Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd
[2014] QDC 293
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- Unreported Judgment
- Appeal Determined (QCA)
- Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd[2014] QDC 293
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Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd[2014] QDC 293
Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd[2014] QDC 293
DISTRICT COURT OF QUEENSLAND
CITATION: | Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd [2014] QDC 293 |
PARTIES: | COMGROUP SUPPLIES PTY LTD (plaintiff) v PRODUCTS FOR INDUSTRY PTY LTD (first defendant) and GAVIN DUNWOODIE (second defendant) |
FILE NO: | D3538/2012 |
DIVISION: | |
PROCEEDING: | Trial |
ORIGINATING COURT: | District Court at Brisbane |
DELIVERED ON: | 19 December 2014 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 15, 16 September 2014 |
JUDGE: | McGill SC, DCJ |
ORDER: | Judgment that the first defendant pay the plaintiff $25,886.94; judgment for the second defendant; third party claims dismissed. |
CATCHWORDS: | RESTITUTION – Money paid by mistake – change of position defence – where made out – applied pro tanto FRAUD, MISREPRESENTATION AND UNDUE INFLUENCE – Fraudulent misrepresentation – whether representation made knowing false – claim failed TRADE PRACTICES – Misleading and deceptive conduct – whether invoices misleading or deceptive – whether reliance proved – whether claim apportionable – precautionary apportionment Competition and Consumer Act 2010 s 87CC(1), 87CD. Armstrong v Strain [1952] 1 KB 232 – cited. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 – applied. BOQ Equipment Finance Ltd v Visposin Pty Ltd [2011] QDC 266 – cited. Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265 – cited. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 – cited. Factory Direct Fencing Pty Ltd v Kong Ah International Co Ltd [2013] QDC 239 – considered. Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 – applied. Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60 – cited. Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 177 – considered. Kanssen v Rialto (West End) Ltd [1944] Ch 346 – cited. Krakowski v Eurolynx Properties Ltd (1995) 69 ALJR 629 – cited. Magill v Magill (2006) 226 CLR 551 – cited. Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 – cited. Pacific Carriers Pty Ltd v BNP Paribas (2004) 218 CLR 451 – applied. Perpetual Trustee Co Ltd v Ishak [2012] NSWSC 697 – considered. |
COUNSEL: | G Coveney for the plaintiff J Castelan for the defendants |
SOLICITORS: | HWL Ebsworth, lawyers for the plaintiff Tucker & Cowen for the defendants |
- [1]These proceedings arise in the familiar context of a dispute as to which of two innocent parties is to suffer for the fraud of a third. Between November 2010 and June 2012 the defendant[1] sent a number of invoices to the plaintiff, which were paid. The plaintiff seeks to recover the amount of those payments, on the basis that they ought not to have been made, as they were payments for work which had never been done. The defendant alleges that the invoices were sent under an arrangement by which it charged for work in fact done by another company, GTAKS System Design Pty Ltd (“GTAKS”), an arrangement it had made with the plaintiff’s then engineering manager, Mr Soldini. The bulk of the amounts paid were passed on by the defendant to GTAKS. In fact GTAKS was a company associated with Soldini, and no work had been done by GTAKS.
Background
- [2]The plaintiff is a subsidiary of Consolidated Foods Australia Limited.[2] Its function is producing food to supply to fast food outlets, including some overseas. It operates a processing plant, with about 150 employees, and has a turnover of about $100 million. There is a degree of automation in this plant, and it requires routine maintenance and at times modification. The defendant is an engineering contractor. On at least two occasions the defendant undertook modification of the plaintiff’s equipment, and the plaintiff was very happy with this work.
- [3]The connection between the plaintiff and the defendant came about because in June 2009 the plaintiff hired Mr Soldini as its engineering manager: p 7. This followed the engagement of a recruitment agency which provided information about him: Exhibit 3. The decision to employ him was made by the then general manager, who said he was favourably impressed by him: p 8. Mr Soldini did not disclose anything adverse in his past. In fact however at one time he had worked for a company which had dismissed him for dishonesty.[3] It was submitted for the defendants that a careful examination of his CV and material provided by way of reference checks would have disclosed that there was a period of at least six months which was unaccounted for. With the benefit of hindsight, it can be seen that this gap exists, but I am not persuaded that a reasonably careful prospective employer who had not become suspicious of Mr Soldini would have looked at the material with enough care to detect the gap. In any case, it would have been easy enough for Mr Soldini to have invented an innocent explanation, which would have been difficult to check, for any gap in his CV. I am not persuaded that there was any want of reasonable care on the part of the plaintiff in employing Mr Soldini.
- [4]Mr Soldini had some years earlier been working in Ballarat in Victoria when he had worked with Mr Dunwoodie on a particular project: p 43. Mr Dunwoodie heard that Mr Soldini was working for the plaintiff and made contact with him in the hope that obtaining business for the defendant, which carries out engineering work for such businesses: p 44. They met and as a result some work was offered to and performed by the defendant, as mentioned. The defendant became a supplier to the plaintiff for the purposes of doing this work.
The GTAKS arrangement
- [5]As well Mr Soldini told Mr Dunwoodie that there was a small company, GTAKS, which was the vehicle for a particular person with whom the plaintiff had had a relationship prior to his having come to the plaintiff, who had been doing work for the plaintiff and whose accounts had been processed through a different contractor, because he was not an authorised supplier for the plaintiff: p 47. Mr Soldini wanted to have this person’s work charged for through the defendant, partly because it was an authorised supplier, and partly because this person wanted to be paid within seven days, whereas the plaintiff’s processes did not allow for that: p 48. Mr Soldini said that this had previously been done by another company, which was doing something else for the plaintiff, but that company was moving on: p 47. Mr Soldini said that he would supervise the work and ensure that it was properly done. The defendant was offered a margin on the invoices of the order of 10 per cent although there was not a fixed margin; the arrangement was that Mr Soldini would send a purchase order and the defendant would invoice at the amount stated in the purchase order, and GTAKS would send an invoice for a lesser amount, so that the margin varied but was generally about 10 per cent.
- [6]All of this was contrived by Mr Soldini. It is clear that the plaintiff is very sceptical about whether the defendant really was an innocent party in this. The plaintiff’s witnesses said they had never heard of such an arrangement,[4] and evidently did not believe that such a thing could happen. At the time of the trial I had never heard of such a thing either, and I found it hard to believe that private enterprise would have become mired in this sort of bureaucratic proceduralism, which is usually the prerogative of government.[5] However Mr Dunwoodie said that from his point of view it was a normal transaction (p 48), and indeed that a not insignificant part of his company’s business involved simply processing invoices sent by suppliers or contractors who were not authorised vendors to the particular customers with which they were dealing: p 49.
- [7]Furthermore, the defendant called three witnesses, apparently independent people involved in the engineering contracting industry, who testified to the fact that they had been involved in or knew of a number of similar arrangements, and that such arrangements were commonplace, because of the practice of some large companies of having only a limited number of authorised vendors.[6] Ultimately there was no good reason for me to reject this evidence, and I accept it, despite my initial incredulity; evidently the curse of proceduralism has spread to at least some areas of business management.
- [8]Thereafter the arrangement began to operate. Mr Dunwoodie received purchase orders from Mr Soldini, and sent invoices to the plaintiff on the basis of them, which were paid. GTAKS sent invoices to the defendant, which were also paid.[7] There was no dispute about the details of these: the plaintiff paid the first defendant in respect of the work supposedly done by GTAKS under this arrangement a total of $277,483.99, and the first defendant paid GTAKS $256,840.50; the difference of $20,643.49 was retained by the defendant as its margin for processing the accounts.[8] Mr Dunwoodie said that on a couple of occasions he tried to telephone the man supposedly behind GTAKS but the phone rang out: p 52. He spoke to Mr Soldini who told him that that person was hard to get in touch with, as he mainly worked at night as the work he was doing had to be done when the plant was not in production: p 52. Mr Dunwoodie said that he sought the opportunity to quote some of this work, but Mr Soldini said that there was no point, that the man behind GTAKS had a long established relationship with senior management and that he was a specialist in water treatment: p 53. That sounded plausible to Mr Dunwoodie who expected that a plant like the defendant’s would have water treatment issues.
- [9]Although the plaintiff was initially happy with Mr Soldini’s performance, in time this changed, and ultimately he was dismissed, though the plaintiff did not discover what had occurred until after he had left: p 12. What had been happening was that when the defendant’s invoices arrived at the plaintiff Mr Soldini would approve them for payment, and, because they had been approved by him, they were paid in the same way as other “non-stock” invoices approved by the appropriate manager.[9] As engineering manager, Mr Soldini had authority to approve spending up to a particular amount (p 13), so that there would have been plenty of genuine invoices which had been properly approved by him for payment, and appropriately paid.[10] When a subordinate was tidying up Mr Soldini’s desk after he had left he came upon an invoice from the defendant which had not been approved already, and phoned the defendant about it; then what had been happening emerged.[11]
- [10]The defendant cooperated with the plaintiff’s subsequent investigation, made contact with Mr Soldini, and attempted to extract the money from him, but unsurprisingly that process was largely unsuccessful: p 55-6. Mr Dunwoodie spoke about an occasion when he confronted Mr Soldini who he said then transferred $5,000 to the defendant, the most he could transfer electronically on one occasion (p 58), though it was not clear that the funds ever actually arrived in the defendant’s bank account. No particular claim was advanced by the plaintiff specifically to recover that money, and I need not consider it further.
- [11]Mr Soldini gave evidence which essentially confirmed the way the arrangement worked, and stated that Mr Dunwoodie was not knowingly involved in it.[12] I would not in the circumstances place any great weight on his evidence, but ultimately it seemed to me that there was no good reason not to accept the evidence of Mr Dunwoodie that he was not knowingly involved, and the plaintiff has no evidence to the contrary. I therefore find that Mr Dunwoodie in particular, and the defendant in general, were not knowingly concerned in Mr Soldini’s fraud.
Analysis of claims - deceit
- [12]The plaintiff alleged a wide range of claims, but as a result of the finding I have just made a number of these can be dismissed. The claim in deceit must fail because the defendant was not knowingly charging for work which had not been done. It was submitted that the defendant knew that it had not done the work, but on the face of the invoices it was charging for work it knew it had not done, so that the representation that it had done the work was knowingly false. That however is not sufficient to make out the tort of deceit. The essential requirement for deceit is the element of dishonesty,[13] for which the test is that the representation is knowingly false or deliberately made with the requisite indifference as to its truth. But there are plenty of situations where a company can invoice for work which it has not itself done, most of them quite innocent and the real representation made by forwarding the invoice is not that the defendant had itself done this work, but that the defendant was entitled to be paid for the work.[14] As a result of the arrangement Mr Dunwoodie had made with Mr Soldini, Mr Dunwoodie (and the defendant) believed that it was entitled to be paid for this work, so the representation was not fraudulent, and there is no action in deceit.
– Knowing assistance/knowing receipt
- [13]The plaintiff also sought to characterise the defendant’s behaviour as amounting to knowing assistance in Mr Soldini’s breach of his fiduciary duties to his employer, or knowing receipt of the plaintiff’s property, in the form of the funds paid by the plaintiff. I am not persuaded however that Mr Dunwoodie knew Mr Soldini’s conduct was in breach of his fiduciary duty to the plaintiff. It was submitted that Mr Dunwoodie ought to have known that that was the case. In submissions this was put as an allegation that the defendants knew facts that would lead a reasonable person to the conclusion that there had been a breach of fiduciary duty, as it had to be.[15] In the light of the evidence I am not persuaded that the scheme that Mr Soldini presented to Mr Dunwoodie was so unusual as to lead a reasonable person to conclude that there was impropriety in Mr Soldini’s conduct, in the light of the findings that I have made. Although there were some variations in detail, the basic scheme that was put in place was sufficiently similar to schemes which are at least not uncommon within the engineering contracting industry for it not to lead a reasonable person to such conclusion. I note that although the defendant called evidence of practices in the industry, the plaintiff’s evidence was confined to evidence of its own knowledge, which I suspect means simply that it did not behave in such a way itself.
- [14]Counsel of the plaintiff submitted that there were a number of unusual features about this particular transaction which made it different from the other transactions spoken of in the evidence: the defendant sent an invoice to the plaintiff in response to a purchase order before the invoice from GTAKS arrived; in other cases the arrangement occurred on a limited number of occasions, or only once, where as here it persisted over a period of time, and indeed was presented to Mr Dunwoodie as having been in place prior to when he became a supplier; there was no subcontract involved, just an arrangement to process accounts; at one point GTAKS came to be deregistered; the work was not in any way referable to any specific project being undertaken by the defendant; and the discrepancy between the description of the work in the purchase orders from the plaintiff and the description of the work in the invoices from GTAKS. It is true that the purchase orders apparently arrived before the invoices from GTAKS, and that the invoices from the defendant were sent in response to the purchase orders rather than in response to the receipt of a GTAKS invoice, but that was the arrangement with Mr Soldini,[16] and the fact that the defendant sent its invoice before the invoice was received from GTAKS just confirms that Mr Dunwoodie was trusting Mr Soldini, because otherwise he could not be sure what the amount of the defendant’s margin would be.
- [15]As to the duration and frequency of the arrangement, I do not think that that in itself is necessarily suspicious. In circumstances where GTAKS was presented as just the corporate vehicle of one particular skilled tradesman whom the plaintiff liked, the proposition that he was doing regular work for the plaintiff and the plaintiff wanted to keep him doing that work sounds plausible enough. The defendant was not to know what requirements the plaintiff had for approving a vendor, but there could easily be requirements which a one man company would not, or not easily, meet, such as a particular level of insurance cover for example, in circumstances where the plaintiff was still prepared to use him even though he did not meet the requirements for approval as a vendor. It is really no answer to say that in fact the CEO and the general manager could have simply decided to approve him; Mr Dunwoodie was in no position to know that. He may well have known that the plaintiff is a subsidiary of a larger company, and these matters might have been decided at a higher level.
- [16]The fact that the arrangement with the man behind GTAKS was apparently made by Mr Soldini does not strike me as in the circumstances suspicious, nor in my opinion was the absence of a subcontract; what Mr Dunwoodie thought he was doing in this matter was entering into a practical arrangement to overcome a practical difficulty. That does not strike me as obviously suspicious. In the same way, I do not think that the fact that GTAKS came to be deregistered on one occasion[17] was a matter of any real suspicion; if Mr Soldini’s story was true it would be unsurprising that the man behind GTAKS, who may not have been keen to waste time and effort on paperwork, would overlook the need to file annual returns for his company. I do not think that this was suspicious in itself, particularly in circumstances where it was apparently rectified once the had been pointed out.
- [17]Other matters which were relied on were that the description of goods and services in the invoices from GTAKS differed from the description in the purchase orders. This is the case, but in circumstances where the GTAKS invoices were supposed to be coming from someone other than Mr Soldini, and the purchase orders had been issued first, this was not particularly surprising. If the situation described by Mr Soldini had been genuine, the individual behind GTAKS might well have been inclined to chose his own language when formulating his invoices rather than simply following the wording of the purchase orders. I do not regard that as significant assessed without the benefit of hindsight.
- [18]It is true that Mr Soldini was at all material times a director and shareholder of GTAKS and that, had Mr Dunwoodie obtained a company search, that would have been revealed, but I am not persuaded that that is of any significance in circumstances where nothing occurred which would have caused him to undertake a company search. There was no evidence that for businesses of the defendant’s nature undertaking a company search in such circumstances would be commonplace. Ultimately I am not persuaded on the evidence that Mr Dunwoodie ought to have known that Mr Soldini’s conduct was in breach of his fiduciary duty to the plaintiff. In these circumstances, it is unnecessary for me to consider whether such knowledge would have been sufficient to give rise to liability on the basis of knowing assistance or knowing receipt.[18] These claims must necessarily fail.
– Breach of contract
- [19]The plaintiff also claimed in its pleading that forwarding the invoices in these circumstances involved a breach of contract between the plaintiff and the defendant. It is true that on 28 October 2010 Mr Thompson, the plaintiff’s financial controller, signed a credit application form on behalf of the plaintiff, which application was accepted by a letter from the defendant’s account manager dated 3 November 2010.[19] That agreement is in relation to the terms upon which the plaintiff would pay the defendant, and amounted to an agreement to provide credit on particular terms. It said nothing about any particular work being done, or any particular work being charged for or paid for.
- [20]This however does not seem to be the agreement relied on, which was pleaded to be constituted by the issuing of purchase orders, and to be partly made orally between Mr Soldini and Mr Dunwoodie. As particularised it does not relate to any genuine purchase orders, that is purchase orders which led to the defendant actually doing work for the plaintiff, but relates only to the purchase orders which were being issued by Mr Soldini under his fraudulent scheme. Those purchase orders were not issued pursuant to an agreement, partly oral and partly in writing, with Mr Soldini for the defendant actually to do the work. The plaintiff’s case was that because the defendant did not actually do the work itself, or have someone else actually do the work, there was a breach of this contract for which the defendant is liable in damages. But the arrangement Mr Soldini in fact made did not involve the defendant actually doing the work or having it done; that arrangement only involved the defendant invoicing in accordance with the purchase order, on the basis that someone else was going to be doing the work under the supervision of Mr Soldini, and paying GTAKS.
- [21]It was not a term of the contract made by the defendant with Mr Soldini that the defendant would actually do the work, so there was no breach of that contract by the defendant in not doing it.[20] That contract was made by Mr Soldini without actual authority, but even if the plaintiff can in this way belatedly adopt the contract made without its authority, what it has to adopt is the contract made, not some other contract different from that in fact made by Mr Soldini.[21] It also claimed repayment of money paid for which the consideration has wholly failed. Again the plaintiff’s claim was quite artificial, but if one viewed the arrangement with Soldini as a real contract, there was no failure of consideration, since the defendant paid GTAKS in accordance with that contract, as it had promised. The claims based on contract fail.
– Mistake of fact
- [22]Money paid under a mistake of fact is prima facie recoverable as money had and received.[22] The High Court has said that recovery depends on whether it would be inequitable for the recipient to retain the benefit, and that retention will not be inequitable if the recipient has changed its position on the faith of the receipt and thereby suffered a detriment.[23] Further, change of position may be applied as a pro tanto defence where the detriment can readily be quantified.[24] The claim has often been advanced in the context of a payment made as a result of the fraud of a third party. In Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 the High Court held that the defence of change of position had been made out, in circumstances where the detriment relied on was not a payment to a third party, but omitting at that stage to pursue an existing debt, and continuing to trade with the debtor. In these circumstances the creditor was held to have suffered a detriment which was sufficiently real to give rise to a change of position defence, and one which was not quantifiable so that it could not operate as a defence pro tanto.
- [23]As it happens, I have previously dealt with a claim for recovery of money paid by mistake in circumstances where the payment was induced by the fraud of the third party: BOQ Equipment Finance Ltd v Visposin Pty Ltd [2011] QDC 266.[25] In that case most of the money paid by the plaintiff to the first defendant had been paid out to the fraudster, and it was held that, to the extent that the defendant had shown that money received by it had been paid to the fraudster or otherwise dispersed in a way which did not produce some continuing advantage to the defendant, a change of position defence applied; the plaintiff recovered the balance. In that decision I discussed a number of authorities which preceded the High Court decision in Hills Industries. That case also involved some issues which have not been live issues in this matter.
- [24]The defendant relied on the proposition that there was here no operative mistake, because Mr Soldini knew the true situation, and in view of his position his knowledge should be attributed to the plaintiff. It is certainly the case that Mr Soldini knew the true situation, and knew that there was no liability to pay the defendant in respect of the invoices the defendant had rendered, either for work supposedly done by the defendant or for work supposedly done by GTAKS. I doubt whether the knowledge of a fraudulent employee of the fact of the fraud could ever be properly attributed to the employer, but in any case on the evidence the ultimate decision to make the payment was not taken by Mr Soldini, but by the financial controller of the plaintiff, Mr Thompson. It is true that this process was essentially a routine process, and that in approving the payments which included the relevant payments Mr Thompson relied on the fact that Mr Soldini had authorised the invoices for payment (p 32, p 38), but strictly speaking the decision to pay was not Mr Soldini’s, so that his knowledge of the true situation does not mean that the payment by the plaintiff was not a payment made under a mistake. In my opinion these payments were payments made under a mistake of fact, so that prima facie they are recoverable.
- [25]In response to the defence of change of position the plaintiff pleaded that the defendants were aware that they had not carried out the work described in the invoices, but that is not the point. The change of position arises from their making a payment to GTAKS and the fact that they knew that they had not carried out the work themselves is irrelevant to that; they made the payment to GTAKS because they believed that GTAKS had carried out the work and was entitled to be paid pursuant to the arrangement. In my opinion this does not vitiate the change of position defence. The true position is that in circumstances where the payments were made to GTAKS in good faith,[26] that is without actual knowledge of the fraud, the defendant has changed its position in reliance on the payments and the defence of change of position is made out.
- [26]I do not consider that it matters that in some cases, if not in all cases, GTAKS was actually paid in respect of a particular invoice prior to the time when the defendant was paid by the plaintiff in respect of the corresponding invoice. That simply means that the defendant was relying on the payment being made, in accordance with the agreement which had been entered into and, after the first payment, apparently was being performed by the plaintiff.
- [27]This however is a case where it is possible to quantify the detriment, in the amount paid by the defendant to GTAKS. It follows that the defence of change of position is only available pro tanto, and, to the extent that money was retained and not paid over to GTAKS, the plaintiff is entitled to recover that money. Accordingly the plaintiff is entitled to recover from the defendant the sum of $20,643.49 as money paid under a mistake of fact. The balance of this claim fails.
– Misleading and deceptive conduct
- [28]The plaintiff also sought to recover the amount paid as damages for misleading and deceptive conduct. The payments just straddled the commencement of the Australian Consumer Law on 1 January 2011, with four invoices being sent by the defendant prior to this date. For practical purposes the matter may be considered under the Australian Consumer Law; it was not submitted that there was any meaningful distinction between the application of the respective provisions. The plaintiff’s case as pleaded was that by forwarding the relevant invoices to the plaintiff the defendant represented that the defendant had undertaken works described in each of the invoices. That was alleged to have been misleading and deceptive in that the defendant had not carried out the works described in the invoices. It was alleged that Mr Dunwoodie, as the controlling mind of the defendant, and as a person who knew that the defendant had not carried out the works, was knowingly concerned in the contravention, and so was personally liable. The defendants admit that the invoices were sent, but dispute that they thereby represented that the defendant had undertaken the works described in the invoices; they further assert that the plaintiff knew that that was the situation.
- [29]The first issue is whether the invoices did amount to a representation that the defendant had undertaken the works in them. The invoice did not expressly state that the defendant had done the work; there is a column headed “description” which, for example, in the invoice on page 81, states “project supply: safety system as discussed” a price and then a charge for GST, and at the foot of the invoice an amount stated as “balance due”. There is provision in the standard form for a delivery docket number to be included but it is blank; an “order no.” was quoted, in this case “39426”. There was a reference to the credit terms as “net 30 after EOM”.
- [30]The question is, does the invoice impliedly represent that the defendant has done the work? I think that the crucial point here is that the mere fact that a company sends an invoice does not necessarily imply that it has itself done whatever has to be done in order to justify the charge.[27] Leaving aside the particular arrangement which Mr Soldini and Mr Dunwoodie made in this case, it must surely be commonplace for invoices to be raised where work has been done by sub-contractors, or where the work involved installing things which were supplied by someone other than the defendant, but where the defendant is charging for supplying and installing. Mr Dunwoodie spoke of providing tradesmen to companies under what sounded rather like labour hire arrangements, and in those circumstances it would be surely not uncommon for the actual worker to be a subcontractor rather than an employee, so that technically the work was not done “by” the defendant.
- [31]Obviously an invoice might expressly represent that work has been done by the party issuing it, but I do not consider that a company, merely by issuing an invoice for something, impliedly represents that it has itself done whatever work was covered by the invoice. The plaintiff’s statutory claim therefore falls at the first hurdle: there was no representation as alleged in paragraph 4 of the Statement of Claim.
- [32]In case the view may be taken elsewhere however that this involves too strict a reading of the Statement of Claim, I will consider the position on the basis of what was represented by the sending of the invoice: that the defendant was entitled to be paid the amount claimed in the invoice for the work identified in the invoice,[28] or, I suspect, that the work identified in the invoice had in fact been done (i.e. by somebody). The first consequence of approaching the matter on this basis of course is that there can be no question of accessorial liability on the part of the second defendant. That could only arise if he knew that there was no liability on the part of the plaintiff, or that the work had not been done, as the case may be, and as discussed earlier I am certainly not persuaded that that applied to Mr Dunwoodie; on the contrary, I accept that he believed what he was told by Mr Soldini, and that the person behind GTAKS had actually done the work referred to and he was entitled to be paid for it. He was relying on Mr Soldini to ensure that the work had been done and done properly.
- [33]That was the effect of the arrangement with Mr Soldini. I am not persuaded that Mr Dunwoodie was not relying on that arrangement, or knew that it was false. It is not the case that he knew that there was no liability in respect of the GTAKS works; he believed that as a result of the arrangement he had with Mr Soldini the plaintiff did have to pay him for invoices he sent in accordance with purchase orders issued by Mr Soldini. At the very least, it has not been shown that he knew to the contrary. It follows that the plaintiff is not entitled to any relief against the second defendant. Plainly no relief can arise in contract, or on a restitutionary basis in respect of a payment of money to the first defendant. The claim in tort of deceit fails, and there is no basis upon which a constructive trust can properly be imposed on the second defendant personally, nor is he personally liable for equitable damages.
- [34]As to whether the representations so characterised are misleading and deceptive, in the first case that depends on whether the arrangement made with Mr Soldini was binding on the plaintiff. I must say this strikes me as a somewhat artificial exercise, in circumstances where the defendant is not seeking to enforce any such contract, but the issue could arise in this way, and I should deal with it. In principle if an employee has actual or ostensible authority to enter into a particular contract on behalf of the employer, the employer will be bound even if the contract was in fact entered into for an improper, including a fraudulent, purpose, so long as the other party to the contract is not aware of or involved in the fraud or impropriety. In the present case I accept that Mr Soldini did not in fact have authority to enter into the arrangement with the defendant that he did enter into, either on the basis that the plaintiff did not in fact make arrangements of this kind to process invoices from people who are not authorised vendors, or on the basis that Mr Soldini was not authorised to deal with a company which he had an interest, as was in fact the case with GTAKS.
- [35]In my opinion however Mr Soldini had ostensible authority to enter into such a contract. He had been appointed to the position of engineering manager of the plaintiff, and in such position he would be responsible for the acquisition of services of a general kind supposedly covered by this arrangement. He would have had authority to enter into an actual acquisition of services of this nature without the complication of the invoice being sent through someone else. In circumstances where there is evidence that arrangements such as the GTAKS arrangement are not uncommon in the engineering contracting industry, what matters is whether it would be usual for a person in the position of engineering manager to enter into such an arrangement if a company in the position of the plaintiff were going to make such arrangements.
- [36]There was evidence specifically on this point from Mr Hallam: p 2-3. The effect of Mr Dunwoodie’s evidence was that, except in the case of those companies small enough for him to deal with the person who was in substance the owner of the business, he would ordinarily deal with companies at or below the level of engineering manager, and that arrangements of this kind had been made by him on other occasions. I think it follows that such arrangements would commonly be made through the engineering manager, or perhaps a subordinate. In these circumstances, I consider that the plaintiff, by appointing Mr Soldini as engineering manager, held him out as having authority to make such an arrangement, so that he had ostensible authority to enter into the GTAKS arrangement on behalf of the plaintiff.[29] From the point of view of the defendant, the transaction was not obviously contrary to the plaintiff’s interests. It follows that, in respect of any particular invoice submitted by the defendant, under the terms of that arrangement, the defendant was entitled to be paid on the invoice, in return for paying on the corresponding invoice from GTAKS. Accordingly, if the invoice is characterised as a representation that the amount involved was payable to the defendant, in my opinion that did not involve any misrepresentation. There was therefore no misleading or deceptive conduct on that basis.
- [37]It was submitted for the plaintiff that the unusual features of this transaction compared with similar transactions with which Mr Dunwoodie was familiar meant that he ought to have been at least put on enquiry that something was wrong, and that in such circumstances he cannot rely on ostensible authority.[30] I have already referred to features which were relied on by the plaintiff as being unusual features of this particular transaction, and held that they would not lead a reasonable person to the conclusion that the transaction was in breach of Mr Soldini’s fiduciary duties. This however raises the question of whether those features would lead a reasonable person to make enquiries about the matter. Again I think the important consideration here is that this issue must be looked at prospectively, that is without the benefit of hindsight.
- [38]In circumstances where the basic concept, of the invoices being processed through a third party in this general way, is a recognised practice, but where it seems to me that there are no hard and fast rules about how it is or how it is not to be done,[31] relatively minor variations in the way something occurs from one situation to another will not prospectively excite any great degree of suspicion. The story that Mr Soldini told was on its face plausible, and accounted for the various features which the plaintiff relied on as being unusual features. There was no evidence from people who engage in this sort of transaction in the business community that, confronted with those features, they would have been suspicious and made further enquiries, so the matter is very much one of my impression.
- [39]Some of the unusual features, such as the difference between the wording of the GTAKS invoices and the purchase orders, would not have been as apparent at the time, because there was no particular reason for the wording of the documents to be closely compared at the time, and once the scheme started to work the fact that the scheme was working would have tended to give confidence in it. In all the circumstances I am not persuaded that the particular features of this scheme were so unusual that a reasonable person in the position of Mr Dunwoodie would have suspected that something was wrong, and would have made further enquiries as to whether the scheme was legitimate or whether Mr Soldini actually had this authority. In this context, I note Mr Dunwoodie’s evidence that, except in the case of small companies where he deal directly with the owner of the business, his dealings with companies were at the level of engineering manager or below.
- [40]On the other hand, if the invoice is characterised as a representation that the work described or referred to in it had been done, that clearly was a misrepresentation. None of this work was actually done by anyone. The issue then is whether this representation was relied on by the plaintiff in paying the defendant. The defendant’s case is that relevantly the plaintiff in fact relied on the fact that the invoice had been approved for payment by Mr Soldini; all of the invoices from the defendant which the plaintiff in fact paid had been so approved, and the evidence of Mr Thompson was that invoices would not have been paid unless Mr Soldini had signed off on them: p 32, p 38. Mr Thompson said that in approving payment he relied on the invoice, the purchase order and the approval by Mr Soldini: p 32. His evidence was not more specific as to what he relied on for confirmation that the work had been done.
- [41]It is well established that it is unnecessary to show that the misleading or deceptive conduct was the only thing relied on, but in my opinion it is necessary, when dealing with a specific implied representation alleged to have arisen from that fact that the invoice had been sent, to show that the plaintiff relied on the invoice in that particular way, that is to say, relied on the fact that the defendant had forwarded the invoice as showing that the work the subject of the invoice had in fact been done. This was not a matter actually addressed by the evidence of Mr Thompson, probably because this was not the way the plaintiff’s case was framed. Accordingly a difficulty with characterising the invoice as a representation that the work had been done by someone is that the plaintiff has not led evidence that the invoice was relied on in order to demonstrate that, or even that the invoice was one of the things relied on in order to demonstrate that.
- [42]In the absence of evidence on the point, I would assume that Mr Thompson in fact relied on MrSoldini’s certification as establishing specifically that the work had been done, and accordingly the plaintiff has failed to show that it suffered any loss as a result of the fact that the invoice as a representation that the work had in fact been done was misleading or deceptive. It follows that the plaintiff’s case on this basis also fails.
Apportionable claim
- [43]In these circumstances it is unnecessary for me to deal with the issue of whether this was an apportionable claim, and if so what consequences follow, though I should do so on a precautionary basis. The defendants relied on s 87CB of the Competition and Consumer Act 2010. The plaintiff admits that the claim is an apportionable claim, but sought to rely on the exclusion under s 87CC(1). That exclusion applies where the economic loss was caused intentionally or fraudulently by a concurrent wrongdoer. It is true that one of the concurrent wrongdoers, Mr Soldini, was acting fraudulently, but in my opinion s 87CC(1) does not exclude the liability as a concurrent wrongdoer of the defendant as a result; that follows from subsection (3). The plaintiff’s case on this point is really that the defendant was a party to Mr Soldini’s fraud, or acted intending to cause a loss to the plaintiff, which means in effect acted knowing that the work being claimed for by GTAKS had not really been done. As I have already concluded, the plaintiff has not shown that, and accordingly the plaintiff cannot rely on s 87CC as excluding the apportionment provisions in the case of the defendant.
- [44]The pleadings also refer to the apportionment provisions of the Civil Liability Act 2003. I consider that it is sufficient for me to say that, in relation to a claim under the Competition and Consumer Act 2010, the applicable statutory provision for apportionment is that contained in that Act, not the one contained in any Queensland legislation, and accordingly it is unnecessary for me to consider the Civil Liability Act 2003 in this context.
- [45]It may be however that the defendant is relying on the apportionment provisions of the Queensland Act in relation to the claim for money paid under a mistake of fact. The short answer to that is that a claim to recover money paid on the basis of a mistake of fact is not an apportionable claim under s 28(1) of the Queensland Act, because it is not a claim arising from a breach of duty of care.
Contributory negligence
- [46]The statute now provides for contributory negligence, and it was alleged by the defendant that there was contributory negligence on the part of the plaintiff, in having a system where it was the same person, in this case Mr Soldini, who was responsible for ordering the acquisition of goods and services and approving payment for them. The defendant called an expert witness who expressed the opinion that a company of this size should put in place a system to ensure that no one person had control over all or a significant part of a financial transaction, and that there should be different people involved in raising purchase orders, confirming receipt of goods or services, and payment of supplier invoices: Exhibit 6. I can see that such a step would improve the chance of avoiding a loss through fraud, but it does occur to me that the system the plaintiff used, of having the person who issued the purchase orders also certifying that the work done or goods to be supplied under the purchase orders had been provided so that the purchase order could be paid, would be a more efficient one, in that it would remove the need for liaison between the two people between whom the function had otherwise been split. The plaintiff did split the separate function of approving payment of accounts, though in practice that person, Mr Thompson, relied on what he was told by Mr Soldini.
- [47]The difficulty with this evidence however is that all it really shows is that there was something which the plaintiff could have done which, had it been done, would have prevented this particular fraud from occurring in the way it did occur. But that is not sufficient to prove contributory negligence; it is necessary to show that there was something which no reasonably careful business of this nature would have failed to do in order to prevent fraud as a general proposition, and in my opinion the evidence falls short of that. There was no particular reason why the plaintiff should have been taking precautions in advance against this particular kind of fraud, nor would the suggested precaution necessarily protect against any form of fraud. There were competing considerations, in terms of efficiency of operation of the business.[32] Ultimately, when this fraud was discovered, the plaintiff’s reaction was to change its system but not in this way, just by reducing the amount which could be authorised by the engineering manager.[33] That would reduce the risk of fraud by the engineering manager, but generate additional work. On the whole I am not persuaded that contributory negligence has been made out.
Apportionment
- [48]With regard to the ACL, it is perhaps a little artificial for me to be undertaking an apportionment of liability as between the defendant and Mr Soldini and his company GTAKS, in circumstances where I am not persuaded that there is any liability on the part of the defendant. Section 87CD provides for the apportionment of liability, or rather a limitation on the liability of a concurrent wrongdoer, which is what is relevant in this case. This however does not affect the liability for the restitutionary claim: s 87CD(2)(b). The question is, what proportion of the loss suffered by the plaintiff is it just for the defendant to pay, having regard to the extent of the defendant’s responsibility for the loss or damage.
- [49]The difficulty is in relation to the application of principles of apportionment. When dealing with multiple concurrent wrongdoers which have some element of culpability it is easy enough to apportion on the basis of a comparison of culpability and of the relative importance of the acts of the parties in causing the damage.[34] That approach is perhaps more difficult to apply in apportioning under the Commonwealth Act, where liability for misleading and deceptive conduct can arise without conscious wrongdoing on the part of the defendant, and without any want of reasonable care, and sometimes despite the defendant’s having gone to some lengths to prevent liability from arising. In the present case it becomes a question of apportioning liability between the fraudster and a defendant who was itself an innocent victim of the fraud. In these circumstances, it is tempting to conclude that liability should be apportioned entirely to the fraudster, though the structure of the legislation suggests that that would be, if not impermissible, at least quite rare, and the defendant did, albeit innocently, play a part in the fraud, which may have been impossible without its cooperation.[35]
- [50]In Perpetual Trustee Co Ltd v Ishak [2012] NSWSC 697 BreretonJ at [194] summarised the effect of a number of earlier decisions on apportionment involving one fraudulent wrongdoer, where the other party was or included a negligent solicitor, and noted that the apportionment had been as high as 90% to the fraudster in one case.[36] In most cases negligent solicitors bore a higher proportion of the loss, though there was the consideration that to some extent the responsibility of the solicitor was to guard the plaintiff against potential wrongdoings of another such as a fraudster. That was not the case here. In Factory Direct Fencing Pty Ltd v Kong Ah International Co Ltd [2013] QDC 239 Andrews DCJ on a precautionary basis apportioned liability 90% against a fraudster and 10% against the other party to the transaction.[37]
- [51]I have not been able to find a case specifically applying the apportionment provisions of the Competition and Consumer Act. In Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 177 the Court of Appeal discussed to some extent the apportionment provisions, but ultimately did not need to apportion as they held that the relevant parties were not concurrent wrongdoers. In those circumstances the decision is of little assistance in relation to the application of those apportionment provisions.
- [52]In the present case the most that can be said about Mr Dunwoodie is that, if he had been more cautious and more careful, it may have occurred to him that there was something unsatisfactory or suspicious about this arrangement, and he might have refrained from taking part. On the whole however, it is difficult to see how his responsibility for the damage or loss could be seen to be as great as a concurrent wrongdoer whose negligence failed to protect against the damage or loss caused by a fraudster.[38] In those circumstances, and obtaining such benefit as I can from the cases cited, I would apportion 95% of the loss or damage to Mr Soldini[39] and 5% of the loss to the defendant.
Conclusion
- [53]Accordingly the plaintiff is entitled to recover $20,643.49, plus GST, $22,707.84. The plaintiff also claims interest under the Civil Proceedings Act 2011 s 85. I will allow interest for two years at 7% per annum, an amount of $3,179.10. Total judgment is therefore for $25,886.94. I will hear submissions in relation to costs when these reasons are delivered.
Third party claims
- [54]The defendant also sought contribution or indemnity from Mr Soldini and his company in third party notices filed 1 February 2013, which were not defended. However, in the light of the conclusions I have reached, the only liability of the defendant to the plaintiff is in respect of the money paid to the defendant as a mistake of fact which was not paid on. That is not something in respect of which any claim for indemnity or contribution from the third party arises. If there had been no wrongdoing by Soldini and his company, the plaintiff would never have obtained this amount, and therefore the obligation to pay it to the plaintiff does not give rise to any loss on the part of the defendant.
- [55]The claim was really advanced on the assumption that there was an unapportionable claim under the Australian Consumer Law, but that it was not the case at least so far as the defendant was concerned, and if the plaintiff’s claim against the defendant under that law is limited by those provisions there is no scope for a claim for contribution or indemnity. It is not the case that the defendant and the third parties are both tortfeasors, so there is no claim for contribution between tortfeasors. Indeed I doubt whether there is any claim for contribution or indemnity in respect of liability for money paid under a mistake of fact. In the circumstances the defendant’s claims against the third parties fail and the third party claims are dismissed.
Footnotes
[1] The involvement of the second defendant is peripheral in legal terms, and it is convenient to refer to the first defendant as the defendant.
[2] For this paragraph, see Myler p 5, 6, 17; Dunwoodie p 42.
[3] Exhibit 2: Soldini p 27.
[4] Myler p 16, p 20; Thompson p 34.
[5] As it happens, since the trial I have heard evidence in another matter of a situation where work done by A was invoiced through B because it was an approved vendor of the customer; but I cannot take that into account.
[6] Hallam p 2-2; Donald p 2-9; Christiano p 87.
[7] Dunwoodie p 50. The plaintiff’s purchase orders are at pp 213-255 of Exhibit 1. The defendant’s invoices are at pp 81-121, GTAKS invoices to the defendant are at pp 143-212, and payment advices from the defendant to GTAKS are at pp 256-337. There were 41 invoices.
[8] Dunwoodie p 52; Exhibit 1 p 346. In all cases, plus GST.
[9] Thompson p 32.
[10] Since this incident occurred, the system has changed in that the amount which can be approved by the engineering manager on his own authority has been reduced: p 20.
[11] Myler pp 18, 19; Dunwoodie p 54.
[12] Soldini p 26, verifying Exhibit 1 pp 139-142.
[13] Armstrong v Strain [1952] 1 KB 232 at 248; Magill v Magill (2006) 226 CLR 551 at [17] per Gleeson CJ.
[14] That was the meaning intended: Krakowski v Eurolynx Properties Ltd (1995) 69 ALJR 629 at 636-7.
[15]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
[16] Dunwoodie P 64.
[17] Dunwoodie p 75; Exhibit 5.
[18] I am not paid enough to venture unnecessarily into that jungle. Jackson J has recently published a readable account of his travels there, which illustrate its many hazards and difficulties: Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265.
[19] Exhibit 1, p 125-7.
[20] Indeed in oral submissions this claim was abandoned.
[21] There was not in fact any evidence that the plaintiff had ratified Mr Soldini’s unauthorised arrangement with the defendant; the evidence was very much to the contrary. The plaintiff of course cannot rely on ostensible authority.
[22]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379.
[23]Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 at [1] per French CJ; [69], [77] per Hayne, Crennan, Kiefel, Bell, Keane JJ.
[24] Ibid at [4], [158].
[25] There was no appeal from my decision in that matter.
[26] I reject the submission of the plaintiff to the contrary, as discussed elsewhere. This submission was based on the notion that the defendants were parties to the fraud. The defendants were not wrongdoers.
[27] See Thompson p 39.
[28] This was the representation relied on in submissions: p 2-71; para 40.
[29] Applying Pacific Carriers Pty Ltd v BNP Paribas (2004) 218 CLR 451. The plaintiff’s argument to the contrary turned on the proposition that this arrangement was not the sort of thing an engineering manager would ordinarily do: para 20.
[30] Relying on Kanssen v Rialto (West End) Ltd [1944] Ch 346.
[31] Dunwoodie p 83.
[32] Myler p 16.
[33] Myler p 20.
[34]Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 at [83].
[35] But see Soldini p 28.
[36] Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60.
[37] In fact the action against the other party failed on the basis that there was no duty owed and so no breach of duty as alleged. I suppose in such circumstances it was also difficult to identify any relevant wrongdoing on the part of the defendant.
[38] No claim in negligence was brought against the defendant, and it could hardly be said that the defendant owed a duty to the plaintiff to protect it against fraudulent employees.
[39] With or without the company GTAKS; it is unnecessary for me to distinguish between them for this purpose.