Commissioner of Inland Revenue v Thomas Cook (New Zealand) Ltd

IN THE COURT OF APPEAL OF NEW ZEALAND

CA52/02

BETWEEN	THE COMMISSIONER OF INLAND REVENUE
Appellant

AND	THOMAS COOK (NZ) LIMITED
Respondent

Hearing:	26 November 2002
Coram:	Blanchard J Tipping J McGrath J
Appearances:	D J Goddard and J H Coleman for Appellant G J Harley and K A King for Respondent
Judgment:	3 March 2003

JUDGMENT OF THE COURT DELIVERED BY TIPPING J

Introduction

This appeal involves a novel and difficult issue concerning presentment (sometimes referred to as presentation) of cheques and their dishonour. It has arisen under the Unclaimed Money Act 1971. The appellant, the Commissioner of Inland Revenue, to whom unclaimed money is payable under the Act, contends that the respondent, Thomas Cook (NZ) Ltd, is holding unclaimed money which it is liable to pay to him. Thomas Cook argued successfully in the High Court that this was not so. Chambers J held that Thomas Cook was not holding unclaimed money as defined in s4 of the Act. The Commissioner has appealed.
We will first describe the circumstances in which the issue has arisen. These have conveniently been recorded in an agreed statement of facts. We will then refer to the relevant provisions of the Act, before considering the judgment below and the arguments in this Court. It is appropriate to note that the arguments presented to us covered issues not raised before Chambers J.

Background facts

It is not necessary to record all the details set out in the agreed statement of facts. What follows is therefore a compressed version of the facts which were presented by agreement to the High Court and supplemented in this Court.
Thomas Cook is a company duly incorporated in New Zealand. It has its registered office in Auckland. In the ordinary course of its business, Thomas Cook receives money from customers in return for which it issues documents headed International Cheques. These documents are referred to by Thomas Cook as international drafts. The parties have referred to the documents as drafts throughout the agreed statement of facts. It will be convenient to adopt the same terminology in this part of the judgment, albeit for other purposes it will be appropriate to refer to the drafts as cheques. The drafts specify the date on which they are drawn, the payee, the foreign currency amount payable and the foreign bank to which the draft is to be presented by the payee in order to obtain payment of the specified amount.
The present case concerns drafts issued by Thomas Cook prior to close of business on 31 December 1992, but not presented by their respective payees within six years of purchase by Thomas Cook’s customer. The case is based on the practices of Thomas Cook in the relevant period prior to 31 December 1992. At that time there was no written contract or other specification in writing of terms and conditions applicable to individual transactions between Thomas Cook and its customers. The procedure was for the customer to request from Thomas Cook a draft for a certain sum of money in a foreign currency. The customer paid Thomas Cook whatever sum in New Zealand dollars represented the foreign currency equivalent, together with commission. The customer told Thomas Cook who was to be recorded as the payee on the draft. Thomas Cook would then prepare and issue the draft and hand it to the customer. A specimen draft was attached to the agreed statement of facts. It was for $1,200,732.15 in United States dollars. It had a named payee and was addressed to the Bank of New York at 1 Wall Street, New York. The draft was crossed “account payee only” and could thus be collected only by a bank holding an account for the payee. Each of the foreign banks named in the various drafts which are in issue is a bank with which Thomas Cook had a bank account at the relevant time. The drafts recorded the code number for the relevant bank account which Thomas Cook maintained with the applicable foreign bank, being the account from which funds would be drawn to meet payment upon presentation of the draft.
A customer who requests Thomas Cook to issue a draft and provides payment for it, may not necessarily be the payee. In other words, the customer may request a draft payable to itself or may request a draft payable to a specified payee. The money which Thomas Cook receives from its customers is placed in a general cash account which it has with a bank in New Zealand. It must take steps to ensure that the balance standing to its credit at the relevant foreign bank is enough to meet outstanding drafts and the draft now being issued. In calculating what is owing on outstanding drafts, Thomas Cook leaves out of consideration drafts which it treats as stale, being drafts which have not been presented for payment after 12 months from their date. If an account with a foreign bank has a balance which is less than Thomas Cook estimates to be its liability for drafts drawn on that bank, it draws on its own general New Zealand dollar cash account, converts the amount drawn into the relevant foreign currency, and remits the funds to the foreign bank. The aim is that on any particular day there should be enough money in the foreign bank to meet drafts that are likely to be presented that day. If a particular foreign account has more money in it than the estimate, the excess funds will be drawn on by Thomas Cook, repatriated to New Zealand, and put into its general New Zealand bank account.
As noted above, some drafts are not presented by the payee for payment by the foreign bank. Thomas Cook takes the stance that if a draft has not been presented after 12 months from its date, it is not going to be presented within the relevant time period applicable under the law of the jurisdiction in which the relevant foreign bank is situated. The same stance is taken in relation to all drafts drawn on foreign banks and is based on Thomas Cook’s understanding of the general time after which a draft of the kind in issue cannot be presented in foreign jurisdictions. A draft of this kind is treated as a stale draft, as opposed to drafts outstanding within the period of 12 months, which are treated as live drafts. It is not necessary for present purposes to describe the way in which stale or live drafts are treated by Thomas Cook in accountancy terms.
Thomas Cook accepts that the 12 month period which it adopts for its own internal purposes will not necessarily coincide with the actual time within which drafts must be presented before they become stale under the relevant foreign law. That time may be longer or shorter than 12 months. A draft which is presented to a foreign bank outside the time for presentation of the draft, according to the applicable foreign law, may not be honoured by the foreign bank. If that occurs, the payee, to obtain payment, has to request Thomas Cook to issue a new draft for the same amount or to make payment by telegraphic transfer. Again, the way in which that situation is dealt with by Thomas Cook, in accountancy terms, does not need description here.

The Unclaimed Money Act

In terms of its definition in s2, unclaimed money must be “situated in New Zealand”. The expression “holder” in relation to unclaimed money is defined in s5 by reference to the persons or bodies there listed. It is common ground that Thomas Cook is a holder. Of relevance to later issues is the statement in the introductory part of s5(1) that the Act applies to unclaimed moneys “held or owing” by any of the listed holders. The concept of money owing is wider than that of money held. The latter has more of a custodial connotation. The point is that both money held and money owing are capable of being unclaimed money.
That point is reinforced when reference is made to s4(1)(e) which contains the definition of unclaimed money said to apply to the money represented by the stale (ie. unpresented) drafts referred to in the earlier narrative of facts. Section 4(1)(e) provides that unclaimed money shall consist of:
Any other money, of any kind whatsoever, which has been owing by any holder for the period of 6 years immediately following the date on which the money has become payable by the holder.
The Commissioner’s argument is that the money represented by the stale drafts had become payable by Thomas Cook as drawer of the drafts and, after becoming payable, had been owing for six years prior to the time he, the Commissioner, requested payment pursuant to s8 of the amounts involved. The ultimate question is therefore whether and, if so, when, the moneys represented by the stale drafts became payable by Thomas Cook, all of those drafts having been dated prior to 1 January 1993.

The arguments in summary

There are three bases upon which the Commissioner contends that the stale drafts have become payable and the moneys they represent have been owing for more than six years. The first was called the immediate obligation argument. It proceeded on the basis that Thomas Cook, as the drawer of the drafts, which henceforth we will refer to as cheques, became liable on each cheque immediately it was drawn and issued. Thomas Cook says this argument is unsound because the cheque did not become payable until presentment by the payee to the foreign bank. Hence Thomas Cook says it had no liability as drawer unless and until presentment was made or was dispensed with.
The Commissioner’s second argument is that the liability of Thomas Cook as drawer, if not arising earlier, arose when the cheque became stale and presentment was thereupon dispensed with. This situation, it is said, amounted to a deemed (as opposed to an actual) dishonour and Thomas Cook as drawer was thereupon liable to compensate the payee on the basis that the amount of the cheque became liquidated damages. Thomas Cook’s reply to this argument is first that deemed dishonour has not been established on the facts and second that in any event actual demand had to be made on the drawer by the payee in these circumstances and this had not been done. Hence, on this second argument also, Thomas Cook says that the moneys represented by the stale cheques had not become payable by it.
The Commissioner’s third argument is that if Thomas Cook as drawer did not acquire any liability to the payee on either of the foregoing bases, a term should be implied into the contract between Thomas Cook and its individual customers, to the effect that Thomas Cook would reimburse the value of the cheque to the customer, in exchange for an indemnity, once the cheque had become stale. On this basis it is said that the money represented by the cheques had become payable, not to the individual payees, but to the individual customers and had been owing for more than six years. Thomas Cook’s answer to this submission is that in accordance with relevant contract law principles it is not appropriate to imply such a term as that suggested.

The immediate obligation issue

This is the basis on which Chambers J decided the case. He held, in a commendably succinct judgment, that the cheques did not become payable until presentment. As there had been no presentment, the moneys represented by the cheques had not become payable by Thomas Cook as drawer. That was the end of the matter in the High Court because the alternative arguments presented to us were not advanced there. It is desirable at this point to examine relevant aspects of the law relating to cheques. It was common ground that the documents in issue were cheques.
Section 73 of the Bills of Exchange Act 1908 states that a cheque is a bill of exchange drawn on a banker payable on demand. It further states that, except as otherwise provided in Part II of the Act, the provisions of the Act applicable to bills of exchange payable on demand apply to a cheque. Section 10 of the Act states when a bill is payable on demand. This is so if the bill is expressed to be payable on demand, or at sight, or on presentation. A cheque is payable on presentation but is not usually expressed to be so payable. However, s10 also says that a bill is payable on demand if no time for payment is expressed therein. That is the case with conventional cheques, and with the cheques in issue in the present case. They were therefore payable on demand and, being drawn on a banker, fulfilled the definition of a cheque in s73.
Section 55 of the Bills of Exchange Act states that the drawer of a bill, and hence the drawer of a cheque, engages that on due presentation the cheque will be paid according to its tenor. If the bill is dishonoured the drawer engages to compensate the holder (in the case of a cheque, the payee), provided the requisite proceedings on dishonour are duly taken. The damages (the compensation of which s55 speaks) comprise the amount of the bill plus interest and expenses. It is significant that these damages are deemed by s57 to be liquidated damages.
The key question on this aspect of the case is whether the drawer of a cheque can be sued on the cheque before presentation. That question can be refined into whether a cheque which is not yet stale (or the money it represents) is payable prior to presentation or only on “due presentation” as s55(1)(a) puts it. Mr Harley for Thomas Cook argued that a cheque is not payable unless and until due presentation is made or dispensed with. Mr Goddard for the Commissioner argued that a cheque is payable immediately it is drawn and issued.
As noted earlier, Chambers J found for Thomas Cook on this point. In support of his conclusion he mentioned s45(1) of the Bills of Exchange Act which, consistently with the reference in s55(1)(a) to due presentation, states that subject to the Act (primarily subject to when presentation is dispensed with) a bill must be duly presented for payment. The Judge reasoned that due presentation was a pre-condition of the payee’s entitlement to payment of the cheque. As there had been no due presentation of the cheques in question, they, and the money they represented, had not therefore become payable. For that reason the relevant definition of unclaimed money had not been fulfilled. Other matters and cases which were discussed and relied on by the Judge, will be mentioned in the following discussion of counsel’s arguments in this Court.
The Commissioner accepts that money does not become payable for the purposes of s4(1)(e) of the Unclaimed Money Act unless and until a legal obligation to make payment arises. He argued that the time at which a creditor (here the payee of the cheque) is entitled to receive payment is the same time as that upon which time starts running for limitation purposes. Building on that foundation, which we accept as being generally correct, the Commissioner suggested there was a material distinction between the time the legal obligation to pay arises and the time it is anticipated payment will in fact be made. The Commissioner argued that the latter dimension was irrelevant. The point was expanded by the submission, with which we agree, that the critical question is whether presentation of a cheque is a pre‑condition to the running of time, or rather, whether it is only a requirement for obtaining payment in practical terms and not a pre-condition which must be fulfilled before the obligation comes into existence.
In support of the argument that presentment is simply a practical requirement and not a legal pre-condition, Mr Goddard emphasised the difference between cheques and other bills of exchange with regard to the liability of the drawer. We agree that the liability of the drawer of a cheque is primary and unconditional, whereas the liability of the drawer of a conventional bill is secondary (to that of the acceptor) and conditional (on the acceptor’s default). The bank on which a cheque is drawn (the drawee bank) is not in the same position as the acceptor of a bill. The bank is not under a liability to the payee. Its duties are owed in contract to the drawer. In the light of this distinction Mr Goddard argued that as there is no acceptor in relation to a cheque, presentment for acceptance is not required. That is so but it does not follow that presentment for payment is not required to render the drawer liable for actual dishonour. The more difficult subject of deemed dishonour, which arises on the second head of argument, is not relevant to the present issue.
In reliance on the general law and s74 of the Bills of Exchange Act (which deals with certain consequences of non‑presentment for payment within a reasonable time after the issue of a cheque) Mr Goddard went on to argue that the liability of the drawer of a cheque to the payee was not conditional on presentment. He submitted that by issuing the cheque the drawer promises to pay the payee either by the drawer’s agent, the bank or, if the bank does not pay the cheque, then direct. The agency contention is problematic in this context. While the relationship between the drawer of a cheque and the drawee bank can in a sense be regarded as one of principal and agent, the agency concept does not in itself result in the drawer becoming immediately and unconditionally liable to the payee on the issue of a cheque. It is of the essence of payment by cheque that the payee will look to the drawee bank in the first instance. The drawer’s liability is both practically and legally conditional on presentment, unless presentment is dispensed with. Presentment is dispensed with when a cheque has become stale. That is the focus of the second argument. But unless and until the cheque becomes stale, it is inherent in the relationship of the drawer and payee that the payee must look first to the drawee bank. That is the clear understanding and intention of the parties when a cheque is issued and payment by means of a cheque is accepted by the payee. If the payee wishes to insist on a different method of payment, the cheque must be returned to the drawer with that intimation. If that does not happen, it can safely and properly be inferred that the ordinary position applies, ie. that the drawer is not liable on a live cheque until there has been presentment, actual dishonour and due notice thereof.
Mr Goddard’s immediate obligation argument does receive support from Byles on Bills of Exchange (26^th ed – 1988) at 421 but the 27^th edition published in 2002 does not support the argument. The learned editors of that edition, at paragraph 29-08, state that no cause of action accrues against the drawer until presentment and dishonour have occurred or have been dispensed with. They cite In Re Boyse (1886) 33 Ch.D. 612 in support of that proposition. In that case a bill payable at sight, hence by definition an on demand bill, was held by North J not to be payable by the drawer for limitation purposes until presentation to the acceptor for payment. Although In Re Boyse is not exactly on all fours with the present case, because it dealt with a bill not a cheque, it does by close analogy support the way the 27^th edition of Byles approaches the matter.
That edition continues at paragraph 29-08 (page 431):
In previous editions of this work it has been said that “In the case of a cheque the statute runs against the drawer from the time when the cheque was given to the payee”. That proposition is based on the judgment of Stirling J in the case of In re Bethell (1887) 34 Ch.D. 561 – “such a cheque ought to have been presented within six years from the time when it was given, and that the time under the Statute of Limitations began to run when the cheque was sent to the Claimant …” - , citing the earlier decisions of Norton v Ellam (1837) 2 M. & W. 461 and Robinson v Hawksford (1846) 9 Q.B. 52. The former case concerned a note payable on demand, not a cheque, and under such an instrument the cause of action accrues immediately without a demand. The issue in the latter case was whether the drawer’s liability on a cheque had been discharged by the holder’s failure to present it in a reasonable time, a point now covered by section 74 of the 1882 Act. On this, Patteson J. (in the passage particularly relied on by Stirling J.) observed that “if [no inconvenience] has resulted, I see nothing unreasonable in a presentment, I should even say, at any time within six years”. The decision was followed in Laws v Rand (1857) 3 C.B.N.S. 442.
Neither case is in fact any authority that limitation runs from the date of issue (or delivery) of the cheque - Indeed, if anything they suggest otherwise; if the holder can present the cheque six years less one day after delivery, how long after that date might he bring proceedings? - and in principle it [limitation] should not [run from issue or delivery] but only from the date when following dishonour notice of dishonour is given or dispensed with; see Chalmers & Guest on Bills of Exchange, Cheques and Promissory Notes (15^th ed – 1998) at para 1475 where this is said to be arguable in principle.
It is suggested that this does not leave the drawer of a cheque exposed indefinitely to a claim upon late presented cheques. The practice of banks in returning cheques regarded as stale is well established and their entitlement as against their customer to decline to pay a cheque in such circumstances is, even absent express agreement, probably a matter of implication. Presentment for payment is dispensed with in that situation and a cause of action against the drawer immediately accrues to the holder, who will have up to six years from that date to bring his action. [footnotes incorporated where appropriate]

The editors then state that the date from which the drawee bank becomes entitled to treat the cheque as stale cannot be stated with certainty and (absent contractual agreement with its customer) will be a matter of practice. We will need to revert to this point when discussing the second argument.

Mr Harley naturally relied upon the reasoning in the 27^th edition of Byles. We consider that this reasoning is to be preferred to the immediate obligation approach espoused by the 26^th edition. While it is of the essence of a cheque that it is payable on demand, it is clearly a necessary and well understood incident of the relationship between drawer and payee that actual demand on the drawee bank is a pre-condition to payment and such demand is to take place in the form of due presentation. Hence in the case of the relationship between drawer and payee of a cheque, the concept of the cheque being payable on demand means that actual demand in the form of due presentation is required. It is not a case where the words on demand add nothing to an underlying and already existing obligation to pay: see the discussion in DFC New Zealand Ltd v McKenzie [1993] 2 NZLR 576, 582 ff (HC) per Tipping J and his statement at 583:
The true distinction is therefore that if the obligation to repay is expressed as "on demand" simpliciter there is no requirement to make demand and time starts to run from the date the moneys were advanced. This is because the law has treated the words "on demand" as adding nothing to the implied promise immediately to repay. In a sense the words "on demand" simply reinforce and declare what the law takes to be implicit anyway. If, however, the parties have either expressly or by necessary implication demonstrated an intention that a demand is required in order to create a liability to repay, time does not start to run until the making of the demand. In the case of a loan on demand simpliciter the demand is not part of the cause of action. The position is otherwise if the demand is intended to be part of the cause of action.
Although the relationship between the drawer of a cheque and the payee is different from that between the drawer, as customer of the drawee bank, and the bank itself, there is sufficient analogy between the two relationships in commercial terms to make the decision of the Court of Appeal in N Joachimson v Swiss Bank Corporation [1921] 3 KB 110 of some present relevance. In that case the Court (Bankes, Warrington and Atkin LJJ) held that a demand by the customer for funds standing in the customer’s account was a necessary pre-condition to the bank’s liability to pay. While the relationship was that of debtor and creditor, the nature of the relationship in its commercial context required that the bank not be liable unless and until actual demand was made. At 129 Atkin LJ said “The question appears to me to be in every case, did the parties in fact intend to make the demand a term of the contract?” He added that, in seeking to ascertain their intention, the nature of the contract may be material.
The nature of the relationship between drawer and payee of a cheque is clearly such that demand by presentment (unless dispensed with) is a necessary pre‑condition to the drawer’s liability to pay. It is impossible to suggest that after a cheque has been issued to the payee, the drawer has an immediate legal obligation to seek out the payee and pay the amount of the cheque by some other means. That would be the logical consequence of adopting the immediate obligation argument. The correct view is that presentment is not just a practical means of payment, it is also, unless dispensed with, a legal pre-condition to the drawer’s liability on the cheque. It follows that we accept Mr Harley’s submissions on this aspect of the case and reject those of Mr Goddard; albeit recognising the skill and clarity with which they were advanced.

The stale cheques issue – presentation dispensed with

Mr Goddard’s alternative argument, which he submitted must be correct if his first argument was rejected, rested on the premise that the cheques in question had become stale. Presentation was therefore dispensed with and Thomas Cook, as drawer, if not liable to pay any earlier, became liable to pay when the cheques became stale, and without any need for demand. Thomas Cook’s response was primarily that demand on the drawer was in these circumstances necessary and, as there had been none, Thomas Cook had not become liable to pay. Hence the moneys represented by the cheques had not become payable for the purposes of s4(1)(e) of the Unclaimed Money Act. Thomas Cook also raised the logically prior argument that the Commissioner had not established, as a matter of evidence and foreign law, that the cheques in question had become stale according to the law of the jurisdiction in which presentation was required. It will be convenient to defer that issue until after we have considered the legal question whether demand on the drawer of a stale cheque is required to make the money legally payable.
As section 46 of the Bills of Exchange Act is central to this aspect of the case, we will set it out:
46       Excuses for delay or non-presentment for payment
(1)       Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder, and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence.
(2)       Presentment for payment is dispensed with—
(a)      Where, after the exercise of reasonable diligence, presentment as required by this Act cannot be effected:
The fact that the holder has reason to believe that the bill will, on presentment, be dishonoured, does not dispense with the necessity for presentment:
(b)      Where the drawee is a fictitious person:
(ba)     Where the drawee or acceptor is bankrupt:
(bb)     Where the drawee or acceptor is a body corporate that is being wound up:
(c)      As regards the drawer,—
(i)        Where the drawee or acceptor is not bound, as between himself and the drawer, to accept or pay the bill, and the drawer has no reason to believe that the bill would be paid if presented; or
(ii)       Where the drawer is bankrupt; or
(iii)      Where the drawer is a body corporate that is being wound up:
(d)      As regards an indorser,—
(i)       Where the bill was accepted or made for the accommodation of that indorser, and he has no reason to believe that the bill would be paid if presented; or
(ii)      Where that indorser is bankrupt; or
(iii)     Where that indorser is a body corporate that is being wound up:
(e)       By waiver of presentment, express or implied.
The present case is concerned with s46(2)(c)(i). Presentment of a cheque for payment is dispensed with as regards the drawer where the drawee bank is not bound as between itself and the drawer to pay the cheque and the drawer has no reason to believe that the cheque would be paid if presented. That brings us to the subject of stale cheques which can be looked at in two parts. The first is whether, for the purposes of s46(2)(c)(i), a bank is bound to pay a stale cheque. The second concerns when a cheque becomes stale.
As to the first point, for the reasons which follow, we consider that, in the absence of some express agreement to the contrary, it is a term of the contract between drawer and drawee bank that the bank is not bound to pay a stale cheque. That point is made, albeit not with total certainty, in the passage from the 27^th edition of Byles cited above. The editors say that, absent express agreement to that effect, or, we would add, to a contrary effect, the right of the drawee bank to decline payment of a stale cheque is probably a matter of implication. In New Zealand the point used to be covered by s45(2)(b) of the Bills of Exchange Act but is now covered, to the same effect, by s7D(1)(a) of the Cheques Act 1960 which states, as one of the rules as to presentment that a cheque must be presented within a reasonable time after its date. Hence, if it is not so presented there has been no due presentation and the drawee bank is not bound to pay it. The consequences of delay in presentation, as between drawer and payee, were and are still governed by s74 of the Bills of Exchange Act.
The same point as regards payment of stale cheques is made in Paget’s Law of Banking (11^th ed – 1996) at 334. There the editors say that it is the practice of bankers not to pay cheques presented after a certain period has elapsed since their date. Paget speaks of different practices in London concerning what the period may be but that is the second point. There is, on the first point, no doubt that banks are not regarded as bound to pay a stale cheque: see also Ellinger – Modern Banking Law (1987) at 240; Chalmers & Guest (op cit) at paragraph 1974 and The Laws of New Zealand – Banking at para 21.
The text of Byles cited above has a cross-reference to paragraph 21-92 which contains a discussion of out-of-date cheques. The editors there note rather more firmly that banks refuse to pay cheques which are presented “well beyond” the date they bear. Leaving aside the time issue, we consider that there cannot be any doubt that in New Zealand the practice of treating cheques as stale and therefore declining payment of them, is a practice so well known and established as to amount to a term implied by custom or usage in all contracts between banker and customer, unless the contract expressly provides otherwise. The law on the implication of terms into contracts by custom or usage was examined in Everist v McEvedy [1996] 3 NZLR 348, 360 (HC – Tipping J). The criteria for such implication there identified are clearly fulfilled on this first point. Using Paget’s test, again at 334, the custom in New Zealand as regards banks not paying stale cheques (again leaving aside when they become stale) is universal and uniform.
As a preliminary to consideration of the time point and in further support of our conclusion on the first point, we note that under the common law, delay in presentment, causing damage, fully discharged the drawer: Robinson v Hawksford (1846) 9 QB 52. The Bills of Exchange legislation altered that rule to one involving discharge only to the extent of the damage suffered (normally as a result of the failure of the drawee bank). Although s74 deals with that rather different point, the obligation of the payee to present the cheque within a reasonable time which is implied therein, consistently with s7D(1)(a) of the Cheques Act (previously s45(2)(b) of the Bills of Exchange Act), supports the view that as between banker and customer, the bank, in the absence of agreement to the contrary, has a right to decline to pay a stale cheque, ie. one which is not presented within a reasonable time. Section 74(b) states that in determining what is a reasonable time, regard shall be had to the nature of the instrument, the usage of trade and of bankers, and the facts of the particular case.
On that basis we turn now to the second point which concerns the time after which a cheque becomes stale. At paragraph 21-92, Byles refers to the fact that the Jack Committee into Banking Services, Law and Practice (1989) Cmd 622 paragraph 7.51 found that most, if not all, banks in the United Kingdom specified six months as the reasonable time within which a cheque must be presented. In his Introduction to New Zealand Banking Law (2^nd ed - 1991) Russell says at 155 that if a cheque is presented after six months has elapsed from its date of issue, the bank will “usually” return it unpaid. The position is put more strongly in the very recent 2^nd edition (2003) of Tyree’s Banking Law in New Zealand at 9.5 (page 269) where the authors describe it as the “universal practice” of banks to refuse to honour cheques that bear a date more than six months earlier than the date of presentation.Chalmers & Guest at paragraph 1974 (page 684) submit that there is an implied term in the banker‑customer relationship that a banker may refuse to pay a cheque which is presented for payment “six months or more” after its date.
We were referred by the parties to the Code of Banking Practice (2^nd ed – November 1996). The 3^rd edition published in December 2002 is to the same effect. In this Code the member banks of the New Zealand Bankers’ Association have set out the standards of good banking practice which they have agreed to observe when dealing with their customers. In paragraph 6.2 of the 2^nd edition the Code says that customers should ensure they are familiar with various matters including “when a cheque may become “stale” or “out of date”.” The glossary of terms used in the 2^ndedition of the Code at page 32 sets out a list of “cheques that a bank does not pay”. Item (iv) on the list reads “stale cheque – the cheque may not be paid because its date is too old or “stale” (normally more than six months).”
In context this reference to the period normally being six months must, we think, encompass two dimensions. The first is that the standard terms and conditions upon which banks operate in New Zealand generally specify six months as the time after which a cheque becomes stale. The second dimension is that the same period is also regarded as the default position, ie. the period which applies by custom and usage in the absence of any express contractual stipulation. The 3^rd edition defines a stale cheque as one which has not been presented “within a certain time, usually six months” from its date. The same two dimensions apply to this description which is not materially different from the previous one.
The approach taken by the Code of Banking Practice is the same as that referred to in all the recognised texts on banking law. The default position is consistent with the way in which the members of the New Zealand Bankers Association have agreed to deal with the matter expressly. It is logical that the universality of the express position should inform the default position. We therefore hold that, in the absence of any express term in the contract between bank and customer to the contrary, there is in New Zealand a term implied by custom and usage that banks are not bound to pay a cheque, presentment of which takes place more than six months after its date. In such circumstances the cheque is usually answered “out-of-date” or “stale” and the payee must approach the drawer for payment by agreed presentation again, or by alternative means. Such an answer runs no risk of damaging the drawer’s credit.
The foregoing conclusion means that, subject to the evidentiary and foreign law points which we have deferred, we should proceed on the footing that for the purpose of s46(2)(c)(i) the drawee banks in the case of the cheques in question were not bound as between themselves and Thomas Cook to pay the cheques after six months had elapsed from their dates. As the cheques were all dated earlier than 1 January 1993, the six month period cannot have ended in any case later than 30 June 1993. Thus, if the money became payable by Thomas Cook as drawer when the cheques became stale, the money represented by the cheques must have remained owing for six years by 30 June 1999 at the latest. The Commissioner’s proceedings were commenced in June 2000. No suggestion was made that such commencement was premature. We do not therefore have to address the timing issues involved in s8 of the Unclaimed Money Act. It seems, however, that if these were unclaimed moneys, payment may not have been due to the Commissioner until 31 October 2000.
That said, the key present question is of course whether, upon the cheques becoming stale, their payees had to make demand of Thomas Cook as drawer to render the money they represented payable by Thomas Cook. That brings us to s47 of the Bills of Exchange Act which is in these terms:
47       Dishonour by non-payment
(1)       A bill is dishonoured by non-payment—
(a)      Where it is duly presented for payment and payment is refused, or cannot be obtained; or
(b)      Where presentment is excused and the bill is overdue and unpaid.
(2)       Subject to the provisions of this Act, where a bill is dishonoured by non-payment an immediate right of recourse against the drawers or indorsers accrues to the holder.
It is from this section that the concepts of actual and deemed dishonour, mentioned in para [13] above, derive: see Chalmers & Guest paragraph 1187 (page 379). A case which falls within paragraph (a) of subs (1) is a case of actual dishonour. A case under paragraph (b) is one of deemed dishonour.
For present purposes it is the concept of deemed dishonour which is in issue. There is something a little unreal in s47(1)(b) treating a case involving a stale cheque as leading to dishonour by the drawer, even if it is only deemed dishonour. It is usually through no fault of the drawer that the payee has allowed the cheque to become stale. Dishonour has a pejorative connotation which is certainly not appropriate in a case of deemed dishonour of the present kind. Nevertheless this is the way s47 is expressed and designed to work. A cheque is dishonoured by non‑payment under paragraph (b) of subs (1) where presentment is excused (ie. dispensed with) and the cheque is overdue and unpaid. The history of the terminology in this area shows that the expressions excused and dispensed with are used interchangeably: see Chalmers Bills of Exchange (7^th ed - 1909).
We have already seen that in the case of a stale cheque presentment is dispensed with when and because the bank is no longer bound to pay it. It is of course also necessary under s46(2)(c)(i) that the drawer have no reason to believe that the cheque would be paid if presented. There is no suggestion in this case that Thomas Cook had any reason so to believe. It is therefore appropriate to conclude that it had no such reason. Presentation of the cheques in question, subject always to the evidence and foreign law point, was therefore dispensed with.
The next question under s47(1)(b) is whether the cheques were overdue. The concept of a cheque or other bill of exchange being overdue does not fit easily with an on demand bill which is due, subject to presentation (ex hypothesi now dispensed with), from the time of its acceptance or, in the case of a cheque, from the time of its drawing and issue. As a cheque is due on that basis, albeit not payable until presentation, it must, we think, follow that a stale cheque should be regarded as overdue for the purpose of s47(1)(b). While the word “overdue” is not entirely apt in respect of a cheque which is, by definition, due on demand, a cheque which has become stale cannot be other than overdue for present purposes. If that were not so, s47(1)(b) could hardly apply to a stale cheque at all and this has never been suggested: see Chalmers & Guest (op cit) at paragraph 1193 (page 381). Furthermore, if a stale cheque were not overdue the holder would be unable to assert dishonour so as to qualify for damages in terms of s57.
The third requirement is that the overdue bill, here cheque, must be unpaid. It might be possible to argue, albeit Thomas Cook did not do so, that the concept of the bill being unpaid, as well as being overdue, involves the need for a demand to be made. The argument would be that the concept of a bill being overdue necessarily implies that the bill is unpaid and the use of the word “unpaid” was designed to introduce the need for a demand. We consider, however, that Thomas Cook was right not to pursue this argument because to do so would be to require the word “unpaid”, in its context, to bear an implication which we do not consider it was intended to bear. The need for the bill to be unpaid for s47(1)(b) purposes is no more than to make explicit what is already implicit in the word “overdue” – simply that you cannot have even deemed dishonour by non-payment unless the bill is in fact unpaid.

It follows therefore that when the cheques in question became stale, presentment was dispensed with and they were then overdue and unpaid. As a result the cheques were deemed to have been dishonoured by non-payment. The Commissioner has therefore successfully negotiated his way through ss46 and 47 to the point of being able to say, again subject to the reserved issues, that the cheques in question were all dishonoured by non-payment by 30 June 1993 at the latest.
What then is the effect of that conclusion on Thomas Cook’s liability to the various payees? Ordinarily notice of dishonour must be given to the drawer: s48(1). But notice of dishonour may be dispensed with: s50(2); and, as with presentment, notice of dishonour is dispensed with in terms of s50(2)(c)(iv) where the drawee bank is, as between itself and the drawer, under no obligation to pay the cheque. The change of wording from “not bound” in s46(2)(c)(i) to “under no obligation” in s50(2)(c)(iv) must be regarded as immaterial. The effect is the same. The drawee of a stale cheque is under no obligation to pay the cheque. Hence in the present case notice of dishonour was dispensed with by s50(2)(c)(iv).
The next relevant step is governed by s55(1)(a) of the Bills of Exchange Act, which says that the drawer of a cheque, by drawing it, engages that if it is dishonoured the drawer will compensate the holder (in the case of a cheque, the payee), provided that the requisite proceedings on dishonour are duly taken. In present circumstances, as we have seen, no dishonour proceedings were required. Thomas Cook, as drawer of the stale cheques, was therefore obliged upon their deemed dishonour to compensate the various payees. Section 57 says that the measure of damages for dishonour, and the damages are expressly deemed to be liquidated, shall be (i) the amount of the bill; (ii) interest; and (iii) expenses, if applicable. The scheme of these provisions is therefore that upon dishonour, actual or deemed, the drawer of a cheque must pay liquidated damages, as specified, to the payee. It must be said that, at least on the face of the relevant statutory provisions, there is little room for any implication that demand for the specified liquidated damages is a necessary pre-condition to their becoming payable. The express stipulation that the damages are deemed to be liquidated supports the view that demand is not necessary.
It is also difficult to see how, if notice of dishonour is dispensed with, as in present circumstances, it could reasonably be held that, while not expressly so stated, demand for payment of compensation for dishonour must be made. Under s55(1)(a) the drawer’s engagement (or, in other words, undertaking) to pay compensation on dishonour is conditioned only by the requisite dishonour proceedings having been taken. If such proceedings are dispensed with, the drawer’s undertaking to pay liquidated damages is not made subject to any other pre-condition. On ordinary principles, the drawer’s engagement or undertaking to pay liquidated sums on the occurrence of a certain event creates an immediate unconditional liability to pay those sums upon the occurrence of the event which, in the present case, is of course dishonour. We recognise these points are subsequent to the critical question whether demand is necessary for deemed dishonour of a stale cheque; but they do have some relevance as part of the overall statutory scheme in the light of which the critical question must be addressed.
It is against this background that we consider Ms King’s attractively advanced submissions for Thomas Cook. Counsel’s first argument relied on the point that cheques are payable on demand. We have already held that presentment is a necessary condition of payment of a live cheque. There is therefore some logic in the argument that an alternative form of demand is necessary in the case of a stale cheque, even though, as we have seen, presentment is then dispensed with. On the other hand, the fact that presentment is dispensed with militates against a substitute form of demand being necessary. Ms King’s next argument was advanced by reference to several points. Its culmination was that a stale cheque could not be regarded as due, and a fortiori could not be regarded as overdue, unless and until demand was made. The scheme of the Bills of Exchange Act was said to necessitate that conclusion. But, for reasons already traversed, we consider that, if anything, the scheme of the Act is opposed to the proposition that demand is necessary in respect of a stale cheque.
It is true that the word “overdue” in s47(1)(b) is somewhat awkward, as we have already observed. This point is noted in Chalmers & Guest (op cit) at paragraph 1193 (page 381). A bill payable on demand is, by s36(3) of the Act, deemed to be overdue for the purposes of that section when it appears on the face of it to have been in circulation for an unreasonable length of time. The reference to the face of the bill is of course a reference to its date. Although this stipulation as to when a demand bill is overdue, is made only for the purpose of s36, which concerns negotiation of overdue or dishonoured bills, we think it appropriate to conclude that a similar view should be taken with regard to the question when on demand bills are overdue for the purposes of s47(1)(b). While it is not apt to speak of cheques which are crossed “account payee only” being in circulation, it is entirely apt to equate circulation for an unreasonable length of time with non-presentation within a reasonable length of time for s47(1)(b) purposes. Furthermore, the proposition that, when presentment has been dispensed with, demand is still necessary to make an on demand bill due for the purposes of dishonour is not an easy one; the more so when the concept with which s47(1)(b) is concerned is of the bill being overdue.
Ms King made the further point that, as between Thomas Cook and the various payees, Thomas Cook did not and could not know the location of the payee, nor what entitlement the payee had to payment, because the cheque may never have been delivered to the payee by its customer. She also pointed out that in the light of their special crossing, the cheques could only be paid to and collected by a bank holding an account for the payee and Thomas Cook had no knowledge or means of knowledge of the identity of that bank. These logistical arguments have practical force but we do not consider they can stand against the relevant provisions and scheme of the Act.
Acceptance of Thomas Cook’s submissions would also result in what we consider would be an unintended and disadvantageous consequence. As Mr Goddard pointed out, if demand were necessary to trigger liability on a stale cheque, the drawer would, in the absence of demand, remain indefinitely at risk and would not be able to invoke the benefit of the relevant limitation provisions so as to bar recovery after the prescribed lapse of time. Theoretically the payee of a stale cheque could make demand of the drawer any number of years after the cheque became stale and then claim another six years for the issue of proceedings before the drawer could argue the claim was time-barred. Ms King sought to counter this point by saying that the drawer would still have the money and would not be prejudiced. The question of prejudice must, however, be looked at from the point of view of the general policy of limitation statutes. Their rationale is that it is generally regarded as inappropriate and prejudicial for a person to remain liable for claims which have become stale after whatever interval is selected for the type of claim in issue. The other side of the coin is that claims should be brought promptly.
We consider that the limitation consequences of Thomas Cook’s argument, disadvantageous as they would be for drawers generally, are a significant reason for holding that demand is not necessary to bring about the deemed dishonour of a stale cheque under s47(1)(b). Demand is not expressly required by the statute nor do we consider there is any clear and necessary implication requiring demand. Having carefully reflected on Ms King’s well made submissions, we are not persuaded that the words “overdue” and “unpaid” imply the need for demand when presentment has been dispensed with. In coming to this conclusion we recognise that some bills (eg. those payable at sight) do have a potentially open-ended consequence for limitation purposes. But that is inherent in their nature. It does not detract from our conclusion in respect of demand bills like cheques.
It is also material to note that upon deemed dishonour of a stale cheque the payee has an immediate right of recourse against the drawer: s47(2). Although that consequence occurs at a point in time subsequent to the critical issue, whether demand is necessary to create a situation in which the bill is overdue and there is a deemed dishonour, it is another feature of the overall statutory scheme which points away from demand being necessary. It can also be said that once presentment to the drawer’s bank is dispensed with, there is some analogy between a cheque which, by definition, is payable on demand and an on demand promissory note in respect of which the law is clear that actual demand is not necessary prior to the bringing of proceedings: see Byles 27^th edition at 29-05 (page 429) and the cases there cited, particularly Norton v Ellam (supra).
We are unable to view the Swiss Bank case, to which we have already referred for another purpose, as providing any support for Thomas Cook’s argument. The context of that case was materially different. The cases of Wirth v Austin (1875) L R 10 CP 689 and Cox & Walsh v Burton [1933] NZLR 249 to which Ms King referred, are not of any assistance either because in both those cases demand (in the latter case in the form of notice of dishonour) had actually been made, so the Court had no occasion to examine what the position would have been if that had not been so. As both counsel recognised, there are difficulties with the case of Re Bethell (supra) and we do not, with respect, consider it to be reliable authority for any proposition relevant to the present issue.
As a final point, we draw attention to the last sentence in the passage from the 27^th edition of Byles, cited in paragraph [24] above. The learned editors there say that when presentment for payment of a stale cheque is dispensed with a cause of action against the drawer “immediately” accrues to the holder, ie. the payee, who will have up to six years from that date to bring his action. There is no suggestion in that statement that demand is a necessary ingredient of the cause of action in that situation. Indeed the use of the word “immediately” suggests otherwise. No other text which we have consulted indicates a different view. And it is worth repeating that the Bills of Exchange Act, which is drawn in detailed and explicit terms, does not specify that demand is required.
For these reasons we accept the Commissioner’s second argument and hold that demand does not have to be made in order to cause a stale cheque, presentment of which is dispensed with, to be “overdue and unpaid” within the meaning of s47(1)(b) of the Bills of Exchange Act. It follows that the drawer of such a cheque is, without more, immediately liable to pay compensation to the payee in the form of liquidated damages as specified in s57. The dishonour by non-payment, of which s47 speaks, is in these circumstances a deemed dishonour. It arises by reason of the payee not presenting the cheque in a timely fashion, with the consequence that the drawee bank is no longer bound to pay it. Upon deemed dishonour the drawer’s liability to pay damages is an immediate and unconditional obligation and the money concerned must (for reasons we will address more fully below) be regarded as becoming payable at that time for the purposes of s4(1)(e) of the Unclaimed Money Act.

Was presentment dispensed with? – this case

This is the issue earlier deferred. Ms King argued that the Commissioner had not established that the drawee banks were no longer bound, as between themselves and Thomas Cook, to pay the cheques. We will proceed on the basis that this matter is, as Ms King submitted, one which falls for determination according to the law of the jurisdiction in which each relevant drawee bank is situated. However, as Ms King rightly accepted, when, as here, there is no evidence what that foreign law is, a New Zealand Court will take the view that the relevant foreign law is the same as that of New Zealand: Attorney‑General for England Wales v R [2002] 1 NZLR 91, 103 (paragraph [32]) (CA). We must therefore proceed for present purposes on the basis that each of the relevant overseas jurisdictions has a rule that, in the absence of agreement to the contrary, the drawee bank is not bound to pay a stale cheque. There is no evidence of any contrary agreement so the general rule must be taken as applying.
The second issue is when cheques are regarded as stale. Again there is no evidence of the relevant foreign law or of any express agreement between Thomas Cook and the foreign banks on that subject, so we must proceed on the basis of the New Zealand rule which, as we have earlier held, is that cheques become stale after six months have elapsed from their date. The Commissioner has therefore established, as earlier foreshadowed, that each of the cheques in issue became stale no later than 30 June 1993. Thomas Cook became liable to pay liquidated damages to the payees when deemed dishonour of the cheques took place no later than that date. The liquidated damages have therefore been owing for more than six years. The six year date is no later than 30 June 1999. The question remains, however, whether Thomas Cook’s liability to pay liquidated damages falls within the definition of unclaimed money upon which the Commissioner relies. To that point we now turn.

Unclaimed money situated in New Zealand?

Mr Harley argued that even if we accepted the Commissioner’s second argument, that did not mean that Thomas Cook was holding unclaimed money within the meaning of s4(1)(e) of the Unclaimed Money Act. There were two bases for that contention. The first was that Thomas Cook’s liability to pay liquidated damages to the various payees was not money so as to be within the phrase “any other money, of any kind whatsoever”. The second basis was that, even if Thomas Cook’s liability was “money”, it was not money “situated in New Zealand”, in terms of the definition of unclaimed money in s2 of the Act.
The word “money” is for legal purposes a word of notoriously variable and flexible meaning. The question is what Parliament intended it to mean in the Unclaimed Money Act. No definition was provided. The Act contemplates that money can either be “held” or “owing” (s5). The word “owing” suggests that a liability to pay money, thus rendering it owing, itself qualifies as money. The phrase “of any kind whatsoever” with reference to money suggests that Parliament was viewing the concept of money in wide terms. Clearly the Act envisages money as being more than cash in a money box.
Guidance can be gained from the list of what unclaimed money consists of set out in s4. Paragraphs (a), (b) and (c) of s4(1) refer to money on deposit with any holder. Paragraph (d) speaks of “money payable” on the maturity of a policy of life assurance. This category is important, not so much for its own sake, but rather as showing that Parliament envisaged that an obligation to pay money was capable of being within the concept of money for the purposes of the Act. In view of the way the Act is worded and its clear purpose to cast the net widely, we consider paragraph (e) of s4(1) must be regarded as encompassing any unconditional liability to pay a liquidated sum. Further than that it is not necessary to go in this case. On deemed dishonour Thomas Cook became unconditionally liable to pay to the payees liquidated damages (ie. the liquidated sums specified in s57 of the Bills of Exchange Act). For the reasons given, this liability comes within the expression “any other money, of any kind whatsoever” in s4(1)(e).
The remaining question is whether the “money” in issue is situated in New Zealand. Mr Harley responsibly accepted that if this point was reached it would be difficult to contend that the money was not situated in New Zealand. Thomas Cook’s obligation is an obligation which it is liable to discharge in New Zealand. That is where it, as obligor, is resident. It will be recalled that it has its registered office in Auckland. It is elementary law that an obligation of the present kind ordinarily falls to be discharged where the obligor/debtor resides. It must therefore follow that what we have found to be unclaimed money is money situated in New Zealand.

Third argument – the implied term issue

As the Commissioner succeeds on his second argument, it is unnecessary for us to address his third argument, put forward as an alternative, and based on the suggested implied term in the contract between Thomas Cook and its customers. We will say only that if it had been necessary to address this argument, we would have regarded it as unpersuasive, at least at first blush, if for no other reason than the difficulty of implying a term involving an indemnity on unspecified terms.

Conclusion

This case has traversed some interesting and difficult terrain in respect of which counsel were agreed there was no direct authority, in this or any other comparable jurisdiction. For reasons which were not put to Chambers J, the Commissioner has demonstrated that, contrary to the Judge’s conclusion, Thomas Cook does have an obligation under s8 of the Unclaimed Money Act to pay to the Commissioner whatever may be the correct total sum in respect of the cheques in issue.
The parties agreed that if they were unable to settle quantum, there should be an inquiry on the point before a Master of the High Court. Certain matters were raised concerning the way in which the inquiry should proceed, and the matters which would require attention or disclosure by Thomas Cook. On the basis that it should be possible for the parties to reach agreement on quantum, we propose to reserve the question of formal relief, with liberty to either party to apply to this Court for formal orders if that becomes necessary. It is sufficient for the moment to declare that Thomas Cook has a liability to the Commissioner to pay him the unclaimed money with which this judgment has been concerned. We record that in the circumstances of this case the Commissioner indicated interest would not be claimed.
The appeal is allowed to the extent that the judgment of the High Court is set aside. Leave is reserved as earlier indicated, and, as agreed, costs are also reserved. If any further matters need attention by this Court, they can be raised in the first instance by memoranda.

Solicitors

Crown Law Office, Wellington, for Appellant

Russell McVeagh, Auckland, for Respondent

[2003] NZCA 38

3 March 2003