106In its notice of contention, NAB relies on the aspect or characterisation of the banker-customer relationship described at [43] and [44] above and the second view of the received moneys referred to at [45]. As there stated, a bank receiving funds for crediting to its customer's account acts as an intermediary and is subject to an obligation to account to the customer for the money received.
107In Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation, the High Court dealt with the consequences of the bank's intermediary status. It referred (at 674) first to the case where "the circumstances are such that the intermediary is to be seen as being himself the initial recipient of the benefit". In that situation:
". . . 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 MR, Continental Caoutchouc & Gutta Percha Co v Kleinwort, Sons, and Co (1904) 9 Com Cas 240 at 248) and 'the only remedy is to go against the principal' (per Greene MR, Gowers v Lloyds and National Provincial Foreign Bank Ltd [1938] 1 All ER 766 at 773)."
108The alternative case was then considered, that is, "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". That case gives rise to the question:
"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 . . .. 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 . . . . 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."
109It is here made clear that crediting to the customer's account alone is insufficient to constitute a passing of the benefit of the deposited funds to the customer. A crediting found to be the product of mistake can be reversed, at least until it has been communicated and even thereafter if no prejudice will accrue to the customer. The position is as described by the Privy Council in Colonial Bank v Exchange Bank of Yarmouth, Nova Scotia (1886) 11 App Cas 84 at 89:
"The defendants had only got to run a pen through some private entries in their own books and the matter then would have stood in precisely the same position as it stood in before the mistake was made. They had not in any way altered their position. They would not, if they had cancelled the entries, have been in any way damnified by the mistaken payment made to them."
110In Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation itself, the circumstances were such that, by the time Westpac received notice of the mistake under which ANZ had made the payment to it, the crediting to the account of Westpac's customer (Jakes) had already had the effect of passing the benefit of the overpayment to Jakes. More precisely, the whole of the moneys received by Westpac from ANZ had been applied, in accordance with ordinary principles governing the appropriation of moneys in a single running current account, to the benefit of Jakes, either in extinguishing Jakes' indebtedness to Westpac or in paying cheques drawn by it upon Westpac. The High Court noted that if Jakes, acknowledging that it was not entitled to the money, had made a refund to Westpac, there would have been a liability of Westpac to make restitution to ANZ 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". However, Westpac was under no obligation to ANZ to take active steps to pursue Jakes or anyone else for recovery of the amount once it had, in good faith and in accordance with the instructions given to it by ANZ, passed on the full benefit of it to Jakes.
111The members of the High Court described the position of the bank intermediary in terms of agency. They said (at 681-682):
"[B]oth 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 [1958] AC 379 at 396, 406; Goff & Jones, Law of Restitution, p 707)".
112The reason was then stated (at 682):
"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 CB, Fitzpatrick v M'Glone [1897] 2 IR 542 at 551 and per Cockburn CJ, Holland v Russell (1861) 1 B & S 424 at 434; 121 ER 773 at 777). 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 [1938] 1 All ER at p 773).".
113The payer's claim to recover from the intermediary (bank) is lost if that intermediary has accounted to its principal (customer). As noted above, mere crediting the account of the customer is not "accounting" to the customer for this purpose. But even if the bank has "accounted" to the customer in the relevant sense, it must show that it has done this in good faith, believing that the customer was entitled to the funds.
114NAB, in making the payment to the Hong Kong bank on 19 November 2010 in consequence of the receipt from Citibank for the account of Mr Co-Buchong and Ms Li-Co, acted in good faith and in the belief that Mr Co-Buchong and Ms Li-Co were entitled to the funds in the account. That state of mind was induced in it by the SWIFT message from Citibank. The difficult question - remembering that mere crediting to the customer's account is insufficient - is whether that action of NAB entailed its "accounting" so as to deny the ability of Citibank to recover from NAB as intermediary.
115NAB obviously did not pay the money to its customers, Mr Co-Buchong and Ms Li-Co; nor did it pay on their instructions or to someone else on their behalf. The question is whether the payment by NAB to the Hong Kong bank for the account of the beneficiaries in the Philippines was, in the relevant sense, an "accounting".
116This leads to an examination of the decision of the English Court of Appeal in Gowers v Lloyds and National Provincial Foreign Bank Ltd [1938] 1 All ER 766, a case referred to with apparent approval in Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (at 682).
117Gowers v Lloyds and National Provincial Foreign Bank Ltd concerned the collection of a colonial service pension by a fraudster for a period of years after the pensioner (Gibson) had died. The system under which the pension was paid entailed periodic submission of a claim by the pensioner to his bank (Lloyds), transmission of the claim by Lloyds to the Crown Agents, an instruction by the Crown Agents to the Bank of England to transfer the necessary funds to Lloyds and crediting of those funds by Lloyds to the account maintained with it by the pensioner. The fraudster submitted claims which, as described by the Master of the Rolls, "contained a cleverly forged signature of Gibson's". After moneys had been received into Gibson's account in consequence of the making of such claims, the bank allowed them to be drawn by the fraudster believing in good faith that they were being drawn by Gibson or an attorney acting under a power of attorney given by Gibson.
118The characterisation adopted by the Court of Appeal (Sir Wilfrid Greene MR, Scott and Mackinnon LJJ concurring) was stated thus (at 773):
"The bank was instructed by a person, whose identity has not been ascertained, who purported to be Mr Gibson, and the bank, acting for that person, and as the agent of that person, received the money. They supposed that their principal was Mr Gibson. In point of fact, he was not. But that does not, in my opinion, alter the fact that that person who actually sent the instructions was their principal. The fact that they thought he was somebody else does not alter the fact that it was that person for whom they were acting. It is to that person that they have paid away the money. In those circumstances, it appears to me that the fact that they were mistaken in thinking that their principal was Mr Gibson is quite irrelevant."
119The fraudster was thus seen as, in fact, the bank's principal, that is, the person for whom it collected moneys from the Crown Agents on the footing that those moneys would then be at the disposal of the principal through Gibson's account. The following principle was then stated (at 773):
"The principle on which an agent can resist repayment may be stated in the words used in the House of Lords in Kleinwort, Sons & Co v Dunlop Rubber Co. [(1907) 97 LT 263]. I will read the statement from the opinion of Lord Atkinson, at p 265:
'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.'"
120The matter was approached without regard for any question of prejudicial action making it inequitable to require refunding. It was held that the case was one in which the bank had paid the money to its principal. The rationale was as follows:
"[I]t appears to me that, upon the facts of this case, that is exactly what has been done, and that the principal was in fact the person who gave the instructions and sent the receipt asking for the money to be collected, and gave instructions as to how the money was to be dealt with. That person was the principal, and the fact that the bank was mistaken as to the identity of its principal appears to me not to affect the question at all."
121There has been criticism of Gowers v Lloyds and National Provincial Foreign Bank Ltd on the footing that the bank's principal was in truth Gibson (or, after his death, his legal personal representative) and that the fraudster to whom payment was made was not the principal: see Kwai Hung Realty Co Ltd v Kung Mo Ng [1998] 1 HKC 145. The criticism is, to my mind, misplaced, having regard to the particular facts of the case. The principal was the person, regardless of identity, who (albeit fraudulently) took over the operation of Gibson's bank account and set the relevant flow of funds in train in such a way as to cause the pension moneys to be received by Lloyds, credited by it to that account and ultimately paid out and debited to the account.
122The circumstances of the present case are, however, materially different. In Gowers v Lloyds and National Provincial Foreign Bank Ltd, the fraudulent impostor had, as I have said, taken over the operation of Gibson's account. Gibson himself had died. There was no suggestion that his legal personal representative had taken steps to take control of the account. Indeed, the fact that the impostor was able to use the account for several years in the furtherance of the fraudulent scheme showed that the account had been effectively abandoned. The true principal had, by inattention, created circumstances that allowed the impostor, using Gibson's name, to become the bank's de facto principal
123In the present case, by contrast, NAB had active, recognisable and living principals in the person of Mr Co-Buchong and Ms Li-Co. They had not abandoned the account; nor had they done anything that would have justified any conclusion that anyone other than themselves could properly be recognised by NAB as its principal.
124A key passage in the judgment of the Master of the Rolls in Gowers v Lloyds and National Provincial Foreign Bank Ltd is:
"They [the bank] supposed that their principal was Mr Gibson. In point of fact, he was not."
125In this case, NAB supposed that its principals were Mr Co-Buchong and Ms Li-Co - which, in point of fact, they were; and nothing they had done or neglected to do formed any valid basis on which NAB could think otherwise. That fundamental difference makes the reasoning in Gowers v Lloyds and National Provincial Foreign Bank Ltd inapplicable to the present case.
126It follows that NAB has not made out the defence with which this part of its notice of contention is concerned.