Love for Life

Buckman and his partners ran a small business, Basstech Pty. Ltd., in regional Victoria servicing the refining and manufacturing sectors across Australia and internationally with electronic repair, calibration and National Association of Testing Authorities’ (NATO) certification services.

In May 1999, the directors uncovered an incidence of theft from their company perpetrated by Mr ‘Harman’ (name changed), their financial controller. His principal method of theft was to forge signatures on cheques. He also forged signatures on cheques to pay legitimate creditors, to help him hide his activities. This theft took the form of processing legitimate creditor payments through the accounting system, then writing the cheques payable to either himself and depositing into his bank account, or payable as ‘Cash’ cheques. This process effectively wrote the creditor invoice as a liability out of the accounting system, and provided the illusion that Basstech debt to creditors had been discharged when it hadn’t.

On 9th October 2001, Harman was sentenced to 2 years 9 months in prison for theft, making and using false documents. Harman pleaded guilty to all 413 charges covering 184 cheques. Of these 184 cheques some, bearing forged signatures, were used to pay legitimate creditors so convictions for ‘making false documents’ were only recorded. The breakdown was: Theft: total value $231,400; Making False documents (forging signatures on 152 cheques): $238,750. A value of around $7,300 went to legitimate creditors – not theft but still bearing forged signatures, a criminal offence.

Of the 184 cheques, 71 were made payable as ‘Cash’ & converted to cash by NAB staff totaling $133,757. Of those, 35 were referred to the NAB bank manager for explicit signature verification and clearance, including one to the value of $10,173 with teller’s comments on the reverse of that cheque stating, ‘Chq faxed – signature not on system’. Regardless of forged signatures, $10,173 was paid across the counter – no questions asked. The first of these cheques bearing forged signatures was referred to Basstech’s bank manager, for explicit clearance by another banker, on the 1st of May 1998, two months after the fraud commenced.

Basstech directors uncovered the fraud in mid May 1999. The bulk of the fraud occurred over a seven month period - November 1998 ($40,000), December 1998 ($29,000), January 1999 ($18,000), February 1999 ($36,500), March 1999 ($16,000) April 1999 ($14,000) and May 1999 ($54,400). The amounts converted to cash by the NAB across the counter for November and December 1998 and May 1999 were $37,200, $23,500 and $25,900 respectively.

Details of the case were outlined in evidence to the Country Court Melbourne on October 1 2001, re The Queen v ‘Harman’ P00980076, and in the transcript of two recorded interviews between Harman and the Victoria Police investigating officer. Both the County Court and the defendant accepted Buckman’s evidence. Harman pleaded guilty on all charges.

The issue now is the National Australia Bank’s responsibility and culpability in these events, their duty of care, their application of due diligence as befits the concept of a ‘Diligent and Prudent’ banker. Buckman’s understanding of the Cheques Act 1986, and of regulatory responsibility, is that it is incumbent upon banks and financial institutions to perform the clearance process to validate that a cheque presented for payment is a legal document. In settled law, it appears that “Fraud vitiates everything, even judgments and orders of the court” (McDonnell & Monroe, 1952: p.3).

According to Buckman’s reading of the law of cheques, in view of the meaning of ‘Non Negotiable’ and the effect that a crossing (printed upon cheques) has on ownership and as direction by the cheque signer to his/her bank, this direction by the signer is the act that gives the bank its sole mandate to conduct business upon the signer’s behalf. Without this mandate the bank has no legitimate authority to remove funds from the customer’s bank account. The bank has no legitimate title to those moneys that are the subject of fraud. The NAB has removed and continues to hold those moneys illegally.

The NAB, as custodian and trustee of Basstech’s account, cleared 152 cheques bearing forged signatures, to the value of $238,750 from the business account, representing 25% of the company’s annual receipts, forcing the company into insolvency. NAB staff had physically sighted 35 of 71 ‘Cash’ cheques and still converted them to cash despite forged signatures, cheques totaling $133,757. In addition, over the relevant period the NAB charged Basstech $21,348 in interest, fees and charges on those moneys that had been stolen with the bank’s acquiescence.

The NAB then used that insolvent condition as a trigger to enact provisions of their debentures held over Basstech’s assets. The bank then appointed a receiver and manager, Scott Partners, in late August 1999 to strip and sell the business and assets. Subsequently the bank repossessed further assets from Buckman’s partners and disposed of them at a mortgagee’s auction.

The company’s operational assets were sold by the bank in late September on knock-down terms. Assets included laboratory equipment ($50-60,000 of test equipment for certification), vehicles, office furniture, repair workshop, lathes, PC network and five vehicles. The receiver apparently took tenders, and got two offers – $30,000 and $60,000. The higher offer also demanded a proviso that all staff entitlements were paid out.

The business, including goodwill (names, logos), went down the drain. A dozen people in a regional area lost their jobs. The business had been growing rapidly. Gross receipts prior to the closure totaled $600,000 (1995-96), $800,000 (1996-97) and $1.04m. (1997-98). Receipts in 1998-99 were on track for $1.6m. Trade was prevented in May and June 1999, but receipts reached $1.45m, with $100,000 of signed purchase orders which couldn’t be filled.

Buckman and his partners were then forced into bankruptcy, the partners in March and Buckman in June 2000.

In summary, Buckman and his partners detected the forged signatures in September 1999, not the NAB through their encashment cheque clearing process. Moreover, many of the 152 cheques bearing forged signatures were faxed to the bank’s account manager in Bairnsdale, for explicit signature verification, yet they were still cleared.

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6. Master Harrison, of the New South Wales Supreme Court, applied this reasoning in a recent case with similarities to the Buckman case. The bank customer and defendant Roman Voloshin had defaulted on his mortgage payments because of cheque fraud by a third party. Master Harrison commented: “It is my view that it is at least arguable that the plaintiff’s [the NAB] conduct in seeking to enforce the mortgage is unconscionable with the consequence that the court will decline to permit the National Bank to enforce its legal rights.” (National Australia Bank v Voloshin, 2000, par.21)