FIRST STATE GROUP PTY LTD v COMMONWEALTH BANK OF AUSTRALIA SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, SHELLER and POWELL JJA 6 May 1996, 6 May 1996 [1996] NSWCA 185 CONTRACT — termination of- dishonoured deposit cheque Sheller JA At an auction on 15 October 1994 the respondent, Commonwealth Bank of Australia, exercising its powers of sale under a mortgage, sold a property situated near Windsor to the appellant, First State Group Pty Ltd, for $1,500,000. When the contract was signed on that day, the representative of the real estate agent asked the appellant's representatives for the required deposit of 10 percent. Mr Robinson, who was one of the appellant's representatives present, handed over a cheque for $100,500 payable to the estate agent and asked if the respondent would wait until Tuesday before depositing the cheque as the appellant might need a day to organise the funds. The bank's representative agreed to this request. Due to an error in the agent's office, the cheque was deposited on the Monday, 17 October 1994. The appellant's bank statement from State Bank, Martin Place showed against the date 17 October the cheque number and a deposit in the amount of $100,500. Underneath that against the same date it showed "Referral fee debit $15". For 18 October the bank statement showed "Entry reversal credit $100,500". There followed on 18 October an entry "D/C debit $30" and on 21 October "Unpaid payment fee debit $15". On 18 October 1994 the representative of the real estate agent spoke to Mr Robinson, the appellant's representative, by telephone. He said there had been a mix up and indicated that the cheque had been accidentally banked. He suggested to Mr Robinson that he ring the bank and notify them that this had happened and make whatever arrangements "you think you need to do". Mr Robinson said that he would see what he could do about it. At 4.30 pm on that day, that is to say on 18 October, Mr Robinson faxed the estate agent saying amongst other things "I have now ascertained that the cheque was in fact deliberately banked for special clearance by your office and with your knowledge". He also asserted that an arrangement had been made between the respondent and the appellant about presentation of the cheque to the effect that this would not take place until the appellant had been informed. This asserted arrangement was not supported in the course of these proceedings and it need not be further referred to. On 18 October 1994 Mr Evans, the respondent bank's representative, telephoned State Bank, Martin Place branch, and asked for a special clearance of the cheque. The woman to whom Mr Evans spoke said "We will give you a ring back". At approximately 2.15 pm Mr Evans received a telephone call from State Bank, Martin Place and a woman said to him "Mr Evans, it is State Bank of New South Wales Martin Place calling with the result of your special clearance 2 UNREPORTED JUDGMENTS answer. The answer is 'Refer to drawer'." Mr Evans states in his affidavit that the answer "Refer to drawer" means that the cheque has been dishonoured because of an insufficiency in the account to cover the amount of the cheque. The contract for the sale of land, which was substantially in the form of the standard 1992 Law Society and Real Estate Institute, provided in CL2 that it was an essential provision that on the making of the contract the purchaser pay the deposit to the deposit holder as stake holder, that the deposit might be paid by cash or cheque and "if the deposit is not paid on time, or a cheque for the deposit or any part of it is not honoured on presentation the vendor can terminate but only before the deposit is paid". On 20 October 1994 the respondent's solicitor wrote to the appellant's solicitor allowing until 5pm on that day for the deposit to be paid and indicated that, failing that being done, he had instructions to terminate. No offer was made on behalf of the appellant to pay the deposit. On 21 October a notice of termination was served based on default by way of non compliance with CL2 of the contract. On 21 October the respondent entered into a contract to sell the property to another purchaser. On 21 October the appellant lodged a caveat claiming an equitable interest as purchaser in the property the subject of the sale. On 1 November a summons was filed by the respondent seeking an order that the appellant withdraw ie caveat, and a declaration that the contract had been validly terminated, together with other relief. The appellant filed a cross claim seeking amongst other things specific performance. The proceedings were heard by Cohen J, who, on 25 November 1994, made the declarations and orders the respondent sought and dismissed the cross claim. The appellant appeals from this decision. The respondent's case before Cohen J was that the cheque was dishonoured on 18 October 1994 and that thereafter the appellant was in default, in consequence of which it was entitled to terminate the contract. The appellant's case was that it had not been proved that the cheque was dishonoured on 18 October. The appellant asserted that in fact the cheque had been dishonoured on 17 October 1994 with the consequence that this flowed from a breach of the bank's agreement to the appellant's request not to present the cheque before 18 October. Cohen J found that the dishonour of the cheque took place on 18 October 1994. In doing so his Honour took account of the conversation which Mr Evans had with State Bank. Although in his judgment his Honour referred to this as having taken place on 20 October, I have no doubt that his Honour was referring to the conversation on 18 October, to which I have referred. His Honour also took into account the bank statement which showed that there was a reversal of the entry debiting the cheque and that that reversal was dated 18 October. His Honour said that he was of the view that the evidence pointed clearly to that being the date upon which the cheque was dishonoured. The consequence of this was that it made no difference that the cheque was presented by mistake on 17 October. The same consequence in terms of dishonour would have followed if the cheque had been presented as agreed on 18 October. If on Tuesday 18 October the bank had sought, as it did, a special clearance. the result would have been the same. Accordingly, as I have said, his Honour made the orders that he did. WARBIST STATE GROUP PTY LTD v COMMONWEALTH BANK OF AUSTRALIA (Powell JAB The appellant on this appeal challenges the fundamental plank in his Honour's finding, namely that the cheque was dishonoured on 18 October rather than the 17 October 1994. In doing so, counsel relied upon three matters; firstly, the entry on the bank statement against 17 October "Referral fee"; secondly, the stamps that appear on the back of the cheque as it went into evidence, exhibit 1; and, thirdly, the statement made in the facts of 18 October 1994 which I have quoted. It is plain, as appears from the stamps on the back of the cheque, that the cheque reached State Bank New South Wales on 17 October and was presented on that day, contrary to the arrangement that had been made. However, apart from that fact, nothing, it seems to me, is to be drawn from looking at the back of the cheque beyond the authoritative statement thereon "Refer to drawer". There is no indication from looking at the back of the cheque when the cheque was dishonoured by the respondent. So far as the statement which I have quoted is concerned, that is nothing more nor less than a restatement of the fact that the cheque was banked on the Monday. The statement that special clearance was sought on that day seems to he inaccurate. The gravamen of the challenge depends upon the reference to "referral fee" in the bank statement. I acknowledge that this is perhaps some evidence that on 17 October some decision was taken by the bank about dishonour. However, it seems to me that the inference that his Honour drew from the fact that the entry reversal was not made until 18 October, combined with the unchallenged evidence of Mr Evans as to the conversations that he had with State Bank officers on 18 October, points in the opposite direction. His Honour, as I have said, based his finding upon those two matters. He said that it seemed to him on the probabilities, bearing those matters in mind, that State Bank, having received the cheque on 17 October, issued a notice referring to drawer as a result of the request by Mr Evans for a special clearance at some time on Tuesday, 18 October. Cohen J delivered what I would respectfully regard as a careful and thoughtful judgment dealing with the matters in issue before him. I agree with the conclusion he came to on the basis of the evidence before him as to when the cheque was dishonoured. It seems to me that the inference is open and indeed, in the absence of any contrary evidence being called by the appellant or any challenge to the evidence led by the respondent, I would regard the inference as irresistible. Some of the possible explanations for the entry made on the bank statement of referral fee were discussed during the course of argument. There is no evidence which links that in any way incontestibly with any decision made by the bank on 17 October to dishonour the cheque. In those circumstances, I do not think his Honour's finding in this regard can be disturbed. It follows from that that, for the reasons that his Honour gave, the bank was entitled to terminate the contract when it did, with the consequence that the orders that his Honour made were properly made. In my opinion the appeal should accordingly be dismissed with costs. Handley JA I agree. Powell JA I also agree. The order of the Court therefore will be, as proposed by Sheller JA, appeal dismissed with costs. Appeal dismissed with costs. 4 UNREPORTED JUDGMENTS Counsel for the appellant: DB McGovern Solicitors for the appellant: Richard A Licardy and Co Counsel for the respondent: AG Bell Solicitors for the respondent: LE Taylor