Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation

The parties to this appeal and cross-appeal are two well-known banking companies. It is convenient to refer to them as "A.N.Z." and "Westpac". Included among the places where A.N.Z. carried on its banking business in 1981 were branches at Martin Place in Sydney N.S.W., and St. Albans in Victoria. Another banking company, the Commercial Bank of Australia Ltd. ("the C.B.A."), also had a St. Albans branch at which one of its customers was a company called Jakes Meats Pty. Ltd. ("Jakes"). Subsequent to the events giving rise to these proceedings, the assets and liabilities of the C.B.A. were vested in and assumed by Westpac (see the Commercial Bank of Australia Limited (Merger) Act 1982 N.S.W.) and it is convenient to adopt the course followed in the courts below and treat the C.B.A. and Westpac as if they had been the one entity at all relevant times. In what follows, we refer to each of them as "Westpac". On that approach, the C.B.A.'s St. Albans branch and employees are referred to as if they were, at all relevant times, Westpac's.

Jakes' current account at Westpac's St. Albans branch was a troublesome one. There was an agreed overdraft limit of $70,000 but the branch manager had a discretion, which he was prepared to exercise, to allow further overdraft accommodation of $20,000 with the result that the effective overdraft limit was $90,000. After opening entries at the start of business on Tuesday 27 October 1981, the account showed a debit balance of $67,700.96. In the course of that day, the branch received for the credit of the account two cheques and a telegraphic transfer. The telegraphic transfer was of $114,158.20 made by A.N.Z.'s Martin Place branch, through its St. Albans branch, purportedly on behalf of one of its customers. It was effected by telephone communication between the two A.N.Z. branches followed by the delivery of a written warrant by the St. Albans branch to Westpac's St. Albans branch. In fact, A.N.Z. had been instructed by its customer to transfer $14,158.20 only. The extra $100,000 was transferred as the result of a clerical mistake made by one of its staff in the preparation of documents. The warrant did not indicate that any part of the amount involved was uncleared. In accordance with ordinary banking practice in this country, the effect was that the transfer was of cleared funds which were immediately available to be drawn against. It has been treated by both sides as the equivalent of a payment of cash.

At approximately 3 p.m. on Friday 30 October 1981, that is some three days after the telegraphic transfer had been effected, Mr. Armstrong, an employee of the A.N.Z. at its Martin Place branch, informed Mr. Seeber, the manager's clerk at Westpac's St. Albans branch, of the error that had been made. The amount of the transfer had been credited to Jakes' current account on the day on which it had been received and a number of other credit and numerous debit entries had been made on that and the following days. In the course of the conversation, Mr. Armstrong asked Mr. Seeber "what the present position was with regard to" Jakes' current account "with the view to [A.N.Z.] drawing on that bank for $100,000 to recoup the loss". Mr. Seeber, having checked the state of the account, replied that there was a limit on the account of $90,000 and that "there wasn't enough margin in that limit to allow [A.N.Z.] to draw on the branch". It is common ground between the parties that the above conversation between Mr. Armstrong and Mr. Seeber constituted the giving of any necessary notice of the fact that the $100,000 had been paid as a result of a fundamental mistake of fact.

It would seem that A.N.Z. did not take the matter further with Westpac at that stage. Mr. Armstrong did not, in his evidence, suggest that he made any direct demand that Westpac itself repay the whole or any part of the overpayment or request that any intervening debit entries to Jakes' account be reversed. After he had been given the above information about the state of the account, he asked Mr. Seeber whether he could be given "a telephone number and/or an address of the Director of Jakes Meats". Mr. Seeber gave him the telephone number of a Mr. Lincoln. An internal A.N.Z. memorandum of 3 November 1981 discloses that contact was in fact made by A.N.Z. with Mr. Lincoln who "advised that due to the company's current liquidity problems, he doubted if the company was in a position to return the funds within two weeks". The documents in evidence include a letter to A.N.Z. signed by Mr. Lincoln, "For and on behalf of Jakes Meats Pty. Ltd.", which acknowledges "that the transfer should have been for $14,158.20 in lieu of $114,158.20" and that Jakes' account had been "credited with $114,158.20 instead of the correct amount of $14,158.20" and undertakes "to come to some arrangement with [A.N.Z.] in regard to this repayment of the difference". A subsequent internal A.N.Z. memorandum which is in evidence discloses that, by 14 January 1982, A.N.Z. had received from Jakes "only one repayment totalling $2,500" and that its solicitors had written to Jakes "threatening issue of a Notice under Section 222 of the Companies Act". The evidence does not disclose when a direct demand for payment of the balance of the $100,000 was finally made to Westpac. However, nothing turns upon that for the purposes of the present appeal since it was conceded by Westpac in the course of argument that the effect of the giving of notice of the fact of the fundamental mistake in the initial conversation between Mr. Armstrong and Mr. Seeber was the same as if there had been a formal demand by A.N.Z. at that time for payment by Westpac. In a context where the matter was neither examined in the judgments in the courts below nor investigated in argument in this Court, we are prepared to proceed on the assumption that that concession was rightly made.

In March 1983, A.N.Z. instituted proceedings in the Supreme Court of New South Wales seeking recovery of the overpayment on the basis that it was money had and received to the use of A.N.Z. The defendants named in the action were Westpac and Jakes. At some time before the hearing, Jakes went into liquidation. The action proceeded against Westpac alone. The learned primary judge (Clarke J.) found that A.N.Z. was entitled to judgment for the whole of the balance of $97,500 (i.e. the $100,000 less $2,500 paid by Jakes before it went into liquidation) together with interest and made orders to that effect. Westpac appealed to the New South Wales Court of Appeal.

The appeal to the Court of Appeal was initially heard by a court constituted by Samuels, Mahoney and Priestley JJ.A. Their Honours published individual reasons for judgment indicating that, in the view of each of them, the appeal should succeed and the judgment in A.N.Z.'s favour should be reduced to $65,467.81 plus interest. Thereafter, and before final orders had been pronounced, their Honours entertained a further submission to the effect that the amount of $65,467.81 should, in accordance with the reasons for judgment, have been deducted from the amount of the overpayment and not treated as an amount to be paid. Their Honours accepted that submission and directed that such a correction should be made. Subsequently, and still before formal orders had been pronounced, A.N.Z. filed a notice of motion seeking that the appeal should be reargued on the basis that it had been decided adversely to A.N.Z. upon a point expressly conceded by Westpac and therefore not dealt with by A.N.Z. upon the earlier hearing of the appeal. The motion came on for hearing before a court constituted by Samuels, Priestley and McHugh JJ.A., Mahoney J.A. being at the time on extended leave. Their Honours were not persuaded that the reasons for judgment previously published had turned upon a point which had been foreclosed by concession. The effect of a reconsideration of the matter was, however, that Samuels and Priestley JJ.A. were persuaded that the approach which they had previously favoured was, in part, mistaken and that the judgment in A.N.Z.'s favour should be adjusted to reflect a somewhat smaller deduction from the amount of the overpayment. McHugh J.A. was of the view that the decision of Clarke J. at first instance was correct. In the course of his judgment, Priestley J.A. drew attention to the fact that the Court of Appeal's task in determining the amount which Westpac was liable to repay on the view of the law which they accepted was complicated by a concession made by Westpac to the effect that it was not open to the Court of Appeal to uphold a ground in the notice of appeal which counsel had described as a "Clayton's Case point" (see Devaynes v. Noble (Clayton's Case) [22] ). In the outcome, the decision of the Court of Appeal (Samuels and Priestley JJ.A., McHugh J.A. dissenting) was to the effect that A.N.Z. was entitled to recover $39,320.72 of the outstanding amount of the overpayment together with interest.

1. (1816) 1 Mer. 572, at pp. 608-609 [35 E.R. 781, at p. 793].

The present appeal is by A.N.Z. from that decision. For its part, Westpac has cross-appealed claiming that the primary amount awarded to A.N.Z. should be further reduced by some $22,300. In the forefront of Westpac's argument on the cross-appeal is the "Clayton's Case point" which it had conceded must fail in the Court of Appeal. That concession did not, however, extend to this Court. Notwithstanding that it is far from clear that the Court of Appeal was restrained by authority in the manner suggested by the concession, the preferable course appears to us to be to entertain the new argument presented by Westpac in support of its cross-appeal. The consequence is, however, unfortunate in that it is apparent that the primary argument upon which Westpac now relies is substantially different from that advanced on its behalf in the courts below.

It is now common ground between the parties that, if A.N.Z. had demanded repayment of the excess of $100,000 immediately after the transfer of funds had been received and before Westpac had in any way dealt with the money, Westpac would have been liable to repay the $100,000 to A.N.Z. on the ground that it was money paid pursuant to a fundamental mistake. That being so, the argument on both sides has proceeded on the basis that the amount of the overpayment was prima facie recoverable by A.N.Z. from Westpac. The result is that it is unnecessary, for the purposes of the present case, to investigate what constitutes a "fundamental mistake" for the purposes of the principle that money payable under a fundamental mistake of fact is prima facie recoverable by the payer: see, e.g., Porter v. Latec Finance (Qld.) Pty. Ltd. [1] . It can, however, be said that we can see no reason to doubt the correctness of the view expressed or implicit in the judgments in the courts below to the effect that the notion of "fundamental mistake" does not require either that the payer's mistake be shared by the payee or that the mistake be as to the existence of a fact which, if it had existed, would have resulted in the payee being under a legal obligation to make the payment: see Commercial Bank of Australia Ltd. v. Younis [2] ;Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. [3] ; Bank of New South Wales v. Murphett [4] . That having been said, it is preferable to leave for another day consideration of the question whether the requirement that the mistake be fundamental involves any more than that it appears that, without the mistake on the part of the payer, the payment would not have been made: cf., e.g., Porter [5] and Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. [6] .

1. (1964) 111 C.L.R. 177, at pp. 187, 190, 204. 2. [1979] 1 N.S.W.L.R. 444, at pp. 447-450. 3. [1980] Q.B. 677, at pp. 686-694. 4. [1983] 1 V.R. 489, at pp. 491-492, 494-495. 5. (1964) 111 C.L.R., at pp. 186-187, 204. 6. [1980] Q.B., at pp. 694-696.

The issue whether the conceded prima facie liability of Westpac to repay the amount of the overpayment was wholly or partly displaced in the circumstances of the present case by subsequent events has itself been confined by the manner in which the case has been conducted in the courts below and in this Court. In particular, neither in this Court nor, apparently, in the courts below has Westpac raised as a defence or otherwise relied upon the circumstances that, after the telephone conversation between Mr. Armstrong and Mr. Seeber, A.N.Z. demanded repayment from Jakes and received, from Jakes, a formal acknowledgment of liability for, and partial repayment of, the amount of the overpayment. The appeal and cross-appeal have been argued on the basis that all that is in issue is the extent, if at all, to which events after the receipt of the telegraphic transfer but before it received notice of the mistake in that telephone conversation relieved Westpac of the prima facie liability to repay the $100,000.

Stated in summary form, Westpac's argument is: that it received the amount of the transfer as agent for Jakes; that before it received notice of the mistake, it had applied all but $17,021.68 of the funds received on behalf of Jakes; that, in these circumstances, its liability (ignoring interest) to Jakes was confined to that amount. For its part, A.N.Z. disputes that Westpac had, at the time it received notice, applied all but $17,021.68 of the proceeds of the transfer and argues that, in any event, to inquire simply how much of the money remained, at the time of notice, unapplied by Westpac would erroneously be to treat the nature of A.N.Z.'s claim as a tracing claim and to misunderstand the nature of the defence upon which Westpac must rely. According to A.N.Z., its claim is a common law claim for compensation and mere payment out of the money received by way of overpayment will constitute no defence to the action unless it can be shown that Westpac would sustain some identifiable and unjust detriment by reason of the mistaken payment if it were required to refund it.

A.N.Z.'s submission about the nature of its claim can be readily accepted. The basis of the common law action of money had and received for recovery of an amount paid under fundamental mistake of fact should now be recognized as lying not in implied contract but in restitution or unjust enrichment: see, generally, Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [7] ; Goff & Jones, Law of Restitution, 3rd ed. (1986), p. 5ff; Birks, English and Roman Learning in Moses v. Macferlan, Current Legal Problems, vol. 37 (1984), p. 1. In other words, receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment: cf. Pavey & Matthews Pty. Ltd. v. Paul [8] . The common law right of action may arise in circumstances which also give rise to a resulting trust of specific property or funds or which would lead a modern court to grant relief by way of constructive trust. However, notwithstanding that the grounds of the action for recovery are framed in the traditional words of trust or use and that contemporary legal principles of restitution or unjust enrichment can be equated with seminal equitable notions of good conscience, the action itself is not for the enforcement of a trust or for tracing or the recovery of specific money or property. It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (e.g., that the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognizes would make an order for restitution unjust.

1. [1943] A.C. 32, at pp. 61-64. 2. (1987) 162 C.L.R. 221, at pp. 227, 254-257, 267.

The prima facie liability to make restitution is imposed by the law on the person who has been unjustly enriched. In the ordinary case of a payment of money, that person will be the payee. However, when the person to whom the payment is directly made receives it as an intermediary (e.g., as agent for a designated principal), there may be uncertainty about the identity of the actual recipient of the benefit at the moment of payment. If the circumstances are such that the intermediary is to be seen as being himself the initial recipient of the benefit, his prima facie liability will ordinarily be displaced when he has handed the money received on to the person for whom he received it. In such a case he has, in the event, not retained "the benefit of the windfall" but been "a mere conduit-pipe" (see per Collins M.R., Continental Caoutchouc & Gutta Percha Co v. Kleinwort, Sons & Co. [9] ) and "the only remedy is to go against the principal": per Greene M.R., Gowers v. Lloyds and National Provincial Foreign Bank Ltd. [10] . A more difficult case arises where the intermediary has not made a physical payment of money to, or on behalf of, the person for whom the payment was received but has made a credit entry in his books in favour of that person. In such cases, the question will arise whether the benefit of the payment made under fundamental mistake has been wholly or partly retained by the intermediary or effectively passed on to the third person: Continental Caoutchouc [11] . In answering that question, the courts will pay regard to the substance rather than to the form of what has occurred. Thus, the cases indicate that a mere book entry which has not been communicated to the third party or which can be reversed without affecting the substance of transactions or relationships will ordinarily not suffice: see, e.g., Buller v. Harrison [12] ; Cox v. Prentice [13] ; Colonial Bank v. Exchange Bank of Yarmouth, Nova Scotia [14] . It must appear that the third party has effectively received the benefit of the payment with the consequence that the prima facie liability to make restitution has become his. It will subsequently be necessary to return to this aspect of the matter and consider whether the agent must also establish that he would sustain some overall detriment by reason of the mistaken payment if he were required to repay the amount to the payer and look to his principal for indemnity.

1. (1904) 9 Com. Cas. 240, at p. 248. 2. [1938] 1 All E.R. 766, at p. 773. 3. (1904) 9 Com. Cas., at pp. 248-249. 4. (1777) 2 Cowp. 565 [98 E.R. 1243]. 5. (1815) 3 M. & S. 344 [105 E.R. 641]. 6. (1886) 11 App. Cas. 84.

In the present case, the transfer of funds was expressly made by A.N.Z. to the credit of Jakes' account at Westpac's St. Albans branch. The funds were received by Westpac solely in the capacity of intermediary for Jakes. It was submitted on behalf of A.N.Z. that Westpac should not be seen as receiving the amount of the overpayment as agent for Jakes for the reason that it lacked Jakes' authority to receive that surplus amount. That submission must, however, be rejected. There is nothing at all in the evidence, in banking practice or in common sense to suggest that Westpac's authority, as between Jakes and itself, to receive payment to the credit of Jakes' account was limited to amounts which it could somehow ascertain in advance were in fact due and owing to Jakes. Be that as it may, however, it is plain that, regardless of the theoretical limits of Westpac's authority as between itself and Jakes, the funds were received by it not on its own behalf as principal but as an intermediary; they were paid to it and received by it as Jakes' banker on the express basis that they were to be credited to Jakes' account and they were in fact so credited. Indeed, A.N.Z. did not contend to the contrary.

Westpac's concession to the effect that it bears the onus of displacing a prima facie liability to repay the amount of the overpayment makes it unnecessary to examine a question of some general importance which would otherwise arise. That question is whether the nature and scope of the business of a modern commercial bank in which both the lending and borrowing of money are activities to be pursued for profit and the fact that the receipt by a bank of a payment to the credit of a customer's account is ordinarily accompanied by the immediate application of the money on behalf of the customer (i.e., by way of repayment of existing indebtedness or by way of loan to the bank) have the effect of qualifying the applicability to such a payment of any general rule that a person who receives a payment made under fundamental mistake of fact as an intermediary on behalf of another is under a prima facie liability to himself repay it. There is strong authority supporting the view, implicit in the concession, that a bank is, in such circumstances, in the same position as other agents: see, e.g., Kerrison v. Glyn, Mills, Currie & Co. [15] and Admiralty Commissioners v. National Provincial and Union Bank of England Ltd. [16] . None the less, as Samuels J.A. pointed out in the Court of Appeal, it may be arguable that where a banker "is subject to the anomalous responsibility exemplified in this case, it is for the party seeking repayment to establish the precise extent of its recovery". That being so, we adopt Samuels J.A.'s comment that "the instant case should not be regarded as an authority for the contrary proposition". Even accepting Westpac's concession for the purposes of the present case, however, the question remains whether it appears, on the evidence, that Westpac had, by the time it received notice of A.N.Z.'s mistake, passed on the benefit of the overpayment to its principal (i.e., Jakes) to the extent necessary if it is to be protected from liability to repay it.

1. (1911) 81 L.J. K.B. 465, at pp. 470, 471, 472. 2. (1922) 127 L.T. 452.

As has been seen, Jakes' account at Westpac's St. Albans branch showed a debit balance of $67,700.96 after opening entries had been made at the commencement of business on Tuesday, 27 October 1981, the day when the telegraphic transfer was received. The reference to opening entries is necessary for the reason that cheques presented at the clearing house after close of business on 26 October would, in accordance with ordinary practice, be shown as debits in Jakes' statement of account as at that day notwithstanding that the actual entries would not have been made until the following morning (i.e., 27 October). Presumably, the justification for the entry being as at the date of presentation at the clearing house is that the inter-bank credit is provisionally allowed in favour of the collecting bank at that time. The account was a running current account and there is no suggestion of any specific appropriation of particular credit entries against particular debit entries. That being so and subject to the effect of the fact that $100,000 of the telegraphic transfer had been remitted by mistake, the ordinary rule of appropriation of debits against credits (and vice versa) in a single running account between banker and customer which was explained by Sir William Grant M.R. in Devaynes v. Noble (Clayton's Case) [17] is prima facie applicable:

Presumably, it is the sum first paid in, that is first drawn out. It is the first item on the debit side of the account, that is discharged, or reduced, by the first item on the credit side. The appropriation is made by the very act of setting the two items against each other. Upon that principle, all accounts current are settled, and particularly cash accounts. When there has been a continuation of dealings, in what way can it be ascertained whether the specific balance due on a given day has, or has not, been discharged, but by examining whether payments to the amount of that balance appear by the account to have been made? You are not to take the account backwards, and strike the balance at the head, instead of the foot, of it. 1. (1816) 1 Mer. 572, at pp. 608-609 [35 E.R. 781, at p. 793].

Two cheques which were credited to the account on 27 October before the amount of the telegraphic transfer reduced the overdraft to $58,683.72. If a balance had been struck in the account immediately after the $114,158.20 of the telegraphic transfer had been credited, the account would have shown a credit of $55,474.48. No further credits to the account were received on 27 or 28 October. Twelve cheques were debited against the account as at those days. The effect of those twelve cheques was that, after initial entries at the commencement of business on 29 October, that is the day on which Westpac received notice of A.N.Z.'s mistake, the account was approaching the limit of the overdraft accommodation available: the debit balance was $82,848.33. All of the cheques shown in the bank statement as debited to the account as at those two days represented cheques which had been presented at the clearing house on the day indicated in the statement and in respect of which a provisional inter-bank credit would have been allowed in favour of the collecting bank. It is, however, common ground that the effect of inter-bank arrangements was that, as between banks, Westpac might still have dishonoured those cheques which had been debited to the account as at 28 October and which had not been the subject of special clearance with the consequence that the relevant clearing house credits to the collecting banks would be reversed. That does not alter the plain fact that, unless moneys were recovered or entries were reversed, the whole of the telegraphic transfer had been, in accordance with ordinary principles governing the appropriation of moneys in a single running current account, applied to the benefit of Jakes, either in extinguishing its indebtedness to Westpac or in paying cheques drawn by it upon Westpac, before Westpac first received notice of A.N.Z.'s mistake.

It may be accepted that, if Jakes had refunded the amount of the overpayment to Westpac on the basis that it (i.e., Jakes) was not entitled to retain it, Westpac would have been liable to make restitution to A.N.Z. since it would then hold the amount as a distinct fund upon precisely the same conditions upon which it would have held it at the moment of receipt if it had then known of the mistake: cf. British American Continental Bank v. British Bank for Foreign Trade [18] . It does not follow that Westpac was under any obligation to A.N.Z. to take active steps to recover the amount of the overpayment from Jakes or from anybody else once it had, in good faith and in accordance with the instructions given to it by A.N.Z., passed on the full benefit of it to Jakes. It is, therefore, far from self-evident that Westpac was, when it received notice of the mistaken overpayment, obliged to reverse the application of part of the overpayment in payment of the debt due to itself or to reverse the provisional inter-bank credits to collecting banks for cheques which had been presented at the clearing house and already debited against the drawer's current account with it. Indeed, one is led to speculate about what Westpac's position vis-à-vis Jakes would have been if it had, of its own initiative, dishonoured those cheques and reversed those entries and provisional credits. Certainly, its position would have been a somewhat difficult one if it had subsequently turned out that A.N.Z.'s claim for repayment could be met by a good defence on the part of Jakes. Again, however, concessions by Westpac make it unnecessary to pursue those matters at this stage. Westpac does not rely on the application of the funds to extinguish the debt due to itself or to pay cheques which could, in accordance with local clearing house rules, have still been dishonoured at the time when notice of the mistake was received. Its case is that, even if the extinguishment of the debt owed to itself and the debits for payment of cheques which could have been dishonoured at the time when notice was received are all ignored, the full benefit of all but $17,021.68 of the three amounts credited to Jakes' account on 27 October had, by that time, been effectively passed on to Jakes by virtue of payments made on Jakes' behalf. To reach that result, Westpac relies upon the applicability of the ordinary rule governing the appropriation of moneys in a single running current account subject to the concession that payments out should not be debited against the amount of the overpayment while other funds stood to the credit of the account. A.N.Z. argues that, in view of the availability of overdraft accommodation, the payments out should be regarded as utilizing and exhausting the whole of the available overdraft facility before being treated as applying any part of the funds representing the overpayment and that, to the extent that the available overdraft accommodation would not suffice, the funds representing the overpayment should be treated as replenished by subsequent payments in which should, to the extent necessary, not be seen as reducing the overall debit (i.e., overdraft) balance. A.N.Z. pointed to no authority which supported such a use of an overdraft facility in a case such as the present where no question of the misapplication of trust moneys or specific property is involved. Instead, it submitted that the case which would seem to deny its submission even if an overdraft had not, and a trust fund had, been involved (see James Roscoe (Bolton) Ltd. v. Winder [19] ) was wrongly decided. It suffices to say that, in our view, there is no basis in principle or in the facts upon which the overdraft facility can properly be held to have been so utilized and applied in the circumstances of the present case.

1. [1926] 1 K.B. 328, at pp. 338, 342, 346-347. 2. [1915] 1 Ch. 62.

The entries in Jakes' account relating to 27 and 28 October 1981 read: (Last two figures of cheque nos. Debit Credit Date Balance) 26 Oct. 67,700.96 Dr. 8,180.30 27 Oct. 836.94 27 Oct. 114,158.20 27 Oct. 33 82.05 27 Oct. 39 103.90 27 Oct. 47 30,000.00 27 Oct. 53 500.00 27 Oct. 24,788.53 Cr. 43 1,034.20 28 Oct. 42 27.47 28 Oct. 50 10,000.00 28 Oct. 52 25,087.38 28 Oct. 54 540.00 28 Oct. 58 480.00 28 Oct. 62 5,000.00 28 Oct. 63 65,467.81 28 Oct. 82,848.33 Dr. The credit entry for $114,158.20 represents the proceeds of the telegraphic transfer and, therefore, includes the overpayment of $100,000. If the concessions made by Westpac be accepted, and the case has been argued on both sides in this Court on the basis that they should be, the debit entries relating to cheques nos 43, 42, 52, 54, 58 and 62 may be ignored since those cheques could, under inter-bank arrangements, still have been dishonoured at the time when notice of the mistake was first received by Westpac. The other debit entries represent six cheques drawn by Jakes and paid by Westpac which could not have been so dishonoured at that time. The time in which the first four of those cheques (nos 33, 39, 47 and 53) could have been dishonoured expired on 28 October. The fifth (no. 50) had been the subject of a special clearance. The proceeds of the sixth (no. 63) had been irrevocably applied on behalf of Jakes by the transmission of cleared funds by telegraphic transfer. It can be seen that, even if one also assumes (as Westpac concedes) in A.N.Z.'s favour that no part of either of the two cheques credited to the account on 27 October (i.e., the credit entries for $8,180.30 and $836.94) should be applied in extinguishment of the existing indebtedness to Westpac, all but $17,021.68 of the moneys paid in on 27 October (totalling $123,175.44) had been irrevocably paid out in honouring the remaining six cheques (totalling $106,153.76) drawn by Jakes on Westpac. Westpac further concedes that the remaining amount should be treated as coming exclusively from the overpayment of $100,000. In other words, even approaching the matter on the basis of all the concessions that have been made, the result of applicable principles of appropriation is that Westpac had paid out on behalf of Jakes all but $17,021.68 of the $100,000 overpayment. Westpac has confined its cross-appeal to seeking that the verdict against it be reduced to that amount, plus interest.

The above-mentioned concessions on the part of Westpac were obviously made for the sensible purpose of identifying, and to some extent isolating, the basic issue of law between the parties upon which it was thought appropriate to obtain the decision of this Court. It must, however, be acknowledged that the effect of some of the concessions is to impart an element of artificiality to the context which they produce for the resolution of that issue of law. Thus, the concession that no part of the two earlier credits to Jakes' account on 27 October (i.e., for $8,180.30 and $836.94) should be treated as having been applied in discharge of the pre-existing indebtedness (i.e., of $67,700.96) does not prima facie accord with ordinary principles relating to the appropriation of moneys paid to the credit of a running current account upon which Westpac relies. The concession that, notwithstanding subsequent transactions, no part of the overpayment (or, for that matter, of the telegraphic transfer) should be seen as effectively and irrevocably applied to eliminating the pre-existing indebtedness forecloses any argument that such appropriation would fall within the comments of Collins M.R. in Continental Caoutchouc [20] :

He has thus no doubt benefited by getting his debt paid, but he has done so in discharging his primary duty of passing the money on to his principal. He has constructively sent it on and received it back, and has done nothing incompatible with his position as a conduit-pipe or intermediary. He was entitled to be paid, and has been paid by his debtor, who was no doubt put in funds to do so by the receipt of the money, and who therefore, and not the intermediary, has had the benefit of the windfall. Moreover, the concession that the pre-existing indebtedness and the debits for cheques which might still have been dishonoured should be simply disregarded for the purposes of appropriating the amount of the telegraphic transfer is uninformative about whether the underlying assumption is that no part of the money was ever appropriated for those purposes or whether any such appropriation should, with the benefit of hindsight and knowledge of the fundamental mistake, be regarded as having been reversed either as at the time when it was made or as at the time when Westpac was first put on notice of the mistake. Notwithstanding these matters, it is clearly desirable that the Court dispose of the issue of law which the parties have identified on the basis of those concessions rather than add yet another chapter to the history of this litigation by embarking upon an investigation, which neither party has sought, of either the correctness of the concessions or of the underlying assumptions which they conceal. We turn to the consideration of that issue. Some reference has already been made to it. In short, it is whether the fact that an agent has paid over money received by him as agent to, or on behalf of, his principal will of itself constitute a good defence to an action against him for recovery of money paid under a fundamental mistake. 1. (1904) 9 Com. Cas., at p. 248.

It was submitted on behalf of A.N.Z. that the fact that Westpac had applied most of the overpayment in payments made on behalf of Jakes did not of itself constitute any defence in relation to the moneys so applied. The basis of that submission was the contention that the fact that an agent has applied funds received by him on behalf of a principal by payment to, or on behalf of, the principal does not, of itself, constitute a defence to an action for money paid under fundamental mistake of fact unless it appears that the agent would have suffered overall detriment if he had repaid the money at the time when he first received notice of the claim for repayment. The fact that Westpac had paid out most of the funds received on behalf of Jakes would not, so it was said, constitute such a detriment unless it appeared that Westpac would have been worse off by reason of the overpayment if it had, when it received notice of the mistake, repaid the $100,000 to A.N.Z., debited Jakes' account with that amount (on the basis that it was entitled to claim indemnity from Jakes), and dishonoured all of the cheques which it might then have dishonoured. The measure of whether Westpac would have been worse off appears, upon analysis, to be whether Jakes would have owed it more in the situation which would have existed if, at the time it received notice of the mistake, Westpac had taken the above steps than Jakes would have owed it in the hypothetical situation which would have existed at that time if the overpayment had never been made and the cheques which it would probably have dishonoured but for the overpayment had in fact been dishonoured.

There are several points at which this submission of A.N.Z. is susceptible of legitimate criticism. For example, the proposition that a financial institution which makes profits by lending money at interest is better off whenever a corporate customer, which is not known to be insolvent, reduces its use of an overdraft facility which has been made available on commercial terms sounds somewhat strangely in modern ears. The complete answer to the overall submission is, however, that its legal basis is mistaken for the reason that, on balance, both authority and principle support the conclusion that an agent who has received money on his principal's behalf will, without more, have a good defence if, before learning that the money was paid under fundamental mistake, he has "paid it to the principal or done something equivalent" thereto: see Rahimtoola v. Nizam of Hyderabad [21] ; Goff & Jones, Law of Restitution, p. 707. The rationale of such a general rule can be identified in terms of the law of agency and of notions of unjust enrichment. If money is paid to an agent on behalf of a principal and the agent receives it in his capacity as such and, without notice of any mistake or irregularity in the payment, applies the money for the purpose for which it was paid to him, he has applied it in accordance with the mandate of the payer who must look to the principal for recovery: see per Palles C.B., Fitzpatrick v. M'Glone [22] and per Cockburn C.J., Holland v. Russell [23] . In those circumstances, the benefit of the payment has been effectively passed on to the principal who will be prima facie liable to make restitution if the payment was made under a fundamental mistake of fact. If the matter needs to be expressed in terms of detriment or change of position, the payment by the agent to the principal of the money which he has received on the principal's behalf, of itself constitutes the relevant detriment or change of position. In that regard, no relevant distinction can be drawn between payment to the principal or payment to another or others on behalf of the principal: cf. Gowers v. Lloyds and National Provincial Foreign Bank Ltd. [24] .

1. [1958] A.C. 379, at pp. 396, 406. 2. [1897] 2 I.R. 542, at p. 551. 3. (1861) 1 B. & S. 424, at p. 434 [121 E.R. 773, at p. 777]. 4. [1938] 1 All E.R., at p. 773.

In support of the submission that an agent who has paid out the money to, or on behalf of, his principal will have no defence to a claim for repayment by the payer unless he can show some overall detriment which would result from his receipt of the payment if he, as distinct from his principal, were required to make restitution, A.N.Z. placed particular reliance upon Buller v. Harrison [25] and Kleinwort, Sons & Co. v. Dunlop Rubber Co. [26] . Buller v. Harrison, like Cox v. Prentice [27] , was a case where money paid under a fundamental mistake was recovered from an agent notwithstanding that he had made a reversible entry in his own books crediting the amount to his principal. In neither case however, had there been any subsequent transaction which would be affected if the book entry were reversed. Thus, in Buller v. Harrison [28] , Lord Mansfield was at pains to stress:

In this case, there was no new credit, no acceptance of new bills, no fresh goods bought or money advanced. In short, no alteration in the situation which the defendant and his principals stood in towards each other In so far as general principle was concerned, Lord Mansfield was emphatic [29] : The whole question at the trial was, whether the defendant, who was an agent, had paid the money over. Now, the law is clear, that if an agent pay over money which has been paid to him by mistake, he does no wrong; and the plaintiff must call on the principal In that regard, we do not read Lord Mansfield's subsequent comment that if "there had been any new credit given, it would have been proper to have left it to the jury to say, whether any prejudice had happened to the defendant by means of this payment" [30] (emphasis added) as intended to qualify his earlier statement that payment over of the money paid would constitute a good defence. If that subsequent comment is, however, properly to be read as imposing a separate requirement of overall prejudice in a case where the money received has been paid over, it should not be accepted as correctly stating the law. 1. (1777) 2 Cowp. 565 [98 E.R. 1243]. 2. (1907) 97 L.T. 263. 3. (1815) 3 M. & S. 344 [105 E.R. 641]. 4. (1777) 2 Cowp., at p. 568 [98 E.R., at p. 1245]. 5. (1777) 2 Cowp., at p. 568 [98 E.R., at pp. 1244-1245]. 6. (1777) 2 Cowp., at p. 568 [98 E.R., at p. 1245].

Similarly, Cox v. Prentice was a case where it was stressed that "things remained unaltered between the agent and his principal" (per Dampier J. [31] ) and no "new credit" had been "given": per Le Blanc J. [32] . Again, there was no doubt about the general rule which was stated by Lord Ellenborough C.J. in plain terms [33] :

I take it to be clear, that an agent who receives money for his principal is liable as a principal so long as he stands in his original situation; and until there has been a change of circumstances by his having paid over the money to his principal, or done something equivalent to it. 1. (1815) 3 M. & S., at p. 351 [105 E.R., at p. 643]. 2. (1815) 3 M. & S., at p. 349 [105 E.R., at p. 643]. 3. (1815) 3 M. & S., at p. 348 [105 E.R., at p. 642].

The case of Kleinwort, Sons & Co. v. Dunlop Rubber Co. is not really in point since, as Robert Goff J. pointed out in Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. [34] , the appellant's defence based on payment had been conclusively negatived by the jury's finding that they had received the money as "principals, and in their own right": see Kleinwort [35] . It is true that, in the course of his judgment [36] , Lord Loreburn L.C. commented that "if money is paid under a mistake of fact and is redemanded from the person who received it before his position has been altered to his disadvantage, the money must be repaid in whatever character it was received". There is, however, nothing in Lord Loreburn's judgment that would indicate that he would not have regarded payment by the agent to, or at the direction of, the principal as not of itself representing an alteration of the agent's position to his disadvantage. Lord Atkinson left no doubt that payment to, or at the direction of, the principal would suffice as a good defence. He said [37] :

Whether he would be liable if he dealt as agent with such a person will depend upon this, whether, before the mistake was discovered, he had paid over the money which he received to the principal, or settled such an account with the principal as amounts to payment, or did something which so prejudiced his position that it would be inequitable to require him to refund. (Emphasis added.) If further authority is required for that proposition, one need do no more than go back to the judgment of Erle C.J. (in which Pollock C.B., Williams, Willes and Keating JJ. and Bramwell and Channell BB. all concurred) in Holland v. Russell when that case reached the Exchequer Chamber [38] then forward to the judgment of Farwell L.J. in Baylis v. Bishop of London [39] , the judgments of Bankes, Warrington and Scrutton LL.J. in British American Continental Bank v. British Bank for Foreign Trade [40] , the judgment of Greene M.R. in Gowers v. Lloyds and National Provincial Foreign Bank Ltd. [41] and the speeches of Viscount Simonds and Lord Cohen in Rahimtoola v. Nizam of Hyderabad [42] . 1. [1980] Q.B., at p. 690. 2. (1907) 97 L.T., at pp. 264, 265. 3. (1907) 97 L.T., at p. 264. 4. (1907) 97 L.T., at p. 265. 5. (1863) 4 B. & S. 14, at p. 16 [122 E.R. 365, at p. 366]. 6. [1913] 1 Ch. 127, at pp. 137-138. 7. [1926] 1 K.B., at pp. 337, 341, 343. 8. [1938] 1 All E.R., at p. 773. 9. [1958] A.C., at pp. 396, 406.

It follows that Westpac has a good defence to A.N.Z.'s claim to the extent that it had, on behalf of Jakes, paid out the proceeds of the telegraphic transfer before it first received notice of A.N.Z.'s mistake. Acting on the basis of the concessions made by Westpac in A.N.Z.'s favour, Westpac had, by that time, irretrievably paid out $82,978.32 of the overpayment of $100,000 in honouring cheques drawn on it by A.N.Z. That being so, A.N.Z.'s appeal must be dismissed and Westpac's cross-appeal seeking that the judgment against it should be reduced to an amount of $17,021.68, plus interest, must be sustained. The appellant must pay the respondent's costs of the appeal to this Court. Because the point upon which the cross-appeal has succeeded was not relied upon in the courts below, there should be no order as to the costs of the cross-appeal. The order of the Court of Appeal in relation to costs should not be disturbed.