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National Commercial Banking Corporation of Australia Ltd. v Batty


[PDF]

Citation:

160 CLR 251

Court:

High Court of Australia (AUS)

Judges:

Gibbs, Wilson, Brennan, Deane, Dawson

Judgment Date:

13/5/1986

, 60 ALJR 379, 65 ALR 385, [1986] HCA 21

Digest | Top
Procedure > Miscellaneous procedural matters > Money counts > Money had and received > General principles > Other cases
Liability of partners - Payment to partnership account
The respondent became the partner of an accountant, Davis, who was a director of Robert Bushby Pty Ltd. Davis received two cheques for
the company. One, drawn in favour of "Robert Bushby Pty Ltd or order", was crossed "not negotiable account payee" and indorsed, without
authority, "Robert Bushby Pty Ltd AA Davis (Director)". The other, drawn in favour of "Robert Bushby Pty Ltd or bearer", was crossed "not
negotiable". Davis deposited the cheques for collection by the appellant bank, which credited the proceeds to the partnership trust account. He
then withdrew and misappropriated the whole amount. The respondent knew nothing of these transactions up to the time of dissolution of the
partnership and closure of the trust account. Davis thereafter died. Robert Bushby Pty Ltd recovered a judgment against the appellant bank
for the face value of the cheques and interest. The bank unsuccessfully cross-claimed against the present respondent, pleading breach of an
implied agreement in relation to the keeping of the trust account and fraudulent representation that the partners were authorised by the owner
to deposit the cheques and were the true owners thereof. At first instance and before the Court of Appeal (NSW) it was held that the bank could
not succeed. On further appeal to the high Court it was submitted that the respondent was liable under s 10 of the Partnership Act 1892 NSW
for the fraud of his partner in inducing the bank to collect the proceeds of the cheques and that those proceeds represented money received by
the firm to the use of the bank. Held (by Gibbs CJ and Wilson, Brennan and Dawson JJ (Deane J dissenting)), dismissing the appeal:
(1)

The deposit of the cheques not being in the actual or apparent authority of Davis or within the ordinary course of the business of the
firm, the respondent could not be made liable for Davis' wrongful act in depositing them.

(2)

(Brennan J not deciding) The respondent did not receive the proceeds of the cheques to the use of the appellant because the
respondent, before the misappropriation of the money, neither knew nor ought to have known that he had possession of it.

Per Brennan J Only when money is received otherwise than in the course of business and is misapplied does the knowledge or means of
knowledge of innocent parties become relevant. Here the case turned on whether the firm received the money at all.
Banking and finance > Banks > Liabilities of banks > Negligence
Crossing "not negotiable account payee" - Third party payee - Lack of inquiry - Negligence
The respondent became the partner of an accountant, Davis, who was a director of Robert Bushby Pty Ltd. Davis received two cheques for
the company. One, drawn in favour of "Robert Bushby Pty Ltd or order", was crossed "not negotiable account payee" and indorsed, without
authority, "Robert Bushby Pty Ltd AA Davis (Director)". The other, drawn in favour of "Robert Bushby Pty Ltd or bearer", was crossed "not
negotiable". Davis deposited the cheques for collection by the appellant bank, which credited the proceeds to the partnership trust account. He
then withdrew and misappropriated the whole amount. The respondent knew nothing of these transactions up to the time of dissolution of the
partnership and closure of the trust account. Davis thereafter died. Robert Bushby Pty Ltd recovered a judgment against the appellant bank
for the face value of the cheques and interest. The bank unsuccessfully cross-claimed against the present respondent, pleading breach of an
implied agreement in relation to the keeping of the trust account and fraudulent representation that the partners were authorised by the owner to
deposit the cheques and were the true owners thereof. At first instance and before the Court of Appeal NSW it was held that the bank could not
succeed. On further appeal to the High Court it was submitted that the respondent was liable under s 10 of the Partnership Act 1892 NSW for
the fraud of his partner in inducing the bank to collect the proceeds of the cheques and that those proceeds represented money received by the
firm to the use of the bank. Held (by Gibbs CJ and Wilson, Brennan and Dawson JJ (Deane J dissenting)), dismissing the appeal:

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(1)

The deposit of the cheques not being in the actual or apparent authority of Davis or within the ordinary course of the business of the
firm, the respondent could not be made liable for Davis' wrongful act in depositing them.

(2)

(Brennan J not deciding) The respondent did not receive the proceeds of the cheques to the use of the appellant because the
respondent, before the misappropriation of the money, neither knew nor ought to have known that he had possession of it. Per Brennan
J Only when money is received otherwise than in the course of business and is misapplied does the knowledge or means of
knowledge of innocent parties become relevant. Here the case turned on whether the firm received the money at all.

Banking and finance > Banks > Duties of banks > Duty to make inquiries
Crossing "not negotiable account payee" - Third party payee - Lack of inquiry - Negligence
The respondent became the partner of an accountant, Davis, who was a director of Robert Bushby Pty Ltd. Davis received two cheques for
the company. One, drawn in favour of "Robert Bushby Pty Ltd or order", was crossed "not negotiable account payee" and indorsed, without
authority, "Robert Bushby Pty Ltd AA Davis (Director)". The other, drawn in favour of "Robert Bushby Pty Ltd or bearer", was crossed "not
negotiable". Davis deposited the cheques for collection by the appellant bank, which credited the proceeds to the partnership trust account. He
then withdrew and misappropriated the whole amount. The respondent knew nothing of these transactions up to the time of dissolution of the
partnership and closure of the trust account. Davis thereafter died. Robert Bushby Pty Ltd recovered a judgment against the appellant bank
for the face value of the cheques and interest. The bank unsuccessfully cross-claimed against the present respondent, pleading breach of an
implied agreement in relation to the keeping of the trust account and fraudulent representation that the partners were authorised by the owner to
deposit the cheques and were the true owners thereof. At first instance and before the Court of Appeal NSW it was held that the bank could not
succeed. On further appeal to the High Court it was submitted that the respondent was liable under s 10 of the Partnership Act 1892 NSW for
the fraud of his partner in inducing the bank to collect the proceeds of the cheques and that those proceeds represented money received by the
firm to the use of the bank. Held (by Gibbs CJ and Wilson, Brennan and Dawson JJ (Deane J dissenting)), dismissing the appeal:
(1)

The deposit of the cheques not being in the actual or apparent authority of Davis or within the ordinary course of the business of the
firm, the respondent could not be made liable for Davis' wrongful act in depositing them.

(2)

(Brennan J not deciding) The respondent did not receive the proceeds of the cheques to the use of the appellant because the
respondent, before the misappropriation of the money, neither knew nor ought to have known that he had possession of it. Per Brennan
J Only when money is received otherwise than in the course of business and is misapplied does the knowledge or means of
knowledge of innocent parties become relevant. Here the case turned on whether the firm received the money at all.

Partnership > Rights and duties - partners and third parties > Generally
Unauthorized dealings with cheques by one partner - Lack of knowledge by other partner
Section 10 of the Partnership Act 1892 NSW provides "Where by any wrongful act or omission of any partner acting in the ordinary course of
the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner of the firm, or any
penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act". One of two partners misappropriated
cheques payable to a third party, deposited them in the firm's account, withdrew the proceeds and applied them to his own use. The third party
successfully sued the bank for damages for conversion of the cheques. The bank then claimed to recover from the innocent partner in reliance
on s 10 of the Partnership Act , and alternatively on the ground that the proceeds of the cheques credited to the firm's account were money
received by the firm to the use of the bank. At no time was the innocent partner aware that the cheques had been paid into the firm's account.
Held:
(1)

In depositing the cheques in the firm's account the fraudulent partner was not acting in the ordinary course of the business of the firm
within s 10 of the Partnership Act .

(2)

Even if the money credited to the firm's account was the bank's, it had not been received by the innocent partner, because during the
period between the deposit and withdrawal he neither knew nor ought to have known that he had technically possession or control of it.

(3)

The innocent partner was not liable to the bank either through the operation of s 10 of the Partnership Act or because the firm had and
received the proceeds of the cheques to the use of the bank.

Litigation History | Top

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Earlier Proceedings of [National Commercial Banking Corporation of Australia Ltd. v Batty, 160 CLR 251]
Affirmed - National Commercial Banking Co of Australia Ltd v Robert Bushby Ltd (1984) 75 FLR 26[PDF], [1984] 1 NSWLR 559[PDF]

Cases Citing | Sort by Court | Sort by Year | Top


Applied by | Top
- Heperu Pty Ltd v Belle (2009) 76 NSWLR 230[PDF], 258 ALR 727, [2009] NSWCA 252[RTF], [2010] ALMD 3726, [2010] ALMD 3727, [2010]
ALMD 3535, [2010] ALMD 3729, [2010] ALMD 3927
- Re Loteka Pty Ltd (in liq) [1990] 1 Qd R 322, 15 ACLR 620, 7 ACLC 998
- Vella v Permanent Mortgages Pty Ltd (2008) 3 BFRA 269, 13 BPR 98,311, [2008] Q ConvR 54-692, [2008] NSWSC 505[RTF], [2009] ALMD
2898, [2009] ALMD 2897, [2009] ALMD 3318, [2009] ALMD 3507, [2009] ALMD 3415, [2009] ALMD 3369, [2009] ALMD 3319
- Estate Realties Ltd v Wignall (No 2) [1992] 2 NZLR 615, (1992) 4 NZBLC 102,551, [1991] BCL 2257, [1991] BCL 2283, 14 TCL 44/10, [1992]
MCLR 54
- Flack v The Queen [2011] NSWCCA 167[HTML][DOCX]
- SCEGS Redlands Ltd v Alison Barbour [2008] NSWSC 928[HTML][RTF]
- Victoria Park Golf Club Inc v Brisbane City Council [2001] QSC 225[RTF]

Approved by | Top
- Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516[PDF], 48 ATR 442[PDF], 76 ALJR 203, 185 ALR 335, [2001] HCA
68[RTF]

Explained by | Top
- Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42[PDF], 257 ALR 658, 14 BPR 26,895, [2009] ASAL 55-194, [2009] NSWCA
186[RTF], [2009] ALMD 4899, [2009] ALMD 4900
- SCEGS Redlands Ltd v Alison Barbour [2008] NSWSC 928[HTML][RTF]

Considered by | Top
- Seiwa Australia Pty Ltd v Beard (2009) 75 NSWLR 74[PDF], [2009] NSWCA 240[RTF], [2010] ALMD 5930
- Lockwood v Vince (2007) 166 FCR 305[PDF], 5 ABC(NS) 458[PDF], [2007] FCA 1946[DOC], [2009] ALMD 5313
- Duke Finance Ltd (In Liq) v Commonwealth Bank of Australia (1990) 22 NSWLR 236[PDF]
- Heperu Pty Ltd v Morgan Brooks Pty Ltd (No 2) (2007) 2 BFRA 419, [2007] NSWSC 1438[RTF]
- R & C Mazzei Nominees Pty Ltd v Aegean Food Import Export Pty Ltd [2006] V ConvR 54-721, [2006] VSC 210[HTML][RTF], [2007] ALMD 4860

Referred to by | Top
- Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516[PDF], 48 ATR 442[PDF], 76 ALJR 203, 185 ALR 335, [2001] HCA
68[RTF]
- Parsons v The Queen (1999) 195 CLR 619[PDF], 73 ALJR 270, 160 ALR 531, [1999] HCA 1
- National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668[PDF], 62 ALJR 63, 76 ALR 27, 12 ACLR 663, 6 ACLC
28, [1987] HCA 65

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Cases Cited | Sort by Court | Sort by Year | Top


Disapproves | Top
- Marsh v Keating (1834) 6 ER 1149, 2 Cl & Fin 250

Considers | Top
- James v Oxley (1939) 61 CLR 433[PDF], 39 SR (NSW) 70, 56 WN (NSW) 36, [1939] ALR 55, [1939] HCA 1, 12 ALJ 401

Refers to | Top
- Commonwealth v Introvigne (1982) 150 CLR 258[PDF], 56 ALJR 749, 41 ALR 577, [1982] HCA 40
- Polkinghorne v Holland (1934) 51 CLR 143[PDF], [1934] SASR 475, [1934] ALR 353, [1934] HCA 28, 8 ALJ 140
- Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41[PDF], 38
ALR 73, 5 ALJ 355
- The King v Brown (1912) 14 CLR 17[PDF], 18 ALR 111, [1912] HCA 6
- Campbell v Kitchen & Sons Ltd. and Brisbane Soap Co. Ltd. (1910) 12 CLR 515[PDF], 18 ALR 9, [1910] HCA 50
- Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1981] 2 NSWLR 1[PDF], 36 ALR 142, [1982] AC 462, [1981] 3 WLR 493, [1981] 3
All ER 65
- Universal Guarantee Pty Ltd v National Bank of A/asia Ltd (1965) [1965] NSWR 342, 65 SR (NSW) 102, 39 ALJR 11, 82 WN (Pt 2) (NSW)
365, [1965] ALR 931, [1965] 1 WLR 691, [1965] 2 All ER 98, [1965] 1 Lloyd's Rep 525, (1965) 109 SJ 331
- Watney v Mass (1954) 54 SR (NSW) 203, 71 WN (NSW) 193, 48 QJP 118
- Marwedel v Hamilton [1940] St R Qd 191, 34 QJPR 78
- Baffsky v Brewis (1976) 51 ALJR 170, 12 ALR 435
- R v Lambie [1982] AC 449
- Yeung Kai Yung v Hong Kong & Shanghai Banking Corporation [1981] AC 787, [1980] 3 WLR 950, [1980] 2 All ER 599
- Westminster Bank Ltd v Zang [1966] AC 182
- Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
- United Australia Ltd v Barclays Bank Ltd [1941] AC 1
- Lloyd v Grace, Smith & Co [1912] AC 716
- Capital & Counties Bank Ltd v Gordon [1903] AC 240
- Barclays Bank v Astley Industrial Trust Ltd [1970] 2 QB 527
- Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
- Freeman & Lockyer (a Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, [1964] 1 All ER 630
- Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB 248
- AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 775
- Farrows Bank Ltd, Re [1923] 1 Ch 41
- N Joachimson (a Firm) v Swiss Bank Corporation [1921] 3 KB 110
- British Homes Assurance Corporation Ltd v Paterson [1902] 2 Ch 404
- Hamlyn v Houston & Co [1903] 1 KB 81
- Jacobs v Morris [1902] 1 Ch 816, [1901] 1 Ch 261

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- Cleather v Twisden (1884) 28 Ch D 340


- Bank of A/asia v Breillat (1847) 13 ER 642, (1847) 6 Moo PC 152, 1 Jur. N.S. 189, 79 RR 24
- Scott v Miller (1837) 132 ER 623, 3 Bing (NC) 811
- Moses v Macferlan (1760) 97 ER 676, 2 Burr 1005
- Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103
- Smith v Chadwick (1884) (1883-84) LR 9 App Cas 187
- Barwick v English Joint Stock Bank (1867) (1867) LR 2 Exch 259

Legislation Judicially Considered | Top


Partnership Act 1892, s 10 NSW

Words and Phrases Judicially Considered | Top


Ordinary course of business; Not negotiable account payee

Noted in Journals | Top


'Partnership liability' 57 (No 1) Aust Accountant 60

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