Kern v Evans[2005] QDC 121

DISTRICT COURT OF QUEENSLAND

1. [1]
   The plaintiff is and was a public accountant trading with another under the name of James E Kern & Associates.

2. [2]
   In or about 1993 the first defendant retained the services of the plaintiff to prepare the first defendant’s income tax returns for the financial years 1988 – 1991.

3. [3]
   On 6 October 1993 the plaintiff received from the Australian Tax Office a cheque in the sum of $38,338.53 drawn in favour of the first defendant, being a tax refund to the first defendant.

4. [4]
   The plaintiff banked the cheque into his practice general account.

5. [5]
   On 12 October 1993 the plaintiff drew a cheque in the practice general account in favour of the first defendant in the sum of $35,500.00 representing the balance of the first cheque less the plaintiff’s professional fees.

6. [6]
   At the time the plaintiff banked the first cheque into his practice general account, the first defendant was an undischarged bankrupt.

7. [7]
   By operation of the Bankruptcy Act (1996) (Cth) s. 558, the true owner of the first cheque was the third defendant who asserted an entitlement and applied in the Federal Court of Australia for a declaration that the refund was an asset which vested in the trustee.  This has been called “the Spender hearing”.  On 28 October 1996 the plaintiff entered into a Deed of Settlement with the third defendant whereby the plaintiff agreed to pay $28,000.00 being full and final settlement of the third defendant’s claim against the plaintiff.  The plaintiff claims damages and/or contribution and/or indemnity from the first defendant.

8. [8]
   At the trial it was indicated that the third defendant did not wish to take part in the proceedings and the proceedings as against second defendant were not pursued against her in the context of the trial.

The Pleadings

9. [9]
   In its final form the plaintiff’s statement of claim reflected the following claim for relief:

1. Damages for fraud

2. Damages for negligence

3. Monies payable by the first defendant for money had and received

4. Recovery of money paid under a mistake

5. Contribution and/or indemnity under the Tort Reform Statute and/or the Law Reform Act.

6. Indemnity and/or contribution at law or in equity

7. Equitable compensation

8. Damages and/or compensation for unjust enrichment. 

10. [10]
    Further or in the alternative the plaintiff claimed he was entitled to be “subrogated with the rights of the third defendant” and claimed against the plaintiff:

1. Money payable by the plaintiff to the third defendant for money had and received by the first defendant to the use of the third defendant

2. Equitable compensation

3. Damages for conversion

4. Damages and/or compensation for unjust enrichment and

5. Monies due and owing and/or damages under s. 58 of the Bankruptcy Act.

The Evidence

11. [11]
    The plaintiff gave evidence that he first met the first and second defendants in July 1992. The initial meeting was largely devoted to a problem that the second defendant had with the preparation of group certificates. Late in 1992 the plaintiff received an advice from the Australian Taxation Office in relation to a requirement for the lodgement of the first defendant’s tax returns for the years 1988 – 1991. The plaintiff gave evidence that he was instructed by the first defendant to prepare those returns. Subsequently, as has been set out, the plaintiff received a cheque made out to the first defendant. The plaintiff gave evidence that he rang the first defendant to advise that he was holding a cheque in the amount specified. He gave evidence that discussion ensued and that the first defendant instructed him and authorised him to deduct any professional fees owing to him. The plaintiff banked the cheque to his professional general account. Subsequently he drew a cheque on the firm bank account which he says he posted to the first defendant. The plaintiff gave evidence that the first defendant told him during the first interview that he was a bankrupt, but the plaintiff said that he was not aware when he sent the cheque whether or not the plaintiff was still a bankrupt at that time. The plaintiff denied that he handed the cheque to the first defendant at a meeting in Townsville. Further he denied that the first defendant asked about the Bankruptcy Act and that he, the plaintiff, responded with words to the effect “that part of the Act is for people like Skase.”

12. [12]
    The second defendant gave evidence that she was married to the first defendant at all relevant times but that they were now separated.

13. [13]
    She said she first became aware of the tax refund cheque when the first defendant asked her to open a cheque account in her name in Charters Towers. She said she first saw the cheque within a week of opening the account. She saw it on the day that it came in the mail and she said she saw the first defendant sign the back of the cheque. She also denied that the cheque was handed over at a meeting in Townsville. She also denied that the cheque went into an account over which the first defendant had no control. She maintained that approximately $30,000.00 of the funds was used to buy a car for use by the first and second defendants.

14. [14]
    The first defendant gave evidence that he had an arrangement with the bank whereby cheques banked in his name and deposited by his wife into her account would be automatically endorsed and therefore he did not need to sign the back of any cheque. He said he received a telephone call from the plaintiff who said he had the refund and that the plaintiff said “He would now deduct his fees and handover the balance.” He gave evidence that the plaintiff said further “It’s yours to spend” and “We’ve done a good job at getting it.” He said that cheque was handed over at a meeting in the Townsville, it was put in front of him by the plaintiff and that the second defendant took it. He said he did not ask his wife to open an account nor did he know about it originally. He said he asked the plaintiff whether it should be given to the trustee and the plaintiff replied that “the new laws were for guys like Skasey”. In effect, he said that the second defendant took the cheque and took control of the proceeds. An endorsement did appear on the back of the cheque which was deposited to the account in Charters Towers.

15. [15]
    Two handwriting experts were called. Mr Marheine gave evidence that the disputed initials did not appear to display any evidence or indicia of forgery and it was probable that the disputed initials were written by the author of all the other specimen material provided. The author of the other material was the first defendant. Mr Heath gave evidence that neither definitive nor qualified opinions of positive authorship should be given based on the material provided to him.

The End Result

16. [16]
    I have found it unnecessary to make any finding as between the opinions of Mr Heath and Mr Marheine. This is because I find the first defendant to be neither a credible nor a reliable witness. In the first place I accept the evidence given by plaintiff and the second defendant that the cheque was posted to the first defendant. Having observed the demeanour of the first defendant, I found him to be evasive in giving evidence. Having observed the demeanour of the plaintiff I found the first defendant’s evidence as to the remarks made concerning the Bankruptcy Act and “Skase” to be incredible.  Further I found his evidence that the second defendant had control of the finances to be unworthy of belief particularly in light of the correspondence between him and the plaintiff in relation to the preparation of his tax returns. 

17. [17]
    Accordingly I accept the second defendant’s evidence that the first defendant signed or initialled the back of the cheque forwarded to him by the plaintiff. As a result I find that the first plaintiff knew and approved of the deposit of the cheque and the deduction of fees by the first plaintiff and that he took the benefit of the proceeds through the bank account which he arranged the second defendant to set up. I am of the opinion that the first defendant took advantage of the fact that the cheque went into his wife’s account to attempt to shift the responsibility to her.

18. [18]
    On the other hand, I found the plaintiff to be a credible witness. He was prepared to accept and admit that the first defendant had told him on an earlier occasion that he was an undischarged bankrupt and that he either overlooked that fact or believed that the first defendant had been discharged from his bankruptcy at the time of depositing the cheque to his professional account. I accept the plaintiff’s evidence that in his practice at that time, he had little to do with bankruptcy matters. I am satisfied that, as strange as it seems, he overlooked the question of the first defendant’s bankruptcy at the time of the conversation. I do not believe that the plaintiff set out to defraud the Trustee or the Tax Office.

19. [19]
    In relation to the second defendant, I accept that her marriage break-up from the first defendant has been acrimonious. Nevertheless having observed her giving her evidence I am satisfied that she is a credible witness. In particular I believe her when she says that the first defendant controlled the finances and that she had very little experience or education in the area.

20. [20]
    In summary I have accepted that the first defendant endorsed the back of the second cheque and took the benefit of the cheque despite the fact that it was banked into an account in the name of the second defendant.

21. [21]
    The plaintiff’s primary case is in conversion. The first defendant directed the plaintiff to deal with the cheque contrary to the rights of its true owner the third defendant.

22. [22]
    The plaintiff submits that a cheque is a chattel, the value of which, for the purpose of the tort of conversion is the money received under it: Voss v Suncorp-Metway (No.2) 2004 1 Qld Reports 214 at 220 and Lloyds Bank v Charted Bank (1929) 1 KB 40.

23. [23]
    The plaintiff further submits that by operation of the Bankruptcy Act, the true owner was the third defendant: See Mondin Ex-parte Bradshaw (1985) 60 ALR 439, Welton v Commonwealth Trading Bank of Australia (1973) 2 NSWLR 644 at 651 – 653.  The plaintiff submits that although the plaintiff deposited the cheque into his own professional account, he did so as the agent of the first defendant for that purpose and accordingly the plaintiff and the first defendant were jointly and severally liable in respect of that tort and that s. 5(a) of the Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act 1952 (Qld) and s. 6(c) of the Law Reform Act 1995 (Qld) apply. 

24. [24]
    The basis for the agency claim is that the plaintiff acted on the direction and authority of the first defendant in banking the cheque before deducting his fees and forwarding the balance to the first defendant: See Sheffield Corporation v Barclay (1905) AC 392 at 399.  The first defendant gave evidence (transcript 127, line 35) to the following effect:

“So you received a telephone call and during the course of that telephone call you gave Mr Kern instructions, did you not, that he could withdraw from that $38,000.00 amounts that were owed to him for the preparation of your tax returns; is that so?  Yes.”

25. [25]
    Further the plaintiff submits that the plaintiff and the first defendant are joint tortfeasors by virtue of them being engaged in a “concerted action to a common end”, that is to say, they acted jointly in the furtherance of the conversion and it matters not that they might not have understood that they were committing a tort. The principle in this respect was stated by Diplock LJ in Marfani & Company Ltd v Midland Bank Ltd (1968) 2 All England Reports 573; 1968 1 WLR 956:

“At common law ones duty to ones neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them.  Subject to some exceptions which are irrelevant for the proposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care had known, of his neighbour’s interests in the goods.  The duty is absolute.  He acts at his peril.”

26. [26]
    I am satisfied that the plaintiff participated in the conversion having overlooked the fact, which he had known, that the first defendant was an undischarged bankrupt. Further I am satisfied that the first defendant reaped the benefit. On the basis of that finding the defendant concedes that the plaintiff is entitled to compensation but argues that the compensation is limited to $28,000.00 at the most. The first defendant argues that the plaintiff is not liable to compensation for his legal costs associated with the obtaining of a legal opinion concerning the application in the Federal Court by the third defendant. I accept that submission. The plaintiff has not given any satisfactory evidence as to how he overlooked the fact that the first defendant was an undischarged bankrupt and, before me, gave no explanation as to why there was no appearance by him in the federal court in what has been described as the “Spender Hearing”. The amount of the compensation recoverable from a joint tortfeasor is that which is just and equitable having regard to the extent of the tort and the responsibility for the damage.

27. [27]
    In relation to the claim for misrepresentation the first defendant admits he told the plaintiff to deduct his fees from the first cheque. He is silent as to whether he also told the plaintiff to forward to him a cheque for the balance. It is submitted that inferentially that must have been the case otherwise telling the plaintiff to deduct his fee had no purpose. In addition, I accept the evidence of the second defendant that the first defendant instructed her to open a bank account for the express purpose of banking the cheque. For those reasons I am satisfied that the first defendant did represent to the plaintiff that he was legally entitled to the proceeds of the cheque and that this was a misrepresentation.

28. [28]
    In relation to the claim for subrogation, the plaintiff claims to be entitled to be subrogated to the rights of the third defendant as against the first defendant for the recovery of the funds. The first defendant submits that the plaintiff’s claim can only emanate from the payment pursuant to the Deed (which forms part of exhibit 3). The Deed bears the date 28 October 1996. The first defendant submits that there is no evidence of the matter set forth in paragraph 4.2 of the Deed i.e. paragraph 4.2 provides that “subject to clause 5 hereof, the trustee agrees that in the event that Kern so requests in writing within ten months of the date hereof, the trustee will commence recovery action against the bankrupt and/or Melanie Evans and for that purpose will engage the services of Boulton Cleary & Kern or such other solicitors as Kern and the trustee may agree”.

29. [29]
    The first defendant submits that the right of subrogation expired two years prior to the initiation of these proceedings on 5 October 1999. The first defendant further submits that the only means of enforcement of any remedy consequent upon the execution of the deed is therefore an assignment of the chose in action pursuant to paragraph 4.1 of the Deed. He further submits there is no evidence of compliance for s. 199 of the Property Law Act.  As no express notice of assignment has been given to the first defendant, the alternative claim cannot succeed on this basis.  Even if notice were given now, the plaintiff’s claim would be statute barred.

30. [30]
    I accept the first defendant’s submission as it relates to subrogation under the deed.

31. [31]
    As to the claim of money had and received, I find that the first defendant endorsed the second cheque and benefited from it and that there was an unjust enrichment by the first defendant.

Costs

32. [32]
    As to costs, the claim has always been at least in the monetary sense within the jurisdiction of the Magistrates Court. However, the claim included a claim for equitable relief and/or damages and the first defendant indicated a request for a jury trial. In those circumstances I am prepared to award costs on the standard District Court scale. It has been argued that there should be some adjustment of costs to reflect the fact that the plaintiff did not have his witnesses available for the first day of the trial held in Townsville. The second defendant was subpoenaed to attend, but failed to do so on the first day of the hearing. Secondly, the first defendant was served with a Notice to Admit Facts including the fact that the first defendant placed his initials on the back of the cheque. The notice lapsed. At the trial, he sought to withdraw the deemed admission. On notice of the application the plaintiff obtained an expert report which was supplied to the first defendant out of time and the first defendant was unable to obtain his expert report in time for the trial.

33. [33]
    Accordingly I order that the first defendant pay the plaintiff’s costs of the proceedings on the standard District Court scale

34. [34]
    In those circumstances I am not prepared to exercise my discretion as submitted by the first defendant.

35. [35]
    The plaintiff, having succeeded in the action , argues that he ought to be awarded pre-judgment interest on the amount of $28,000.00. I consider that the first defendant should pay interest. The calculation of interest should commence at 5 October, 1999 to the date of judgment (5.6 years) at 9.5%.

Order

36. [36]
    I give judgment to the plaintiff in the sum of $42,896.00 which includes $14,896.00 interest. I order the first defendant pay the costs of the proceeding to be assessed on the standard District Court Scale.