Supreme Court New South Wales Medium Neutral Citation: Katwell Pty Ltd and Anor v National Australia Bank Limited [2012] NSWSC 513 Hearing dates: 19 April 2012 Decision date: 18 May 2012 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph 47 Catchwords: Appeal - Associate Judge of Supreme Court of New South Wales - Appeal to Supreme Court Judge - UCPR rule 49.1 - Interlocutory matter - whether reasonable cause of action - company director - actual authority Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Supreme Court Act 1970 (NSW) Corporations Act 2001 (Cth) Cases Cited: Edwards v Noble (1971) 125 CLR 296 PAO v Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2011] NSWSC 1216 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Fried v National Australia Bank Limited [2001] FCA 907 N Joachimson (A Firm) v Swiss Bank Corp (Costs) [1921] 3 KB 110 London Intercontinental Trust v Barclays Bank [1980] 1 Lloyd's Rep 241 Texts Cited: R P Austin & H A J Ford 'Company Directors' (2005) P Watts and F M B Reynolds 'Bowstead and Reynolds on Agency' (19th Ed, 2010) Category: Principal judgment Parties: Parties: Katwell Pty Ltd - plaintiff National Australia Bank Limited - defendant Representation: Counsel: C Birch SC, A L Connolly - plaintiff P Reynolds - defendant Solicitors: JSM Lawyers - plaintiff Rosalind Persaud (NAB Legal)- defendant File Number(s): 2010/135240 Judgment Introduction 1This is an appeal from an interlocutory judgment of an Associate Judge of the Supreme Court of New South Wales. 2His Honour summarily dismissed the proceedings on 8 November 2011. 3The appeal is brought pursuant to rule 49.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) which provides: "An appeal lies to the Supreme Court from any decision of an associate Judge of the Supreme Court, except in any case where an appeal lies to the Court of Appeal." 4By virtue of UCPR rule 49.1(a) the reference to "the Supreme Court" in UCPR rule 49.4 is a reference to "the Supreme Court constituted by a Judge of the Supreme Court". 5An appeal from an Associate Judge to a single Judge is an appeal by way of re-hearing governed by section 75A of the Supreme Court Act 1970 (NSW). 6In PAO v Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2011] NSWSC 1216 Hoeben J (as he then was) made the following comments about the nature of such an appeal: "78.The application before the Court is an appeal from the decision of an Associate Justice pursuant to UCPR 49.4. The appeal is by way of rehearing s 75A(5) of the Supreme Court Act 1970) and the Court has the powers and duties of the Court from which the appeal is brought (s 75A(6)). The applicant carries the onus of showing the decision appealed from ought to be reversed. Subject to the power to receive further evidence, the appeal by way of rehearing is conducted on the transcript of evidence taken in the Court below. 79.Such an appeal is largely governed by the same principles as those applicable to an appeal from a single Judge to the Court of Appeal. Subject to the impact of fresh evidence admitted under UCPR 49.12, the Associate Justice's primary findings of fact are to be followed by the Judge hearing the appeal unless the facts found or inferences drawn attract review under the principles in Warren v Coombes (1979) 142 CLR 531 at 553; Do Carmo v Ford Excavations Pty Limited (1981) 1 NSWLR 409 at 419C - 421B .... 81.Before dealing with the submissions of the parties, it is useful to set out the principles which the Court has to apply in resolving the dispute which is before it. The leading authority remains General Steel Industries Inc v Commissioner for Railways (NSW) and Ors (1964) 112 CLR 125 at 128 where Barwick CJ said: "The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. I have examined the case law on the subject, to some of which I was referred in argument and to which I append a list of references. There is no need for me to discuss in any detail the various decisions, some of which were given in cases in which the inherent jurisdiction of a court was invoked and others in cases in which counterpart rules to Order 26, r. 18, were the suggested source of authority to deal summarily with the claim in question. It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action-if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal-is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense". ... Dixon J. (as he then was) sums up a number of authorities in Dey v. Victorian Railways Commissioners (1949) 78 CLR 62 Vol CXII-9 where he says (1949) 78 CLR at p91: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process." Although I can agree with Latham C.J. in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 7In circumstances where a strike out and/or summary judgment application is made, factual material, whether it be alleged in a pleading or as here sworn to in an affidavit (and is yet unchallenged) has to be assumed by a Court in favour here of the plaintiffs. The Proceedings 8Katwell Pty Limited (Katwell) and Mr John Katerinis (Katerinis) commenced proceedings against National Australia Bank Limited (NAB) by way of summons and commercial list statement filed on 31 May 2010. In brief the plaintiffs allege: (1)Katwell or both Katwell and Katerinis had entered into a banking contract with NAB under which NAB was to pay only such cheques drawn on Katwell's account as were signed by Katerinis or after 17 January 2005 as were signed by both Katerinis and Mr Scott Kitas, Katwell's then sole director; (2)In breach of the contract NAB paid cheques drawn on Katwell's account that had been signed only by Kitas; (3)Kitas misappropriated the monies paid out by reason of the cheque signed by Kitas alone and the plaintiffs had thereby suffered loss. 9On 9 July 2010 NAB filed a Commercial List Response and a Cross-Summons with a Commercial List Cross-Claim Statement. The Cross- Summons joined Kitas. 10In late 2010 Mr Katerinis became bankrupt and he was subsequently removed as a party by order of Hammerschlag J on 11 February 2011. 11On 28 October 2011 NAB filed an Amended Notice of Motion by which it sought inter alia orders dismissing the proceedings. NAB's application for summary dismissal was heard by Macready AsJ on 7 November 2011. His Honour gave reasons for judgment on the application on 8 November 2011 and dismissed the proceedings and ordered Katwell to pay NAB's costs. 12By Notice of Motion filed on 6 December 2011 Katwell appeals from the whole of the judgment of Macready AsJ. 13His Honour proceeded on the basis of the following principal findings: (1)on 19 December 2003, Katwell gave NAB a mandate in respect of Katwell's account under which Katerinis was to be the only authorised signatory; (2)on 12 January 2005, the mandate was changed, so that both Katerinis and Kitas had to sign; (3)the cheques complained of by the plaintiff were all signed only by Kitas; (4)at the relevant times in 2004 and 2005, Kitas was the sole director of Katwell; (5)in the absence of proof of the existence of a constitution governing Katwell's operation, it was to be inferred that section 198B of the Corporations Act 2001 applied as a replaceable rule; (6)there was no evidence that NAB had turned its mind to the authority of Kitas to sign the cheques in question when it paid the funds in accordance with the cheques; (7)by virtue of section 198B of the Corporations Act 2001 (Cth) (Corporations Act), Kitas had actual authority to sign cheques for Katwell; (8)by virtue of section 129 of the Corporations Act, NAB was entitled to assume that Kitas had authority to sign cheques. 14His Honour found implicitly that the plaintiff had no reasonable cause of action. His Honour found that it was clear that the case fell within the principles set out in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 92 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 - 130. 15It is plain from His Honour's judgment that he regarded it as beyond argument that Kitas had authority to sign the cheques in question and that NAB was entitled to rely upon that authority. Grounds of Appeal 16The plaintiff contends that His Honour erred in finding that it had no reasonable cause of action. 17Whether Kitas had the relevant authority and whether NAB was entitled to rely upon that authority it is submitted are questions that may be answered in Katwell's favour on a trial of that case. 18It is further submitted that it is reasonably arguable that Kitas did not have actual authority pursuant to s 198B(1) of the Corporations Act because: (1)The power conferred by s 198B(1) of the Corporations Act 2001 on a sole director of a proprietary company to sign cheques is not absolute and does not extend to authorising transactions that are misappropriations of the company property; (2)Further or alternatively the authority of Kitas had been limited by decisions taken at the first meeting of Kitas and Katerinis on 19 December 2003 that Kitas would not be a signatory on Katwell's account and later on 12 January 2005 that Kitas would be a joint signatory on Katwell's account. 19The plaintiff argues it was and is reasonably arguable that Kitas did not have ostensible authority pursuant to s 129 of the Corporations Act to sign the cheques the subject of Katwell's claim because for the purposes of s 128(4) of the Corporations Act, at the time of the relevant dealings NAB knew or suspected that the assumption was incorrect. Factual Background 20Katwell was incorporated on 20 June 2001. From incorporation until 22 February 2006 Mr Kitas was the sole director of the company and Mr Katerinis was its sole secretary. Mr Kitas and Mr Katerinis were the only shareholders from incorporation until Mr Kitas ceased to be a shareholder (and director) in 2008. Each of them relevantly had an equal shareholding. Mr Katerinis ceased to be a director on 14 October 2010 and since then Ms Yota Coudounaris (who is Mr Katerinis's wife) has been the sole director. 21Katwell ceased carrying on active business in about mid 2006. Its only business was property development and it carried out two property developments. One of these was at Bexley which it completed in late 2002 and the other at Annandale which was completed by April 2006. 22Katwell's Annandale project was commenced in 2003 and in connection with that project on 1 October 2003 Mr Katerinis opened account 56-180-5610 at NAB's Marrickville branch on behalf of Katwell. 23On 19 December 2003 Mr Katerinis asserts in an affidavit sworn 21 October 2011 that he and Mr Kitas had a meeting with Mr Russell Jenkins, the manager at the Marrickville Branch of NAB. 24During the meeting Mr Katerinis asserts that he told Mr Jenkins about developments that he and Mr Kitas had undertaken together and that they wanted to open a cheque account to manage the renovations for the Annandale project. Discussions then ensued as to the possible costs of the renovations and at one point in the conversation the following exchange is alleged to have taken place between Mr Kitas, Mr Katerinis and Mr Jenkins. Mr Katerinis asserts the following was stated: Scott Kitas: "I don't want to be involved with the cheques or pay anyone. You are putting the money in first and managing the project, you look after the cheques and all the payments. I don't want anything to do with it". Me: "Alright good because Yota wants to make sure that her money is being controlled by me so that she feels confident that its going to be spent under my scrutiny. So Russell, no offence to Scott because its not intended that way but Russell you've got to understand my position. My wife is giving $400,000 to a company, a company which I'm not a director of, even though I'm the secretary and one of the shareholders, and Scott isn't putting anything in just yet. So I want to make sure that I have control of the money in the Katwell account because its Yota's money. Full and sole control of the money she deposits. After Scott matches that money and its in the account and we sell everything off, then we can payout the loan to NAB, pay Yota her money and pay Scott the money he put in." 25During the course of the meeting Mr Jenkins had an account authority card completed. Under the heading "Section D - Authorising parties/signatories" appear the names of both Mr Katerinis and Mr Kitas. They are identified by a tick in the right hand column as being the authorising parties. In s F of the 4 entitled "Signatures of all authorising parties" appears only the signature of Mr Katerinis. This document is dated 19 December 2003. 26By the end of August 2004 building work on the Annandale project was completed and the units at the property had been let. It remained to obtain strata division of the units and to sell them. On 31 August 2004 Mr Katerinis wrote a final cheque on Katwell's account for a supplier in relation to the Annandale project and in September 2004 he asserts he delivered papers for the Annandale project including the cheque books for Katwell's account to an accountant so that accounts for the project could be prepared. 27It is submitted on behalf of the plaintiffs that despite the alleged instructions given to NAB on 19 December 2003, NAB honoured cheques drawn on Katwell's account that had been signed solely by Mr Kitas and not by Mr Katerinis. In early November 2004 Mr Katerinis reviewed statements for Katwell's account and noticed transactions which he regarded as curious. He immediately went to the nearest NAB branch which was at Kingsford and made enquiries about the operation of Katwell's account. While he was at the Kingsford branch Katerinis asked for copies of cheques numbered 98 to 102 on Katwell's account. On the same day he was contacted by the manager of NAB's Marrickville branch, a Mr Greg Heffernan about his request for cheques. Mr Katerinis said that during the course of the conversation the following exchanges took place between him and Mr Heffernan: Heffernan: "What's going on John? Why are you asking for copies of cheques?" Me: "There are cheques being drawn on the account without my signature. There is money going out of the account and I don't know why." Heffernan: "Why didn't you come and see me at the Marrickville branch?" Me: "I just opened the statements and came immediately to the closest branch. I was panicked." Heffernan: "I'm your manager you should have come to me if there is a problem". Me: "I was panicked Greg." 28Subsequently on 23 November 2004 Mr Katerinis was supplied with an email which contained scanned copies of cheques numbered 000098 and 000101. 29Mr Katerinis then asserts that he contacted Mr Heffernan and had a conversation with him which included the following exchange: Me: "I got copies of those cheques. They don't have my signature and it looks like it was Scott's signature." Heffernan: "I will look into it." Me: "Yeah, you have to sort that out." 30Between 9 November 2004 and 29 December 2004 NAB honoured 13 cheques that had not been signed by Mr Katerinis. The 13 cheques total approximately $329,626.23. 12 of the 13 cheques it is asserted were signed by Mr Kitas alone. 31From records available to Katwell it appears that cheques and cash withdrawals and a transfer all totalling $134,199.78 also occurred after this period. 32Mr Katerinis suggests that on 12 January 2005 Mr Heffernan telephoned him and the two had a conversation which included the following words: Heffernan: "I need you to come in to sign some documents for the signature card for the cheque books." I said: "What for? What's wrong with the current arrangement that's supposed to be in place?" He said: "It has to be a dual signature authority, so that all cheques must be signed by both of you. That's just what the bank wants. But don't worry because unless you also counter sign the cheques, they wont be honoured." I said: "why don't you just get Kitas to sign the card that is already there?" He said: "No it has to be a new authority card." 33There is no doubt that a new account authority card was completed on 12 January 2005. Again in section D identified as authorising parties and signatories appear the names of both Mr Katerinis and Mr Kitas. This time however in section F identified as signatures of all authorising parties appears the signatures of both Mr Katerinis and Mr Kitas. 34Unbeknown to Mr Katerinis (as he asserts) between 8 March 2005 and 9 June 2005, 28 cheques were drawn on the Katwell account which again contained only the signature of Mr Kitas. The Decision of the Judge Below 35His Honour records in relation to the relevant mandate that according to discussions set out in Mr Katerinis's affidavit of 21 October 2011 and referred to above there was an assertion that Mr Kitas was not to be a signatory to any cheques. In addition he records that the second mandate required both Mr Katerinis and Mr Kitas to sign the cheques jointly. His Honour further records that the bank did not challenge the factual assertions in that regard. He noted that the bank relied for authorisation to debit the account on the fact that Mr Kitas as sole director of the company during the relevant time was able to provide relevant authority and in turn His Honour relied upon sections 198A and B of the Corporations Act. 36His Honour observed (which facts were not disputed) that the company is not presently able to produce any constitution. Equally the plaintiff is unable presently to produce any relevant resolutions of the Board dealing with matters relating to the account. I should observe that the historical ASIC search produced by the parties clearly shows however that Mr Kitas was appointed as director on 20 June 2001. Although it is not presently relevant I also observe that the company is unable to produce any other business records including BAS and income tax documents. 37His Honour relied upon the decision of Fried v National Australia Bank Limited [2001] FCA 907 a decision of Gray J in the Federal Court. His Honour appears to have found that even if acting outside the mandate, the bank was entitled to act upon the direction of Mr Kitas alone because as sole director he had the relevant authority by reason of sections 198A and 198B of the Corporations Act. Reference was also made to the discussion in paragraph 3.57 of Austin & Ford's Work on 'Company Directors'. 38His Honour took into account that Mr Kitas' activities may have amounted to fraudulent misappropriation as he may well have advanced the funds to himself from the company. His Honour said "The question here is whether there was the company's actual authority for drawing of the cheques in question". 39His Honour referred to the appropriate principle enunciated in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and then concluded: "In this case it is apparent that Mr Kitas had the company's authority to sign cheques and the bank is entitled to rely on that fact as demonstrating the authority of the customer to debit the account." 40Accordingly His Honour thought Katwell's case was hopeless and he thereby dismissed the proceedings. 41It is a fundamental term implied in every banker-customer contract that a bank must obey its customers mandate N Joachimson (A Firm) v Swiss Bank Corp (Costs) [1921] 3 KB 110 at 127. The instruction from the customer can take many forms including for example the drawing of a cheque. 42There was little doubt that sections 198A and 198B can in many circumstances provide authority for a sole director. Its equally correct that a number of authorities indicate that even where there is a written mandate a bank is entitled to act upon the direction of a sole director: London Intercontinental Trust v Barclays Bank [1980] 1 Lloyd's Rep 241. But it is equally true that sections 198A and 198B do not operate independently of the factual context in which they are sought to be applied. 43Although His Honour assumed for the purposes of his judgment that what the bank had done was contrary to the mandate but consistent on one view with the authority of a sole director, he failed in my respectful view to take fully into account that there was a factual issue about Mr Kitas' actual authority in the first place. 44Actual authority is the authority which the principal has given the agent wholly or in part by means of words or writing (sometimes called express authority) or was regarded by the law as having given him because of the interpretation put by the law on the relationship and dealings of the two parties. So in the first instance it will always be a question of fact what the words or conduct might be that are relied upon as the source of actual authority. Second in any event actual authority can of course be terminated either by agreement by principal and agent or if for example the agency is only for a limited period of time or for a particular transaction. It can also be terminated by the happening of an event which for example the agent should reasonably infer that the principal does not or would not wish the authority to continue. P Watts and F M B Reynolds 'Bowstead and Reynolds on Agency' (19th Ed, 2010) (3-001, 3-003, 10-001, 10-002). 45By reason of the events first surrounding what has been described as the first mandate (see [23] - [24] above) there is indeed it seems to me an arguable case (however weak) that notwithstanding Mr Kitas was sole director he was effectively denying authority as a matter of fact and again arguably the bank was on notice of that. It also seems to me there is corroboration for that case by the manner in which arguably the account authority card in the first instance was completed. In relation to the second mandate (see [31] - [32] above) again it seems to me there is an arguable case that Mr Kitas alone did not in fact have authority to transact business on behalf of Katwell and the bank was arguably on notice of that. There are inferences therefore which in my view are open and which counter (arguably) the actual authority of Mr Kitas. There is therefore evidence which if accepted would prove that Mr Kitas did not have authority to sign cheques on Katwell's behalf. This also militates against Mr Kitas for example having ostensible authority and again arguably the bank is not entitled to rely on the s 129 assumptions. 46His Honour did not in my view give appropriate weight to the significance of the factual case the plaintiff has potentially open to it on the question of authority. It follows that in my view his decision to strike out the proceedings was provoked by error and the court should intervene: Edwards v Noble (1971) 125 CLR 296. 47In my opinion therefore the appeal should be upheld and the respondent should pay the appellant's costs on the appeal. 48I would invite the parties to prepare short minutes to reflect these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 May 2012