FEDERAL COURT OF AUSTRALIA

Fried v National Australia Bank Ltd [2000] FCA 604

PRACTICE AND PROCEDURE – application for leave to amend statement of claim – whether defence and particulars of defence comply with O 11 r 10 of the Federal Court Rules – whether proceeding should be stayed or transferred to Supreme Court of Victoria for want of jurisdiction – whether proceeding should be stayed pending applicants giving further discovery.

Trade Practices Act 1974 (Cth) s 52

Fair Trading Act 1986 (Vic) s 11

Cheques and Payment Orders Act 1986 (Cth) s 95

Federal Court of Australia Act 1976 (Cth) s 32(1)

Judiciary Act 1903 (Cth) s 39B(1A)(c)

Federal Court Rules O 11 r 10, O 13 r 2, O 15 r 8

Barnes v Addy (1874) 9 Ch App 244

Byrd v Nunn (1877) 7 Ch D 284

Bright v Sampson & Duncan Pty Ltd (1985) 1 NSWLR 346

Benjamin v Currie [1958] VR 259

Bishop v Gardiner (1896) 21 VLR 750

Laws Holdings Ltd v Short (1972) 49 ALJR 563

Bullivant v Attorney-General for Victoria [1901] AC 196

Davie v New Merton Board Mills Ltd [1956] 1 All ER 379

State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146

Cropper v Smith (1884) 26 Ch D 700

Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457

Fencott v Muller (1983) 152 CLR 570

Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261

Re Wakim; Ex parte McNally & Anor (1999) 163 ALR 270

TAB FRIED & ORS v NATIONAL AUSTRALIA BANK LIMITED

(ACN 004 044 937) & ORS

VG 352 of 1998

WEINBERG J

10 MAY 2000

MELBOURNE

THE COURT ORDERS THAT:

1.                  The applicants be granted leave to file and serve a Further Amended Statement of Claim in accordance with the proposed Further Amended Statement of Claim marked “FMB1” annexed to the affidavit of Frances Maria Blomeley sworn 5 April 2000.

2.                  The applicants’ notice of motion filed on 14 April 2000 be dismissed.

3.                  The eleventh respondent’s notice of motion filed on  12 April 2000 be dismissed

4.                  The issue of costs of and incidental to each motion before the Court be stood over to a date to be fixed.

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

INTERLOCUTORY JUDGMENT

Introduction

1                     In March 1998 Max Green was murdered.  It was discovered after his death that he had defrauded a large number of clients whom he had persuaded to invest in a tax minimisation scheme involving the purchase of equipment for CityLink.  The present proceeding has nothing whatever to do with that particular fraud.  It relates instead to his having allegedly misappropriated various monies held on trust on behalf of the applicants. 

Background

2                     Green was, until 23 November 1993, a partner with Gary Shugg in the firm Shugg and Green.  On that date the partnership was dissolved.  Thereafter a receiver was appointed to that practice amid suspicion that there had been serious irregularities associated with its conduct.  Shugg and Green had operated several bank accounts, including a solicitor’s trust account, at the Carlton branch of the National Australia Bank (“NAB”) at 129 Elgin Street.  That trust account continued in operation during 1994. 

3                     On 30 November 1993 Green commenced a legal practice as a sole practitioner under the name “Max Green & Associates”.  That practice was located at 600 St Kilda Road, Melbourne.  On 2 December 1993 he opened two separate accounts with NAB at its Carlton branch.  The first of these was styled “Max Green & Associates Trust Account” (“the Green account”).  The second was a cheque account styled “Max Green & Associates”. 

4                     On 17 December 1993 Green opened two further accounts with NAB, this time at its branch at 574 St Kilda Road.  The first of these accounts was also styled “Max Green & Associates Trust Account”.  The second was styled “Max Green & Associates Office Account”. 

5                     In March 1994 the NAB branch at 574 St Kilda Road was closed.  The administration of the second trust account, and of the office account, was transferred to the Elgin Street branch.  Thereafter Green purported to conduct at that one branch two separate trust accounts, each on behalf of his own firm, Max Green & Associates.  Green disclosed the second of these two trust accounts to the Law Institute of Victoria, but not the first. 

6                     In 1994 Green joined the Melbourne firm of solicitors Aroni Colman (“the Firm”) as a partner.  As it happened, that firm also had a trust account with NAB, at NAB’s branch at 470 Collins Street, (“the Aroni Colman Trust Account”).  The Firm acted as solicitors for the applicants, and at all relevant times held monies on trust on their behalf.  Some of these funds were held in the Aroni Colman Trust Account, while others were held in various accounts with the Advance Bank, or in one or other of four separate accounts which the Firm maintained with Bendigo Bank. 

The present proceeding

7                     The applicants contend that Green, acting without their authority, misappropriated the monies held on trust for them in these accounts by causing those monies to be dispersed for his own benefit.  They claim that in some instances the monies were drawn out of the Aroni Colman Trust Account but paid directly into the Green account rather than to the authorised payees, while on other occasions the monies were first channelled out of Bendigo Bank accounts, through the Aroni Colman Trust Account, and then into the Green account.

8                     The trial of this proceeding was set down last year to commence on 3 May 2000.  By notice of motion filed with the Court on 5 April 2000 the applicants have sought leave to file and serve a further amended statement of claim.  That motion is supported by an affidavit sworn by the applicants’ solicitor, Ms Frances Blomeley, who identified the various amendments sought to be made, and explained why they were considered to be necessary. 

9                     That motion first came before me for hearing on 7 April 2000.  On that date I granted leave to the applicants to amend their statement of claim in relation to several relatively uncontentious matters.  I adjourned to 17 April 2000 the balance of the motion and, in particular, the application for leave to amend the statement of claim in relation to the more contentious matters contained therein.  That was because the respondents foreshadowed that were I to permit those amendments to be made they would require a lengthy adjournment of the trial.  Indeed it was suggested on behalf of NAB that an adjournment in the order of six to twelve months might be required.

10                  Prior to the continuation of the hearing of the motion on 17 April 2000, two other motions were filed with the Court. 

11                  On 12 April 2000 Bendigo Bank gave notice that it would move the Court for orders:

·                    transferring this proceeding to the Supreme Court of Victoria; and

·                    staying the proceeding pending the applicants giving further and better discovery. 

12                  On 14 April 2000 the applicants gave notice that they would move the Court for orders that pars 65 to 79 (inclusive) of NAB’s amended defence dated 16 April 1999 be struck out.

13                  On 17 April 2000 I heard all three motions together.  I also received additional evidence concerning the magnitude of the task which would confront NAB and Bendigo Bank if they were required to meet the applicants’ case as foreshadowed in the proposed amendments. 

14                  It is fair to say that by the second hearing, the position taken by NAB in relation to the magnitude of that task had altered somewhat.  The effect of the evidence led before me during the course of that hearing was that the task would take approximately four to five months if carried out in accordance with NAB’s requirements.  However, a “short cut” method by which NAB might achieve its principal objectives could enable the task to be completed by about 10 May 2000.  It should be said that NAB did not concede that the “short cut” method would meet all of its objectives, or that it was satisfactory from its point of view. 

15                  The evidence led on behalf of Bendigo Bank suggested that if I granted leave to the applicants to amend their statement of claim in the manner foreshadowed, the bank would require a period of at least four weeks in order to assemble the evidence necessary to meet that amended claim. 

Background to the amendments sought to be made

16                  The applicants bring this proceeding against NAB (the first respondent), the Firm (the second to ninth respondents) and Bendigo Bank (the eleventh respondent).

17                  The applicants’ claims against the Firm involve a number of separate causes of action which include:

·                    their liability as partners for Green’s fraudulent acts;

·                    breach of fiduciary duty;

·                    breach of contract;

·                    negligence; and

·                    misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth), and s 11 of the Fair Trading Act 1986 (Vic).

18                  The applicants’ claims against the Firm have been settled, though orders to give effect to that settlement have not yet been made.  I have been informed that the applicants will seek leave during the course of the proceeding to enter judgment against the Firm.  It is clear that none of the members of the Firm proposes to take any part in the proceeding before me. 

19                  The real contest in the proceeding is between the applicants on the one hand and NAB and Bendigo Bank on the other. 

20                  The applicants’ claim against NAB is based upon NAB’s having allegedly participated in the Firm’s breach of trust.  NAB is also said to have been involved in the Firm’s contraventions of various provisions of the Legal Practice Act 1996 (Vic), and associated legislation.  The applicants contend that NAB is liable to them for Green’s frauds because it had sufficient knowledge of his background and activities, and in particular of his having conducted what are said to have been two solicitor’s trust accounts with the bank, to have put it on notice of the need to exercise special care in its dealings with Green.  NAB is further alleged to be liable for Green’s various beaches of fiduciary duty under the rule in Barnes v Addy (1874) 9 Ch App 244.  Moreover, NAB is said to have acted in breach of its contractual obligations to the Firm, and also in breach of a duty of care owed to the Firm.  The applicants contend that the Firm acted as their trustee, and that they are therefore entitled to stand in its shoes in order to vindicate all rights which the Firm, as their trustee, has against NAB.

21                  The applicants contend, in the alternative, that NAB is directly liable to them for conversion by reason of its actions in relation to the bank cheques which it permitted Green to deposit into the Green account, whether directly, or via the Aroni Colman Trust Account.

22                  The applicants’ claims against Bendigo Bank are grounded in breach of contract and in negligence.  They contend that the Firm, acting as trustee on their behalf, entered into an agreement, or series of agreements, with the bank concerning the investment of their funds in four specified accounts.  They say that the bank acted in breach of its contractual obligations when it permitted Green to draw cheques against funds credited to them in those accounts.  They say further that Bendigo Bank was not entitled to deliver bank cheques drawn against those accounts to Green given that he was not an authorised signatory to the accounts, and did not have the written authorisation of any such signatory. 

23                  The applicants contend further that Bendigo Bank failed to exercise reasonable care when it drew bank cheques against funds in those accounts, and delivered those cheques to Green.  The applicants submit that the Firm, as their trustee, is entitled to restitution of the sums wrongly withdrawn, or damages in lieu thereof. 

24                  The applicants also plead, in the alternative, that Bendigo Bank owed them a duty of care, and that by its actions it breached that duty giving rise to liability for their losses. 

25                  Finally, the applicants plead a separate claim in relation to a particular telegraphic transfer from what is designated the “Bendigo 1 account” to an account in the name of DL Wolf with the Bangkok Bank, in Thailand.  The amount telegraphically transferred was $636,900.  The applicants contend that Green was not an authorised signatory to the Bendigo 1 account, and that the bank acted in breach of its contractual obligations, or alternatively in breach of its duty of care, by telegraphically transferring that sum.  The applicants also plead that the bank acted in breach of its fiduciary duty to the Firm (acting as their trustee) in transferring this sum to the Bangkok account.

The application to file a further amended statement of claim

26                  The applicants submitted that they should be given leave to file a further amended statement of claim which incorporates a series of new, and in some cases contentious, claims against both NAB and Bendigo Bank.

27                  So far as NAB is concerned, the proposed amendments which are particularly contentious are those which relate to the claim for conversion of the bank cheques.  Those amendments are as follows:

CLAIM BY THE FIRM AGAINST NAB FOR BREACH OF THE FIRM’S INSTRUCTIONS REGARDING THE DRAWING OF BANK CHEQUES ON THE ARONI COLMAN TRUST ACCOUNT

74A.    Alternatively to paragraphs 70-74, it was a term and condition of the agreement between NAB and the Firm for the conduct of the Aroni Colman Trust Account that in drawing bank cheques, or in making arrangements with the Firm regarding bank cheques drawn, on the Aroni Colman Trust Account, NAB would act only on, and strictly in accordance with, the instructions of two authorised signatories to the Aroni Colman Trust Account.

PARTICULARS

The agreement and the terms of the agreement were written and

constituted by:-

(a)        A Customer Record Card (being NAB's discovered document 252).

(b)       A letter from the Firm to NAB dated 24 October 1995 (being NAB's discovered document 573).

74B.    On or about each of the dates set out in items B2(i), B2(ii), B3(ii), B3(iii), B4(ii) and B5(ii) of part B of Schedule 2, the Firm gave instructions to NAB to draw bank cheques payable to and only to, the following persons:‑

(a)        item B2(i)        “Windina Pty Ltd”

(b)        item B2(ii)       “Windina Pty Ltd”;

(c)        item B3(ii)       “Windina Pty Ltd”;

(d)        item B3(iii)      “Windina Pty Ltd”;

(e)        item B4(ii)       “Babcock & Brown”;

(f)         item B5(ii)       “Australian Property Syndications P/L”.

PARTICULARS

The instructions are written. Copies may be inspected at the Applicants’ solicitors’ offices.

74C.    Wrongfully contrary to the Firm’s instructions and in breach of the term and condition referred to in paragraph 74A above, the NAB drew bank cheques payable as follows and handed such cheques to Green:-

(a)        item B2(i)        “Pay WINDINA PTY LTD or Bearer";

(b)        item B2(ii)       “Pay WINDINA PTY LTD or Bearer”;

(c)        item B3(ii)       “Pay WINDINA PTY LTD or Bearer”;

(d)        item B3(iii)      “Pay WINDINA PTY LTD or Bearer”;

(e)        item B4(ii)       “Pay BABCOCK & BROWN or Bearer”;

(f)        item B5(ii)        “Pay AUSTRALIAN PROPERTY SYNDICATIONS PTY LTD or Bearer”.

74D.    In the event that (which is denied):-

(a)       NAB as the collecting bank, was entitled to treat each of the cheques as bearer cheques; and

(b)       the Applicants are not entitled to recover their losses from NAB on grounds of conversion as alleged in paragraphs 70-74 above;

the Applicants and/or the Firm as trustee for the Applicants have suffered loss by reason of NAB’s unauthorised addition of the words “or bearer” to each of the said bank cheques in breach of the term and condition referred to in paragraph 74A above.”

28                  So far as Bendigo Bank is concerned the proposed amendments which are particularly contentious are those which allege a breach on the part of the bank of the Firm’s instructions regarding the drawing of bank cheques on the Bendigo accounts.  Those amendments are as follows:

CLAIM BY THE FIRM AGAINST BENDIGO BANK FOR BREACH OF THE FIRM'S INSTRUCTIONS REGARDING THE DRAWING OF BANK CHEQUES ON THE BENDIGO ACCOUNTS

91A.    Further or alternatively, it was a term and condition of the agreements referred to in paragraphs 83, 84, 85 and 86 or the Master Agreement for the conduct of the Accounts that, in drawing bank cheques, or in making arrangements with the Firm regarding bank cheques drawn, on the Accounts, Bendigo would act only on, and strictly in accordance with the instructions of an authorised signatory to the Accounts.

91B.    Bendigo Bank alleges that at all relevant times, each of the withdrawals from the Accounts was authorised by the Firm. 

91C.    If Bendigo Bank's allegation is correct (which is denied) then, on or about each of the dates set out in items A3, A4, B1(i)‑(iii), A5, B3(i), B4(i), A6, A7, A8, B5(i), A9 and A10 of parts A and B of Schedule 2, the Firm gave instructions to Bendigo Bank to draw bank cheques payable to, and only to the following persons:-

(a)       Item A3 “Babcock & Brown Pty Ltd”;

(b)       Item A4 “Babcock & Brown Pty Ltd”;

(c)        Item B1(i) “T. Fried”;

(d)       Item B1(ii) “E. Fried”;

(e)        Item B1(iii) “D. Fried”;

(f)        Item A5 “Babcock + Brown”;

(g)       Item B4(i) “BABCOCK + BROWN”;

(h)       Item A6 “WINDINA PTY LTD”

(i)        Item A7 “EVATAB LEASING PTY LTD”;

(j)        Item A8 “Windina Pty Ltd”;

(k)       Item A9 “EVATAB LEASING P/L”;

(l)        Item A10 “EVATAB LEASING P/L”.

PARTICULARS

The instructions are written. Copies may be inspected at the Applicants’ solicitors’ offices.

91D.    Wrongfully and contrary to the Firm's instructions in breach of the term and condition referred to in paragraph 91A, Bendigo Bank drew bank cheques payable as follows and handed such cheques to Green:‑

(a)     Item A3:     “Pay BABCOCK & BROWN PTY LTD or bearer”;

(b)     Item A4:     “Pay BABCOCK & BROWN PTY LTD or bearer”;

(c)     Item B1(i): “Pay T. Fried or bearer”;

(d)     Item B1(ii): “Pay E. Fried or bearer”:

(e)     Item B1(iii): “Pay D. Fried or bearer”;

(f)      Item A5:     “Pay BABCOCK & BROWN P/L or bearer”;

(g)     Item B4(i):  “Pay BABCOCK & BROWN or bearer”;

(h)     Item A6:     “Pay WINDINA PTY LTD or bearer”;

(i)      Item A7:     ‘Pay EVATAB LEASING PT LTD or bearer”;

(j)      Item A8:     “Pay WINDINA PTY LTD or bearer”;

(k)     Item A9:     “Pay EVATAB LEASING P/L or bearer”;

(1)     Item A10:   “Pay Evatab Leasing P/L or bearer”.

91E.    In the event that (which is denied):-

(a)   NAB as the collecting bank, was entitled to treat each of the cheques as bearer cheques; and

(b)   the Applicants, are not entitled to recover their losses from NAB on grounds of conversion as alleged in paragraphs 65‑69 and 75‑79 above:

the Applicants and/or the Firm as trustee for the Applicants will have suffered loss and damage by reason of Bendigo Bank's unauthorised addition of the words “or bearer” to each of the said bank cheques in breach of the term and condition referred to in paragraph 91A.

29                  As indicated in par 91B the applicants seek leave to make these amendments in answer to a claim by Bendigo Bank, in its defence, that each of the withdrawals from the accounts was authorised by the Firm. 

30                  The applicants submitted that the reason why their application for leave to amend their statement of claim was made at such a late stage in the proceeding was that they had only recently come to appreciate that NAB intended to meet the claim for conversion of the bank cheques by relying upon the status of those cheques as “bearer cheques”.  The applicants said that although they had been aware from virtually the inception of this proceeding that these particular cheques were made out “to bearer” in the manner described above, they had until recently assumed that NAB would not seek to rely upon that fact in answer to their claim for conversion.  The applicants contended that this assumption was based upon:

·                    the manner in which NAB had pleaded its defence to the claim for conversion;

·                    the particulars which NAB had provided of that pleading;

·                    NAB’s response to a notice to admit filed on the applicants’ behalf; and

·                    the evidence which NAB had foreshadowed it proposed to adduce at the trial. 

31                  It is necessary to set out in some detail how the applicants claimed to have arrived at that mistaken belief.  In their statement of claim they pleaded their claim for conversion of the bank cheques in three separate sets of paragraphs, pars 65-69, pars 70-74 and pars 75-79.  Each set of paragraphs relates to a separate series of bank cheques, some of which were drawn on the Aroni Colman Trust Account and paid into the Green account, while others went via that account to the Green account. 

32                  NAB, in its amended defence filed on 16 April 1999, either did not admit, or denied, each of the allegations said to give rise to the applicants’ claim for conversion.  In particular, NAB pleaded as follows:

“68(c)      further or alternatively, if (which is not admitted), cheques were drawn as described in paragraph 65 [or 70 or 75] of the further amended statement of claim, and if, which is not admitted, it collected the proceeds of the cheques and paid them into the Green Account, it says that, in receiving payment of the cheques for its customer, Green, and crediting the Green Account with the sum ordered to be paid by the cheques, it acted in good faith and without negligence, and therefore it is not liable by reason of having received payment of the cheques.  It will rely on section 95 of the Cheques and Payment Orders Act 1986 (Cth).”

33                  In response to a request by the applicants for further and better particulars of this paragraph, NAB provided the following: 

“Generally it acted in good faith and without negligence in relation to dealings on the Green account.  In particular, if, as is alleged but not admitted, the first respondent received payment of the cheques referred to and credited the Green account with the sums ordered to be paid by the cheques, it acted as a reasonable bank would have done in the circumstances, in that the deposit of third party cheques into a solicitor’s trust account is a routine transaction in relation to such accounts.”

34                  The characterisation of the bank cheques as “third party cheques” is of particular significance.  Counsel for the applicants submitted that there was nothing in either NAB’s defence, or in the particulars which NAB provided, which suggested that NAB proposed to rely upon the status of the bank cheques as “bearer cheques”, as distinct from the defence under s 95 of the Cheques and Payment Orders Act 1986 (Cth), in answer to the applicants’ claim for conversion.  The applicants must, of course, establish that they were either the true owners of those cheques, or that they were entitled to immediate possession of them, if they are to succeed in their claim.  NAB has denied that the applicants were the true owners of the cheques, or that they were entitled to immediate possession of them.  NAB has not, however pleaded, in terms, that this was because the cheques were “bearer cheques”.  Nor has it pleaded, in terms, that Green, as bearer, was either the true owner, or entitled to immediate possession, of those cheques. 

35                  Counsel for the applicants submitted that a fair reading of NAB’s defence and of the particulars which NAB provided, was that NAB was saying no more than that it had acted as a reasonable bank would have done in the circumstances, having regard to the fact that the deposit of “third party cheques” into a solicitor’s trust account is a routine transaction in relation to such accounts.  In other words, NAB implied that it proposed to treat the bank cheques as though they were payable to order, as with any other “third party cheque”, and that it had confined its defence to the claim for conversion to the specific pleading and particulars set out above. 

36                  Counsel for the applicants submitted that their interpretation of NAB’s defence, and of NAB’s particulars, was entirely reasonable.  They submitted that they were led to that interpretation because they considered that NAB must have appreciated that it would be difficult to maintain a tenable claim that the bank cheques were owned by Green, or that he had been entitled to immediate possession of those cheques.  They submitted that such a claim by NAB could not conceivably succeed having regard to the fact that NAB acted contrary to the Firm’s instructions concerning the form in which those cheques were to be drawn, those instructions being that they be drawn to order, and not to bearer.  In light of NAB’s having sought to raise the bearer cheque defence, the applicants were forced to seek leave to amend their statement of claim so that they could rebut that defence.

37                  In support of their claim to have been misled by NAB into believing that NAB would not rely upon the status of the cheques as bearer cheques in answer to the claim for conversion, counsel for the applicants also relied upon the answers given by NAB to a notice to admit.  NAB had declined to admit the authenticity of a series of bank cheques, including a number which NAB itself had issued.  Those cheques were described by the applicants in their notice to admit in terms which excluded the words “or bearer”.  NAB did not state as its reason for its refusal to make the relevant admission the fact that those words had been omitted from that description.  Counsel for the applicants contended that NAB had been evasive in the manner in which it had responded to the notice to admit.

38                  Finally, counsel for the applicants submitted that the witness statements filed by NAB referred to the bank cheques in question as “third party” cheques.  They submitted that far from treating those cheques as “bearer cheques”, or attributing significance to that fact, the witness statements treated the cheques as though they were cheques payable to order. 

39                  Mr Young QC, on behalf of the applicants, submitted:

“Every paragraph is the same in the witness statements; that these were treated as third party cheques.  They were entered in the third party cheque register and it was the fact that they were cheques payable to a third party, going to be deposited into a solicitor’s trust account which is relied upon.  That is not treating the cheques as bearer cheques; that’s treating them as third party cheques …”

40                  He continued:

“Our expectation at all times was that although these cheques … had the words “or bearer” on them they were, in fact, for the purposes of the bank’s obligations, treated as third party cheques, and that is what is relevant to s 95.  That’s the point, your Honour – not what words are printed on them, which we fully appreciated … That’s not relevant or central to the issue of conversion.  It’s the bank’s change of position in that regard that is the basis of our application.”

41                  Section 95 of the Cheques and Payment Orders Act 1986 (Cth) which is expressly relied on by NAB, provides as follows:

“Protection of bank collecting cheque for customer or another bank

95.  (1)  Where:

            (a)     a bank, 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 bank does not incur any liability to the true owner by reason only of having received payment of the cheque.

(2)  Where:

            (a)     a bank:

                     (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;

            (b)        the cheque is a cheque drawn payable to order that has not been transferred by negotiation; and

            (c)     the name specified in the cheque as the name of the payee:

                     (i)      is the same as the name of the customer;

                     (ii)     is the same as a business name or trade name of the customer; or

                     (iii)    is so similar to the name of the customer, or a business name or trade name of the customer, that it is reasonable in all the circumstances for the bank to have assumed that the customer was the person in­tended by the drawer to be the payee;

the bank shall not be treated, for the purposes of subsection (1), as having been negligent by reason only of its failure to concern itself with the absence of, or irregularity in, an indorsement of the cheque by the customer.

(3)  Where a bank, in good faith and without negligence, receives payment of a cheque for another financial institution, the bank does not incur any liability to the true owner by reason only of having received payment of the cheque.

(4)  Where:

            (a)     a bank:

                     (i)      receives payment of a cheque for another financial institution; and

                     (ii)     before or after receiving payment of the cheque, pays the other financial institution the sum ordered to be paid by the cheque; and

            (b)     the cheque is a cheque drawn payable to order that has not been transferred by negotiation;

the bank shall not be treated, for the purposes of subsection (3), as having been negligent by reason only of its failure to concern itself with the absence of, or irregularity in, an indorsement of the cheque.”

42                  Counsel for the applicants submitted that NAB’s reliance upon s 95 as an answer to the claim for conversion did not indicate any intent on its part to go further, and to deny that the applicants were the true owners of the cheques, or that they were entitled to immediate possession of them.  They submitted that in drafting its defence, NAB had failed to comply with the requirements of O 11 r 10 of the Federal Court Rules (“the Rules”).  Order 11 r 10 provides:

“10.    In a pleading subsequent to a statement of claim a party shall plead specifically any matter of fact or point of law (for example, performance, release, any relevant statute of limitation, fraud or any fact showing illegality) that:

(a)       he alleges makes a claim or defence of the opposite party not maintainable;

(b)       if not specifically pleaded might take the other party by surprise; or

(c)       raises issues of fact not arising out of the preceding pleading.”

43                  This rule applies where the answer of a party pleading is not a mere denial of the truth of the facts alleged by the opposite party but an assertion that by reason of certain additional facts or matters the claim or defence of the opposite party cannot succeed.  In such a case the party pleading must allege those facts or matters.

44                  In most cases precedent will dictate whether a particular matter must be pleaded specifically in conformity with the rule.  For example, it has been held that the following facts and matters must be pleaded specifically:

·                    want of authority, if relied on:  Byrd v Nunn (1877) 7 Ch D 284;

·                    any exclusion clause:  Bright v Sampson & Duncan Pty Ltd (1985) 1 NSWLR 346;

·                    contributory negligence: Benjamin v Currie [1958] VR 259;

·                    a defence of lien in a proceeding for detinue: Bishop v Gardiner (1896) 21 VLR 750;

·                    facts grounding an estoppel:  Laws Holdings Ltd v Short (1972) 49 ALJR 563;

·                    illegality: Bullivant v Attorney-General for Victoria [1901] AC 196;

·                    the act of a third party in answer to a claim of negligence: Davie v New Merton Board Mills Ltd [1956] 1 All ER 379.

45                  There appears to be no authority which bears directly upon the question whether a bank which seeks to rely upon the status of a bank cheque as a bearer cheque in answer to a claim for conversion must specifically plead that fact if it seeks to rely upon it to meet a claim that someone other than the bearer either owned the cheque, or was entitled to immediate possession of that cheque. 

46                  In Bullen & Leake & Jacobs: Precedents of Pleadings 13^th ed. 1990, a general defence denying plaintiff’s property in the goods is treated as being a sufficient pleading.  That defence, at par 1305, is as follows:

“The defendant denies that the plaintiff was at any material time the owner of the goods or entitled to possession of them.”

47                  However, where the defence seeks to set up the Jus Tertii, the learned authors suggest at par 1321 that a more detailed pleading is required:

“The goods were not the property of the plaintiff and he was not entitled to possession of them either as alleged or at all.  At all material times the goods were owned by X who was solely entitled to possession of them.”

48                  Mr Karkar QC, on behalf of NAB, submitted that NAB’s general denial that the applicants owned the cheques, or that they had an entitlement to immediate possession of them, complied entirely with the requirements of O 11 r 10.  He denied that there was anything evasive or otherwise inappropriate in NAB’s pleading.

49                  Mr Karkar submitted that there was nothing misleading about the answer given by NAB to the applicants’ request for particulars.  The reference in that answer to “third party cheques” was apt to include “bearer cheques”.  NAB had denied the applicants’ claim to ownership or entitlement to immediate possession of the cheques.  NAB was entitled to rely upon the status of those cheques as bearer cheques to make good that general denial without having expressly pleaded its intent to do so. 

50                  Mr Karkar also submitted that, irrespective of the merits of the applicants’ complaints regarding NAB’s use of the general denial in its defence, I should in any event refuse the application for leave to amend the statement of claim.  That was because, contrary to what I had been told by the applicants, it was apparent that they had been fully aware throughout this proceeding that NAB intended to rely upon the status of the bank cheques as bearer cheques in answer to the claim for conversion. 

51                  In support of that contention Mr Karkar drew attention to various passages in the applicants’ own witness statements demonstrating that as far back as late last year their experts expressly adverted to the fact that certain of the bank cheques were made out to bearer, while others were not.  He submitted that contrary to what I had been told, it was not true that the applicants had only recently come to appreciate that NAB proposed to rely upon the status of the bank cheques as bearer cheques in answer to the claim for conversion.  Rather, the applicants had been aware of that fact for some time.  All that had occurred, he submitted, was that the applicants had failed to appreciate that their case in conversion, as pleaded, was flawed, and that they needed to take steps to amend their claim in order to circumvent NAB’s defence.

52                  Mr Karkar further submitted that if the applicants were granted leave to amend their statement of claim, NAB would seek to amend its defence to raise in answer to the new claim the existence of an implied term authorising NAB to draw the bank cheques in the way in which it had, or alternatively an estoppel, arising out of the relationship between the Firm and NAB.  An amendment of that type would require NAB to undertake a thorough investigation into the entire history of that relationship and NAB would be seriously prejudiced if it were not given sufficient time to enable all of the transactions involving the purchase of bank cheques on the part of the Firm to be investigated.  Mr Karkar submitted that this process could not be completed by 3 May 2000, the date scheduled for the commencement of the trial. 

53                  Mr Garrett QC, on behalf of Bendigo Bank, joined with Mr Karkar in opposing the application for leave to amend the statement of claim.  He too contended that if the amendments sought were made a lengthy adjournment of the trial would be required. 

54                  I should say at once that I am unable to accept Mr Karkar’s submission that I was misled, albeit unwittingly, by anything said to me by Mr Young concerning when it was that the applicants first suspected that NAB proposed to rely upon the status of the bank cheques as bearer cheques in answer to the claim for conversion.  I am satisfied that neither Mr Young, nor any other member of the applicants’ legal team, appreciated that NAB would seek to rely upon the status of the cheques as bearer cheques in answer to that claim until shortly before the application for leave to amend was filed with the Court.  I am also satisfied that Mr Young’s explanation as to why that fact had not been appreciated was both truthful and accurate.  

55                  I do not regard the references to the words “or bearer” in the applicants’ expert witness statements as demonstrating that their legal advisers must have appreciated, or understood, the precise nature of NAB’s defence.  It follows that I do not accept that there is any basis upon which I should, on discretionary grounds, refuse the application for leave to amend based upon my having been misled by what was said to me in Court.

56                  Although the matter is somewhat finely balanced, I am not persuaded that NAB’s pleading of a general denial of the applicants’ claim to ownership of the cheques, or their entitlement to immediate possession of them, contravened O 11 r 10 of the Rules.  A general denial of this type is, in my view, permissible, at least in circumstances where it is clear that the particular cheques said to have been converted were made out to bearer. 

57                  By way of contrast, the requirement that a lien be specifically pleaded in answer to a claim for detinue, or that the Jus Tertii be specifically pleaded in answer to a claim for conversion, is based upon different considerations.  The likelihood that the opposite party will be taken by surprise by claims of that type is significantly greater in those cases than in cases where the status of a cheque as a bearer cheque is both obvious and known.  It will not ordinarily come as any surprise to an applicant that the status of such a cheque is relied upon in answer to a claim for conversion.  The reason given for the surprise which is claimed in the present case turns upon circumstances which are peculiar to that case, and does not justify the formulation of a general rule requiring that status to be pleaded specifically in all cases. 

58                  NAB was not seeking to assert a fact or point of law that it was required specifically to plead.  It should not be precluded from seeking to rely upon the status of those cheques as bearer cheques in answer to the claim for conversion, whether pursuant to s 95 of the Cheques and Payment Orders Act, or otherwise. 

59                  That is not, however, determinative of whether leave should be granted to the applicants to amend the statement of claim.  I am of the view that it is in the interests of justice that the applicants be given leave to amend their statement of claim to meet the case which they now appreciate NAB seeks to make in answer to their claim for conversion.  I have in mind the principles set out in O 13 r 2(2) of the Rules which provides:

“(2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.”

60                  The powers of the Court pursuant to O 13 r 2 are wide and remedial.  The aim must be to ensure that any defect in the proceeding is cured, to allow all the issues which arise in the action to be determined, and to avoid a multiplicity of actions.  The object of the Court is not to punish parties for mistakes made in the conduct of their case. 

61                  Leave to amend is generally given unless the party applying is acting male fides, the prejudice to the other party is so great that it cannot be compensated for by an order for costs, or the amendment is so obviously futile that it would be struck out if it had appeared in the original pleading: see generally Cropper v Smith (1884) 26 Ch D 700 at 710; and State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. 

62                  Although applications for the amendment of pleadings should be made as early as possible, O 13 r 2 is wide enough to permit leave to amend to be given at any stage in the proceeding.  The terms which are usually imposed on a party amending a document are that that party must pay the costs of the application for leave to amend, and the costs occasioned by and thrown away in consequence of the amendment.  If a party unreasonably opposes such an application, however, that party may be ordered to pay the costs of the motion for leave to amend. 

63                  I am satisfied that the applicants should be given leave to amend their statement of claim so as to raise directly in this proceeding the matters set out in pars 74A to 74D, and pars 91A to 91E of the proposed further amended statement of claim.  In a sense, the claims made in those paragraphs do no more than pre-empt the defences upon which the applicants now appreciate NAB and Bendigo Bank intend to rely in answer to the claims against those respondents.

64                  The late amendment to the statement of claim requires an adjournment of the trial in order to enable both NAB and Bendigo Bank to meet the reformulated claims which are now to be made against them.  While I accept that from NAB’s point of view the “short cut” method of achieving its objectives set out in the affidavit material filed on NAB’s behalf is not regarded as perfect, it seems to me that it provides a fair and entirely adequate opportunity for NAB to meet the case which is now to be made against it. 

65                  I am satisfied that NAB will be in a position to complete its “short cut” preparation in relation to this issue by about 10 May 2000, or perhaps shortly thereafter.  Bendigo Bank is similarly affected by the repercussions of the applicants’ proposed amendments.  I am satisfied, however, that it too will be in a position to meet the applicants’ claims, as reformulated, by about the same date. 

66                  In order to allow for some flexibility, I propose to adjourn the commencement of this trial until 22 May 2000.  That will still enable the trial, which is scheduled to run for some six weeks, to be conducted within the general parameters of the time previously allocated for its disposition. 

67                  It follows from the reasons set out above that I propose to dismiss the applicants’ motion of 14 April 2000 seeking orders that pars 65 to 79 (inclusive) of NAB’s amended defence dated 16 April 1999 be struck out.

68                  I will deal with the question of costs arising out of the amendments to the applicants’ statement of claim after I have heard full argument regarding that issue.

Bendigo Banks’ application to have the proceeding transferred to the Supreme Court of Victoria

69                  Mr Garrett submitted that the proceeding should be transferred to the Supreme Court of Victoria because this Court does not have any jurisdiction in relation to any claim presently raised by the applicants.  Alternatively, he submitted, the proceeding should, in the exercise of the Court’s discretion, be transferred to that Court. 

70                  Mr Garrett submitted that the only federal claim brought by the applicants in the proceeding was the claim made against the second to ninth respondents in respect of breaches of s 52 of the Trade Practices Act 1974 (Cth).  A claim against the partners of the Firm could be brought under that Act notwithstanding that the Firm is not a corporation because s 6(3) confers jurisdiction where the misleading or deceptive conduct is alleged to be constituted by representations made through the use of postal services.  Mr Garrett noted that the claim against the Firm has now been settled, and should be regarded as being merely tangential to the remaining causes of action. 

71                  Mr Young submitted that the allegations made in the claim brought against the Firm under s 52 of the Trade Practices Act remain relevant to the other claims in this proceeding.  The representations which are said to constitute the misleading and deceptive conduct bear upon the allegations of misuse of trust funds and of the Firm’s other breaches of duty.  He submitted that those allegations underpin the claims in conversion and breach of contract against NAB. 

72                  Mr Young also submitted that the defence pleaded by NAB under s 95 of the Cheques and Payment Orders Act attracts federal jurisdiction by virtue of the operation of s 39B(1A)(c) of the Judiciary Act 1903 (Cth). 

73                  Finally Mr Young submitted that federal jurisdiction is attracted by the operation of s 32(1) of the Federal Court of Australia Act 1976 (Cth) (“the associated jurisdiction”). 

74                  In my opinion the jurisdiction of this Court is attracted to all claims in this proceeding.  The principles which govern the accrued jurisdiction of the Court are well established.  In Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, Barwick CJ said at 474:

“Thus there may be circumstances in which the matter does not in substance itself attract federal jurisdiction, though that which attracts federal jurisdiction must in some way relate to the matter. Once federal jurisdiction is attracted, it is not lost because the claim or assertion which attracted it has not been substantiated or has been displaced by some countervailing fact. Once attracted, by whatever path attracted, the jurisdiction persists to enable the Court to resolve the matter… To be outside the accrued jurisdiction, however, the other matter must be separate and disparate from the matter in relation to or in connexion with which federal jurisdiction has been attracted.”

75                  His Honour went on to say at  475:

“It is settled doctrine in Australia that when a court which can exercise federal jurisdiction has its jurisdiction attracted in relation to a matter, that jurisdiction extends to the resolution of the whole matter.”

76                  See also Fencott v Muller (1983) 152 CLR 570; and Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261.

77                  In Re Wakim; Ex parte McNally & Anor (1999) 163 ALR 270, Gummow and Hayne JJ said at 311-12:

“[139]   In Fencott it was said that:

“in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of the matter.”

The references to “impression” and “practical judgment” cannot be understood, however, as stating a test that is to be applied.  Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete.  Necessarily, then, the question will have to be decided on limited information.  But the question is not at large.  What is a single controversy “depends on what the parties have done, the relationship between or among them and the laws which attach rights or liabilities to their conduct and relationships”.  There is but a single matter if different claims arise out of “common transactions and facts” or “a common substratum of facts”, notwithstanding that the facts upon which the claims depend do not “wholly coincide” …

[141]  Often, the conclusion that, if proceedings were tried in different courts, there could be conflicting findings made on one or more issues common to the two proceedings will indicate that there is a single matter. By contrast, if the several proceedings could not have been joined in one proceeding, it is difficult to see that they could be said to constitute a single matter.”  [footnotes omitted]

78                  I am satisfied that the claims raised in this proceeding arise out of “common transactions and facts” or “a common substratum of facts”.  These claims therefore constitute a “single controversy” or “single matter” in accordance with the principles set out in Re Wakim.  Although the issues in dispute between the applicants on the one hand, and NAB and Bendigo Bank on the other, are predominantly non-federal in nature, they are inextricably linked to “non-colourable” federal claims, and a defence under a Commonwealth statute.  These issues therefore fall within the accrued jurisdiction of the Court.

79                  In declining to exercise my discretion to order that the proceeding be transferred I have taken into account the impracticability of doing so at this late stage.  If the proceeding were to be transferred to the Supreme Court of Victoria this case, which was commenced in this Court approximately two years ago, might not be able to be heard until some time next year, if then.  The imminence of the commencement of the trial suggests that I should not impose upon the parties a protracted delay, with all the attendant cost and prejudice which a transfer would entail. 

80                  The application to transfer the proceeding is accordingly dismissed.  I shall hear the parties in relation to the costs of that application.

Bendigo Banks’ application to stay the proceeding pending further discovery by the applicants

81                  Mr Garrett submitted that the otherwise uncontentious amendments to the applicants’ statement of claim which expressly provide that they stand in the shoes, and exercise the rights, of the Firm against Bendigo Bank require the applicants to make further discovery.  He complained that the Firm had failed to give proper discovery, and that the amendments to the statement of claim would now require that failure to be rectified.

82                  Mr Garrett submitted that there are various documents or files which have not been discovered by either the applicants or the Firm, and which ought to be discovered.  Where files have been discovered in part, they should be discovered in full.  The applicants should also be required to search out further files which may be in the possession of the Firm. 

83                  Mr Garrett referred me to the Deed of Settlement between the applicants and the Firm dated 21 June 1999, and in particular to cl 13 of that deed which states:

“13.  The parties agree that if called upon to do so by any other party they will execute all documents and do all acts, matters or things as may be reasonably necessary to give full effect to the terms of this deed.”

84                  Mr Garrett submitted that in the light of that clause the applicants have within their power or control all documents belonging to the Firm.  They should therefore be required to examine those documents carefully to ensure that proper discovery is given. 

85                  Mr Young submitted that Bendigo Bank’s application is, in effect, an application pursuant to O 15 r 8 of the Rules.  That rule provides:

“8.   Where, at any stage of the proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any matter in question in the proceeding may or may have been in the possession, custody or power of a party, the Court may order that party –

(a)               to file an affidavit stating whether that document or any document of that class is or has been in his possession, custody or power and, if it has been but is not then in his possession, custody or power, when he parted with it and what has become of it; and

(b)               to serve the affidavit on any other party.”

86                  Mr Young submitted that Bendigo Bank’s application for further discovery is based upon nothing more than surmise and conjecture.  There is nothing to suggest that merely because part only of a file has been discovered, the rest of the file is also discoverable.  No evidence had been led to establish that there were grounds for belief that other documents in the applicants’ possession, custody or power should be discovered. 

87                  Mr Young noted that the applicants have filed extensive lists of documents dated 14 October 1998, 25 November 1998, 10 February 1999, 13 July 1999 and 5 April 2000.  Each of those lists has been verified in accordance with the Rules.  There was nothing to suggest that the applicants have not complied fully with their discovery obligations. 

88                  I am not persuaded by the evidence adduced on behalf of Bendigo Bank that the applicants have failed to comply with their obligations to make full and proper discovery.  I do not accept that it is appropriate to stay this proceeding, or to order that the applicants give further discovery.  They must, of course, ensure that their continuing obligations regarding discovery are met, and they must have regard to the effect of any amendments to the pleadings upon those obligations.

89                  Bendigo Bank’s application for a stay of the proceeding pending further discovery by the applicants is dismissed.  I shall hear the parties in relation to the costs of that application.

Associate:

Dated: