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Medopharm (PNG) Ltd v Westpac Bank PNG Ltd [2021] PGNC 635; N9892 (24 February 2021)

N9892

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 48 OF 2016

MEDOPHARM (PNG) LIMITED
Plaintiff

-V-

WESTPAC BANK-PNG-LIMITED
Defendant

Waigani: Kariko, J
2021: 24^th February

NEGLIGENCE – fraudulent withdrawal from company’s bank account –withdrawal after change of signatories to the account – new signatories included directors that were appointed by fraud – withdrawal made soon after change of signatories – whether bank was negligent in allowing the withdrawal

NEGLIGENCE – adequacy of pleadings –duty of care to be pleaded

BANKING - general duty to take reasonable care in its relations with customers - duty of care to protect the customer’s funds from being fraudulently withdrawn

The plaintiff claims that the defendant bank was negligent in allowing the signatories to the plaintiff’s bank account to be changed based on fraudulent documents, and thereafter letting the fraudsters withdraw monies from the bank account. The plaintiff seeks damages, being the loss of the amount withdrawn.

Held:

1. A plaintiff claiming negligence must prove that:
   
   • (1) the defendant owed a duty of care to the plaintiff;
   • (2) the defendant breached that duty;
   • (3) the plaintiff suffered damages as a result of the breach; and
   • (4) the damage claimed was not too remote.
2. The plaintiff failed to plead the duty of care owed to it by the bank which was breached.
3. A bank owes a general duty to take reasonable care in its relations with its customers, and this includes a duty of care to protect the customer’s funds from being fraudulently withdrawn.
4. There was no breach of the duty of care as the bank followed proper procedure regarding change of signatories and withdrawals of monies.
   

Cases Cited:

Papua New Guinea Institute of Medical Research v Papua New Guinea Banking Corporation (1999) N1934
Richard Manui v ANZ Banking Group (PNG) Ltd (2008) N3405
Stephen Ian Asivo v Bank of South Pacific Ltd (2016) N6518

Counsel:

Mr A Waira, for the Plaintiff
Ms J Naphal, for the Defendant

LIABILITY

This was a trial on liability for negligence.

24^th February, 2021

1. KARIKO, J: The plaintiff company (Medopharm) seeks damages from the defendant bank (Westpac) alleging the bank was negligent when it allowed two fraudsters (Gui Kulau and Allan Kango) to withdraw K120,000 from the company’s account on 7^th January 2013.
   
2. Westpac denies the claim.
   

ISSUES

3. The obvious issue on trial is whether Westpac was negligent in permitting K120,00 to be fraudulently withdrawn from Medopharm’s bank account.
   

WITNESSES

4. The following witnesses were called, and their affidavit tendered by consent:
   

For the plaintiff

(1) Robert Ting Tack – The founder of Medopharm who established the company and manages it. He was the sole signatory to the company’s bank account. (Affidavit – Exhibit P1)
(2) Apolina Mona- Adopted daughter of Tack and is a director and shareholder of Medopharm. (Affidavits – Exhibits P2 and P3)

For the defendant

(1) Betty Demo –Customer Service Officer, New Accounts, at Westpac Waigani Branch. (Affidavit – Exhibit D1)
(2) Company Search by A.C.Fox & Associates on Medopharm dated 31^st December 2012 – Exhibit D2
(3) Margaret Kilamanu – Team Leader, New Accounts at Westpac Waigani Branch. (Affidavit – Exhibit D3)
(4) Kelly Griffin – Branch Manager, Westpac Waigani Branch. (Affidavit – Exhibit D4)

FINDINGS OF FACTS

5. After hearing the evidence, I find the following facts, which are largely not in controversy.
   
6. Medopharm is a wholesale distributor of medical supplies located at Erima, NC.D. At the start of December 2012, the company had only one director, Apolina Mona. Its General Manager and bank account signatory was Robert Ting Tack, a Malaysian national and the founder of the company. At that time, the shareholders of the company were, apart from Mona, Ricky Vagi and Peter Uri.
   
7. Mona received minimal formal education to Grade 6 and has been treated by Tack as an adopted daughter. This case has revealed however that Mona has been used as a citizen for the purpose of registering Medopharm with IPA and to operate its business in this country.
   
8. An annual general meeting of the company allegedly took place on 5^th December 2012 at the Hodava Hotel, with the following persons supposedly in attendance:
   
   • Mona;
   • Gui Kulau, who was a senior salesman with Medopharm;
   • Allan Kango, an employee of the Health Department who had had dealings with Medopharm; and
   • Nancy Vagi, an employee of Medopharm.
     
9. The purported meeting appointed two new directors in Kulau and Kango, and also approved the following changes:
   
   • (1) shareholding – Ricky Vagi and Peter Uri were removed and replaced by Kulau and Kango.
   • (2) company secretary – Tack was removed.
   • (3) authorized signatories of bank account – Tack was removed and replaced by Mona, Kulau and Kango.
     
10. Both Mona and Nancy Vagi deny attending the purported meeting.
    
11. On 25^th December 2012, Tack took Mona with him on holidays to Malaysia, and they returned on 4^th January 2013.
    
12. In early December 2012 and before leaving for Malaysia, Mona was invited by Kulau to join him at J Mart at Erima, a place where they sometimes met to have a meal. When she arrived, she saw that Kulau was with Kango. She knew both persons from their involvement with Medopharm. Kulau handed her documents which she was told were for the purpose of adding further directors. She was also informed that Tack had stolen money form a provincial government contract, and Police would not arrest Tack or herself if she signed the documents. This frightened her into signing. I suspect these documents must have included the Minutes of the purported AGM of 5^th December 2012 (the Minutes) and other relevant IPA forms that were later used to change company records by registering changes in the shareholding and directorship of Medopharm.
    
13. In the same month (December), Kango went to Westpac’s Waigani Branch and enquired generally about the process for changing signatories to business accounts. He was attended to by Betty Demo of Customer Service who advised him of the requirements and gave him the necessary bank forms.
    
14. A couple of days later Kango, accompanied by Kulau, returned to the bank and saw Demo. They produced a number of documents, including Westpac forms, for the purpose of having the signatories of Medopharm’s account changed. They were advised to first pay K70 fee for an independent company search to be conducted on Medopharm. They returned the next day and paid the fee, after which they were advised to allow for the search and check back after a few days.
    
15. A.C.Fox & Associates conducted the company search on 31^st December 2012, which confirmed that both Kango, Kulau and Mona were the directors of Medopharm.
    
16. Kango called into the bank on 4^th January 2013 but Demo was unavailable. This was the day Mona returned from Malaysia with Tack.
    
17. On 5^th January 2013, Kulau and Kango drove to Mona’s residence at ATS-7Mile and called her out. When she went to their car, they gave her some documents and asked her to sign them where indicated. She says she was advised the papers were for ordering new stock, so she signed according to their instructions, without reading the papers. I believe the documents included a Westpac Notice of Authority and a Westpac Customer Identification Checklist, which are required for change of signatories. These documents that bear her signature were part of the bundle of documents submitted in support of the application to change signatories.
    
18. The two men returned to Westpac Waigani on 7^th January 2013 and Demo attended to them. They submitted a number of documents, including the Minutes of the purported AGM of 5^th December 2012 (the Minutes). Upon being satisfied that the application was in order, Demo passed it to her team leader, Margaret Kilamanu, for quality check.
    
19. Kilamanu perused the documents and on being satisfied they met the bank’s requirements, she gave approval for the change of signatories. The change was entered and Kango and Kulau were advised accordingly.
    
20. Both men returned a while later and asked Demo for assistance to withdraw some money to settle bills. They advised the company cheque book was with the previous director who was away overseas. As there were no restriction on transactions on the account, an internal debit form was provided for the withdrawal. The form was completed for the withdrawal of K120,000, and it was taken to Kilamanu for approval, but she deferred to the Manager, who usually gives the approval for a withdrawal of amounts over K100,000. The Manager was not available and after some time of waiting, Kilamanu endorsed the approval instead. The withdrawn was then made.
    
21. When Tack went to do banking later that morning, he learnt of the withdrawal. He reported the matter to the Police who conducted investigations, and subsequently lay criminal charges against Kulau and Kango for fraud.
    

ALLEGED NEGLIGENCE

22. The plaintiff’s Amended Statement of Claim is convoluted. The particulars of negligence are first found in [21]. The pleadings are not clearly expressed and are not immediately discernible. The following is a summary of the particulars, as I best understand them:
    
    • (1) That the defendant failed to ensure all spaces on the Identification Check Lists for Kango, Kulau and Mona were completed.
    • (2) That the defendant failed to consider the conduct of Kango and Kulau on 7^th January 2013 as suspicious.
    • (3) That the defendant failed to suspect that the Minutes were not genuine.
    • (4) That the defendant allowed its same officer to approve the change of signatories to then approve the withdrawal of money, without it being checked by the Manager.
    • (5) That the defendant failed to be suspicious when the withdrawal form was signed by only two out of the three authorised signatories.
    • (6) That the defendant failed to detect that the conduct of Kango and Kulau in obtaining the K120,000 was criminal.
      
23. The Statement of Claim was amended to include, among others, [22]-[28]. These particular pleadings effectively seek to assert that the criminal fraud committed on Medopharm was the doing of Kango and Kulau, while Mona was innocent. In [29], further particulars of negligence are pleaded. Again, as best as I understand the prolix pleadings, the plaintiff claims Westpac was negligent because it failed to meet Mona in person to properly identify her before approving her as an authorised signatory, and the defendant also failed to recognize Mona’s reference letter from the Office of the Public Prosecutor, as suspect.
    

CONSIDERATION

24. The law is clear that a plaintiff claiming negligence must prove that:
    • (1) the defendant owed a duty of care to the plaintiff;
    • (2) the defendant breached that duty;
    • (3) the plaintiff suffered damages as a result of the breach; and
    • (4) the damage claimed was not too remote.

See for example Stephen Ian Asivo v Bank of South Pacific Ltd (2016) N6518.

25. The plaintiff has alleged that Westpac failed to do a number of things, but it has not pleaded the duty of care owed to it by the defendant, which was breached as a result of those alleged failures listed in [21] and [29] of the Amended Statement of Claim. This defect in the pleadings is fatal to the plaintiff’s claim, because an essential element of the cause of action of negligence has not been pleaded. For that reason alone, I would dismiss the plaintiff’s claims.
    
26. Even if I were to assume that the alleged duty of care is the bank’s general duty to protect a client’s funds deposited with the bank, I find that the plaintiff has not properly proved its claim.
    
27. In the Asivo case (supra), Cannings J observed that courts have continued to hold that “banks owe a general duty to take reasonable care in their relations with their customers” and cited cases in reference to that statement, including Richard Manui v ANZ Banking Group (PNG) Ltd (2008) N3405.
    
28. In the Manui case, the bank paid out forged cheques drawn on the plaintiff’s account. While the cheques appeared to bear the plaintiff’s signature, a comparison with the specimen signature kept by the bank would have shown otherwise. The presenters of the cheques were never identified. Gavara-Nanu J held that the bank owed a duty to its client to protect the client’s funds from being fraudulently withdrawn.
    
29. In an earlier case, Papua New Guinea Institute of Medical Research v Papua New Guinea Banking Corporation (1999) N1934, Kirriwom J found the bank to be negligent when monies were withdrawn from the plaintiff’s account and paid into the account of a forger. In that case, the bank did not follow reasonable procedures to verify the identity of the fraudster.
    
30. From my reading of the plaintiff’s pleadings in the present case, Medopharm mainly contends that Westpac was negligent because it should have become suspicious by the fraudster’s conduct, and because the bank itself did not follow proper procedure before allowing the withdrawal of the K120,000.
    
31. I am unable to see how the bank officers could have suspected that the changing of the signatories and the withdrawal were fraudulent, given that:
    
    • The bank’s requirements for the change of signatories were satisfied. Importantly, an independent company search of Medopharm confirmed Kango, Kulau and Mona were the current directors of the company. That was consistent with the Minutes that was submitted with the application to change signatories.
    • There was no way the bank would have known or suspected the Minutes were fraudulently created.
    • The documents presented to the bank were not forgeries.
    • The bank forms, including the Customer Identification Check Lists, were properly completed by all three named directors.
    • It was not necessary to complete every space on the Check List, but only those that were relevant.
    • Mona’s signature is found on the Minutes, the Westpac Notice of Authority and her Westpac Customer Identification Checklist, and she has not argued that they are forged signatures.
      
32. I do not agree either that Westpac failed to follow proper procedure that amounted to a breach of duty of care. The evidence of Kelly Griffin is relevant to the point, and which I accept. His evidence stressed that:
    
    • Based on the information received in relation to Mona’s checklist, there was no need for her to be personally interviewed. There is no question she signed the checklist. Further, the other two directors on record attended on behalf of the company.
    • While it is usually the Manager who approves withdrawals of over K100,000, there was no irregularity or impropriety in Kilamanu giving approval in the absence of the Manager.
    • There was no legal bar to the withdrawal being processed, notwithstanding that it was done soon after the change in signatories.
      
33. I am not convinced there was a breach of a duty of care, and I conclude that the plaintiff has not properly established its allegation of negligence against Westpac.
    

ORDERS

34. I order that:
    
    • (1) The plaintiff’s claims in this proceeding are dismissed.
    • (2) The plaintiff shall pay the defendant’s costs of this proceeding, to be taxed if not agreed.
    • (3) Time for entry of this order is abridged to the date of settlement by the Registrar which shall take place forthwith.

________________________________________________________________
Cappollo Lawyers: Lawyer for the Plaintiff
Bradshaw Lawyers: Lawyer for the Defendant