ANZ Banking Group Ltd v Vikash [2010] FJHC 445; HBC208.2004L (27 September 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No: HBC 208 of 2004L

BETWEEN:

ANZ BANKING GROUP LTD
Plaintiff

AND:

JAINENDRA VIKASH
Defendant

FINAL JUDGMENT

Judgment of: Inoke J.

Counsel Appearing: Mr. S. Singh for the Plaintiff
Mr. F. Khan for the Defendant

Solicitors: Messrs Parshottam & Co. for the Plaintiff
Messrs Faiz Khan for the Defendant

Date of Hearing: 28 April 2010
Date of Judgment: 27 September 2010

INTRODUCTION

[1] The Defendant was a shareholder and director of a company called Paper Power (Fiji) Limited ("Paper Power"). The company had a bank account with the Plaintiff bank. The bank paid out on several Paper Power cheques on the Defendant's sole signature without being countersigned by another director, contrary to the company's written authority, so the company sued and obtained judgment against the bank for the moneys paid out on these cheques. The bank having paid on the judgment now sues the Defendant to recover the judgment sum on the basis that it mistakenly paid out on the cheques.

CASE HISTORY

[2] This is one of those cases where judgment remained outstanding after trial because the trial Judge did not return to the Bench. The Defendant wanted a trial de novo but the bank wanted judgment on the trial Judge's notes. The bank made an application for such an order which I granted on 18 January 2010. My judgment is reported in ANZ Banking Group Ltd v Vikash [2010] FJHC 3; HBC208.2004L (18 January 2010). I also gave leave for counsel to make oral submissions which they did on 28 April 2010 and I reserved my judgment to be delivered on notice, which I now do.

THE STATEMENT OF CLAIM

[3] The Statement of Claim filed on 27 July 2004 pleaded that Paper Power was a customer of the Plaintiff bank. The Defendant could draw on the company's bank account only if cheques were counter-signed by one other authorised signatory. On various dates between 19 December 2001 and 25 January 2002, the Defendant drew 5 cheques totalling $11,074.23 on the company's account. Despite these cheques being signed by the Defendant alone, the bank, by mistake, paid out on them. The Defendant received the moneys and converted them to his own use. The bank also alleged that the Defendant withdrew the moneys fraudulently. As a direct consequence of the Defendant's actions, Paper Power demanded that the Plaintiff make full payment to it of the $11,074.23 and interest. On 13 February 2004, Paper Power sued the bank in this Court and on 17 April 2004 the company obtained judgment against the bank. On 7 July 2004, the bank paid $14,600.84 to Paper Power in satisfaction of the judgment. The bank alleges that it has suffered loss as a result; it has made a demand for payment but the Defendant has not paid the money. It claims the money together with interest and costs.

THE DEFENCE

[4] In his Defence, the Defendant said he was the only resident signatory of the company and the general procedure followed for urgent withdrawals for the company's business was for only one local signatory and one of the overseas directors/shareholders, Gyanendra Deo, to advise/inform the bank of such withdrawals. These withdrawals were used for the company's business. He denied the withdrawals were done fraudulently. He also said the judgment obtained by the company against the bank was a default judgment so the bank's loss was a result of it not defending the action and not a result of the cheques being paid out. He sold his shares in the company on 30 January 2003.

THE AGREED FACTS

[5] It was common ground that Paper Power held a bank account with the bank from which the 5 cheques were drawn totalling $11,074.23 on those various dates.

THE DOCUMENTS

[6] The Agreed Bundle of Documents was tendered by consent as Exhibits 1 to 28.

THE EVIDENCE AT THE HEARING

Plaintiff's Witnesses
PW1

[7] She is the Bank Manager of Nadi branch. She was familiar with the background of the case. She said the bank paid the cheques against an incorrect authority. They paid contrary to the instructions the customer gave them. The customer was Paper Power. The company had a bank account with the bank. The instructions were two directors to sign and for overseas transactions, Mr Gyanendra could sign alone. The written authority[1] to the bank dated 23 November 1995 was that as from that date all cheques drawn on the company's account were to be "co-jointly signed by either any two Directors or a Director and Jinendra Vikash". Subsequently by authority[2] dated 5 July 1998, the company changed the signatories to "Any two to sign co-jointly". One of the signatories was to be the Defendant. The bank was not supposed to honour cheques not "co-signed co-jointly". On each of the five cheques there was only one signature; that of the Defendant. The bank paid out on all cheques unauthorised. All were cheques made out to "cash". The bank realised its mistake when it received a complaint from the customer that the moneys had been paid out contrary to the instructions to the bank. Paper Power claimed against the bank and the bank paid out because it was at fault; the bank was obligated to pay. It paid $14,684.00 including interest. If it had not paid out the company, the bank could have used the money at 8-9% interest; now 13%.

[8] In cross examination she confirmed that the cheques were drawn on the company's accounts. She confirmed that some cheques had only the Defendant's signature but they were not part of this claim. They could be related to overseas bank drafts which the Defendant was authorised to sign. She confirmed the company authorised the Defendant in respect of company account 3706137 by letter dated 11 August 1999[3] "to be the only signature required for the issuing of cheques for payment of overseas accounts ONLY. All other requirements are as standing". This was the account on which the cheques in this case were drawn on. She was also referred to a written authority from the company director Gyanendra Deo dated 31 July 2000[4] which authorised the Defendant to operate account 05007091 from that date with his signature only; the Defendant was authorised to "pay overseas bills by making bank draft and direct payment by doing transfer of funds from 05007091 to 03706137". She confirmed that he could operate these accounts on his signature alone. She agreed that the bank pays cheques on demand. She confirmed that the bank did not usually ask its customers where the funds were going to.

The Defendant's Witnesses
DW1

[9] The Defendant gave evidence. He joined Paper Power in 1997 and worked for the company for more than 5 years then he became a Shareholder and Director for the next three and a half years till January 2003 when he had a dispute with the other directors. The nature of the dispute was his working under duress. He was here all alone; all the other directors were in New Zealand. He asked for improved working conditions. They did not agree. They arranged for a solicitor to draw up numerous documents for him to be paid $55,000 within two years. It did not work out. The matter was settled in the High Court. In one case he was paid $10,000 and in another $13,000. The company sued him in civil action HBC 89 of 2003[5]. Included in that action was a claim[6] for repayment of the balance of one of the cheques the subject of this action. He defended the action and counter-claimed against the company. The action was settled and he was paid $13,000[7].

[10] In respect of the operation of the two accounts he said he operated them in the same manner for both overseas and local payments. He had signed cheques on his own on numerous occasions. All payments were reported by the 5th of the following month and posted to the directors including the payment particulars – amounts and payee. Whenever the directors came to Fiji they would have meetings. They never complained to him that he could not do what he was doing. There was no dispute at all between him and the other directors during the period 19 December 2001 and December 2002. Neither did they demand payment from him.

[11] In respect of the first cheque, he said it was for leave pay for company staff. The company had six outlets in Fiji and had 18 to 20 permanent employees. The amount of the cheque was the exact amount for leave pay which he had calculated. The other cheques were for "back to school" books and items. All were arranged by Gyanendra Deo from New Zealand to the bank officer looking after the company account in Fiji. Sometimes Deo faxed to ANZ Nadi attention Mr James and when Mr James called him he would then go with the cash cheque. Because "back to school" payments were to government supplies they had to be by cash. None of the cheques were used for himself. They were all used for the company. No one from the bank inquired with him about the cheques. He had no documents because they were all left with the company when he left.

[12] In cross examination, he said Deo would send authority to the bank only on cash cheques. The authority had to be given first. However, he did not agree that he had no authority to sign those cheques. He maintained that he was authorised and the bank did not make a mistake.

OBJECTION TO THE DEFENDANT'S EVIDENCE

[13] Counsel for the bank submitted that because it was not put to the bank's witness that the Defendant was authorised to sign cash cheques on his own on Gyanendra Deo advising the bank, I should apply the rule in Browne v Dunne[8] followed in Sewak v Narayan[9] and exclude the Defendant's evidence in this regard. Counsel also submitted that such a defence was not pleaded.

[14] I think these submissions were misconceived. This defence was clearly pleaded in paragraph 2 of the Defence. The Plaintiff could not have been taken by surprise. It was evidence which would have been available to and used by the bank. It is risky advocacy for its counsel not to lead evidence to rebut the Defence and to rely on Browne v Dunne to exclude such evidence from the Defendant in the hope that the Defence would not be put to the Plaintiff or its witnesses.

[15] Further, I do not think it would have made any difference whether the defence was put to the witness or not because she was only familiar with the background of the case and not the details. Her evidence rested primarily on the written authorities to the bank. She was not the one actually accepting the cheques nor was she directly concerned with whether the cheques were properly countersigned or not. I think the submission is based on a misunderstanding of the rule.

[16] I therefore reject the submissions.

FINDINGS ON THE EVIDENCE

[17] It seems to me that the bank knew exactly what it was doing. Despite the written authority, the parties adopted another procedure because of convenience. The other signatories lived overseas. It would have been practically impossible for the Defendant to run the company without being able to write and sign cheques on his own. The adopted procedure benefited both the company and the bank.

[18] The bank could have called the officer that looked after the company's accounts but did not do so. It did not explain why he was not called. I am entitled to apply the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 and find that his evidence would not have helped the bank's case, namely, that the bank made a mistake. I am left with the Defendant's evidence which I accept and find that the agreed procedure was in fact adopted and the bank was in fact authorised to pay on the cheques despite there being only one signature, that of the Defendant.

[19] The bank admitted making a mistake but I do not think it was a mistake at all. That admission came as an afterthought because the written authorities did not support it.

[20] Secondly, the bank failed to prove that the cheques were paid to the Defendant personally or that he used the money for his own use and not for the purposes of the company. Indeed, it adduced no evidence at all to prove the allegation. Instead I accept the Defendant's evidence and find that all moneys collected from the cheques were paid for company expenses.

[21] Having come to those conclusions on the facts, it follows that the bank only did what it was obliged by law to do, which was to honour the cheques of its customer, the company. The company therefore had not basis to recover the moneys from the band and was not entitled to the default judgment. The bank paid the judgment when it should not have. Its loss is therefore not one occasioned by the Defendant's actions but one occasioned by a misconception. As put by counsel for the Defendant, the bank's misconception was to treat the Defendant as a third party. He was not. It also follows that there is no basis for the present claim against the Defendant.

[22] Counsel for the Defendant also referred me to B. Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928]1 KB 48 as authority supporting his case. The facts of that case are very similar to those in this case except for one, and that is, my finding that the bank was in fact authorised by the company to pay on the cheques. There, the bank paid on cheques which did not comply with the company's written authority and the practice adopted by the bank and the company. The cheques were issued and honoured in payment of the company's creditors and discharge of its legal liabilities. The company sued the bank for repayment of the amount on the cheques as money had and received because the bank paid on those cheques without authority. Wright J stated the applicable principle (at p 59) as follows:

Under those circumstances it is contended by the defendant bank that they are entitled to credit for the amounts so paid – that is to say, for all those cheques – in discharging the debts of the company, and they rely upon the equitable doctrine under which a person who has in fact paid the debts of another without authority is allowed to take advantage of his payment. I take the statement of that equitable doctrine in these terms from the language of Scrutton LJ in the case of A L Underwood Ltd v Bank of Liverpool and Martins [1924] 1 KB 775.

[23] Thus, even if I am wrong in my finding that the bank was in fact authorised to pay out on the cheques, this equitable doctrine allowed the bank to take the benefit of its payments because they were to discharge the debts of the company. The company had no legal recourse for repayment or judgment against the bank. Having therefore repaid the company under circumstances when it should have not, the bank's remedy is against the company and not its director/shareholder, the Defendant.

[24] Further, it makes no difference in my view that the cheques here were made out to "cash". The undisputed evidence was that the moneys from the cheques were paid towards company expenses. The equitable principle still applies.

[25] Counsel for the Plaintiff relied on Simos v National Bank of Australia Ltd [1975] 45 FLR 97, a decision of the Supreme Court of the Australian Capital Territory in which the bank was able to recover from one of the signatories. That case can be distinguished because the signatory was a third party. That was not the case here.

[26] Much was made of the two and a half year delay in the bank notifying the Defendant of its mistake during which time the Defendant had changed his position by settling the claims against him so it would be inequitable to require him to make restitution. I do not need to consider the point and the cases referred to by counsel because of the findings and conclusions that I have reached.

[27] The Plaintiff has failed to prove its case. It is dismissed.

COSTS

[28] The Defendant is entitled to his costs of the action. I think the Plaintiff's claim is misconceived. Although I do not think that it is a case justifying indemnity costs, I think costs should be in the high end of the scale for a trial in this Court. It took one day; two witnesses and a moderate number of documents were involved, and substantial submissions were filed by counsel. I think costs in the sum of $2,000 is justified and order accordingly.

ORDERS

[29] The Orders are as follows:

1. The Plaintiff's claim is dismissed.
   
2. The Plaintiff shall pay the Defendant's costs of $2,000 within 21 days.
   

Sosefo Inoke
Judge

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^[1] Exhibit 1
^[2] Exhibit 2
^[3] Exhibit 4
^[4] Exhibit 5
^[5] Exhibit 26.
^[6] Ibid, paragraph 10(i)
^[7] Exhibit 27.
^[8] (1896) 6 R 7
^[9] [2008] FJHC 258; HBC118.2007 (22October 2008)