Wan v Westpac Banking Corporation
[1997] QDC 42
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- Wan v Westpac Banking Corporation[1997] QDC 42
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Wan v Westpac Banking Corporation[1997] QDC 42
Wan v Westpac Banking Corporation[1997] QDC 42
IN THE DISTRICT COURT HELD AT BRISBANE QUEENSLAND | Plaint No. 4055 of 1992 |
BETWEEN:
WENDY WAI YING LEUNG WAN | Plaintiff |
AND:
WESTPAC BANKING CORPORATION | Defendant |
REASONS FOR JUDGMENT - McGILL D.C.J.
Delivered the 4th day of April 1997
CATCHWORDS:
CONVERSION OF CHATTELS - elements of cause of action - whether proprietary interest in chattel - property at law passed to trustee-equitable interest as beneficiary insufficient to maintain action for conversion - no legal right to immediate possession.
Associated Midland Corporation v Bank of New South Wales [1983] 1 NSWLR 533 - applied.
Turner v NSW Mont De Piet Deposit and Investment Co Ltd (1910) 10 CLR 539 - followed.
International Factors Ltd. v Rodriguez [1979] QB 351 - not followed.
Jarvis v Williams [1955] 1 WLR 71 - followed.
TRUSTS AND TRUSTEES - breach of trust by a trustee - knowing participation of third party in breach - test for accessory liability.
Royal Brunei Airlines Sdn. Bhd. v Tan [1995] 2 AC 378 - followed.
Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] 132 CLR 375 - considered.
PRINCIPAL AND AGENT - unauthorized act of agent - ratification - election between inconsistent rights - effect of claim of purchaser's lien over land - whether inconsistent with right now pursued.
Hewett v Court (1993) 149 CLR 639 - followed.
ES & A Bank Ltd. v Beatty [1931] St. R.Qd 291 - followed.
Verschures Creameries Ltd. v Hull and Netherlands Steamship Co Ltd [1921] 2 QB 608 - distinguished.
BILLS OF EXCHANGE - cheque crossed “not negotiable A/c payee only” - collected to account of person not payee - not without negligence - Cheques and Payments Orders Act (1986) section 95.
National Commercial Banking Co. of Australia v Robert Bushby Pty Ltd [1984] 1 NSW LR 559 - followed.
CONVERSION - change of position not a defence.
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 - distinguished
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 - distinguished.
DAMAGES - allowance of compound interest for loss of use of money as damages - not “interest” as such - District Courts Act section 68(3)(c).
Hungerford v Walker [1989] 171 CLR 125 - applied.
Counsel: | J.S. Douglas Q.C. and D. Smith for Plaintiff |
| R.V. Hanson Q.C. and R.M. Derrington for Defendant |
Solicitors: | Allens for Plaintiff |
| Allen Allen & Hemsley for Defendant |
Hearing dates: | 24-27 September 1996 |
IN THE DISTRICT COURT HELD AT BRISBANE QUEENSLAND | Plaint No. 4055 of 1992 |
BETWEEN:
WENDY WAI YING LEUNG WAN | Plaintiff |
AND:
WESTPAC BANKING CORPORATION | Defendant |
REASONS FOR JUDGMENT - McGILL D.C.J.
Delivered the 4th day of April 1997
This trial has been the latest episode in a lengthy series of litigation by the Plaintiff in an attempt to recover a loss of $165,000.00 suffered by her in December 1988. She then obtained a bank cheque drawn by the China State Bank Ltd of Hong Kong and payable to McDonald Partners Trust Account in the sum of $165,000.00, and handed the cheque to one Ranald McDonald who deposited it in the Defendant bank to be credited to the account of a company Dotwell Investment Pty Ltd (“Dotwell”). The Plaintiff has already brought proceedings in the Federal Court against Dotwell, Ranald McDonald and his father Donald McDonald, who carried on the business of McDonald Partners Solicitors, which led to a judgement in favour of the Plaintiff (reported at (1992) 105 ALR 473, 33 FCR 491), and an appeal to the full Federal Court was dismissed. The Plaintiff had earlier commenced proceedings in the Supreme Court against Dotwell, and subsequently took proceedings in the Supreme Court against the Queensland Law Society in an attempt to obtain compensation from the Legal Practitioners Fidelity Guarantee Fund. That matter went to the Court of Appeal - [1997] 1 Qd R 216 - as a result of which it is awaiting the outcome of this action. The Plaintiff not having, by any of these means, actually obtained the return of this money, she is now pursuing a claim against this Defendant. The Plaintiff claims the Defendant is liable at law for conversion of the cheque or for its proceeds as money had and received, or in equity for knowingly participating in a breach of fiduciary duty by Dotwell or Donald McDonald.
Facts
In 1988 the Plaintiff, then a resident of Hong Kong, was interested in migrating to Australia as a business migrant (transcript p.30). She made contact with representatives of a group of companies called the Nicehold Group which included Dotwell and Kawana Water Property Agency Ltd, a Hong Kong company. Dotwell had been incorporated in December 1987 with Donald McDonald and Ranald McDonald as the original shareholders and directors: Exhibit 2 p.1, 26. Donald McDonald resigned as a Director on 10 June 1988 and was replaced by Kwok Hung Cheng: Exhibit 2 p.27.
Dotwell and its associates were in 1988 promoting a scheme whereby potential migrants could qualify under the Business Migration Program by spending about half the amount normally required to be transferred to Australia in order to qualify under that program: Exhibit 5 para. 13. The Nicehold Group put on a seminar which the Plaintiff and others attended in September 1988: Exhibit 5 para.7. There she met a Mrs Cheung, a representative of the Group: (Exhibit 14; p.32) Her business card Exhibit 14 (and Exhibit 15) identifies McDonald Partners as the Group's Australian Solicitors. There was reference to that firm at the seminar (Exhibit 22 para. 11) and its certificate was on display (Exhibit 22 para.12 and see Exhibit 5 para. 12.) The Plaintiff's version of what occurred at that seminar is set out in some detail in Exhibit 5. It is not necessary for the purposes of these proceedings to go into that. Part of what was proposed by the Nicehold Group was the purchase of land and a house, on the Sunshine Coast, from Dotwell for $195,000.00: p.32. This was said to be at a discount compared with the price charged to Australians: Exhibit 10. Dotwell was also to render assistance to the Plaintiff in connection with the proposed migration to Australia, under the Business Migration Program, and for that purpose to assist in locating a suitable business for the Plaintiff to purchase: Exhibit 7. At some time she appointed Kawana Water Property Agency Ltd as her agent in Hong Kong in connection with the acquisition from Dotwell: see Exhibit 11. While in Hong Kong she did not attempt to deal with Dotwell direct: p.60. The retainer of Kawana Water Property Agency Ltd (Exhibit 11) indicates that it was contemplated that McDonald Partners would also be giving the Plaintiff legal advice in relation to the transaction: Clause 2. McDonald Partners were also retained by the Plaintiff to act as her solicitor for the purpose of completing the purchase of the land from Dotwell: Exhibit 6 Clause 3.
On 19 September 1988 in response to a request from Mrs Cheung (Exhibit 22 para.26) the Plaintiff caused the China State Bank Ltd in Hong Kong to send by telegraphic transfer the sum of $A10,000.00 to the Defendant in favour of the trust account of McDonald Partners Solicitors: Exhibit 2 p.67, Exhibit 13. Although Exhibit 11 para. 1 indicates that this was to be held by that firm on behalf of Dotwell, Exhibit 12 suggests that it was held on behalf of the Plaintiff. I have seen no trust account receipt for this payment. (See also Exhibit 22 para.30) This sum was to be applied to a deposit if the Plaintiff went ahead with the purchase; if not $4,000 was to be deducted for travelling expenses and a fee and the rest refunded: Exhibit 22 para.30, but see Exhibit 11. On 10 October 1988 the China State Bank Ltd sent a further sum of $A1,000.00 to the Defendant in favour of McDonald Partners Trust Account (Exhibit 2 p.72, 73). This was also paid at the request of Mrs Cheung, to cover legal fees in connection with the migration application: Exhibit 22 para.49, Exhibit 5 para.43. On 11 October 1988 “Donald McDonald & Company” issued a trust account receipt for the sum of $1,000.00 being “legal fees on migration processing”. The receipt also bears the endorsement “Dotwell Investment re Leung Wai Ying” (ie the Plaintiff): Exhibit 16. On 21 October 1988 the China State Bank sent the sum of $A20,000 to the Defendant for credit to McDonald Partners Trust Account: Exhibit 2 p.75. On 24 October 1988 “Donald McDonald and Company” issued a trust account receipt in favour of the Plaintiff in respect of this payment of $20,000.00, being “additional house deposit Dotwell Investment re Leung Wai Ying”: Exhibit 18, which shows that the original receipt was forwarded to the Plaintiff by Dotwell. This was also at the request of Mrs Cheung, said to be necessary to secure the land at the lower price: Exhibit 22 para.53, Exhibit 5 para.47.
These two payments left a balance of $ 165,000.00, which was to be paid in December 1988. The Plaintiff was asked by Mrs Cheung to produce a bank draft for that amount (p.33) payable to McDonald Partners Trust Account (Exhibit 5 para.52) and was told that the Solicitor would be present when she saw Ranald McDonald, and that she was to give the cheque to them: P.61-2, (but contrast Exhibit 5 para.53 where she said she was told to give it to Ranald.) She obtained a bank cheque from the China State Bank Ltd, Hong Kong branch in favour of “McDonald Partners Trust Account”: Exhibit 2 p.87A; p.34. The cheque was crossed “not negotiable A/C payee only.” The Plaintiff brought this with her when she came from Hong Kong and saw Ranald McDonald in the office of Dotwell on 19 December 1988: p.34. Ranald McDonald gave her a business card, identifying himself with Dotwell and the Nicehold Group: p.37, Exhibit 15. The office used by Ranald McDonald was on the same floor of the same building as the office of McDonald Partners, and appears to have been a distinct part of the same office: pp.69,34. The whole visit took some six hours, because it involved a detailed discussion of the contract which written in English, and the Plaintiff, and her husband who accompanied her, required some assistance from another representative of Dotwell, Flora Hui, to translate it. Eventually the Plaintiff signed the contract which was also signed on behalf of Dotwell: Exhibit 6. I shall discuss its terms below. (She also signed a contract with Dotwell for it to assist her in her migration application: Exhibit 7.)
After the contract was signed the Plaintiff handed the bank cheque to Ranald McDonald, who wrote out a receipt for it, which was not however a trust account receipt of the firm McDonald Partners: p.35; Exhibit 2 p.93. This was queried by the Plaintiff who was concerned that it was not a solicitor's receipt (p.56) and she was given the explanation that McDonald Partners Solicitors receipts had run out and were being reprinted. Ranald McDonald then put on the blank receipt an impression of the name and address of Dotwell, as if applied by a rubber stamp; the Plaintiff referred to this as a “chop”: p.35. The Plaintiff queried this and was told by Ranald McDonald that he could not use the solicitors' chop. The Plaintiff said in evidence (p.36) that he went on say “I will see my father in the morning and I will hand it to him.” The only matter disputed by the Defendant in the Plaintiffs account of the primary facts was the proposition that Ranald McDonald made this statement, something which had not been mentioned in the Plaintiff's evidence in the Federal Court (including Exhibit 5), the Plaintiff's answers to interrogatories (Exhibit 19), or in the Plaintiff's affidavits in the Supreme Court proceedings: Exhibit 22, Exhibit 24. None of the earlier versions are actually inconsistent with the proposition that this additional statement was made by Mr McDonald, and it would not appear to have been directly relevant to the earlier proceedings. The Plaintiff's evidence was supported by the evidence of her husband, who gave evidence through an interpreter by telephone from Hong Kong: (p.99). Given that the conversation in December 1988 was conducted by the Plaintiff's husband through the Plaintiff acting as interpreter (p. 102), and the circumstances under which this evidence was given which gave me less than usual opportunity to assess the credibility of the witness, I do not think that I can place very much weight on it.
I should say something about the Plaintiff's demeanour, and my general assessment of her. She had an interpreter available to her, but generally was able to give apparently responsive answers with assistance. When pressed by Counsel during cross-examination she sometimes made considerable use of the interpreter. Her answers were generally clear and positive, but she is obviously an intelligent woman and I had the impression at times that there was some element of reconstruction about her evidence. There was some inconsistency with earlier versions but not to an extent I find suspicious. Overall I am prepared to accept generally the evidence of the Plaintiff.
The Plaintiff has consistently said that she queried the absence of a solicitor's trust account receipt (Exhibit 17), and the use of the Dotwell chop on the receipt that was given to her (Exhibit 24 para.14, affirmed in 1989), and expressed unhappiness at a situation where she did not have a trust account receipt (Exhibit 5 para. 72,73, Exhibit 19 para.32, Exhibit 22 para.77-79). Clearly she expected to be given one, and her evidence has been consistent that she communicated this to Ranald McDonald. The cheque was payable to the Solicitors as requested by Mrs Cheung (p.61), and she had made the earlier payments to the Solicitors and received trust account receipts previously, as mentioned earlier. She told me she had discussed with Mrs Cheung the significance of paying money into a Solicitor's Trust Account: p.62. The contract Exhibit 6 did not require the balance of the purchase price to be paid upon execution of the contract (a matter discussed below), and there is nothing in the evidence to indicate that such a payment was part of the overall arrangement proposed to her by the Nicehold Group (Exhibit 5 para. 68,69 is to the contrary.) In the circumstances I find the Plaintiff's evidence that she intended the proceeds of the bank cheque to be paid into the Solicitor's Trust Account (p.36) to be quite plausible. For reasons set out below, I consider that the Plaintiff's intention, when handing over the cheque, was to pay it to McDonald Partners. I think that in circumstances where she was expressing concern about that matter it is quite likely that Ranald McDonald did offer some reassurance along the lines of that to which the Plaintiff has testified. I am therefore prepared to accept that the disputed statement was made by Ranald McDonald.
It appears however that he did not give the cheque to his father in the morning; it was certainly not banked into the trust account of McDonald Partners. Instead the following day it was deposited with the Defendant for collection and crediting to the account of Dotwell. The cheque had been re-crossed with a stamp “Not Negotiable Pay Dotwell Investment Pty Ltd” but there was no endorsement in favour of the company on behalf of McDonald Partners: Exhibit 2 p.88, 89. The cheque was apparently deposited over the counter at the bank on 20 December 1988: Exhibit 2 p.91 (the date on the bank stamp is 20 Dec 1988). Later the same day a fax was sent by Ranald McDonald on Dotwell letterhead (from McDonald Partners fax machine; see top of page) to Mr Jensen, an officer of the Defendant, with instructions to deposit the proceeds in the company's “11am account”. Exhibit 2 p.94.
The relationship between Dotwell and the Defendant went back to September 1988 when Ranald McDonald discussed with a commercial manager transferring the company's account from Chase AMP (Exhibit p.66). The Defendant was told that the company handled investments, arranged property purchases and settling in of migrants from Hong Kong and Taiwan to Australia and that “Funds are sent to Australia (through trust A/c of McDonald and Partners). Funds are placed on 24 hour call or similar investment pending property settlement etc........ They would require........monthly interest from all accounts to Dotwell Investments Pty Ltd A/c (investments would be in Dotwell's name as trustee or authority would be held.)...... ... .. .” Apparently pursuant to these arrangements on 9 November 1988 an employee of McDonald Partners told the Defendant that an amount of $392,260.15 was to be withdrawn from Chase Bank and deposited on twenty-four call under the name of Dotwell Investments Pty Ltd as trustee for eleven individuals representing funds of intending immigrants from Hong Kong and Taiwan; the Bank was told to contact Ranald McDonald of Dotwell to arrange opening of the accounts: Exhibit 2 p.83. A letter from McDonald Partners the same day (Exhibit 2 p.84) was sent to the Defendant and was said to enclose the firm's trust account cheque in that amount to be deposited in the name of “Dotwell Investments Pty Ltd as trustee for” a list of individuals. One of these was the Plaintiff: the amount attributed to her was $29,555: Exhibit 2 p.84. The letter went on to invite the Defendant to contact Ranald McDonald of Dotwell for any further information.
The deposit of $165,000.00 on 20 December 1988 was initially to account number 320222, which I take it was the general trading account of Dotwell, but the same day in accordance with the instructions to the Bank the funds were transferred to what was described as an “11am” account: see Exhibit 2 p.97, 101; Transcript p.124. The withdrawal from the current account was signed by the bank officers including a Mr Jensen, in reliance on the authority of the letter from Dotwell of 20 December 1988: p.129. The effect of placing the money in the “11 am” account was that interest was payable on the rate of 13% per annum: Exhibit 2 p.98. On 22 December 1988 two sums, $38,445.00 and $4500, were withdrawn from this account: Exhibit 2 p.100. They were deposited in Dotwell's general account (Exhibit 2 p.102) along with $29,555 which had been held on another 11 am account by Dotwell (on trust for the Plaintiff) (Exhibit 30, Exhibit 31) after being part of the large deposit on 9th November 1988: Exhibit 2 p.84. Page 102 of Exhibit 2 suggests that the total of $72,500 was promptly disbursed by three cheques, 253029: $4,500, 253031: $33,000 and 253032: $35,000, but I have no evidence as to where that money went. The balance remained in the account until 1 January 1989: Exhibit 2 p.103. What happened to it after that did not emerge from the evidence before me, but clearly the Plaintiff has not received the money back, nor value for it. The Plaintiff waited some months during which she was fobbed off with excuses (Exhibit 5) and failed to obtain a title deed from Dotwell or any satisfaction from McDonald Partners, and in or about July 1989 she consulted other solicitors who discovered that the cheque had been deposited into the Dotwell account: (p.36 - 37) and on 14 July 1989 lodged a caveat on the land: Exhibit 25. On 2 August 1989 her Solicitors wrote to Dotwell terminating the contract Exhibit 6 and demanding the return of $195,000: Exhibit 8. Thereafter proceedings were commenced, initially in the Supreme Court on 15 August 1989 (Exhibit 19 Doc.63) subsequently in the Federal Court on 9 January 1990 (Exhibit 19 para.36) where judgment was given in her favour on 3 January 1992 (Exhibit 3) and an appeal was dismissed on 11 May 1992 (Exhibit 4). They did not lead to the recovery of any money from Dotwell or Donald or Ranald McDonald: p.37, 86: A claim against the Legal Practitioners Fidelity Guarantee Fund resulted in recovery of the $30,000: p.97.
Contract with Dotwell
The contract signed by the Plaintiff on 19 December 1988 was Exhibit 6. It was a contract for the sale by Dotwell to the Plaintiff of a parcel of land described in the schedule and the construction upon that land of a dwelling said to have been defined by an agreement made between the parties prior to signing this contract. The contract is expressly subject to the completion by Dotwell of its purchase of the land, which is said to be merely on offer to it, so that the contract was initially conditional.
The contract was described by Burchett J. as “clumsily drawn”: 105 ALR at 491. One of its least satisfactory features is the provision it made for payment of the purchase price. Clause 2 provided in terms: “It shall be paid in full by the purchaser to Dotwell, to be lodged by Dotwell in its own Trust Account in relation to the supply of the said house, land, furniture and landscaping package within the said time and in accordance with this agreement.” Leaving aside the fact that the reader is expected to deduce that “it” is a reference to the purchase price, the clause is unclear as to whether the payment in full was to be made “within the said time” or whether the supply of the house etc. was to occur “within the said time”, a matter which is not clarified by the absence of any prior reference to a period which could be identified as “the said time”. The contract made no reference to the two earlier payments of “deposits” which the Plaintiff had paid to McDonald Partners. Clause 3 engaged McDonald Partners to be the Plaintiff's Solicitor to act in transferring the land, and required the purchaser to pay $1,500 to the firm's Trust Account “at the time of issuance of title deed (approximately two months) ..............to allow the transfer of land to be registered into the name of the purchaser clear of all encumbrances.” This is identified as an additional payment to that referred to in Clause 2. The clause goes on to provide for the adjustment of outgoings.
Clause 4 provided: “Such part of the balance of the monies as set out in Clause 2 hereof as Dotwell requires to have the dwelling house agreed between the parties, and to have completed the landscaping paths and gardens agreed upon, and the purchaser to install the furniture, furnishings, appliances, floor coverings, lights and other matters agreed to between the parties hereto, either at the time of this agreement or varied later by mutual agreement shall be lodged by Dotwell to it's credit in relation to this agreement and the purchaser and the land set out in the schedule in its own account. All interest shall be the property of Dotwell and if possible payment or credit of interest is to made to Dotwell directly. Dotwell shall be at liberty to draw out such progress payments, or payments for direct supplies or services, or for furniture, appliances, lights, floor coverings, or otherwise connected with the house or its fittings as are needed from time to time.” This clause is also unclear, but seems to provide that some undefined part of the purchase price was to be available to be called on by Dotwell to met the costs of constructing the dwelling on the land, and fitting it out in accordance with the other agreement between the parties.
Clause 7 provided that Dotwell was to retain the benefit of any fall in prices for material etc., but “should Dotwell, in spite of its best efforts be faced with price rises in the above items, then it may call upon the purchaser to pay a maximum extra sum of 5% on total purchase price......” The purchaser was also to pay any extra costs due to any requested variations. Clause 10 contained a further covenant to transfer the land to the purchaser clear of all encumbrances and free of rates and taxes up to the time of transfer, but does not assist in identifying when the transfer is to take place. The schedule of the contract contained an entry “time for completion: four calendar months from the day hereof subject to Clause 5 hereof.” This initially suggested that the transaction for the sale of purchase of the land was to be completed four months from the date of execution of the contract, but the reference to Clause 5 seems to me to suggest that what was referred to was in fact the time for completion for the building work. Clause 5(A) refers to reports of progress and photographs, obviously relating to the building work, before acknowledging that the time of completion is not of the essence of the contract; Clause 5(B) refers to adverse weather conditions and the need for “at least one hundred and twenty days of clear weather to complete construction.” Clause 5(D) refers to the consequences of industrial action.
As pointed out by Burchett J. ( 105 ALR at 491) “unless compelled by intractable language, a court would normally construe a contract for the sale of land as contemplating that the price would be paid upon delivery of an appropriate transfer or conveyance of other documents of title.” The difficulty is that it seems to me that the whole purpose of Clause 4 is to indicate that Dotwell is to be able to use part of the purchase price to finance the cost of constructing the required dwelling house and trimmings on the land, and this is inconsistent with a construction of the contract that the purchase price is to be paid in return for a registrable transfer of the land with the dwelling house etc. already constructed upon it. It may be possible to construe the contract as meaning that the land will be transferred to the Plaintiff in return for the payment of the full purchase price which is then to be held in Dotwell's “Trust Account” until the dwelling house etc. is completed on the land, except for such monies as are required to be applied to the construction of that house. It may be that such a construction would be the correct one, having due regard to the contra proferentem approached to construction, but I strongly suspect the intention of Dotwell was that the full amount of the purchase price should be paid into its Trust Account even before the completion of the acquisition by it of the land, since Clause 2 refers to the supply of the land as well as the house etc., which suggests that the intention was that the purchase of the land would also be financed from these monies. That would be consistent with the evidence of Donald McDonald before Burchett J. as to his understanding of when Dotwell was entitled to the money: Exhibit 26 p.416. But what matters for present purposes is not the true construction of the contract, or what might have been the private intention of Dotwell or Ranald McDonald. What matters is whether the Plaintiff intended that the benefit of the cheque for $165,000 should immediately pass to Dotwell, as it did as a consequence of its being banked to Dotwell's account. Assuming that that account is to be equated with the “Trust Account” referred to in Clause 2 of Exhibit 6, that clause does not clearly convey in English that the full balance of the purchase price was to be paid to Dotwell forthwith upon the execution of the contract, and I doubt whether any accurate translation of it into Chinese would have served to clarify it. Notwithstanding that this is the contract which is supposed to have been explained and translated for the Plaintiff at some length during that afternoon, I do not think its terms are such that I should conclude that the natural result of such an explanation followed by entry into the contract would be an intention immediately to pay the cheque of $165,000 to Dotwell. The Plaintiff said that Dotwell was not to be paid until the title to the land was transferred to her: p.81.
Conversion: The interest protected
The action of conversion protects the possession of chattels, so that the Plaintiff to succeed must have been either in actual possession or entitled to immediate possession of them: Fleming “Law of Torts” (8th edition 1992) p.64. It follows, as is pointed out by the learned author on page 65, that a person in possession without title may maintain an action for conversion, whereas a person with title but without a right to a immediate possession may not. In the present case any conversion by the Defendant occurred after actual possession of the cheque had been passed by the Plaintiff to Ranald McDonald. Therefore the first question becomes whether the Plaintiff had, during the time when the cheque was in the possession of Ranald McDonald or some other employee of Dotwell, a sufficient right to immediate possession of the cheque to maintain an action of conversion. The second is whether she had a sufficient proprietory interest in the cheque to maintain an action for conversion. If at the time of collection the Plaintiff remained the true owner of the cheque and entitled to possession of it, there was a conversion by the Defendant: Associated, Midland Corporation Ltd v Bank of New Sauth Wales (1984) 51 ALR 641 at 642. The cheque was a negotiable instrument and in some circumstances the question of who has title to sue for conversion depends on the operation of the Cheques and Payment Orders Act 1986: Tyree “Banking Law in Australia” (1990) pp.179-183. In this case however the question turns on whether at common law property in the cheque as a chattel had passed from the plaintiff.
The Plaintiff certainly had prior possession of the cheque, and no question arises as to whether a better title to the cheque is shown either by the China State Bank Ltd or the Plaintiff's employer in Hong Kong who provided (by way of a loan) the funds to purchase the bank cheque: p.36. What I do need to consider is the effect on the Plaintiff's title of the physical delivery of the cheque to Ranald McDonald. As I have said earlier, the Plaintiff's intention was to hand over the cheque to McDonald Partners with a view to transmission of the funds represented by the cheque into that firm's Trust Account. It follows that her intention was to transfer her legal title to the cheque to McDonald Partners, hence her concern about receiving a receipt from that firm. The Defendant has in paragraph 8 of the amended entry of appearance of defence alleged that Ranald McDonald was the servant or agent of McDonald Partners, and paragraph 9 alleges that the cheque was delivered to him in this capacity, with the consequence alleged in paragraph 10 that McDonald Partners became the true owner of the cheque and acquired the right to immediate possession thereof. The Plaintiff's reply in paragraph 2 admits the allegation in paragraph 9 of the amended defence, and (in paragraph 1) admits that she handed the cheque to Ranald McDonald as servant or agent of McDonald Partners, but denies the conclusion in paragraph 10 of the amended defence. It was expressly conceded during addresses by Counsel for the Plaintiff that the question of the authority of Ranald McDonald was closed against the Plaintiff on the pleadings.
In the course of argument I was referred to the decision of the Court of Appeal in New South Wales in Associated Midland Corporation Ltd. v Bank of New South Wales [1983] 1 NSW LR 533. In that case Associated Midland, a financier, was proposing to enter into a finance lease of two hundred paging units to a company Telepage Rentals and Sales Pty Ltd, which paging units were to be purchased from Motorola Communications Australasia. The transaction was negotiated by a finance broker Heathley Ltd, retained by Telepage, and Heathley was represented by Mr Ashley who was said to be for general purposes the agent for Telepage. Ashley had the various documents associated with the lease executed, and obtained from Motorola an invoice addressed to Associated Midland for the price of the units, which he took to Mr Kemp, the officer of the Associated Midland who was handling the transaction. Kemp in return for the invoice gave Ashley a cheque drawn by Associated Midland on the Defendant bank payable to Motorola and crossed “not negotiable A/c payee only”. The cheque was deposited to the credit of Telepage's account with the Defendant bank and the bank collected the proceeds of the cheque and credited them to Telepage. One issue was whether the Plaintiff had title to sue the bank in respect of that conversion.
I have in the judgment of the Court of Appeal the benefit of three separate analyses of the legal effect of Kemp's handing Ashley the cheque. Hutley J.A. said at p.535 that, although Ashley was for general purposes the agent for Telepage, when he was handed the cheque it was as the agent of Associated Midland to deliver the cheque to Motorola, and that Associated Midland's title to sue would not be lost until the cheque reached Motorola “or an agent of Motorola with actual or extensible authority to receive it.....” He said that Ashley was a mere messenger to deliver it to Motorola so that the title of Associated Midland to sue had not been lost. Samuels J.A. at p.543 identified the vital issue as the character in which Ashley took the cheque, to be determined by Kemp's intention objectively determined upon all the relevant evidence. At page 544 he noted that the financier's usual practice was to hand the cheque to the broker, and that “he would have expected Ashley, as Motorola Communications' agent, to deliver the cheque to Motorola Communications just as confidently as if Ashley had been acting in this respect for the Plaintiff.” He concluded on page 545 that Ashley was not appointed as Associated Midland's agent and that the delivery of the cheque in exchange for the invoice was regarded as the settlement of the transaction with Motorola. Kemp intended to transfer possession of the cheque to Ashley (or Heathly) with the expectation that it would go to Motorola Communications, but on the basis that the whole transaction was then complete. His Honour therefore concluded the Plaintiff had no title to sue. Mahoney J.A. at page 549 concluded that the cheque was given to Ashley for the purpose of being delivered to Motorola, there was never any intention that the money represented by the cheque should pass to Telepage, and that Ashley's authority was limited to delivering or effecting the delivery of the cheque to Motorola, so that until that happened the Plaintiff had not lost its possession or right to immediate possession so as to prevent it from suing in conversion.
It was interesting that when the matter went on appeal to the High Court - (1984) 51 ALR 641 - where the case was argued on a somewhat narrower point, the Court, although noting that Ashley was acting for Telepage and not Motorola (page 643), concluded that there had been a contract formed between Motorola and Telepage because Motorola had given the invoice for the sale to Heathley to pass to Associated Midland, so that it could be inferred that Motorola intended that the acceptance could be made by giving the cheque to the person who had possession of the invoice: page 644 Gibbs C.J. with whose judgment with the other members of the High Court agreed. His Honour noted that this conclusion was sufficient to dispose of the appellant's agreement which was based on the proposition that there was no contract between Motorola and the appellant, and continued: “It may be that it is also inconsistent with the view that the appellant remained the true owner of the cheque at the time of the conversion, but it is unnecessary to consider or decide that question.” Such a characterisation would appear to depend on treating Ashley as being Motorola's agent for the purpose of receiving the cheque, since the High Court regarded communication of acceptance to Ashley as being sufficient to constitute acceptance by Associated Midland of the offer to sell made by Motorola.
These analyses are helpful in the present case if I bear in mind the position of Ranald McDonald as the agent of the payee of the cheque. Samuels J.A. who characterised Ashley as Motorola's agent held that the effect of handing the cheque to Ashley was that the Plaintiff lost its title to sue, and Hutley J.A. said that the Plaintiff's title to sue would be lost when the cheque reached an agent of Motorola, although he did not regard Ashley as the agent of Motorola. The inference is that if he had regarded Ashley as the agent of Motorola he would have concluded that the Plaintiff's title to sue had been lost when the cheque was handed to him.
There are three possible ways of characterising what occurred when the Plaintiff handed the cheque to Ranald McDonald:
(a) She handed the cheque to him in his capacity as an agent for McDonald Partners intending thereby to deliver the cheque to McDonald Partners with the result that she passed property to McDonald Partners.
(b) She handed the cheque to him on behalf of Dotwell, intending thereby to pass property to Dotwell, with the result that that is what occurred.
(c) She handed the cheque to him as her agent for the purpose of passing the cheque on to Donald McDonald (ie. McDonald Partners) the next day, so that he thereafter held it on her behalf and property remained with her.
I have earlier, when referring to an issue as to whether the Plaintiff's evidence that Ranald McDonald said that he would give the cheque to his father in the morning, was to be accepted, referred to a number of matters which in my opinion favour possibility (a). It seems to me that the significance of that statement is that it is evidence tending to exclude possibility (b), but does not in itself assist in choosing between possibilities (a) and (c). Further, the Plaintiff seems to have expected that she would be entitled, upon handing the cheque to Ranald McDonald, to a receipt on behalf of McDonald Partners (p.56) and Ranald McDonald offered an explanation for not giving such a receipt, which was that those receipts had run out (p.56: the Plaintiff has said this consistently since the affidavit affirmed in 1989: Exhibit 24 para.14). These factors support possibility (a) and tend to exclude possibility (b). Handing the cheque to his father in the morning is what the Plaintiff would have expected him to do if he received it as agent for his father.
The feet that apparently the Plaintiff made no further efforts after 19 December 1988 to enquire about whether the funds had actually been received by the Solicitor until the relationship broke down tends to exclude possibility (c). Her attitude was that the cheque had reached Donald McDonald's agent or messenger: p.54,56,57. It seems to me that the Plaintiff's failure to concern herself further immediately after 19 December with getting the funds into the Trust Account is more consistent with possibility (a) or possibility (b) than possibility (c). Although McDonald Partners was by the contract retained to act as the Solicitors for the Plaintiff in the transaction, and hence subjected itself to the ordinary obligations of a Solicitor towards its client (which obligations were so woefully neglected as demonstrated by Burchett J.) on the basis of what the Plaintiff had seen up to that time McDonald Partners were firmly identified, along with Dotwell, as members of the Nicehold Group with which the Plaintiff was dealing. According to the Plaintiff's affidavit filed in the Federal Court (Exhibit 5, para 73 and see Transcript p.56) Ranald McDonald, after giving the excuse that McDonald Partners receipts had run out, went on to say “Don't worry about it. McDonald and Dotwell are the same.” This evidence provides support for possibility (b), which is also supported by the physical acceptance of the Dotwell receipt and the failure to press further for a Trust Account receipt, but overall I think possibility (a) the most probable. It was supported directly by the evidence of the Plaintiff (p36.) and, for what it is worth, Ranald McDonald did not in the Federal Court assert to the contrary: Exhibit 26 pp.470, 499.
It seems to me that the situation here is rather different from that in the Associated Midland case; it is I think easier to see Ashley as being the agent of the financier for the purpose of conveying the cheque to Motorola, and not being the agent of Motorola to receive the cheque, than is the case here, although obviously that situation must be close to the border line because the New South Wales court divided on that issue. I have referred earlier to a number of matters which demonstrate the close relationship between Ranald McDonald (and Dotwell) and McDonald Partners.
Although the statement about handing the cheque to the father in the morning is consistent with an acceptance of an appointment as agent for the purpose of doing that thing on behalf of the Plaintiff, as I have said it is also consistent with an assurance that he would perform his obligation as Donald McDonald's agent to account to his principal for the funds he had received. The Plaintiff of course still had an interest in the funds in that Donald McDonald was to hold them as her Solicitor, so that this was a matter properly of some concern to her. I think that it is more significant that there is nothing in the evidence of the conversation to indicate that the Plaintiff ever made a statement which could be clearly characterised as the appointment of Ranald McDonald as her agent for the purpose of conveying the cheque. Had there been something which could be characterised as an appointment as an agent, the statement I have just referred to might readily be treated as an acceptance of that appointment but it is not in my opinion sufficient in itself, particularly in view of its somewhat ambiguous character.
I therefore find that the correct characterization is possibility (a). The consequence is that the effect of handing the cheque to Ranald McDonald was that the Plaintiff transferred her title to it to McDonald Partners. McDonald Partners of course held that title as Trustee for her: Donald McDonald became her trustee of the cheque as soon as it came into the hands of his agent Ranald McDonald. It would I think be wrong to postpone the Solicitor's obligations as Trustee until the cheque was actually deposited into the Trust Account. In my opinion when a client hands a cheque to a solicitor or his agent to be placed in his trust account legal title to the cheque passes when it is in fact received by the solicitor or his agent: it is not retained by the client until the cheque is actually banked. My view appears to be consistent with the way it was put in the joint judgment of Pincus J.A. and Helman J. in Jalmoon Ety Ltd v Bow (Appeal No. 49 of 1995, 13.12.96) at page 12: “When each cheque was received by the Defendant [Solicitor] he became it seems plain enough, the legal owner of not only the piece of paper on which the cheque was written, but also the chose in action which it evidenced. There was according to the Defendant's case, some uncertainty in Keppie's mind as to who was entitled to the money, but whoever might have been the true beneficial owner it was certainly not the Defendant. It is not easy to see why the rights which the cheque gave the Defendant were not held by the Defendant on trust........” Their Honours went on to conclude that the solicitor was the trustee of the cheques. By way of contrast see ES & A Bank Ltd v Beatty [1931] St.R Qd 291 where the solicitor was holding a cheque payable to his client or her order without instructions to deposit it in his trust account, and it was held that the client could sue in conversion when he forged her signature to an endorsement and deposited it in his trust account, and subsequently misappropriated part of the proceeds. I must therefore consider whether an equitable title to property, being the interest of a beneficiary under a trust, is sufficient title to sue for conversion, and whether the Plaintiff had a right to immediate possession of the cheque.
Conversion - Plaintiff's equitable interest
Conversion is a cause of action at law and there is clear authority in Australia that the right to immediate possession required for such an action has to be derived from a legal title: Turner v New South Wales Mont De Piete Deposit and Investment Co Ltd (1910) 10 CLR 539 at 544, 551, 556. That case arose in New South Wales prior to the fusion of law and equity, and it was necessary for the Court to distinguish carefully between the remedies of the two jurisdictions. The Defendant argued that the Plaintiff had only a equitable right to immediate possession of the chattels in question, which had been seized by the grantee of a bill of sale whose secured debt had been subsequently been completely discharged, and the Court held that on the facts title in law had reverted to the Plaintiff before the action was brought, and the grantee became a bailee of the property, and hence liable to an action at law. Nevertheless the judgments of the Court accept the basic proposition that an equitable title is not a sufficient interest to bring an action in detinue, and in the absence of some reconsideration of that point by the High Court, which I have not found, for my purposes that remains the law in Australia. There are further statements to the same effect in the judgments of Latham C.J. in Akron Tyre Co. Pty Ltd v. Kittson (1952) 82 CLR 477 at 485, and in White v Elder, Smith & Co. Ltd. [1934] SASR 56 at 61.
There is some authority in England to the effect that a contractual right of immediate possession coupled with an equitable title is sufficient to maintain an action of conversion, in the ex tempore judgment of the Court of Appeal in International Factors Ltd v Rodriguez [1979] QB 351. In that case by a standard factoring agreement the plaintiff purchased the book debts of a company of which the defendant was a director. Under the agreement if any payment of an assigned debt was made to the company it was to be held in trust for the Plaintiff and immediately handed to it, with any cheque being endorsed over to the company. Four cheques sent to the company, and made payable to the company in payment of debts which had been factored, were deposited to the company's account by the defendant, with the consequence that upon the liquidation of the company the plaintiff lost the benefit of those payments. The Court of Appeal upheld a decision by the trial judge that the defendant was in these circumstances liable for conversion of the cheques, on the basis that the plaintiff had at the time when the cheques were deposited into the company's account by the defendant both a right under the contract to the immediate possession of the cheques, and an equitable interest as beneficiary in the cheques.
This decision was criticised by Professor Watts in an article in (1994) New Zealand Recent Law Review 336 at 337 and 338. The article is a criticism of the decision of the Court of Appeal in New Zealand in Campbell v Dominion Breweries Ltd [1994] 3 NZLR 559, a case where a plaintiff having only an equitable interest succeeded in an action for conversion, although there is nothing in the reasons of the court in that case to suggest that the court was even conscious of the possible significance of the equitable nature of the Plaintiff's interest in the chattels. In my respectful opinion there is considerable force in the propositions put forward by Professor Watts in this paper, and I would take issue with only one point: page 337 suggests that some support for the proposition that an equitable interest may support an action for conversion may be derived from the judgment of the Privy Council in Maynegrain Pty Ltd v. Compafina Bank (1984) 58 ALJR 389, on the basis that the Privy Council did not take the point that an equitable pledgee ought not to be suing in conversion. But the Privy Council decided the case on the basis that there was no conversion at all, because relevant conduct amounted to consent to the act alleged to be a conversion, and at page 394 expressly declined even to hear fell argument on issues which included whether an equitable pledgee could sue in conversion without joining the pledgor. In those circumstances in my opinion that judgment cannot be used to provide any support for the proposition that the holder of an equitable interest can sue for conversion.
Rodriguez purported to distinguish the decision in Jarvis v Williams [1955] 1 WLR 71, which held that a contractual right to possession of goods without a proprietary interest in them was not sufficient to maintain conversion. In that case the Plaintiff delivered bathroom fittings to the Defendant at the request of the third party to whom the Plaintiff looked for payment, but did not receive payment and subsequently there was an agreement between the Plaintiff and the third party that the Plaintiff would take the goods back, collecting them from the Defendant at the Plaintiff's expense. But the Defendant refused to release the goods, and the Court of Appeal held that the Plaintiff, having a mere contractual right as against the other party to the return of the goods, was not able to maintain an action in detinue against the Defendant: “I think that the rights of the Plaintiff as regards these goods were not such at entitled him to bring an action in detinue against the Defendant in whose possession they were, as agent, at the time, of the person in whom the property in the goods was then vested”, (page 75). Property was evidently regarded as still being in the third party. Although that case concerns an action in detinue, it is cited in the context of an action for conversion by Fleming at page 64 n 110, and there is authority that the interest required of a Plaintiff to sue in detinue and for conversion is the same: Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 at 98-9, Joseph v Lyons (1884) 15 QBD 280 at 283. It seems to me that Jarvis v Williams provides an answer to the proposition advanced by Counsel for the Plaintiff, that, had the Plaintiff happened to come upon a representative of Dotwell in the Bank about to deposit the cheque, the Plaintiff would have been entitled to demand the return of the cheque immediately. It seems to me that if the legal property in the cheque had passed to McDonald Partners, this case is authority to the contrary so far as the Plaintiff's rights at law are concerned. The decision is consistent with a broader principle, that in general an injury to contractual rights through a wrong done to a chattel is not actionable in tort: Elliott Steam Tug Co. v The Shipping Controller [1922] 1 KB 121 at 139, 141 per Scrutton L.J. (see also p.131 per Banks L.J. p.135 per Warrington L.J.). It may be different if there is an intention to injure the contractual rights: Fleming p.688. The decision of the Court of Appeal in: Elliot Steam Tug was not referred to in Rodriguez.
It may be that Rodriguez is authority for no more than that a contractual right to immediate possession is sufficient for conversion if the Plaintiff has also an equitable interest in the goods, but the equitable interest alone is not sufficient: Re Diesels and Components Pty Ltd [1985] 1 QdR 456 at 460. It seems however a somewhat unsatisfactory situation if an equitable proprietary interest is sufficient, but the right to possession must be a right at law. In Rodriguez there was a contractual right to possession, that is a right at law, but the beneficiary of a trust of property may have an equitable right to possession of the trust property, for example where a trustee has no active duties to perform and the beneficiaries are sui juris and absolutely entitled (Jacobs Law of Trust in Australia (5th Edition 1986) para.2302) or where the trust expressly confers the right to possession (ex parte Middleton [1983] QdR 170) or where the trust is for a purpose which necessarily requires the beneficiary to have possession of the property Healey v Healey [1915] 1 KB 938.
This last case was regarded by the Court in Rodriguez as an example (indeed they said it was the only one they could find, which should have been suggestive) of an instance where a beneficial owner was said to be entitled to bring conversion. Healey was an action by a wife against her husband for conversion of certain household chattels which the husband had settled on trustees to enable the wife to have the use of them for her life. It is not clear from the report whether the chattels were in the actual possession of the plaintiff at the time when the conversion occurred, and it may be that it is not necessary to show a proprietary right where the conversion involves interference with actual possession: Fleming pages 64-5, especially n 110. If the Plaintiff in that case was relying not on possession but on a right to immediate possession there was no consideration in the judgment of whether she could show in addition a proprietary right. Indeed the reasons of Sherman J. do not disclose that there was any consideration given to the nature of the right to immediate possession said to exist as against the trustees. It also appears that the issue in that case may have been whether it was necessary for the trustees to be joined as a party. In some circumstances a beneficiary is entitled to pursue legal remedies in respect of the trust property against third parties without joining the trustee as a defendant: ex parte Middleton (supra) at page 174. This may be allowed, for example, where the trustee refuses to pursue legal remedy available to him, and perhaps when the trustee merely fails to do so, and in that situation the beneficiary is relying on the legal remedy available to the trustee. It may be that Healy is no more than an example of a case where the beneficiary was permitted to pursue in her own name a cause of action vested in the trustees without joining them.
It is not necessary for me consider whether the Plaintiff is entitled to pursue in her own name any action for conversion which might have been available to Donald McDonald. No such case was pleaded, and had it been additional factual issues may well have arisen. For example it may have been relevant to explore the question of whether Donald McDonald had knowingly acquiesced in this conduct. Burchett J., who had the benefit of a good deal more evidence than I had, including oral evidence from both Donald McDonald and Ranald McDonald (see Exhibit 3, Exhibit 26) thought it probable that Donald McDonald, if not aware of the instruction to lodge the cheque in Dotwell's account when it was given, became aware of it within a very short time, most likely the next day: see 105 ALR 473 at 491. This involved rejecting his evidence to the contrary: Exhibit 26 p.386. There was no evidence before me that an enquiry was made by anyone on behalf of the Defendant at the time when the cheque was deposited, but there was also no direct evidence that an enquiry was not made, and there was evidence that an enquiry ought to have been made. If an enquiry had been made the obvious person to whom that enquiry would have been directed was the payee of the cheque, that is Donald McDonald, and the impression given by the judgment of Burchett J. is that, had such an enquiry been made of him, Donald McDonald would have said that the transaction was in order. Matters such as this could well have impacted on the question of whether the defendant was liable to Donald McDonald for conversion: cf Maynegrain Pty Ltd v Compafina Bank (1984) 58 ALJR 389 at 392-3.
It is also established, as was pointed out by Griffiths C.J. in Turner (supra), that a beneficiary is entitled to pursue remedies at law against the trustee when the trust is at an end. In the present case the trust was completely constituted once the property in the cheque had passed to the Solicitor. Although the Solicitor had not at that stage received any instruction as to how he was to deal with the money, the trust was constituted for the purpose of his dealing with the money in accordance with his further instructions, and therefore it was not a trust where the trustee had completed what was required of him and had no further function other than the mere delivery of the cheque, or the proceeds of the cheque, to the Plaintiff. It was not a trust to deliver the cheque immediately to the Plaintiff. Accordingly the circumstances under which the beneficiary might have an action of law against the trustee discussed by Sir Samuel Griffith in Turner (supra) had not arisen. The Plaintiff had the equitable right at any time to terminate the trust, or instruct the Solicitor to return the cheque or its proceeds to her, but she did not take that step. Until she did so she had no right to immediate possession of the cheque.
It was argued that the Plaintiff was entitled to put an end to this trust at any time, and therefore she should be treated as having a sufficient right to possession to sue in conversion. It is true that a bailor is entitled to sue in conversion in the case of a bailment terminable at will (Fleming p.66), or where a bailment becomes terminable for breach (Fleming p.65), but otherwise a bailor is not entitled to sue during the currency of the bailment. But a bailor retains legal ownership to the goods which involves a right of immediate possession unless that right has been removed by contract or operation of law. I do not think that the position of a trustee of property to be held on trust to deal with it in accordance with the beneficiary's further instructions ought to be equated with the position of a bailee under a bailment at will, nor should a trustee who is in breach of trust be treated as being in the same position as a bailee who is in breach of the terms of bailment, at least when the matter at issue is the right of the equitable owner to pursue remedies against third parties, that is persons other than the trustee (or fiduciary). It would not be consistent with established doctrines to treat a breach of trust as vesting the legal title in the beneficiaries. A breach of trust by a trustee does not result in a beneficiary becoming immediately entitled to possession of the trust property: It exposes the trustee to an obligation to restore the trust property i.e. to the trust: See Jacob's Law of Trust Australia (5th Edition 1986) para.2201, 2205. In my opinion there is no reason to treat McDonald Partners as a bailee of the cheque prior to the time when it was deposited for collection to its Trust Account: as I said earlier the Solicitor became the Trustee of the cheque as soon as it came into his possession (either personally or by an agent).
Finn J., in a paper “The Liability of Third Parties for Knowing Receipt or Assistance” a copy of which was provided to me by Counsel for the Plaintiff, discussed the difficulties involved in establishing under the current law the limits of the liability of persons other than a trustee or fiduciary who are involved in a breach of the trustees or fiduciary's duties to the beneficiary, and discusses various matters of policy and consistency with principle which justify confining the liability of the third party by reference to the third party's actual knowledge or what the third party had reason to know. At page 25 of the paper he expressed the view that liabilities such as an award of damages of the full value of the property received “should only be imposed on a third party who properly can be said to be a wrongdoer either because that person knowingly participated in the fiduciary's wrong, or because after the receipt, and not being a bona fide purchaser, he became a so appraised of the fiduciary's wrong as would make him an accessory in that wrong if he continued to retain the property as his own.” This was said by way of contrast to the comment page 23: “innocent converters of another's property are treated by the common law with little mercy.” Knowledge of the actual owner is irrelevant to conversion: Maynegrain Pty Ltd v Compafina Bank [1982] 2 N.S.W. LR 141 at 155. But if a beneficiary in these circumstances was to have the benefit of an action at law for conversion wherever there had been a breach of trust in respect of chattels by the trustee, it would expose to liability potentially large numbers of persons who had participated in the breach quite innocently. In my opinion it is better in the interests of justice overall for people whose equitable rights have been interfered with to have the available remedies fixed and defined and limited by reference to the applicable principles and doctrines of equity. The fusion of law and equity should not be treated as an excuse for affording common law protection to equitable rights. See Joseph v Lyons (1884) 15 QBD 280 at 285-6 per Cotton L.J. The Law Reform Commission in its 18th report (Conversion and Detinue) 1971 (Cmnd. 4774) para. 128(5) said that any interest in chattels (not being an equitable interest) should be enough to maintain conversion. If it is open to me to follow International Factors Ltd v Rodriguez (supra) I would not do so. In my opinion the correct position is that an equitable interest in chattels is not a sufficient basis for an action for conversion of them. In my opinion, having identified that the Plaintiff's interest in the cheque at the relevant time was equitable, it is appropriate that any entitlement to relief depend upon the scope of the protection afforded by the principles of equity, and I will consider them now.
Knowing participation in a breach of trust
The solicitor having become a trustee of the cheque, its deposit into the account of Dotwell was a breach of trust by the solicitor's agent for which the solicitor was responsible. Indeed Burchett J. identified a number of breaches by the solicitor of his duty to the Plaintiff Although it was argued that Ranald McDonald did not owe an fiduciary duty to the Plaintiff, at least in circumstances where the Plaintiff's entitlement to sue in conversion had been lost, it seems to me that the relevant breaches are those of Donald McDonald of his duties as Trustee (and, if they add anything, as solicitor and hence as fiduciary) and it seem to me that the Defendant concentrated its argument in relation to this aspect of the case on the question of whether the Defendant had knowingly participated in that breach. Although it is alleged there was also a breach of the trust or fiduciary duties by Dotwell, I cannot see how this adds anything to the Plaintiff's claim.
The Plaintiff's argument was that the Defendant knew or ought to have known that a wrong was being committed by the trustee on his beneficiary. There was certainly no evidence that there was any actual knowledge on the part of any relevant person at the bank that there was any breach of trust being perpetrated on the Plaintiff, or indeed anyone, but the Plaintiff's argument was that the bank had reason to know of the wrong because it ought to have known that the money was trust monies, because of the cheque being payable to a Solicitor's trust account, and because of the references in the earlier materials to money deposited by Dotwell being held on trust for clients. It ought to have known that there was a breach of that trust because there was no endorsement on the cheque from McDonald Partners in favour of Dotwell. The absence of an endorsement on the cheque does mean that the cheque had not being dealt with in the way it ought to have been dealt with as a negotiable instrument for the money to have been payable to Dotwell. There was evidence that the state of the cheque should have provoked some enquiry (pp. 113,129), and one of the defendant's witnesses conceded that it appeared that there had been no enquiry. The obvious person from whom to make such an enquiry was the payee of the cheque, Donald McDonald, and there is no reason to think that any enquiry made of him would have produced any response other than that the transaction was in order. There would have been less justification in making an enquiry of Ranald McDonald, and not the slightest reason to think that any enquiry made of him would have failed to produce reassurance to the bank. If the bank was for some reason going to proceed on the assumption that these two individuals were rogues, it is not obvious what further step the bank could have taken, since it had at the time of deposit no means of ascertaining who the beneficiary of these trust monies was other than from one of them.
On the basis of the information available to the bank, there were in theory three possible explanations for the deposit of the cheque into Dotwell's account:
(a) The Plaintiff had handed the cheque to someone on behalf of Dotwell intending it to be paid into Dotwell's account: that is to say the Plaintiff had deliberately transferred her title to the cheque to Dotwell notwithstanding that it was payable to someone else. This would not of course have been apparent from the face of the cheque; but in general a person other than the payee might have been the true owner, not dealing with the cheque in breach of trust, if that person had obtained the cheque from the State Bank of China itself, or had obtained it from the person who did so without breach of trust. This is simply an example of how, if the facts of this case had been slightly different, the same thing could have occurred on 20 December 1988 without there being any breach of trust. What matters is that such a cheque could come into the hands of someone other than the payee in circumstances where that person would be entitled to deposit it to that person's account without breach of trust.
(b) McDonald Partners had, in accordance with its clients' instructions, delivered the cheque to Dotwell for banking into its account, overlooking the need to endorse the cheque in favour of that company. Payment to the account of a person other than the payee will be regular if it is at the payee's request: see for example Importers Co Ltd v Westminister Bank Ltd [1927] 2 KB 297 at 309.
(c) There was some wrongful dealing with the cheque.
There is in fact no evidence that (b) was true, and, although there is some evidence with which would support a conclusion that (a) was true, I have found to the contrary. But for the purpose of this analysis that does not matter. The point is that the mere presentation of the cheque as it was to the bank did not mean that the bank knew facts which demonstrated wrongdoing. It knew of facts which indicated that there might or might not be wrongdoing.
The matter was put this way by Stephen J. at page 412 of Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] 132 CLR 373: “If a defendant knows of facts which themselves would, to a reasonable man, tell a 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 the conscience of the Defendant.” It seems to me that some emphasis needs to be placed on the word “themselves” in the first part of the first sentence. At the foot of the previous page, His Honour noted earlier cases “in which trust property passed through the defendant's hands and in all of them in which the plaintiff succeeded it did so because the defendant was held to have had actual knowledge of facts constituting the relevant fraud or breach of trust; thus constructive notice arose out of the defendant's failure to recognise fraud when he saw it, not from a failure to pursue enquiries.” His Honour in my opinion is distinguishing between a case where the facts known to the third party indicate that there might be fraud so as to justify the making of further enquiries because they show that there might be something wrong going on, and a case where the facts known to the third party show that there is something wrong going on. I would readily conclude that the facts in this case justified enquiries; I do not understand Stephen J. (with whom Barwick C.J. agreed) to be saying that he would regard that as sufficient to make a third party such as the present defendant liable. The other member of the majority in that case, Gibbs J., page 398 said: “It may be 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 enquiry, when the stranger's failure to enquire 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 any impropriety that would have apparent to an ordinary man.” Again I think His Honour's use of the term “full knowledge of all the facts” is significant, when contrasted with the expression “circumstances (that) would have put an honest and reasonable man on enquiry”. I find that there were circumstances which put the defendant on enquiry, but I am not persuaded that the Defendant had full knowledge of all the facts. I do not consider that the evidence in this case justifies a finding that the Defendant has wilfully shut its eyes to the obvious, or deliberately refrained from making enquiries for fear of what it might find out, and I do not so find. The evidence was that, if the matter was not detected by the teller, there was no later examination of the state of the cheque to detect any relevant irregularity: pp. 114-115. The obvious inference is that the teller just did not realize that anything was wrong (p.116) and I find that that occurred.
If that was the case it seems to me that it makes less relevant the other information the Defendant had as to previous dealings with other monies deposited to Dotwell accounts, and the facsimile sent by Dotwell later on 20 December which was relied on by the Plaintiff as showing that the Defendant knew that the proceeds of the cheque were held on trust for her, as part of the argument seeking to demonstrate that the Defendant knew facts which showed that the deposit had been in breach of trust. I have referred earlier when dealing with the facts to the earlier relationship between Dotwell and the Defendant, and the deposit of a large sum of money on 9 November 1988, coming from McDonald Partners trust account. There was further correspondence dealing with monies said by Dotwell to be held on trust by it for persons other than the Plaintiff. On 2 December 1988 Dotwell sent a fax to the Defendant asking for a sum of money to be withdrawn from each of two accounts identified with individuals with Chinese names, with instructions that these be paid into Dotwell's general account number 320222 “on account of building progress payments for these clients' houses”. These represent almost all of the monies said to be paid in on behalf of these two individuals on 9 November 1988. What seems to have happened is that after that deposit a series of separate 11am accounts were opened by the Defendant, with in each case the owner of the account being Dotwell as trustee for a nominated individual. As far as the bank was concerned the customer was Dotwell, not the individuals: p.132. There were two similar instructions on 19 December 1988: Exhibit 2 p.92, Exhibit 20. The position therefore was that prior to this cheque being deposited there had been a previous substantial deposit of funds by way of a cheque drawn on the trust account of McDonald Partners which monies had then been placed in a series of separate 11am accounts each of which was said to be held by Dotwell on trust for a named Chinese individual, and from which Dotwell had subsequently transferred funds to its general account. It then made a further deposit which it said later the same day (Exhibit 2 p.94) was held “on behalf of Wendy Leung” to be dealt with in the same way. In fact the officers who received the facsimile Exhibit 2 p.94 would not have been aware that the deposit had been by cheque payable to McDonald Partners trust account rather than a cheque drawn on that account, but even if the bank is to be treated as knowing all things that anyone on behalf of the bank had known up to that time (so far as was proved before me) I would regard the additional facts as tending rather to give some comfort to the bank if it had otherwise been suspicious about there being something wrong, rather than tending to confirm or aggravate those suspicions. I do think that they would have justified sufficient comfort as to make it inappropriate to make inquiries, but it seems to me that they do not exclude either of the possibilities (a) or (b) referred to above. When the Defendant did think about the situation it recognised that Dotwell held the money in the 11am accounts as trustee: Exhibit 2 p.106. Accordingly in my opinion the Plaintiff is not assisted by reliance on these additional matters. On behalf of the Defendant it was submitted that the Defendant was entitled to assume that McDonald Partners and Dotwell were working in conjunction in dealing with Asian clients who were remitting money and I think that is correct.
During argument I raised the question of whether there was not a statutory obligation on the solicitor to pay cheques received by him into his trust account, and was referred to section 7 of the Trust Accounts Act 1973. Relevantly this provides in sub-section (1): “A trustee shall establish and keep in a bank or banks in the State one or more trust accounts designated or evidenced as such into which the trustee shall pay all trust monies.” The term “trustee” is defined in section 4(1) to include a solicitor, and “trust monies” are defined in the same sub-section as “monies received for or on behalf of any other person by the trustee in the course of or in connection with the practice of the person's profession..........” It seemed to me therefore that this provision required Donald McDonald to pay the proceeds of the cheque into his trust account. It seem to me at the time that the effect of this provision was that the deposit of the cheque made payable to a solicitor's trust account to any other account was necessarily wrongful, but after further consideration I have come to the view that the statute does not assist the Plaintiff. Even if it could be said that its effect was to exclude a possibility (b) above, on the basis that the solicitor should be assumed not to be acting in breach of this requirement, it does not exclude possibility (a) above, which is necessary in order to demonstrate that there was some wrongful dealing with the cheque. But in any event it seems to me that what matters is whether there is knowing participation in a breach of trust. If after a solicitor has received a cheque made payable to his trust account but before it is banked (which ought to be the same day: section 7(3) of the Act) the client instructs the solicitor to hand the cheque over to X instead of depositing in the trust account, and the solicitor does so, the solicitor would appear to be in breach of the obligation under section 7(1), but would not be in breach of trust, since he had acted in accordance with his client's instructions, and therefore in accordance with the terms of the trust upon which he held the cheque. It seems to me therefore that the provisions of this statute do not strictly speaking exclude a possibility (b) above, although they would perhaps serve as a further reason why, where a cheque made payable to a solicitor's trust account is presented to a bank for collection to some other account, it is appropriate for the bank to make inquiries.
The matter is further complicated by the fact that it seems to me that the relevant passages in the judgments of Gibbs J. and Stephen J. in Consul Development (supra) do not purport to be a definitive statement of the applicable principles. As far as I know, and as far as Counsel's researches revealed, the matter is not being revisited by the High Court. I was referred to the discussion by Kirby P. (as he then was) in Equiticorp Finance Ltd v Bank of New Zealand [1993] 32 NSW LR 50 at pages 103-105. I have some difficulty in ascertaining from this passage just what His Honour proposed as the boundaries of liability in these circumstances, but there is nothing in that passage which leads me to conclude that the analysis I have just given is incorrect. Outside of Australia the debate in this area has moved on somewhat, with the Privy Council in its judgment in Royal Brunei Airlines Sdn. Bhd. v Tan [1995] 2 AC 378, attempting to resolve the matter by a reformulation of the test in the following terms (page 392): “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 of a fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this would be 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 WLR 509 scale of knowledge is best forgotten.” This conclusion is supported by an analysis by reference to considerations of policy and consistency of equitable principles, which in my respectful opinion is quite persuasive.
When there has been a breach of trust third parties (that is persons other than the trustee and beneficiaries) who may be liable as a consequence of the breach of trust fall into three categories:
(a) Those who have received and retain trust property.
(b) Those who received but do not retain trust property.
(c) Those who participated in the breach of trust, but without personally receiving trust property.
The most extensive right of recovery will be against those persons in category (a), where the rights will be limited by the scope of equitable tracing. However there is no suggestion that the present Defendant is in this category. There has been a tendency to consider separately the liability of persons in the other two categories, although Stephen J. in Consul Development at page 410 said it was not clear to him why there should exist a distinction between them. I would respectfully agree, and it seems to me that, in so far as it is possible to ascertain the law in Australia on the subject at the present time, the same test applies to both categories at least for the purpose of ascertaining what degree of knowledge is required in order to render the third party liable. Counsel of the Plaintiff provided me with a copy of an article by Professor Oakley “The Liability of Professionals for Participating in Breaches of Fiduciary Duty”, which contains a very helpful analysis of the law in this area in England, Australia and New Zealand, and suggests that in both of these categories in Australia there will be liability for knowledge which falls into any of categories 1 - 4 identified in Baden v Societe Generale [1993] 1 WLR 509 at 575-6 by Peter Gibson J. See also Tsan v Chiu (App. 47/95, Qld Court of Appeal, 8-9-95) p.9.
It seems to me that the outcome in this case depends very much on the test to be applied to determine whether there was knowing assistance by the Defendant in a breach of trust. In my opinion the correct test is that established by the Privy Council in Royal Brunei Airlines (supra) which depends on whether the accessory was acting dishonestly. If this test is applied to the facts in the present case, in my opinion it is not appropriate to characterize the behaviour of the Defendant, as described earlier, as dishonest. Dishonesty involves showing more than that something was done which ought not to have been done, because it excludes things done by an honest mistake. (See Royal Brunei Airlines v Tan (supra) at p.389. The Defendant should not have accepted this cheque in the state in which it was for deposit into Dotwell's account without making enquiry, but in my opinion its having done so was an honest mistake. It was therefore not dishonest. If the test is whether there is knowledge which falls within one of categories one, two, three or four in Baden (supra), in my opinion there was no such knowledge in the Defendant at any relevant time. The discussion in Wearer & Craigie “The Law relating to Banker and Customer in Australia” para.15,1000; 15,1010 of a number of cases involving cheques crossed “account payee only” suggests that these cases support a conclusion that without more there is only category 5 knowledge in these circumstances. If on the other hand it is sufficient to constitute knowing assistance that there was knowledge which falls within category five in Baden, “knowledge of circumstances which would put an honest and reasonable man on enquiry” (see Equiticorp (supra) at page 103 per Kirby P.) then in my opinion there was such knowledge on the part of the Defendant in the present case. Since in my opinion that is not the correct test to apply, I would not find the Defendant liable on this basis.
Money Had and Received
This claim is made in the alternative to the claim in conversion: since it arises on a waiver of the tort of conversion, it would in my opinion be available only to a plaintiff who was able to sue in conversion and therefore had the benefit of a cause of action in tort to waive. Accordingly in my opinion the conclusion that the plaintiff cannot sue for conversion means that she cannot sue for money had and received.
As well, the defendant has pleaded (para. 15 A) that it has changed its position without notice of the Plaintiff's claim. I refer below, under the heading “Change of Position”, to this defence and whether it would be a good defence to the claim for conversion or knowing participation in a breach of trust. The relevant facts and authorities are set out there, and for the reasons stated there in my opinion the defendant has in this case a good defence of charge of position to the claim for money had and received. See also Chalmers and Guest “Bills of Exchange” (14th Ed. 1991) pp.504-5. That basis of the claim therefore also fails.
In these circumstances it is not necessary for me to consider the various other issues which were raised in the course of argument. In case this matter goes further however I should say something about them.
Election and ratification
The Defendant's submissions in relation to this issue were conditional on a conclusion that the cheque had been handed to Ranald McDonald as agent for the Plaintiff so that property had not passed, so that strictly speaking it is unnecessary to consider the point. Nevertheless I should deal with it briefly, if only because I should attempt to resolve any issues of fact relevant to it in case the point becomes relevant later.
The Defendant claims that after the Plaintiff had found out what had happened to the money she took various steps which were based on the proposition that the money had been paid to Dotwell under the contract and pursued relief which would have only been available on the basis of such a payment. The Plaintiff had information from which she concluded that the money had probably gone into the wrong account when she received a copy of the cheque on 26 July 1989 (Exhibit 21 para.2), and that was confirmed in late August 1989: p.76. On 2 August 1989 the Plaintiff's solicitors wrote to Dotwell (Exhibit 8) setting out various matters including an assertion that the Plaintiff “has paid the sum of $195,000 being the price” under the contract Exhibit 6, with a reference to the bulk of that having being paid by the company into some form of Trust Account. That letter however did not seek to enforce any rights given under the contract: rather it purported to terminate the contract and demanded the repayment of the sum of $195,000. On 14 July 1989 the Plaintiff's Solicitors had lodged a Caveat against the land identified in Exhibit 6 which was then registered in the name of Dotwell, claiming “an estate or interest as the holder of a purchaser's lien on the estate in fee simple for all monies paid by the Caveator to the Caveatee pursuant to a contract between the Caveator and the Caveatee dated the 19 day of December 1988.” (Exhibit 25). That Caveat was registered on 28 August 1989: Exhibit 25. On 15 August 1989 the Plaintiff issued a writ against Dotwell out of the Supreme Court seeking inter alia a declaration that she was entitled to be paid the sum of $195,000 “paid by her under the said agreement”, i.e Exhibit 6, and “a declaration that the Plaintiff is entitled to lien over the said land............until payment of such sum to the Plaintiff.”: see document number 64 which is part of Exhibit 19. The particulars of the Plaintiff's claim specially endorsed on the writ include an allegation in paragraph 3 that “the Plaintiff paid or caused to be paid to the Defendant the said price of $195,000.........(c) by payment of the sum of $165,000 on or about 19 December 1988.”: see document number 64 in Exhibit 19. On 22 September 1989 the Plaintiff applied by summons to the Supreme Court under Order 18 for judgment on this specially endorsed claim, a claim for $195,000 as monies payable for a consideration which had wholly failed, or in the alternative as monies had and received by the Defendant to the use of the Plaintiff.
On 6th September 1991 the Plaintiff by an amended statement of claim in the Federal Court against Dotwell, Donald McDonald and Ranald McDonald claimed inter alia:
“(ii) a declaration that in consequence of the said termination the applicant is entitled to be paid the sum of $195,000 paid by her under the said agreements:
- (iii)a declaration that the applicant is entitled to a lien over the said land to the extent of $195,000 until payment of such sum to the applicant..........”
Paragraph 22 of the amended statement of claim alleges that, acting on the faith of certain representations pleaded earlier and induced thereby and pursuant to certain advice pleaded earlier: “the applicant did at Brisbane in the offices of the second and third respondent on 19 September 1988: (a). Hand to the first respondent (Donald McDonald) by his servant or agent the second and or the third respondent a bank draft in the sum of $165,000 made out in favour of the first respondent's trust account ............” (See Exhibit 19 document number 65.) In paragraph 40 it is alleged that the first respondent was negligent and in breach of his fiduciary duty to (the Plaintiff) in various respects including:
“(g) Failed to advise the applicant or her solicitors of the intentions of the third respondent to seek to remove Caveat number J979535M [lodged by the Plaintiff: Exhibit 25] he having given advice to the third respondent on the merits of such an application.
- (h)Made a request for the removal of such Caveat to the Registrar of Titles against the interest of the Caveator a former client of the first respondent.
- (i)Failed on or about 24 October 1990 to advise the Registrar of Titles of the fact that these proceedings were on foot wherein the applicant claimed inter alia an entitlement to a lien over the land the subject of the Caveat”.
I find that all these things occurred, and that, from 26 July 1989 the Plaintiff had full knowledge of the facts relevant to the deposit of the cheque in the bank for credit to Dotwell's account. There is authority that full knowledge of the relevant facts is required for ratification: Bank of Montreal v Dominion Gresham Guarantee and Casualty Co. Ltd [1930] AC 659. The argument is that although the act of Ranald McDonald in depositing the money into the Dotwell account was unauthorised by the Plaintiff, the Plaintiff has subsequently ratified it by asserting rights and claiming relief on the basis that that payment was made under the contract to Dotwell.
The Defendant's argument was that the Plaintiff could not obtain a security over the land in respect of the money as a purchaser without ratifying the payment as a payment on her behalf to Dotwell for the purposes of the contract.
If the Plaintiff had taken the benefit of the contract, or asserted an entitlement to do so which could have only been made out if the payment had been made by the Plaintiff to Dotwell, I think there would be some force in this argument. It does seem to be the case that ratification may occur through the initiation of proceedings or making claims in pleadings: see for example Clethene Pty Ltd v WJK Haulieas Pty Ltd [1981] 1 NSW LR 606. In the present case however the Plaintiff never sought to enforce the contract: her claim was always for repayment of the money, which claim is sustainable upon the basis that the money had in fact been received by Dotwell, without any need for ratification of the act of payment to that company. Merely seeking to recover lost money from the wrongdoer is neither ratification nor election: E S & A Bank Ltd v Beatty [1931] St. R. Qd 291 at 302.
A purchaser's lien is an equitable security and is really an equitable charge on land: Stonham “Vendor and Purchaser” para. 1328. It will only arise when there is a contract of sale (para. 1332), although it continues when the contract is terminated by the purchaser: para. 1335. Where property has not passed to the purchaser and the purchaser has paid the whole or part of the purchase price, the purchaser will, in the absence of express or implied agreement to the contrary, enjoy the benefit of an equitable lien over the subject land to secure the repayment to him of any part of the purchase price which may become repayable to him upon default by the vendor in the performance of the contract: Hewett v Court (1983) 149 CLR 639 at 664 per Deane J. The same case His Honour at page 668 identified the circumstances sufficient for the implication of an equitable lien between parties to a contractual relationship (authorities omitted): “(i). That there be an actual or potentional indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payments either of consideration in relation to the acquisition of the property or of any expense incurred in relation to it; (ii). That the property (or arguably property including that property) be specifically identified and appropriated to the performance of the contract; (iii). That the relationship between the actual or potential indebtedness and the identified and appropriated property be such the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged.” However His Honour went on to state that the tests, particularly (i), would be unduly restricted if propounded as a statement of exclusion.
The only aspect of this statement of circumstances which causes any difficulty in the present case is the question of whether the payment was of consideration in relation to the acquisition of the property. The payment was evidently treated by Dotwell in this way, because Dotwell proceeded to deal with the money as if it had been paid pursuant to Clause 2 of the contract, at least to begin with, since the money was identified to the Defendant as being held by Dotwell on trust for the Plaintiff: Exhibit 2 page 94. The question is whether the equitable obligation will be imposed only in circumstances where the payment is made by the purchaser as a payment of consideration, as distinct from a case where money belonging to the purchaser in equity becomes available to the vendor as a result of some misappropriation of it.
In my opinion, and bearing in mind the warning of Deane J. that the statement was not intended to be a statement of exclusion, that question is to be resolved by considering whether that difference so changes the nature of the transaction as to make it inappropriate for equity to impose for the benefit of the purchaser the security afforded by an equitable charge or lien. In my opinion the distinction is not one which would induce equity to hold its hand, particularly in a case where, as here, the vendor was aware of the misappropriation, since Ranald McDonald was the alter ego of Dotwell. Dotwell received trust monies in circumstances where it would be held to hold them on a constructive trust for the Plaintiff, even if it had not itself recognised that it held them on trust for the Plaintiff, and accordingly the Plaintiff would be entitled to trace those trust monies into property acquired with them, such as the land here. I do not know if there is any evidence that the money obtained from the Plaintiff was actually used to acquire the land, but for present purposes that does not matter, since the question is whether the claim for the equitable lien is defendant upon the ratification of the payment as a payment made under the contract. If the Plaintiff could prove that the proceeds of the cheque had been applied in obtaining the land the Plaintiff would have been entitled to equitable tracing remedies anyway against the land, and in view of that I would not expect equity to withhold relief if it happened that Dotwell had used other funds to purchase the land which was to be sold to the Plaintiff, and had dispersed the Plaintiff's money in other ways.
As the passage quoted from Hewett v Court (supra) recognises, the lien attaches in respect of amounts recoverable which are not consideration paid under the contract, e.g. Money spent on improvements on the land - Middleton v Magnay (1864) 2 H & M. 233, 71 E.R. 452; costs of a vendor and purchaser summons - Re Furneaux & Aird's Contract [1906] WN 215; or costs of an action by the purchaser for specific performance and costs of investigating title: Combe v Swaythling [1947] Ch 625 at 628.
In my opinion therefore the Plaintiff was entitled to an equitable lien over the land without having to ratify the act of Ranald McDonald in depositing the cheque to Dotwell's account as the act of her agent, and accordingly the defence of ratification in my opinion fails.
The Defendant also argued that the same circumstances amounted to an election by the Plaintiff to pursue rights which were inconsistent with the right to proceed against the Defendant for a conversion of the cheque, or for knowing participation of a breach of trust.
The Defendant acknowledges the distinction between inconsistent rights and inconsistent remedies discussed in United Australia Ltd v Barclays Bank Ltd [1940] AC 1, but submits that in the present case the rights based on treating the payment as a payment made pursuant to the contract, as referred to earlier, were inconsistent with rights based on the proposition that the payment was improperly made, which include rights to proceed against the Defendant. The rights relied on as inconsistent were essentially the same, the claim against Dotwell of an equitable purchaser's lien over the land, the claim against Donald McDonald for breach of fiduciary duty in failure to protect, and injuring, her interest in that land by the release of the Caveat, and the pursuit of that claim to judgment and execution.
I have the benefit of detailed submissions in relation to this matter from Counsel for the Defendant, which were very helpful, and I intend no disrespect to those submissions by not discussing them fully in these reasons. Subject to one point, it seems to me, with respect, that the reasoning which led to the conclusion that there was no ratification, namely the view that the relief asserted against Dotwell and Donald McDonald was not inconsistent with an assertion that the payment to Dotwell had been made wrongfully, is equally fatal to the argument that it operated as an election between inconsistent rights. If the Plaintiff had sued Dotwell for specific performance on the contract Exhibit 6, particularly sued to judgment, I think there would be some force in this argument, in view of authorities such as Verschures Creameries Ltd v Hull and Netherlands Steamship Co. Ltd [1921] 2 QB 608. In that case the Plaintiff authorised a firm of carriers to deliver goods to a customer but before delivery countermanded the instructions and instructed them not to deliver. Nevertheless the goods were delivered, and the owners thereupon invoiced the customer and, following non payment, sued the customer and recovered judgment for the price of goods sold and delivered, and attempted to enforce the judgment. When that proved unsuccessful, the Plaintiff then sued the carriers. The Court of Appeal held that it was too late to do so and that by taking the proceedings they had against the customer the Plaintiff had elected not to pursue the carrier. Whether the matter was dealt with by way of ratification or as one of election, since the rights against the purchaser depended upon the delivery having been valid and the rights against the carrier depended upon it having being invalid the Plaintiff could not pursue both remedies consecutively.
As I have indicated, in my opinion the right to pursue a purchaser's lien does not depend on the validity of the payment made from the point of view of the Plaintiff, so that if, through a misappropriation, money comes to be paid for the purposes of the contract it would still be secured by a purchaser's lien. The two rights are not inconsistent and hence necessarily alternatives, the way the rights were in Verschures Creameries.
There is however one aspect of this argument which goes beyond the relief claimed. As I have indicated, in the writ in the Supreme Court it was expressly alleged that the payment of $165,000 was “paid by her under the said agreement”. There was a similar statement in the amended statement of claim in the Federal Court. The significance of a statement in the course of a pleading was considered by the High Court in Jamieson v R. (1993) 177 CLR 574. There are statements in the joint judgment of Deane and Dawson JJ at page 579 which indicate that a statement in an unverified pleading is not to be taken as a representation or warranty of the objective accuracy of the assertions of fact which it contains. There was a judgment summons in the Supreme Court (Exhibit 24), but the affidavit in support of that application which is part of that exhibit does not in terms verify the writ; rather the Plaintiff sets out her account of the events which relevantly (para.14) is consistent with her evidence before me and an assertion of the intention was that the cheque was to be paid to McDonald Partners. At best for the Defendant it is ambiguous.
In the light of the discussion about the significance of pleadings in Jamieson (supra) I would not characterise a statement in a writ or pleading which did not define the relief claimed as amounting as an election between inconsistent rights, particularly in circumstances where the pleading was not in terms verified by affidavit, and the right asserted in the pleading in support of which the statement was made was not itself inconsistent with the right now alleged, so that the Plaintiff was not confronted with a need to make a choice between inconsistent rights when delivering the pleading: Immer (No. 145) Pty Ltd. v Uniting Church of Australia Property Trust (NSW) (1993) 182 CLR 26 at 43. In my opinion therefore the statement that the payment was made under the agreement was not an election to pursue only rights based on the proposition that that payment was to be taken as payment of the price under the contract, and hence an election to abandon rights based on the proposition that the payment was not validly made pursuant to that contract. Nor indeed would it in those circumstances amount to ratification of the unauthorised act of making the payment in that way.
Section 95 of the Cheques and Payment Orders Act 1986
There is nothing in the Cheques and Payment Orders Act 1986, the relevant legislation, which makes the Defendant liable merely on the basis that it collected on behalf of Dotwell a cheque which was made payable to someone else, crossed “not negotiable A/c payee only” and not endorsed in favour of Dotwell. It does not appear to be the law that any person who suffers loss as a result of such action is as a consequence entitled to recover damages from the bank.
Section 95 does not provide any additional cause of action against the Defendant bank; rather when it operates it would be a defence to a claim which could otherwise be made, for example in conversion. For present purposes what matters is whether the Defendant can show that it acted without negligence, and in the present context that means without “carelessness”: Orbit Mining and Trading Co. Ltd v Westminister Bank Ltd [1963] 1 QB 794 at 824. The onus is on the Defendant to establish this.
The cheque was crossed “not negotiable A/c payee only” and was being deposited to the account of someone other than the payee in circumstances where it was not endorsed over by the payee. It appears to be clear that these are circumstances which require the bank to make proper enquiry: National Commercial Banking Co. of Australia v Robert Bushby Pty Ltd [1984] 1 NSW LR 559 at 574 Per Priestley J.A. There is no evidence that such an enquiry was made, although there is evidence that enquiry should have been made (pp.112-113), and that the teller should have realised that there was something wrong with the cheque (p. 129) and there was a concession from one of the Defendant's witnesses that in this case presumably the teller did not realise this: page 116. Of course the other possibility is that there was an enquiry made of Donald McDonald who reassured the bank that everything was in order, but this was not recorded by the bank's officers. As I have mentioned earlier, this is not a case where any enquiry which the bank could have made would have demonstrated that there was wrongdoing, but in circumstances where the Defendant shows the onus of showing an absence of negligence I think that the onus is not discharged in the absence of some evidence that some appropriate enquiry was in fact made.
One issue which has generated some debate in the authorities is whether the absence of an enquiry is relevant in circumstances where the enquiry if made would not have revealed wrongdoing. The proposition that a failure to enquire should not be relevant if the enquiry, if made, would not have revealed wrongdoing is supported by a comment by Diplock L.J. in Marfani and Co. v Midland Bank Ltd [1968] 1 WLR 956 at 977, and has the support of Weaver and Craigie “The Law Relating to Banker and Customer in Australia”: see Hunter v NZ Finance v C.G. Maloney Pty Ltd [1988] 18 NSW LR 420 at 447. I think there is some force in the proposition that a bank should not be blamed for failing to make enquiries if the enquiries, had there been made, would not have caused the bank to act differently, but as was pointed out in Hunter v BNZ Finance (supra) the weight of authority favours the contrary view. The point is that it is not necessary to show there is a causal connection between the “negligence” of the bank and the loss. The loss arises from the bank's conversion, and so long it is relevantly caused by that conversion, the significant of negligence is that, if the bank can show that it acted without negligence, it can obtain the benefit of the statutory defence. If the bank does not act without negligence it does not bring itself within the terms of section 95 and hence the statutory defence is not available to it. Accordingly if the bank were otherwise liable in my opinion it has not established a defence under section 95.
Change of position
The Defendant in paragraph 15A of the further amended entry of appearance of the defence pleads as a defence to the claim for conversion and money had and received that it changed its position by paying the proceeds of the cheque to Dotwell without notice of the Plaintiff's claim, so that it would be unjust and inequitable to require it to repay the proceeds to the Plaintiff. In paragraph 7A(g) essentially the same defence is pleaded in answer to the claim that the Defendant is liable as a person who knowingly participated in a breach of duty by a trustee or fiduciary.
The present case the cheque was not deposited into an account which was at any relevant time overdrawn: Exhibit 2 page 101. It was that day placed on deposit in an 11am account, from which some of the money was disbursed on 22 December and the rest on 1 January: Exhibit 2 page 103. The evidence before me does not disclose what happened to the money thereafter, but it is probably safe to infer that it was ultimately dispersed in accordance with the directions of Dotwell. It appears it was not until 1992 that a claim was made against the Defendant: page 97. A subpoena was issued against the Defendant on 26 August 1991 in respect of the proceedings in the Federal Court requiring it to produce documents: Exhibit 27. There does not appear to be anything in that subpoena which would alert the Defendant to the possibility that the deposit had been wrongful.
The first question is whether change of position is a defence to an action of conversion. It was accepted by the House of Lords as a general defence to all restitutionary claims in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 the majority at pages 384-5 accepted that a defence of change of position was necessary to an action for recovery of payment made under a mistake of law “to ensure that in enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust..................The defence of change of position is relevant to the enrichment of the defendant precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt” [emphasis in the original] That may I think fairly be viewed as a recognition of the defence of change of position as available to any restitutionary claim, but it does not follow that it is available in all actions. The point was made in Lipkin Gorman by Lord Goff at page 579 that the cause of action there being considered, an action for money had and received, was “not founded upon any wrongdoing of the respondents.” In that respect I think that an action for conversion may be contrasted with an action for money had and received, which indeed is pleaded in the alternative, although little argument in reliance on it was advanced on behalf of the Plaintiff. That may well have been because change of position would on the authorities to which I have referred be a good defence to such a claim, so that the Plaintiff is not entitled to recover on that cause of action. But the action for damages for conversion is not essentially a restitutionary claim based on the unjust enrichment of the Defendant: it is a claim based on the Plaintiff's being wrongfully dispossessed of the chattel. An action for conversion is available in circumstances where there is no enrichment on the part of the Defendant, unjust or otherwise, such as where the chattel is destroyed or changed in its nature (Fleming page 62), or indeed where an innocent agent sells and delivers chattels believed to belong to his principal in circumstances where the true title is in a third party: Fleming page 59. Counsel for the Defendant referred to the decision of Millett J. in Agip (Africa) Ltd v Jackson [1990] Ch 265, but in that case the Plaintiff's claims were for money had and received or on the basis of knowing participation in a breach of trust. I was not referred to any authority for the proposition the change of position is a defence to conversion, and I have not found any myself. In my opinion an action for damages for conversion is not essentially a restitutionary claim, and accordingly a defence of change of position is not available.
With regard to the alternative basis of the claim, it is inherent in the defence in change of position that it is only available to an innocent Defendant. Lord Goff in Lipman Gorman at page 597 said that “the defence should not be open to a wrongdoer” and the majority in David Securities (supra) by emphasising that the basis of the defence was the defendant had acted on the faith of the receipt (page 385) also in my opinion indicated that it would not be available to someone who was aware that the receipt was wrongful. The matter may be a little more complicated if, contrary to the view I have expressed, knowledge for the purpose of knowing participation is wide enough to extend to category 5 knowledge in the Baden classification (supra), but on the view which I take of what is required to be shown before such a claim can be brought change of position would never be available as a defence because the Defendant would necessarily be a sufficient wrongdoer to exclude it. If therefore the Defendant was otherwise liable this defence, on my view of it, would not assist. If it be thought by others that the Defendant did have sufficient knowledge in the circumstances to expose itself to liability in equity, in my opinion it would be necessary for the question of whether change of position was available in those circumstances to be considered afresh.
Causation of the loss.
The Defendant argued that, if the Plaintiff were otherwise entitled to recover, only nominal damages should be awarded. The basis for this argument was that the payment made to Dotwell went in discharge of the Plaintiff's liability under the contract with that company, the satisfaction of which was a benefit which equalled the value of the cheque so as to extinguish the claim. Reliance was placed on the decision of the High Court in Associated Midland (supra), where the court held that, assuming there had been a conversion, the payment served to satisfy the finance company's obligation under its contract with Motorola so that it did not suffer any loss. Because there was a contract it had an obligation to pay the amount of the cheque to Motorola, and it had done so.
The present case in my opinion is different. At the time when the money was paid into Dotwell's account there was no existing obligation on the Plaintiff to pay Dotwell. On any view of the contract Exhibit 6 it seems to me that the whole transaction was subject to the completion by Dotwell of its purchase of the land described in the schedule. It seems to me that the earliest time at which there could have been an obligation to pay the purchase price to Dotwell under Exhibit 6, on any reasonable construction of it, was immediately after the completion by Dotwell of its purchase of the land. That land was not transferred into Dotwell's name until 7 February 1989, the memorandum of transfer being produced at the Titles Office on 27 January 1989: Exhibit 29. I appreciate that this assumes that the money was not to be available to Dotwell to finance that purchase, and that may well have been what Dotwell intended, but if there was an intention to impose on the Plaintiff an obligation to pay the whole of the purchase price before the agreement to sell had even become unconditional the terms of Exhibit 6 are not sufficiently clear to produce that result.
If on its true construction Exhibit 6 does not require payment of the purchase price except in exchange for a transfer of the land to the Plaintiff, there was no obligation to make the payment and no debt owing by the Plaintiff unless and until the transfer took place, or at least until a transfer was tendered to the Plaintiff. The former never occurred (Exhibit 29) and there is no evidence of the latter, and if that is the true construction of the contract there was never a obligation owed to Dotwell which the payment could have discharged. The same applies if the contract does on its true construction not require payment until the house is completed, although as I have indicated I do not favour that construction. One other possible construction is that there was an obligation to pay the purchase price upon the contract becoming unconditional, but prior to transfer of the land to the Plaintiff. If that is the true construction of the contract then there was a time when that obligation arose, but that obligation was ultimately discharged by the Plaintiff's recission of the contract in August 1989, and indeed as between the Plaintiff and Dotwell the Federal Court has declared the contract void ab initio: Exhibit 3. His Honour was content to make that order under s.87 of the Trade Practices Act, without considering whether his findings justified that order on any other basis. I would have thought that his findings would otherwise justify a conclusion that the contract was voidable and had been avoided.
I think the important question is whether the Plaintiff has in fact obtained the benefit of the payment. That is to be determined not at the time of the immediate conversion, but by reference to all that has occurred up to the date of trial since a Plaintiff must give credit for anything that received by way of diminution of the loss: Solloway v McLaughlin [1938] AC 247 at 258; E S & A Bank Ltd v Beatty [1931] St. R. Qd. 291 at 303. If in fact the transaction with Dotwell had been completed, the Defendant might well have had a good argument for nominal damages, but that is not what occurred. The position would appear to be similar when assessing compensation in equity: Target Holdings Ltd v Redferns [1996] 1 AC 421.
Another matter which was raised as showing that the action of the Defendant did not cause the Plaintiff any loss was the proposition that, had the Defendant refused to accept the cheque for collection to Dotwell's account, it is reasonable to conclude that the cheque would have been paid into the Trust Account of McDonald Partners, from which it would have been paid out to Dotwell without further reference to the Plaintiff. This is because the earlier payments of some $30,000 which had been paid into the Trust Account had been paid out (less $450) by the Solicitor to Dotwell in November 1988 (Exhibit 2 p.84) prior to the contract Exhibit 6 even being executed, and without any further instructions to do so from the Plaintiff: see 105 ALR 473 at 484. I rather sympathise with this argument, because I do not doubt that if the Bank had acted differently that is precisely what would have occurred. Nevertheless in my opinion this is not relevant for the assessment of damages in an action of conversion of the cheque, because the primary measure of damages is not the loss flowing from the conversion, but the value of the cheque, and that is not influenced by the question of what would have happened had the conversion not occurred. Although it may be said that in a practical sense the Plaintiff had lost her money as soon as the cheque came into the hands of Ranald McDonald, in my opinion once it is recognised that the starting point in assessing damages for conversion is the value of the chattel converted the question of causation becomes irrelevant except for consequential loss. Accordingly this would not be a good argument in answer to a claim for substantial damages if one were otherwise available. I should add that it appears that the amount of $30,000 was ultimately recovered from the Fidelity Fund (page 97) and it may well be that if the transaction had taken place via the Trust Account of McDonald Partners the $165,000 would also have been recovered from the Fidelity Fund (see Exhibit F, part of Exhibit 22), although that was not a matter which was explored before me.
The position in equity would seem to be similar in the result, in that there is authority that a fiduciary in breach is not entitled to assert that any loss suffered by the beneficiary as a result of the breach would have been suffered in any event had there been no breach: Commonwealth Bank of Australia v Smith [1991] 102 ALR 453.
Delay in claiming equitable relief
Counsel for the Defendant pointed out that the Plaintiff knew the cheques had been misappropriated in July or August 1989 (p.76) and her lawyer had access to the Bank's documents in the course of the Federal Court trial in 1991 (p.94). Nevertheless proceedings did not commence against the Bank until 1992, and the claim for equitable relief was introduced only by amendment shortly before the trial. On the other hand it arose out of essentially the same facts as the claim for conversion. Reliance was placed on Orr v Ford (1989) 167 CLR 316 and Baburin v Baburin (No.2) [1991] 2 QdR 240. There was evidence that one of the Defendant's witnesses had destroyed some fax copies of relevant documents which had been sent to him by the Defendant's solicitors, apparently on the basis that he was told that nothing was going to happen in relation to the action (p.110). There was no other evidence to suggest specifically that the Defendant had been prejudiced in the conduct of its defence by the lapse of time, but no doubt it is generally the case that the passage of time impairs the capacity of any Defendant to resist litigation: see Brisbane South Regional Health Authority v Taylor (1996) 70 ALJR 866 at 873. In Orr v Ford the majority at page 330 identified the substance of the respondent's case as being based on prejudice in defending the appellant's claim by reason of loss of evidence, and rejected that argument on the basis that it was entirely suppositional (p.331). They appeared to accept at page 329 the proposition that delay may be a defence to an equitable claim if there has been acquiescence or gross laches on the part of the beneficiary. Deane J. at page 345 concluded a rather more detailed analysis by saying the defence was a matter of degree and must depend on the circumstances of the case, and it was dealt with in the same way by McPherson J. in Baburin at pp.244-5.
In the present case in my opinion the delay has not been very great, there has been nothing to indicate any acquiescence or deliberate standing by on the part of the Plaintiff, the Plaintiff was reasonably engaged in pursuing alternative remedies in the Federal Court, and against the Law Society, and has so far as the evidence before me revealed never acted in a way which might reasonably induce the Defendant to believe that it was entitled to order its affairs on the basis that no action was going to be pursued against it. There is no clear evidence of any significant prejudice in the conduct of the defence because of the passage of time. In the circumstances it does not seem to me that there is any basis for refusing equitable relief on the ground of delay in the present case.
Damages and interest
The measure of damages for conversion is the value of the cheque at the time of conversion: Associated Midland Corporation Ltd v Bank of New South Wales [1983] 1 NSW LR 533. This was $165,000. If the Defendant knowingly assisted in a breach of trust the breach was the deprivation of the Plaintiff of the benefit of the trust for that amount, and prima facie the measure of compensation is the same. In the former case it is not an answer to say that, had it not been for this conversion, it was probably the case in any event that the Plaintiff would have lost her money to Dotwell, because any payment into the solicitor's trust account would probably have led promptly to a payment out to Dotwell, since this as I have said is not a relevant consideration for the assessment of damages in an action for conversion. With regard to the equitable claim, the position here seems to be that a person who is in breach of trust or of fiduciary duty is not entitled to say that without the breach the loss would have been suffered anyway. If one confines the liability of an accessory in the way that I have indicated it ought to be confined there is no reason why this principle should not apply equally to an accessory.
In the circumstances it is not necessary to say any more in relation to damages except to deal with an argument that I should allow compound interest under the principle in Hungerfords v Walker [1989] 171 CLR 125. That approach was referred to by Burchett J. ( 105 ALR at 503), but not ultimately adopted by him: (Exhibit 4 p.16) and was adopted in Harrisons Group Holdings Ltd v Westpac Banking Corporation (1989) 51 SASR 36. Although the original intention was that the money be used to purchase a house, apparently for the Plaintiff to live in, it appears that, from the time when the contract was rescinded, had the money been available it would have been applied to some business purpose, and in my opinion it is appropriate and consistent with the approach of the High Court in Hungerfords v Walker to allow compound interest on the amount of the damages from August 1989. That leaves two questions: the first is as to the rate of interest. This is a matter which troubled Burchett J. (see pages 503-4). There is evidence before me of the Defendant's commercial lending rates: (Exhibit 9), and a calculation based on those rates in the form of a letter to the Plaintiff's Solicitors from Munro and Penrose dated 23 September 1986 (Exhibit 33), which was handed up during addresses. This has $165,000 with interest at the rates in Exhibit 9 compounding to $458,019 by 12th September 1996 so that the interest was $293,019. If it were appropriate to order compensation in equity against the Defendant on the basis that it still retained the sum of $165,000 it would be appropriate also to award interest on this basis, on the assumption that the Defendant had been making use of the money it was wrongfully retaining, and was therefore liable to account to the Plaintiff as beneficiary for all of the profits it had obtained from the use of the Plaintiff's money. If the Defendant were liable as a knowing accessory it would not be appropriate to allow this amount of interest on this basis, as part of the claim for compensation. Interest as damages is assessed, not on the basis of what profit the Defendant has made from the use of the money wrongfully withheld, but on the basis of the benefit from the use of the money of which the Plaintiff has been deprived. There is no evidence of what rates of return could have been achieved by the Plaintiff had she been investing this money herself over the relevant period, although I think there is sufficient foundation for awarding compound interest on some basis. The matter is complicated by the feet that interest rates have substantially decreased since mid 1989. In the light of the fact that I am not giving judgment for the Plaintiff anyway, and in view of a further consideration to which I am about to refer, I do not propose to take up further time in devising an appropriate basis for assessing an amount by way of compound interest pursuant to the Hungerfords v Walker principle.
The further complication is that the limit of the jurisdiction of this Court is $200,000: Section 68(1) of the District Courts Act. By sub-section (3)(c) “In any case where it is necessary to determine whether the monetary limit has been exceeded - no account should be taken of any amount awarded or liable to be awarded in the action by way of interest on any amount.” The Act as it is currently drawn appears to distinguish between the concept of “damages” and “interest”, and the exception to the monetary limit appears to proceed on the basis that there will be an amount, which could be either an amount recoverable by way of debt or damages, on which interest would be allowed or allowable. The judgement of the High Court of Hungerford v Walker (supra) recognised the long standing distinction between damages and interest, and established that in an appropriate case an amount for consequential loss calculated on the basis of an amount of compound interest could be included in the assessment of damages. It seems to me to follow from the reasoning of the High Court in this case that where such an allowance is made it is properly classified as damages rather than interest for the purpose of section 67 of the Act. The reference in that Act to “interest” in my opinion is in practical terms confined to a situation where interest as such is allowable on the amount otherwise recovered as debt or damages, whether by statute (such as section 72 of the Common Law Practice Act - now section 47 of the Supreme Court Act 1995) or pursuant to the terms of a contract. The practical effect therefore of the application of Hungerford v Walker is that I would give judgment for an amount of $200,000; this would be the same whether I was giving judgment for damages for conversion or compensation for knowing participation in a breach of trust. Indeed, the Plaintiff may be better off taking $165,000 plus interest pursuant to section 47: on that basis and given the length of time involved I would have allowed interest at 8% for seven years and two months, a total of $94,600, but this would be liable to tax as income: Whitaker v FC of T [1996] ATC 4823.
Conclusion
The effect of these reasons can be summarised as follows:
A. The Plaintiff did not at the time the cheque was deposited with the Defendant for collection into the account of Dotwell, and at the time the proceeds of the cheque were collected, have sufficient title to maintain an action for conversion of the cheque, so the claim for conversion fails.
B. The claim for money had and received fails on the basis that the Plaintiff does not have sufficient title to sustain that cause of action either, and on the basis that the Defendant can establish a defence of change of position.
C. The claim against the Defendant as an accessory to a breach of trust by Donald McDonald fails because the Defendant was not dishonestly involved in that transaction, or if it be relevant did not have a sufficient degree of knowledge of the breach of trust to make it liable as an accessory.
The consequence is that there will be judgment for the Defendant with costs.