Lloyd's Maritime and Commercial Law Quarterly
INITIAL PRIVATE LAW LIABILITY AND POTENTIAL DEFENCES: AN UNNECESSARY CONFUSION
Perpetual Trustees v. Heperu
When and how does title to a negotiable instrument (a cheque) pass? If payment of a cheque is induced by the fraudulent misrepresentations of a third party who is not the ultimate recipient of either the cheque or its proceeds, does the recipient hold it on trust for the defrauded payer? When and how can a party to a contract successfully sue a third party for the restitution of a benefit conferred pursuant to the contract? These are the central issues raised by the facts of Perpetual Trustees Australia Ltd v. Heperu Pty Ltd.1
One may applaud the New South Wales Court of Appeal (“NSWCA”) for its ultimate disposition of the issues in the innocent payee’s favour, but condemn it for its failure to distinguish, in both tort and unjust enrichment, the elements that ground claims in private law from those that constitute defences. Although for both (either failing to make out an actionable claim or successfully defending against one) the result is the same (no liability), the underlying reasons are distinct: reasons for liability possess a different structure from reasons against liability. Practical matters such as burdens of proof aside, the law must guard the distinction between actions/omissions that are violations of a legal norm and those that either justify or excuse these violations.
Background
Over two years, Mr Dominic Cincotta (“Cincotta”), an agent of the respondents,2 perpetrated against them a complex fraud, one that resulted in the misappropriation of over Aus$4 million, of which only $1 million has been recovered. Pursuant to a contract between the respondents and a mortgage company (“Morgan Brooks”) for whom Cincotta purported to act, the respondents issued six cheques to be invested with the appellant, Perpetual Trustees Ltd (“Perpetual”)—a trustee company involved in the management of investments—through delivery by Cincotta. The contract stipulated that, in return for the respondents’ investment, Morgan Brooks would repay the sums with interest at 8% and 1,000 shares in Perpetual to be allotted for every $1M invested.3 Cincotta delivered the cheques to Perpetual, but not for the respondents’ benefit. Instead, he instructed Perpetual to invest them in a cash management fund that credited an account, held in his wife ’s
1. [2009] NSWCA 84.
2. The four respondents at the Court of Appeal were: Heperu Pty Ltd, Kirisi Holdings Pty Ltd, Drummoyne Administrative Services Pty Ltd and Dr Barry Landa. The first three were under the control of the fourth, Dr Landa.
3. Heperu Party Ltd v. Morgan Brooks [2007] NSWCA 1438, [14] and [85]; Perpetual [2009] NSWCA 84, [27]. Despite Cincotta’s lack of actual authority to enter into this contract, it was held at trial that his apparent authority coupled with the respondents’ reliance thereon were sufficient to establish the formation of a contract between Morgan Brooks and the respondents. At trial, the respondents successfully sued Morgan Brooks on this contract, and Morgan Brooks was held liable for expectation damages to the respondents: Morgan Brooks [2007] NSWSC 1438, [88–89]. Morgan Brooks did not appeal.
LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY
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