Westpac Banking Corporation v M M Kembla New Zealand Limited
- Court
- Court of Appeal
- Judgment
- 9 November 2000
Areas of law
Judgment analysis
AI-generated summary
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Facts
The respondent, Kembla, used an electronic funds transfer system operated by its bank, ANZ, to pay its creditors. The system's security required operations to be authorised by two separate authorised user employees, each using a personal identification number (PIN). Between April 1992 and April 1997, a Kembla employee, Ms Chilcott, stole over $2 million. The thefts were accomplished either by deceiving other authorised users to obtain their PINs or by using a second PIN allegedly sent directly to her by ANZ because she was designated as Kembla's 'System Administrator'. She concealed the fraudulent transfers, which were made from Kembla's ANZ accounts to accounts she maintained with ANZ, Westpac, and BNZ. Kembla sued ANZ as the paying bank for breach of a duty of care, and sued both ANZ and Westpac as collecting banks on the grounds of knowing receipt. The banks applied for summary judgment in the High Court, which was refused by the Master. The banks appealed this refusal to the Court of Appeal.
Held
- Summary judgment for the defendant banks was inappropriate because the plaintiff's claims for breach of duty of care and knowing receipt were arguable and depended on complex and uncertain questions of law and fact which could not be determined without a full trial, discovery, and expert evidence.
- It was arguable that the contractual exclusion clauses did not excuse the paying bank (ANZ) from liability for negligence, particularly in relation to the secure delivery of system information (PINs and passwords), as the clauses were not sufficiently clear and unambiguous.
- The claims for knowing receipt against the collecting banks (ANZ and Westpac) could not be summarily dismissed because the standard of knowledge required to establish liability and the question of what constitutes 'beneficial receipt' by a bank are unsettled areas of law in New Zealand, and the factual basis for imputing knowledge required further investigation.
Orders
The appeals are dismissed. The respondent is entitled to costs of $2,500 from each appellant, together with reasonable disbursements to be fixed by the Registrar and to be paid as to one-half by each appellant.
Key passages3
The onus is on the defendant applying for summary judgment to prove on the balance of probabilities that the plaintiff cannot succeed.
“The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed.”
The extent of knowledge required to make a bank a constructive trustee is not settled in New Zealand law.
“Both appellants acknowledge that the extent of knowledge required to make a bank a constructive trustee is not settled on the authorities.”
The law on whether a bank has received funds beneficially for the purposes of liability for knowing receipt is 'hopelessly confused and sits ill with legal principle and banking practice'.
“Ross Cranston in Principles of Banking Law (1997, Clarendon) 207, expresses the view that 'the law on whether a bank has received funds beneficially is hopelessly confused and sits ill with legal principle and banking practice'.”
Cases mentioned in judgment
Legislation mentioned
- High Court Rules, r 136, r 136(1), r 136(2), r 186, r 187
- Financial Transactions Reporting Act 1996