The Company's decision to rely on lack of authority alone
24I pause at this point to consider implications of the Company's express decision in this Court to rely on lack of power to the exclusion of abuse of power and to eschew any allegation of breach by Mr Gould of any duty owed by him as a director of the Company or that he acted in disregard of, or to the prejudice of, the interests of the Company.
25The sole allegation maintained against Mr Gould in this Court is that he acted without the authority of the Company in causing it to make a payment of its money either to the Defendant or to himself or Mrs Gould or both of them (for ease of reference in the discussion that follows, the second possibility will be taken to involve payment to Mr Gould alone).
26The stance thus taken by the Company means that any unauthorised action of Mr Gould must be taken to have been innocent, in the sense that it did not involve any breach of fiduciary obligation, any dishonesty or any other form of unconscientious conduct that would attract the attention of equity in a way calculated to protect the position of the Company. It follows that equitable principle plays no part in the adjudication of the Company's claim and that common law rules alone are to be applied.
27If, as the Company contends, the payment by the Company occurred through an unauthorised act of Mr Gould, the payment was made without the Company's assent. The situation is therefore the same as others in which someone receives another person's property in a non-voluntary transaction - for example, through mistake, duress or theft, although without any of the overtones of dishonesty that will commonly be present in those cases. The remedy potentially available to the Company is accordingly by way of common law restitutionary action for money had and received in which a money judgment is sought against the Defendant.
28The essence of the common law action for money had and received to the use of the payer was recognised by Lord Mansfield in Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676 as the notion that retention of the money by the payee would be against conscience. In David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353, a case of payment under mistake, it was said by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ (at 379) that the mistake gave rise to a prima facie obligation on the part of the recipient to make restitution. The action thus lies principally against a receiving party.
29The action may, however, lie against a party to whom the immediate receiving party has in turn made payment. But as Lord Goff of Chieveley pointed out in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572, any ability to maintain the action against such a third party depends on the plaintiff's showing that money or property in that third party's hands is the legal property of the plaintiff - a matter that, in a case such as the present, involves common law rules (as distinct from rules of equity) regarding following and tracing. In Agip (Africa) Ltd v Jackson [1990] Ch 265 at 285, Millett J said that, for the purposes of an action for money had and received, "[t]racing at common law enables the defendant to be identified as the recipient of the plaintiff's money and the measure of his liability to be determined by the amount of the plaintiff's money he is shown to have received".
30If, in the present case, the true characterisation of events is that the Company paid money to Mr Gould and he paid equivalent money to the Defendant, a claim for money had and received cannot avail the Company, as against the Defendant, unless the requirement identified by Lord Goff in Lipkin Gorman is satisfied and the Company can, according to common law rules, follow or trace its money into the hands of the Defendant.
31In any discussion of common law following and tracing, a valuable starting point is the following statement by Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 127-8:
"[Tracing and following] are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner.
...
Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant's property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. ... But his claim may also be exposed to potential defences as a result of intervening transactions."
32As is here made clear, principles concerning following and tracing do not of themselves define or determine substantive rights. They facilitate the identification of particular property in someone else's hands as either the plaintiff's property or as a substitute for the plaintiff's property. Property is treated as identifiable as long as it has not become mingled with other property. The common law therefore does not allow tracing into a mixed fund (equity, by contrast, may grant or recognise a charge over such a fund in order to preserve an equitable interest arising from an addition or contribution to it).
33Importantly, neither the common law nor equity allows money to be traced into a bank account which is overdrawn and remains so after the money is paid into it. The rationale was explained by the Court of Appeal of New Zealand (O'Regan P, French and Asher JJ) in Rae v Russell [2012] NZCA 536 at [43]:
"In the case of a payment into an overdrawn account, there is no new asset created, as there is no debt of the bank to the account holder that is created, and the account holder gains no chose in action against the bank. Instead, the account holder's debt to the bank is in whole or in part repaid. The monies paid by the account holder can no longer be identified and there is no property or replacement asset that can be restored."
34That is the situation here. The bank made no physical payment on 12 April 2010. In response to the instruction given by Mr Gould on behalf of the Company, the bank adjusted its records to reflect, first, a reduction of $227,820.71 in the amount it owed the Company on the particular term deposit account and, second, elimination of the debt owed to the bank by the Defendant on her home loan account.
35The Defendant thereby ceased to be indebted to the bank and, we may infer, the real property purchased by her with the aid of money originally borrowed from the bank ceased to be encumbered by any mortgage in the bank's favour.
36To the extent that, in that context, it is sensible to speak of money having been paid by the Company, that money had no identifiable existence after the payment. The Company's action caused the Defendant's debt to the bank on her home loan account to be extinguished. The Defendant did not thereby acquire any property. She obtained the benefit of freedom from her pre-existing indebtedness but that, of course, is in no sense property. Nor can it be said that the shift of value from the Company to the Defendant represented some form of contribution to the purchase of the particular item of real property already owned by the Defendant and mortgaged to the bank. As Mason and Brennan JJ pointed out in Calverley v Green [1984] HCA 81; 155 CLR 242 at 257-8, the payment of money owing under a mortgage securing a loan obtained to purchase a property is not a payment of purchase price. In the ordinary case of a "cash on completion" conveyancing transaction, the purchase price is satisfied in full when the property is conveyed to the purchaser and, to the extent that moneys borrowed on mortgage are used to complete the purchase, those moneys are outlaid as part of the purchase price at that point. Subsequent payment of instalments owing under the mortgage is payment towards obtaining release of the charge previously created over the property purchased.
37Had equitable principle been at work, tracing into the real property might have been possible on the basis that the provider of the money that caused the mortgage debt to be discharged was subrogated to the property right of the mortgagee whose debt was paid out: Boscawea v Bajwa [1996] 1 WLR 328 at 340-1; Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230 at [135]. But no such analysis is available in a case like the present where the common law alone operates.
38In the circumstances of the present case, therefore, the sum of $227,820.71 which, on 12 April 2010, was credited to the Defendant's home loan account with the bank thereafter had no existence of its own; and no process of following or tracing countenanced by the common law allows to be identified in the Defendant's hands anything that represents that money.
39The consequence is that, even if conscience is shown to be offended in a way relevant to the availability of the common law action for money had and received, there is no possibility of recovery by the Company against the Defendant by such an action unless the sum of $227,820.71 was paid direct by the Company to the Defendant so that she became a recipient of the Company's money. The action will not lie if there were, in concept and reality, two payments, one by the Company to Mr Gould and another by Mr Gould to the Defendant.