Citibank Limited v Department of Public Works and Services [2001] NSWSC 1066 | Case summary

JUDGMENT 1 HIS HONOUR: This is an appeal pursuant to s 69(2) of the Local Courts (Civil Claims) Act 1970 from Lulham LCM. 2 The right of appeal conferred by that section is restricted to error in point of law on the part of the local court. In the local court the plaintiff in this court was a defendant and the defendant in this court was a third party. The plaintiffs in the local court were a married couple, Mr and Mrs Lawry. They in turn had been made fourth and fifth parties respectively by the present plaintiff. 3 In the event his Worship found judgment for Mr and Mrs Lawry against the present plaintiff in the sum of $36,104.00 plus interest. He dismissed the proceedings brought by the present plaintiff against the present defendant as a third party. The present plaintiff does not seek to appeal against the judgment made in favour of Mr and Mrs Lawry. It seeks to appeal against the dismissal of the third party proceedings it brought against the present defendant. 4 The facts of the matter as found by his Worship were as follows. Mr and Mrs Lawry were customers of the plaintiff bank. On 22 February 1995 the bank approved an application by them for a mortgage power credit loan facility. Mr Lawry was a director of a building company known as Bourcon Pty Ltd ('Bourcon') and Mrs Lawry was at least an officer of that company. By agreement dated 26 September 1995 Bourcon agreed to build a school in the Campbelltown area for approximately $1.5 million. A term and condition of the contract was that Bourcon lodge a bank guarantee with the department for 5% of the contract price. 5 On 17 October 1995 the present plaintiff at the request of the Lawrys issued a banker's guarantee to the department in the amount of $72,208.55 as performance security of Bourcon on the contract it had with the department. 6 By letter dated 7 November 1996 the department advised the bank as follows:- 'The time has come for the principal under the contract to release part of the contractor's security. The principal will not require more than $36,104.55 of the amount of this unconditional undertaking and Citibank is released from so much of its undertaking as exceeds that amount.'

Mr Lang then rang Mr Lawry asking him to return the original bank guarantee to the department. Mr Lang then wrote to the department on the same day in the following terms:- 'I have arranged for Mr Lawry to forward to you original bank guarantee no. 240128 for $72,208.55 which is to be retained by you together with our letter dated 13 November 1996 advising reduction I liability of this bank guarantee to $36.104.55 Please forward your cheque for $36,104.00 at your earliest opportunity. I refer to our telephone discussion today and confirm that as a result of clarification or your letter dated 7 November 1996, bank cheque for $36,104.00 is required to returned (or your cheque in refund).' 10 On a date unknown Mr and Mrs Lawry returned the bank guarantee to the department. 11 On 18 December 1996 the department electronically transferred the sum of $36,104.00 into the account of Bourcon. 12 On 28 November 1997 this court ordered that Bourcon be wound up and appointed a liquidator. 13 The Lawrys on 12 July 2000 sued the plaintiff bank in the local court for the sum of $36.104.00 on the basis that the bank had breached the terms and conditions of the agreement it had with the Lawrys to issue the banker's guarantee by wrongfully paying the department the sum of $36,104.00. 14 In its third party notice the bank claimed either an indemnity or contribution from the department on the grounds that:- (a) the department was negligent; and (b) the department had and received the sum of $36,104.55 to the use of the bank. 15 As I have already noted his Worship upheld the Lawrys' claim and dismissed the third party action taken by the bank. 16 I shall turn first to that part of the appeal brought by the bank against his Worship dismissing the claim brought on the basis of the department having and receiving monies to the use of the bank. His Worship having found the facts in a manner consistent with the above narrative dealt with this aspect of the matter as follows:- 'I am satisfied that the Bank is not able to rely on that claim. There is no evidence the Department of Public Works & Services was enriched by what occurred.' 17 The plaintiff bank's contention that his Worship erred in law centres around his Worship's statement that 'there is no evidence the Department of Public Works & Services was enriched by what occurred … The Department was not enriched by what occurred'. 18 What then is the law relating to the common law action of money had and received. In Kleinwort, Sons & Co v Dunlop Rubber Co (1907) LT 263 at 264 Loreburn LC was in no doubt. He said … 'for it is indisputable that if money is paid under a mistake of fact and is re-demanded from the person who received it before his position has altered to his disadvantage the money must be repaid in whatever character it was received'. 19 In Australia the matter has been subject to scrutiny by the High Court. In Australian & New Zealand Banking Group v Westpac Banking Corporation (1988) 164 CLR 662 at 673 the court held as follows:- '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. (29); Goff & Jones, Law of Restitution, 3rd ed. (2986), 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 (30). … 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.' 20 In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 the court rejected the submission made on behalf of the respondent that monies paid under a mistake of law could only be recoverable insofar as the recipient has been unjustly enriched at the expense of the payer. At 378 the court observed:- 'The two decisions of this Court just mentioned reject that approach. In Pavey & Matthews, Deane J, stated (96): "To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate…. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case." Accordingly, it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality. As this Court stated in Westpac Banking Corporation (97): "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." As La Forest J. stated in Air Canada v. British Columbia (98), the two species of mistake (i.e., fact and law) should be "considered as factors which can make an enrichment at the plaintiff's expense 'unjust' or 'unjustified'". The respondent's submission that the appellants must independently prove "unjustness" over and above the mistake cannot therefore be sustained. The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust (97). There can be no restitution in such circumstances because the law will not provide for recovery except when the enrichment is unjust. It follow that he recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust.' 21 It follows that once a payment has been made to another by mistake there is a prima facie obligation on the part of the person receiving that payment to make restitution. In order for the mistaken payee to displace that prima facie liability that person must point to circumstances which the law recognises would make an order for restitution unjust. 22 The defendant department did not concede that his Worship was correct in finding mistake. It was argued that the payment by the department to Bourcon of the cheque forwarded to the department by the bank was part of the contractual situation arising between the bank and its client, the Lawrys, and the department and its client, Bourcon. In my view this argument cannot be sustained. His Worship found as a fact that the payment was made by mistake. In so doing there was no suggestion that his Worship did so because of some wrongful admission or rejection of evidence. It was a finding of fact open to him on the evidence before him. Accordingly, the appeal in this case being limited to mistakes in law, I am of the view that the defendant's argument in this regard cannot be sustained. 23 His Worship in finding as he did that there was no evidence that the department was enriched by what occurred effectively reverses the onus of proof in the matter. The High Court in David Securities in the passages I have quoted above make it clear that when a payment has been made by mistake a prima facie obligation falls upon the person to whom payment was made to make restitution. To displace that liability that person must point to circumstances which the law recognises would make an order for restitution unjust. His Worship thus misdirected himself in finding as he did. 24 The defendant department argued that should it be found that his Worship was in error then its cross-appeal based upon the negligence of Citibank ought to be allowed. It was put that such a submission had been accepted by his Worship. While in his Worship's reasons a number of statements are made which are critical of the bank I can find no specific finding of negligence. 25 The department in this regard also relies upon evidence given before the magistrate by one, Boyle. While I have no doubt that a statement from Mr Boyle was tendered in the proceedings before his Worship he makes no reference to it whatsoever in his reasons. Accordingly, he makes no finding as to the probative value of Mr Boyle's evidence. Because, as I have said, this court's appellate jurisdiction is restricted to error in point of law, there is no way I can take Mr Boyle's evidence into consideration in this case, because if I did I would be engaging in a fact finding exercise. 26 The department's case that the bank was negligent centres around an assertion that the bank's action during the period on and from the time it made the payment to the department gave rise to a claim in negligence. Insofar as that assertion means that the department may claim damages from the bank I believe that the appeal must fail. Whatever duties of care may be spelt out of the proximate relationship to the bank and the department I find that the mistaken sending of a cheque by the bank cannot be categorised as a breach of any such duty. Again its subsequent conduct in trying to retrieve its money, however ineptly carried out, cannot be so categorised on his Worship's findings. 27 It may be of course that in truth the department is raising a defence, namely contributory negligence, rather than a positive claim for damages in negligence. Put simply, at common law contributory negligence consists of a failure by a plaintiff to take reasonable care of his or her person or property. As the High Court pointed out in Astley v Austrust Ltd (1999) 197 CLR 1 at 11 if a plaintiff fails to take care of its property it may be guilty of contributory negligence although it owed no duty to the defendant in respect of the property. At 14 the majority of the Court dealt with the ramifications of a finding of contributory negligence as follows:- A finding of contributory negligence turns on a factual investigation of whether the plaintiff contributed to his or her own loss by failing to take reasonable care of his or her person or property. What is reasonable care depends on the circumstances of the case. In many cases, it may be proper for a plaintiff to rely on the defendant to perform its duty (48). But there is no absolute rule. The duties and responsibilities of the defendant are a variable factor in determining whether contributory negligence exists and, if so, to what degree. In some cases, the nature of the duty owed may exculpate the plaintiff from a claim of contributory negligence; in other cases the nature of that duty may reduce the plaintiff's share of responsibility for the damage suffered; and in yet other cases the nature of the duty may not prevent a finding that the plaintiff failed to take reasonable care for the safety of his or her person or property. Contributory negligence focuses on the conduct of the plaintiff. The duty owed by the defendant, although relevant, is one only of the many factors that must be weighed in determining whether the plaintiff has so conducted itself that it failed to take reasonable care for the safety of its person or property. 28 Here there is not only no specific finding of contributory negligence but as must follow such an absence, no finding as to the extent contributory negligence effects the damages which may be awarded to the bank. This latter consideration constitutes a fact finding exercise which, of course, is not within the ambit of this appeal. I thus find that the department has not made out its cross-appeal 29 Finally the plaintiff bank relied upon negligence itself before his Worship. His Worship rejected the plaintiff bank's claim that the department had been negligent. The impugned passage in his Worship's reasons is as follows: There was no contract between Citibank and the Department of Public Works & Services. Citibank cannot rely on any breach of contract. In my view the letter dated 11 December 196 from David Lang the assistant manager of Citibank to the Department of Public Works & Services was not such as to establish a duty of care on the part of the Department to the Bank. The error made by Mr lang was grave. Without authority and contrary to the contract between the Bank and Mr & Mrs Lawry, he had paid out of Mr & Mrs Lawry's account, the sum of $36,104.00 to the Department. In my view the letter from Mr Lang to the Department was not nearly as clear and precise as was required. 30 Insofar as it would appear that his Worship's finding that there had been duty relies upon a proposition that the department and the bank did not have a contractual relationship it must be said at once that an error would appear to have been made. However, his Worship qualified his remarks as may be seen by finding that no duty had arisen as a consequence of a conversation held between Mr Lang and an officer of the Department of Public Works and Services on 11 December 1996. 31 In my view a duty did arise. If a person is alerted by another that property belonging to the latter person is mistakenly in the possession of the other it would seem to me that a duty lies upon the person holding the property to return it to the rightful owner. Certainly the person who has possession of the another person's property is under a duty not to give it to a third person. To do so would plainly be a breach of that duty. Accordingly, I am of the view that his Worship was in error when he held that the department was not negligent in its handling of the cheque forwarded by the bank. 32 It follows that the bank ought to succeed in its appeal. 33 The orders of the court are:

Appeal allowed.
Judgment to be entered for the plaintiff in the sum of $36,104.00 plus interest from 11 December 1996.
The defendant is to pay the plaintiff's costs both in this court and the local court. oOo

Citibank Limited v Department of Public Works and Services

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Cases Cited (3)

Cited By (2)