Wales Court of Appeal in Qantas Airways Ltd v AF Little Pty Ltd [1981] 2 NSWLR 34 and in particular at 38 per Glass JA. His Honour there made it clear that the expression “all matters in dispute in the proceedings" should not be construed as being limited to those matters arising on the existing pleadings, but rather as including those disputed issues of fact which are "subjacent" to, or which underlie, those pleadings.  See also Vandervell Trustees Ltd v White [1971] AC 912 (based on the English precursor to the present rule).

13                  In my view, the claims which the applicants have foreshadowed against the bank can properly be regarded as being "subjacent" to the pleadings, as they stand, in the proceedings against the NAB and the former partners of the firm.

Do the applicants have standing to proceed against the bank?

14                  The next issue which was raised during the course of the present application was whether the applicants had standing to bring the proceedings which they foreshadowed against the bank.  It was submitted on behalf of the bank that those proceedings could only be brought by the partners, or rather the former partners of the firm.  The bank had been in contractual relations with those former partners, and not with the applicants.  The bank owed a duty of care to those former partners and not, it was submitted, to the applicants.

15                  It seems from the evidence before the Court that the former partners of the firm have determined that they will not take any proceedings of the kind which have been foreshadowed against the bank.  The evidence indicates that they are not in a position to institute any such proceedings.

16                  The former partners of the firm, or at least a majority of them, have indicated, however, that they do not oppose at least one of the claims which has been foreshadowed against the bank, namely the claim arising out of the telegraphic transfer, without proper written authorisation, of the sum of $636,900.00 to Bangkok.

17                  The former partners have indicated on previous occasions that they do not have sufficient funds available to enable them to appear at directions hearings in relation to these proceedings.  I infer from this that their not being in a position to bring proceedings against the bank stems from their inability to fund those proceedings, and not from any conscious decision on their part that it would not be appropriate for them as trustees, or former trustees, to institute such proceedings.

18                  In my view, it is open to the applicants, as the beneficiaries under a trust whose monies were allegedly wrongfully paid out by the bank, to seek to recover from the bank those monies, or damages in lieu thereof.  The inability or unwillingness of their former trustees to bring such proceedings on their behalf means that they should be permitted to do so directly, and in their own names rather than having to compel those former trustees to take those proceedings: see Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 436-7 per Cohen J.  To adopt his Honour's language, the circumstances in the present case are sufficiently “exceptional” or “special” to warrant the beneficiaries bringing this claim in their own names.

Should the application to add the bank be refused because the claims foreshadowed against it are untenable?

19                  A further point raised on behalf of the bank in opposition to the application that it be added as a party to the existing proceedings is that the claims foreshadowed against it are untenable.  It was submitted that the Court should, for that reason, in the exercise of its discretion, refuse the applicants leave to add the bank as a respondent.

20                  I have given careful consideration to this submission. I accept that it would be inappropriate to impose upon the bank, in an application that it be added as a respondent to the proceedings, the heavy onus normally cast upon a party seeking to strike out a claim under O 20 r 2 of the Federal Court Rules, or one or other of its State equivalents.  (See Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125.)

21                  I do not, however, regard the claims foreshadowed by the applicants as being, in any relevant sense, untenable.  No authority was cited to support the contention that they are misconceived, or clearly foredoomed to failure. 

22                  In my view, it is arguable that the bank may be liable to the applicants in respect of the telegraphic transfer to Bangkok of the applicants’ monies.  It is claimed that there was no authorisation for the transfer, in breach, it is said, of the agreement which existed between the bank and the firm in relation to such transfers. 

23                  It is also arguable that the bank may be liable to the applicants in respect of each of the payments made at Green’s behest without an authorised signatory having approved that payment.

24                  The bank may, of course, have available to it any number of defences to these foreshadowed claims.  These may include various forms of estoppel.  The principles of agency and the provisions of the Partnership Act 1958 (Vic) may also provide an answer to some, or all, of these claims.  That fact does not persuade me that the applicants should be prevented from endeavouring, if they can, to make good these claims.

25                  I have concluded, therefore, that the applicants should be given leave to add the bank as the eleventh respondent to the present proceedings.

The consequences of adding the bank as a respondent to the proceedings

26                  The bank has submitted that if I were to make an order that it be added as a party to the present proceedings it would be unjust to require it to prepare its case within the extremely tight time-frame which has, for some time, been laid down.  It should be noted that the trial is estimated to be of approximately six weeks' duration.  It is scheduled to commence on 6 September 1999. 

27                  Both the applicants and the NAB have submitted that the bank ought to be in a position to prepare its defence to the foreshadowed claims by  September of this year.  They say the issues involving the bank are neither particularly complex, nor extensive.  There is still a period of three months left prior to the commencement of the trial.  That should be adequate, they contend, for the bank’s preparation of its case.

28                  I do not accept this submission.  This proceeding was commenced almost a year ago.  The applicants, the present respondents, cross-claimants and cross-respondents have all had a long time in which to complete their preparation.  There has been substantial discovery given by all parties, and there is a large number of documents to be inspected.  It would be quite wrong, in my view, to expect the bank to be ready within three months to meet the case which is to be brought against it, as well as to meet any cross-claims which might be brought against it by the NAB.  In addition, the bank must have time to prepare its own cross-claims, if these are to be brought, against one or more of the parties presently involved in these proceedings.

29                  The bank is entitled to explore the entire history of its relationship with the firm with a view to determining whether it can make good any of the defences potentially available to it.  It is entitled to the same consideration that has been accorded to the other parties to this proceeding so that it may properly prepare its case.

30                  Both the applicants and the NAB accepted in the course of argument that if having the bank added as a respondent meant that the present trial date had to be vacated, that would be, from their point of view, the lesser of two evils. 

31                  I believe that the only proper course is to vacate the trial date, and to give directions for the further conduct of this proceeding.  I will hear the parties further as to any consequential orders.

Associate:

Dated:              17 May 1999