Author: whiggs

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Product liability

Source: www.fasterway.com.au

This is a typical fracture surface. This is a threaded connection (hence the appearance of a depression around the circumference).

The fracture surface was smooth, flat, and perpendicular to the principal axis of the bolt. Crack progression marks (beach marks) extended radially from one side of the bolt and covered approximately 90% of the fracture surface area. The remaining small region towards the outer edge of the bolt exhibited features consistent with an overstress failure. The large area of fatigue cracking and small overstress area indicated that failure of the bolt was due to high cycle low stress fatigue cracking.

Bolt fracture surface showing evidence of fatigue crack progression (beach) marks

Bolt fracture surface showing evidence of fatigue crack progression (beach) marks

Source: ATSB

On 30 May 2015, a Fasterway powered parachute, recreational registration 19-7677, collided with terrain near Theodore, Queensland. The pilot, the sole occupant, died as a result of the accident.

Submitted eyenut and fractured bolt

Source: ATSB – Investigation title: Technical assistance to Recreational Aviation Australia in the examination of a fractured eyebolt from the collision with terrain involving a Fasterway Powered Parachute, near Theodore, Qld. on 30 May 2015

Investigation number: AE-2015-075

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Strike out considerations – echoes from an appeal

To summarily to dispose of the proceedings is one which calls for the exercise of “exceptional caution”. [1]

The power cannot be exercised “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.” [2]

It is only to be exercised “when the action is clearly without foundation and … to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff”. [3]

The “Court is not concluded by the manner in which the litigant formulates his case in his pleadings.” [4]

The fatal defects in the plaintiff’s case must be very clear before the Court will intervene to strike out a pleading. [5]

A “high degree of certainty” that the plaintiff’s case will fail if it goes to trial is required. [6]

References

1.General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 (at 129) per Barwick CJ.

2. Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 (at 91) per Dixon J.

3. Cox v Journeaux (No 2) [1935] HCA 48; (1935) 52 CLR 713 (at 720) per Dixon J.

4. Ibid.

5. Shaw v State of New South Wales [2012] NSWCA 102 (at [30]ff) per Barrett JA (Beazley, McColl, Macfarlan JJA and McClellan CJ at CL agreeing); Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937 (at 944 – 945) per Cross J.

6. Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 (at [57]) per Gaudron, McHugh, Gummow and Hayne JJ.

 

Taken from [6] of Perera v Genworth Financial Mortgage Insurance Pty Limited [2016] NSWCA 53 (Slattery J)

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Interrogatories in medical negligence

Principles set out in [6]-[13] Rice v Ghabrial [2016] NSWSC 313

The issue of interrogatories is governed by the rules and generally requires that the interrogatories be “necessary”. In the case of personal injury matters, the rules also require that there be “special reasons” for the administering of the interrogatories.

These matters were dealt with by the Court, as presently constituted in Chong v Nguyen [2005] NSWSC 588. In Chong, the Court said:

“12 There has been some debate about the requirement for the question to be ‘necessary’. Most often reference is made to Boyle v Downs [1979] 1 NSWLR 192 at 204-5. The Court (Cross J) there confirmed that the word ‘necessary’ was to be interpreted as meaning ‘necessary for a fair trial’.

His Honour said:

‘In considering the meaning of the word “necessary” in Part 23 Rule 14 – a rule relating to discovery and inspection similar to Rule 5 in Part 24 relating to interrogatories – Rath J in Percy v General Motors-Holden’s Pty Ltd [1975] 1 NSWLR 289 interpreted it as “necessary in the interests of a fair trial”. This definition is similar to the one I have suggested; for in Griebart v Morris [1920] 1 KB 659, Scrutton LJ interpreted “necessary for disposing fairly of the cause or matter” (under the English rules relating to interrogatories) as “necessary for the fair trial of the action”.’

13 The Court of Appeal has referred with authority to that passage in Schutt v Queenan [2000] NSWCA 341 at [11], [12], [13], [14] and [15]. His Honour the President said:

‘The answers which are sought are material in the sense that they may enable the claimant either to maintain her own case or to destroy the case put against her’ (see Griebart v Morris [1920] 1 KB 659 at 664).

14 While other views have been expressed at various levels of the judicial hierarchy, the overwhelming authoritative view is that the Court must be satisfied that the order is ‘necessary in the interests of a fair trial’.

15 It is, in this case, essential in light of the arguments pressed, to examine the meaning of the word ‘necessary’ in that context.

16 The word ‘necessary’ when used in relation to a requirement on the exercise of a power granted to a court should generally and does here mean ‘reasonably required or legally ancillary’ to the achievement of the goal, in this case, of a fair trial. I refer to the joint judgment of Gaudron, Gummow and Callinan JJ in Pelechowski v Registrar, Court of Appeal (1999) 198 CLR 435 which, while determining whether there was a valid basis for contempt proceedings, examined the power of the District Court to issue injunctive relief. They said:

‘The term “necessary” in such a setting as this is to be understood in the sense given it by Pollock CB in Attorney-General v Walker (1849) 3 Ex 242, namely as identifying a power to make orders which are reasonably required or legally ancillary to the accomplishment of the specific remedies for enforcement provided in Division 4 of Part 3 of the District Court Act. In this setting, the term “necessary” does not have the meaning of “essential”; rather it is to be “subjected to the touchstone of reasonableness” (State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 477 at 452).’ (my emphasis)”

Thus, in the context of UCPR r 22.1, the plaintiff must satisfy the Court that interrogatories are “reasonably required or legally ancillary” to the achievement of the goal, in this case, of a fair trial. In that sense, the word “necessary” in the relevant rule of the Court does not require that the order is “essential”.

Further, by operation of UCPR r 22.1(3), the Court is not to make such an order unless it is satisfied that “special reasons exist that justify the making of the order”.

A purposive construction of the above rule should be given. The purpose of requiring the Court to be satisfied of “special reasons” is to ensure that interrogatories in personal injury matters are not the ordinary course and to restrict the circumstances in which a Court will order interrogatories. As explained by Hall J in Keating v South East Sydney Illawarra Area Health Service (Supreme Court (NSW), Hall J, 7 July 2006, unrep at [24]-[25]), one relevant but not necessarily determinative criterion is the availability of the evidence otherwise.

The term “special” has been defined in a number of ways. The Macquarie Dictionary defines the term as “relating or peculiar to a particular person, thing, instance; having a particular function, purpose, of a distinct or particular character; being a particular one; extraordinary or exceptional”. In a somewhat circular fashion the aforesaid dictionary defines “exceptional” as “special” and the Oxford English Dictionary defines the term “exceptional” as “of the nature of or forming an exception; out of the ordinary course; unusual, special”.

It would seem on the basis of the foregoing and given the context in which the Court is required to be satisfied of special reasons, the UCPR provide that the Court must be satisfied that the basis for the issue of the interrogatories is unusual or out of the ordinary in the context of the class of personal injury actions.

I approach the exercise of my discretion with that test in mind and in the context of the provisions of s 56 of the Civil Procedure Act 2005 and following, namely, the achievement of an outcome that facilitates the quick, cheap and just resolution of the real issues in dispute between the parties.

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How a quantum meruit claim is to be established

Jason and Michelle Zammit trading as Zammit’s Quality Constructions v Saul Markunsky and Shereen Markunsky [2015] NSWCATCD 21 at [47],[48]

At [47] – Judgement of Bryne J. in Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 as summarised in Dorter & Sharkey Building and Construction Contracts in Australia, Second Edition as setting out the following principles:

1.‘The courts task is not to assess damages for breach of contract, but to ascertain what is fair and reasonable compensation for the benefit of the services performed, and accepted actually or constructively by the recipient;

2.The enquiry is not primarily directed to the cost to the plaintiff of performing the work since the law is not compensating that party for loss suffered; however, the actual cost should not be ignored;

3.Any price or commission agreed between the parties may be received as evidence of the value the parties themselves put on the services performed, even where the services have not been totally performed, but the agreed amount is not determinative of the matter.’

At [48] – Principles relevant to how a quantum meruit is assessed were also discussed by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd.

At [70] – paragraph 82 of Barratt J’s decision in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd justifies an approach where defective work is taken into account in the assessment of a quantum meruit claim. His honour stated:

‘The quality of the work and matters such as its correspondence with specification and fitness for its intended purpose are thus elements of the process of valuation of work for quantum meruit purposes. It follows that the referee was correct in applying a deduction for defects rectification in determining the quantum meruit sum.’

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Recovery on a quantum meruit

Jason and Michelle Zammit trading as Zammit’s Quality Constructions v Saul Markunsky and Shereen Markunsky [2015] NSWCATCD 21

 

 

Section 92 (2) of the Home Building Act states as follows:

‘A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless:

(a)  a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and

(b)  a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.’

Section 94(1) of the Act states as follows:

‘(1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the uninsured work), the contractor who did the work:

(a)  is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and

(b)  is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).’

Section 94(1A) of the Act states as follows in connection with the above sections:

‘(1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.’

The effect of the above sections is that builder are not entitled to recover on their claim for money due under the contracts they allege were entered into with owners. Further, builders will not be entitled to recover on a quantum meruit for the work they allege that they have carried out for owners and not been paid for unless recovery be deemed just and equitable.

Section 94(1A) of the Act was considered by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273. At paragraphs 43 – 61 of his judgement his honour considered the ‘just and equitable criterion under section 94(1A)’ of the Act and the factors bearing upon the just and equitable assessment.

In considering the just and equitable criterion Barrett J. referred to a number of authorities which establish that the words just and equitable are of wide significance. His honour referred to a passage of the judgement of Sheller JA in Stephenson v State Bank of NewSouth Wales (1996) 39 NSWLR 101 where his honour quoted from a decision of the High Court in Talga v MBC International Limited(1976) 133 CLR 622.

The passage quoted was:

‘Stephen, Mason and Jacobs JJ dealing with the issue raised for the Court by the Banking Act 1974 of whether it was just and equitable that a transaction should be treated as valid, said: ‘The court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion that this is a commonplace of the curial process; the court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters, matters such as the plaintiffs instanced in the course of argument, which have no rational connection with the policy of the regulations but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.’

Barrett J. observed that this approach was endorsed by Campbell J in Sullman v Sullman [2002] NSWSC 169.

At paragraph 49 of his judgement Barrett J. stated in connection with section 94(1A) of the Act:

‘The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression “quantum meruit”. The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.’

Decision of Hall J in Pender v Robwenphi Pty Limited & Anor [2008] NSWSC 1144. In that case Hall J stated, commencing at paragraph 41, in connection with the decision of Barrett J in Eddy Lau Constructions Pty Ltd vTransdevelopment Enterprise Pty Ltd:

‘In relation to the analysis undertaken by Barrett J in Eddy Lau Constructions (supra), the following propositions may be derived from the judgment:-

(1) The words “just and equitable” are of the widest significance and involve evaluations of questions of fact.

(2) In exercising the wide discretion under the provision, a Court or Tribunal is to have regard to considerations affecting the particular transaction as are material to the decision to be made. Irrelevant matters are those that have no rational connection with the policy of the statutory requirement.

(3) The statutory discretion under s.94(1A) must be exercised judicially in light of the whole of the circumstances surrounding the relevant subject matter.

(4) Inquiry is directed to ascertaining whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration.

(5) The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the Court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.

It is apparent from the analysis by Barrett J in Eddy Lau Constructions (supra) that the conduct of the party in breach is an important matter for consideration. In that respect, ignorance or oversight of the statutory requirement under the Act stands in marked contrast to a contravention that is wilful or deliberate.

In the present case, the determination of the Tribunal was, in effect, that the first defendant’s contravention was an inadvertent one, it being a company accustomed to undertaking commercial and industrial work and not home building or renovation work. The Tribunal accepted, as it was entitled to, the evidence given which explained the first defendant’s ignorance or inadvertence. These were matters of fact for the Tribunal’s determination.

In the circumstances of the present matter, on the evidence there was no identification of any particular form of disqualifying conduct by or on behalf of the first defendant that was material to be taken into account in determining what was “just and equitable”.

The Tribunal was also entitled to have regard, as Barrett J did in Eddy LauConstructions (supra) to the fact that, if the first defendant was not granted relief under s.94(1A), the plaintiff would receive the benefit of the work undertaken by the first defendant without having to pay for that work and for the materials supplied. I will return to this issue of “benefit” below.

Finally, there was no factor establish(ed) that resulted in any detriment flowing to the plaintiff by reason of the particular breaches or contraventions by the first defendant. Again, such matters involve a factual determination for the Tribunal.’

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Duty to mitigate loss for defective building work

The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [42] to [47]

Relevant legal principles

Generally speaking, a person who suffers loss as a consequence of a breach of contract is required to act reasonably in relation to that loss in order for the loss to be recoverable. An important aspect of this general principle is that the party who has suffered a loss is under a duty to mitigate its loss. Sometimes the use of the word “duty” in this context is criticised, since there is no requirement that the plaintiff act in a particular way and no requirement that the plaintiff minimise its loss: see, eg, J Carter, E Peden and GJ Tolhurst, Contract Law in Australia, (5th ed, 2007, LexisNexis) at [35-35]. Rather, the principle is that the plaintiff is not entitled to recover losses attributable to its own unreasonable conduct. As O’Connor J explained in Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62; (1911) 13 CLR 374 at 388:

[O]ne of the principles on which damages are assessed [is] that a party to an agreement suffering injury from the other party’s breach of its terms is bound to exercise reasonable care in mitigating the injurious consequences of the breach, and is not entitled to recover from the party in default any damage which the exercise of reasonable care on his part would have prevented from arising.

The duty to mitigate, however, is not the only example of the application of the general principle. Another is the principle that a plaintiff whose property is damaged or defective as a consequence of the defendant’s breach is generally entitled to recover the costs of reinstating the property so that it corresponds to the contractual promise, except to the extent that it is unreasonable to insist on reinstatement: Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 618-9.
In the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects. Often, of course, the building contract itself requires the owner to repair defects or sets out a procedure by which defects are to be made good: see, eg, Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302; (2010) 26 BCL 335. But, even if it does not, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs: see J Bailey, Construction Law, (Vol II, 2011, Informa Law) at [14.109]; Cassidy v Engwirda Construction Co (No 2) [1968] Qd R 159 (reversed on other grounds in Cassidy v Engwirda Construction Co (No 2) [1968] QWN 47 (HC); (1968) 42 ALJR 168). That obligation may be an aspect of the duty to mitigate, since it may be less expensive for the builder rather than a third party to rectify the defects, particularly if the builder is still on site. But the obligation is not simply an aspect of the duty to mitigate. The cost to the builder of undertaking the repairs is likely to be less than the amount that a third party would charge the owner for the same work. In that case, the owner is not mitigating its loss, but rather the builder’s damages.
The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder’s conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work: see A Chambers, Hudson’s Building and Engineering Contracts, (12th ed, 2010, Sweet & Maxwell) at [4-144]; Eribo v Odinaiya [2010] EWHC 301 (TCC) at [70].
It is for the defendant to prove that the plaintiff has acted unreasonably. It is not for the plaintiff to prove that it acted reasonably: TC Industrial Plant Pty Ltd v Robert’s Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130 at 138; Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 673 per Brennan J; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 158 per Hope JA (with whom Priestley and Meagher JJA agreed); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187] per Giles JA (with whom Handley and Stein JJA agreed).
The obligation not to act unreasonably does not come to an end once court proceedings have commenced. But the existence of court proceedings is relevant to the content of the obligation. Once there is a dispute concerning whether a plaintiff has failed to mitigate its loss, or failed to act reasonably in some other respect, the plaintiff is entitled to have that question tested in court; and the mere fact that it does so is not itself evidence that it has failed to act reasonably. As Oliver J explained in Radford v de Froberville [1978] 1 All ER 33; [1977] 1 WLR 1262 at 1287E-F:

[O]nce proceedings have been commenced and are defended, I do not think that the defendant can complain that it is unreasonable for the plaintiff to delay carrying out the work for himself before the damages have been assessed, more particularly where his right to any damages at all is being contested, for he may never recoup the cost. If, therefore, the proceedings are conducted with due expedition, there seems to me to be no injustice if, by reason of the time that it takes for them to come to trial, the result of inflation is to increase the pecuniary amount of the defendant’s ultimate liability…

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Legal nature of a cheque

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014)

Para 93

  1. The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer’s account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan: Cuthbert v Robarts, Lubbock & Company [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of New South Wales[1978] VicRp 54; [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [21];

See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62).

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Legal nature of a deposit

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014)

Para 93

  1. A savings or deposit account is in law a loan to the banker: Pearce v Creswick [1843] EngR 304; (1843) 2 Hare 286; Dixon v Bank of New South Wales [1896] NSWLawRp 103; (1896) 17 LR (NSW) Eq 355; Khan v Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank’s undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law;

See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62).\

Citigroup Pty Limited v National Australia Bank Limited [2012] NSWCA 381 (4 December 2012)

Banker and customer

  1. The accepted analysis of the banker-customer relationship where the account is in credit casts the bank in the role of the customer’s debtor. Money notionally “in” the customer’s account is in truth money owned by the bank which is owed by it to the customer and payable on demand made by the customer by way of “withdrawal”: see, for example, Carr v Carr[1811] EngR 606; (1811) 1 Mer 541n; 35 ER 799; Devaynes v Noble (1816) 1 Mer 529; 35 ER 767; Foley v Hill [1848] EngR 837 ; (1848) 2 HL Cas 28;  9 ER 1002.  On this basis, the money paid by Citibank to NAB on 16 November 2010 was the property of Citibank and the money paid by NAB to the Hong Kong bank on 19 November 2010 was the property of NAB. The question arising between each bank and its customers was whether the payment by the bank justified a commensurate reduction in the debt owed by the bank to those customers. Because, on the facts as they are now accepted, each bank gave effect to a forged and false instruction and therefore acted outside the bank’s mandate and in breach of contract, no such reduction was warranted.

Commonwealth of Australia v The Official Trustee in Bankruptcy as Trustee of the Property of Stephen Vasil [2004] NSWSC 1155 (2 December 2004)

8 When a person (the Customer) opens a banking account with a trading bank, he or she enters into a contract with the Bank under which the money deposited by the Customer in his or her account becomes the property of the Bank and the relationship of debtor and creditor is created between banker and customer: Foley v Hill  [1848] EngR 837 ; (1848) 2 HLC 28;  9 ER 1002 ; Croton v Reg [1967] HCA 48; (1967) 117 CLR 326 at 330.

 

Croton v R [1967] HCA 48; (1967) 117 CLR 326 (21 December 1967)

12. The subject matter of the instant charges was money, in each case expressed as a number of dollars, that is, paper money, or coin to the stated face value. That can be asported and be the subject of larceny. But, though in a popular sense it may be said that a depositor with a bank has “money in the bank”, in law he has but a chose in action, a right to recover from the bank the balance standing to his credit in account with the bank at the date of his demand, or the commencement of action. That recovery will be effected by an action for debt. But the money deposited becomes an asset of the bank which may use it as it pleases: see generally Nussbaum, Money in the Law: s. 8, p. 103. Neither the balance standing to the credit of the joint account in this case, nor any part of it, as it constituted no more than a chose in action in contradistinction to a chose in possession, was susceptible of larceny, though it might be the subject of misappropriation: see also on this point the judgment of Lord Goddard in Reg. v. Davenport (1954) 1 WLR 569;(1954) 1 All ER 602 with which I respectfully agree. (at p331)

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Relationship between a banker and a customer

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014)

  1. However, as part of the wider framework, reference also must be made to the established principles concerning the relationship of banks and their customers. These were summarised in Andrews Trial at [81]-[82] (see also BMP Global Distribution Inc v Bank of Nova Scotia [2009] 1 SCR 504 at [47]-[48]) as follows:

It is trite that the relationship between a banker and a customer is in contract: Foley v Hill [1848] EngR 837; (1848) 2 HL Cas 28. Such contracts have been described as:

… ordinary commercial contracts to be construed and applied according to their terms, and in accordance with a ‘basic principle of the common law of contract … that parties to a contract are free to determine for themselves what primary obligations they will accept’.

Williams and Glyn’s Bank v Barnes [1981] Com LR 205 at 209 (quoting Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827 at 848) cited with approval in Narni Pty Ltd v National Australia Bank[2001] VSCA 31 at [19].

Unsurprisingly, the contractual terms are important; it is a contract usually with many terms (Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 127) but from which the following core banking law principles derive:

  1. A savings or deposit account is in law a loan to the banker: Pearce v Creswick [1843] EngR 304; (1843) 2 Hare 286; Dixon v Bank of New South Wales [1896] NSWLawRp 103; (1896) 17 LR (NSW) Eq 355; Khan v Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank’s undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law;
  1. The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer’s account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan: Cuthbert v Robarts, Lubbock & Company [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of New South Wales[1978] VicRp 54; [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [21];
  1. A written order by a customer which requires the bank to pay a greater amount than the balance standing to the credit of the customer may be declined. There is no obligation on the bank to pay a cheque unless there is a sufficient balance in the account to pay the entire amount or unless overdraft arrangements have been made which are adequate to cover the amount of the cheque: Bank of New South Wales v Laing [1954] AC 135 at [154]; Office of Fair Trading v Abbey National plc [2008] EWHC 875(Comm) at [45] and Narni [2001] VSCA 31 at [12];
  1. If a customer with no express overdraft facility draws a cheque which causes his account to go into overdraft, the customer, by necessary implication, requests the bank to grant an overdraft on its usual terms as to interest and other charges: Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978 at 982.

See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62).

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Failure to pass a Standard does not of itself establish negligence

Garrett v Hills Industries [2006] QDC 299 –  Even if a device of product failed to pass all relevant tests of the Australian standard, this would not, of itself, establish negligence: O’Connor v Hansen Wilckens Hornibook Constructions Ltd (1968) 42 ALJR 239; Crisa v John Shearer Ltd (1981) 27 SASR 422 at 428.

Failure to follow a standard does not, without more, establish negligence: O’Connor v Hansen Wilckens Hornibrook Constructions Ltd (1968) 42 ALJR 239, 242; Jones v Bartlett [2000] HCA 56; (2000) 205 CLR 166 [110]; Scope Machinery Pty Ltd v Ross [2009] WASCA 100 [43].

It is for the court to adjudicate upon what is the appropriate standard of care: Lanza v Codemo [2001] NSWSC 845 [169]; Francis v Lewis [2003] NSWCA 152 [43].

Even compliance or noncompliance with statutory construction requirements will not be determinative of the issue about whether reasonable care has been taken (Jones v Bartlett [23]).