Alan L Tyree

Mercedes Benz v ANZ and National Mutual Royal Savings Bank Ltd (Part 2)

A brief statement of facts

The previous issue of this Journal contains a full statement of the facts of this case. Mrs R was employed by the plaintiff as a payroll supervisor. By arrangement with the second defendant, she was given forms for opening accounts for new employees of the plaintiff, and she received cards and PINs for accessing those accounts. The plaintiff paid wages and commissions by issuing a cheque in favour of NMRB who then credited the appropriate accounts.

There was virtually no supervision of Mrs R after her appointment, nor did the second defendant ever question the creation of accounts. Mrs R defrauded the plaintiff company using several different schemes. For the purposes of the present note, the relevant scheme was to create accounts in fictitious names and then use those accounts for the deposit of cheques.

The statement of principle

Palmer AJ begins his judgment with a statement of principle which guides him through the issues. Under the heading "An Important Consideration of Justice", he argues that there is a general principle which should guide the allocation of losses in a case such as this. In short, the principle is that " is more reason that he that employs and puts a trust and confidence in the deceiver should be a loser than a stranger".1 Palmer AJ warns such broad statements of principle "do not provide a panacea for the resolution of all claims arising out of the frauds of employees" and that each case "will ultimately depend upon its own facts and circumstances".2 The principle does, however, "provide the light by which one is able to tell at least some of the wood from the trees".3

The "principle" is reflected later in the century by a statement of Ashhurst J. in Lickbarrow v Mason4 which is perhaps more often quoted than that of Holt CJ:

"We may lay it down as a broad general principle that whatever one or two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it."

Principles such as these give one a nice warm glow, but like Chinese aphorisms leave one an hour later pondering the meaning of it all. In the present case it is easy to identify the party who "employed" Mrs R, but which of the parties put "a trust and a confidence" in her. Which of the parties was "innocent" in the sense of Ashhurst J.? The plaintiff trusted her for the purposes of preparing the payroll, but the defendant trusted her for the purposes of establishing bank accounts. The fraud could not have occurred but for the fact that neither of the parties was "innocent". Perhaps we could formulate a general principle which begins "Whatever one or two not-so-innocent parties...".

Unjust enrichment

The plaintiff claimed recovery of the money paid to the bank as money paid under a mistake of fact. In defence of this claim, the bank argued that it had received the money as agent and, alternatively, by paying the money out had established a defence of change of position.

There was no difficulty in finding that the payment had been made under a mistake of fact. The old notion that the mistake must be one which causes the payer to believe that the payment is legally due the payee was floated and rejected.5 Since it seems clear that the money was received as an intermediary, the law clearly exonerated NMRB from the prima facie obligation to repay it.6

Palmer AJ took the opportunity to enter the debate about change of position as a defence to the action to recover money paid under a mistake of fact. At least since R E Jones Ltd v Waring & Gillow Ltd7, the unpopular but entrenched rule has been that change of position affords no defence. There have been a number of cases where exceptions have been made, but the general rule survived in England until Lipkin Gorman reached the House of Lords.8 Lord Goff took the opportunity to change the law to conform with the more modern view of the defence.9

The position in Australia has always been uncertain. There seems to be no authoritative statement, and individual judges have made comments which either considered the defence available or which held that it was not on the basis of the English cases.10 The High Court noted that the defence was "arguably" open, but found it unnecessary to decide the question.11

Palmer AJ argued that whatever impediment there was to accepting the defence in Australia was now removed by the decision in Lipkin Gorman. The judgment gives a good discussion of this long-standing problem in the law of unjust enrichment. There are obviously problems in the concept which require resolution, but it provides the machinery for avoiding clear injustices.


The plaintiff claimed in conversion against NMRB in respect of some twenty seven cheques. The cheques in each case were crossed "not negotiable" and collected by NMRB which credited the proceeds to bogus accounts established by Mrs R. Some of the cheques had been collected before the defendant became a "bank", and it was acknowledged that there was no defence for those cheques.

For those cheques which were collected after the time when the defendant became a "bank" for the purposes of the Cheques and Payment Orders Act 1986 (CPO), the issue was whether the cheques had been collected "without negligence" so as to attract the defence of s95 of the CPO. The test is

"...whether the transaction of paying in any given cheque [coupled with the circumstances antecedent and present is] so out of the ordinary course that it ought to have aroused doubts in the bankers' mind, and caused them to make inquiry."12

The "circumstances antecedent and present" include the opening of the account,13 and all aspects of the transaction which are apparent from the face of the cheque in the light of facts known to the banker. The judgment in the present case contains little information about the look of the converted cheques. Most of the argument centered upon the circumstances surrounding the opening of the accounts in fictitious names.

Palmer AJ dismissed the argument noting that it was not negligent to open an account for a new customer if the bank relied on a reference from an existing and reputable customer. The argument relies on Marfani's case,14 where a rogue presented himself to the bank using a name which belonged to a respectable member of the community. The bank sought information concerning the man (under the assumed name) and, of course, received a satisfactory reply, whereupon the account was opened.

Marfani is very slim support for the conclusion that NMRB collected "without negligence". Diplock LJ indicated that it was probably desirable that the banker should see some documentary evidence of identity, although in the circumstances of the case was prepared to find that it was not always necessary.

Cairns J was even more specific about the "line ball" nature of Marfani:

"I should be sorry if the effect of our decision in this case were to encourage any loosening of [rules of opening accounts]. If the defendant bank here exercised sufficient care, it was in my view only just sufficient."15

The notion that the wholesale handing over of the account opening process is "without negligence" is breathtaking.

We can test it this way. Suppose that the plaintiff was some third party who had been defrauded by the collection of a cheque through one of the bogus accounts. Is it conceivable that the defendant could establish a defence by arguing that it had delegated the wholesale opening of accounts to a firm who imports luxury cars?

It seems here that the court was being guided by the "principle" mentioned above. We feel less sympathy for the plaintiff here than in the hypothetical case of a truly "innocent" third party. What is really being done is to note that the plaintiff was negligent as well, but the argument that the plaintiff's negligence is relevant in a s95 defence has been rejected on several occasions.16 The Supreme Court of Victoria has also considered the question after the introduction of the CPO, deciding that the introduction of the Act had not intended any changes in this regard.17

Alan L Tyree
Landerer Professor of Information Technology and Law
University of Sydney

1 Holt CJ in Hern v Nichols (1701) 1 Salk 289 as quoted by Palmer AJ at p 4.

2 at p.5

3 at p.5

4 (1787) 2 T.R. 63; revd (1790) 1 H. Bl. 357 and restored (1793) 2 H. Bl. 211

5 Aicken v. Short (1856) 1 H. & N. 210; Commercial Bank of Australia Ltd. v. Younis [1979] 1 NSWLR 444; ANZ Banking Group v. Westpac Banking Corporation (1988) 164 CLR 662

6 ANZ Banking Group v Westpac Banking Corporation (1988) 164 CLR 662; Gowers v Lloyds & National Provincial Foreign Bank Ltd [1938] 1 All ER 766

7 [1926] AC 670

8 Lipkin Gorman v Karpnale Ltd [1991] 3 WLR 10

9 And to conform with his own views as a textbook writer and as judge at first instance in Barclays Bank Ltd v W J Simms, Son & Cooke (Southern) Ltd [1980] QB 677

10 Most notably Clarke J in National Mutual Life Association v Walsh (1987) 8 NSWLR 585 rejecting the defence (obiter) on the basis of clear decisions by the English Court of Appeal in Bayliss v The Bishop of London [1913] 1 Ch 127

11 ANZ Banking Group v. Westpac Banking Corporation (1988) 164 CLR 662

12 per Lord Dunedin in Commissioner of Taxation v English Scottish and Australian Bank Ltd [1920] AC 683, at 688

13 as in the case before Lord Dunedin. See also London Bank of Australia Ltd v Kendall (1920) 28 CLR 401, Ladbroke v Todd (1914) 30 TLR 433 and Marfani v Midland Bank [1968] 1 WLR 968

14 Marfani v Midland Bank [1968] 1 WLR 956

15 at page 981, 982.

16 Wilton v Commonwealth Trading Bank [1973] 2 NSWLR 644, Tina Motors v ANZ Banking Group [1977] VR 205, Day v Bank of New South Wales (1978) 19 ALR 32

17 Australian Guarantee Corporation Ltd v Commissioner of the State Bank of Victoria [1989] VR 617