Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation

Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation - [1988] HCA 17 - HCA 1986 case summary — Zoe

[8]

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.

[10]

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.

[17]

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.

[19]

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.

[27]

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.

[29]

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.

[33]

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] .

At a glance

Court

Decision date

Before

Source

Judgment (41 paragraphs)

Parties