Westpac Banking Corporation v Commissioner of Inland Revenue

[2009] NZCA 376

IN THE COURT OF APPEAL OF NEW ZEALAND

CA741/2008
[2009] NZCA 376

BETWEENWESTPAC BANKING CORPORATION

First Appellant

ANDBANK OF NEW ZEALAND LIMITED

Second Appellant

ANDANZ NATIONAL BANK LIMITED

Third Appellant

ANDCOMMISSIONER OF INLAND REVENUE

Respondent

Hearing:19 August 2009

Court:William Young  P, Robertson and Baragwanath JJ

Counsel:J S Kós QC, J D Every-Palmer and A A O'Rourke for Appellants

D J Goddard QC and H L Dempster for Respondent

Judgment:26 August 2009 at 10 am

JUDGMENT OF THE COURT

A        THE APPEAL IS DISMISSED.

BThe appellant is to pay costs to the respondent in terms of [26] and [27] of this judgment.

____________________________________________________________________

REASONS

William Young P and Robertson J  [1]
Baragwanath J   [28]

WILLIAM YOUNG P AND ROBERTSON J

(Given by Robertson J)

Introduction

[1]       This appeal relates to the meaning and effect of the Unclaimed Money Act 1971 (“UMA”).

[2]       In the High Court hearing in June 2008 (CIV 2006-485-2448) the issue was whether, in respect of bank cheques and drafts which for whatever reason are not presented for payment, the issuing banks are the holders of unclaimed monies under s 4(1)(e) of the UMA.  MacKenzie J was satisfied that they were, made declarations accordingly and entered summary judgment against the appellants.

[3]       He held that the decision of the Privy Council in Commissioner of Inland Revenue v Thomas Cook (New Zealand) Limited [2006] 2 NZLR 722 (PC) was dispositive of the case, but in deference to the arguments which had been presented went on to consider the case independently of the Privy Council decision. He reached the view that the outcome would be the same.

[4]       The appeal to this Court was against both limbs of the High Court decision and comprehensive and detailed submissions were filed by each party.

[5]       At the commencement of the appeal hearing, we indicated to Mr Kós QC that he needed first to address the effect of the Privy Council decision in Thomas Cook, and we heard his argument on its precedental effect.  We indicated that it appeared that the factual differences between Thomas Cook and the present case may not be material and that if that were so, and Thomas Cook were binding, it would dispose of the appeal.

[6]       Mr Kós realistically accepted that if we reached the conclusion that Thomas Cook was decided correctly, then we would inevitably apply it to the present facts.  However, he invited us to decline to follow it.  We are of course bound by the judgment (and thus in effect to conclude it was correctly decided) unless it is open to us to treat it as having been decided per incuriam. In the balance of this judgment we will address the primary arguments advanced to us by Mr Kós as to why we should not follow the Privy Council decision.

Alleged incorrect legal or factual assumptions as to the liabilities of the drawer of a bill of exchange

[7]       Mr Kós submitted that the Privy Council had proceeded on mistaken assumptions as to the legal liabilities of the drawer of a bill of exchange.

[8]       There was, in the Thomas Cook case, an agreed statement of facts which was summarised in the Court of Appeal’s judgment ([2003] 2 NZLR 296):

[5]       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 US$1,200,732.15.  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.

[6]       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.

. . .

[8]       . . .  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.

[9] Chambers J in the High Court ([2002] NZAR 625) had held that the drafts in question were bills of exchange in terms of s 3 of the Bills of Exchange Act 1908. He found it was an established norm of New Zealand law that bills “must be duly presented for payment” before they become payable and that, without presentment, no money was payable. Therefore he concluded that the money at issue was not unclaimed money.

[10]     The Court of Appeal reached its conclusion in Thomas Cook on a basis which had not been put to Chambers J.  As in the High Court, the Court of Appeal also held that demand by presentment was a necessary pre-condition of a liability to pay, but by reference to the provisions of the Bills of Exchange Act 1908 the Court found that this requirement had been dispensed with and accordingly there was an obligation under s 8 of the UMA.

[11]     When Thomas Cook appealed from that decision, the case in the Privy Council took on a very different complexion.  Their Lordships were unanimous and unequivocal in the view that the monies unclaimed under the drafts were, for the purposes of the Act, owing and payable from the date of issue.  They held that it mattered not whether the draft could ever have been sued upon without a demand being made, whether before or after they became stale.

[12]     The Privy Council held that “payable” meant no more than legally due if demanded, and that no demand need actually have been made, nor any cause of action in fact have accrued.  The record makes it clear that this approach arose only in the course of argument and was instigated by the Their Lordships themselves.

[13]     In the instant case, the instruments in question are foreign currency drafts and New Zealand currency bank cheques issued by the banks in the course of their business which are not presented for payment.  MacKenzie J undertook an exhaustive discussion of the particular instruments, but we are not satisfied that there is anything about their form, use or practice which materially differentiates them from the instruments in Thomas Cook, and therefore there is no basis to depart from the underlying determination of principle in that case.

[14] We are unable to accept the appellants’ submission that the Privy Council was unaware of the true nature of the instruments that were the subject of the proceedings before it. Their judgment records the Court of Appeal summary set out in [8].

[15]     Their Lordships’ approach to the case is apparent from the early interchange which took place between counsel for Thomas Cook and the Bench and which is reported at 723:

LORD MILLETT:  The money is in the hands of a creditor who must pay it if demanded.  If it is not demanded, the creditor doesn’t have to pay.  The Act says it must be handed over to the Crown.  The appellant seems to be saying that the section does not bite where the only reason the money has not been paid is because it has not been claimed.  That makes a nonsense of the Act.  What is unclaimed is not the cheque but the debt.  The key question is the meaning of “payable” in the context of whether six years have expired, if it has not been claimed.

[16]     We are satisfied that Their Lordships fully comprehended the nature of the instruments involved, but were of the view that, whereas in the New Zealand Courts attention had been directed to novel and difficult questions concerning presentment of cheques and their dishonour, this was fundamentally a case about the UMA.  The definitions contained in s 4(1) had to be read within the context of that legislation and not as an adjunct to the Bill of Exchange Act 1908.

[17]     Their Lordships’ assessment at [17] is clearly not dependant upon, or influenced by, refinements as to the legal form or nature of the instruments in terms of bank law:

... The moneys unclaimed under these Thomas Cook drafts were for the purposes of the 1971 Act owing and payable from their date of issue and it matters not whether the drafts could ever have been sued upon without a demand being made, whether before or after they became stale.

Absence of full argument on present liability to pay

[18]     Although it is apparent that the basis upon which the case was decided in the Privy Council arose for the first time in that Court, the record demonstrates (and Mr Goddard QC who was counsel there confirms) the position was as recorded at [5]:

...  It was only in response to Their Lordships’ promptings that the Commissioner finally submitted that “payable” means no more than legally due if demanded, it being quite unnecessary that any demand should actually have been made or that any cause of action should in fact have accrued.

[19]     We do not accept that the Privy Council’s decision was reached without proper argument.  The deciding argument was unquestionably a late starter, but its metes and bounds were discussed, assessed and adjudicated upon.

Alleged assumption that the obligations of Thomas Cook were within s 4(1)(e)

[20]     On the reasoning of the Privy Council, for the purposes of the UMA, the amounts for which the bank cheques and the bank drafts were drawn are “money” within the meaning of s 4(1)(e) and were owing and payable from the date of issue to the banks’ customers.

[21]     Mr Kós submitted that this was a mere assumption on the part of the Privy Council and not binding on us.

[22]     We disagree.  This particular issue had been live in the Court of Appeal and was resolved against Thomas Cook there.  While the point was not in dispute in the Privy Council, the conclusion that the obligations of Thomas Cook were money for the purposes of s 4(1)(e) was a necessary part of the ratio of the case and is binding on us.

The statutory history of the UMA

[23]     Mr Kós complained that the course events took in the Privy Council meant that the statutory history of the UMA was overlooked. He particularly claimed that amendments made in 1932 to the Unclaimed Money Act 1908 showed that the legislature at that time assumed that the word “payable” in the precursor to s 4(1)(e) was to be construed in the manner contended for by the banks in this case and that this should be taken as controlling the interpretation of s 4(1)(e).

[24]     As a matter of statutory interpretation, the argument of Mr Kós has some apparent merit. It does, however, face the problem that a fuller analysis of the statutory history shows that the 1908 Act and earlier 1898 Act both contained schedules which indicate very clearly that the word “payable” in the precursors to s 4(1)(e) in those statutes was used in the sense which the Privy Council later ascribed to it.  If the legislature in 1932 made a mistake (which is certainly possible), that mistake does not control the way in which s 4(1)(e) is to be interpreted, see R v Henderson [1990] 3 NZLR 174 (CA).

[25]     The overlooked statutory history thus provides too frail a premise for us to be able to conclude that the Privy Council judgment was decided per incuriam.

Result

[26]     The appeal is dismissed.  Costs should follow the event in the normal way.  We agree with counsel that this is to be classified as a complex appeal for the purposes of r 53B which warranted specialised counsel from the commercial bar.  It is appropriate for there to be an uplift from the normal value recovery rate of 50 per cent as provided for in r 53C(1)(b).

[27]     Mr Goddard responsibly accepted that the reasonable time for preparing the appeal should be assessed for the purposes of r 53D as band A as the facts were in a narrow compass and the issues well defined.  We certify for second counsel.

BARAGWANATH J

[28]     I agree with the judgment prepared by Robertson J.  I would add, in case the matter goes further, that in my respectful opinion the decision of the Privy Council was right.  That is because it recognised that its task was to construe not the Bills of Exchange Act 1908 but the UMA.  One does not reach the Bills of Exchange Act.

[29]     “Unclaimed money” is defined by s 2 of the UMA as meaning:

unclaimed money within the meaning of section 4 of this Act, being unclaimed money situated in New Zealand.

Section 4 states that:

(1)       Subject to this section, unclaimed money shall consist of—

(a)Money, including the interest or any amount in the nature of interest thereon, deposited with any holder so as to bear interest for a fixed term, which has been in the possession of the holder for the period of 6 years immediately following the date of expiry of the term:

(b)Money, including the interest or any amount in the nature of interest thereon, deposited with any holder so as to bear interest—

(i)       Without limitation of time; or

(ii)For a fixed term where, on the expiry of the fixed term, the money, if it is not withdrawn by the customer, is to be treated as reinvested,—

where in either case the customer has not operated on the account for a period of 25 years, whether by deposit, or withdrawal, or instruction in writing:

(c)Money deposited upon current account or otherwise with any holder and not bearing interest, where—

(i)In any case where the holder is a savings bank, the customer has not operated on the account for a period of 25 years, whether by deposit, or withdrawal, or instruction in writing; and

(ii)In any other case, the customer has not operated on the account for a period of 6 years, whether by deposit, or withdrawal, or instruction in writing:

(d)Money payable or distributable on or in consequence of the maturity of a policy of life assurance, being money which has been in the possession of any holder for the period of 6 years immediately succeeding the date on which—

(i)       The policy matured otherwise than by death; or

(ii)The holder first had reason to suppose that the policy has matured by death, whether such death has been legally proved or not,—

whichever date is the earlier, and notwithstanding that by the terms of the policy the money is not payable or distributable except on proof of death, or on proof of age or any other collateral matter:

(e)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:

[30]     It is the italicised passage that is of immediate relevance.  But the earlier clauses show that the “unclaimed money” to be accounted for by payment to the Commissioner on behalf of the Crown is:

(a)       in s 4(1)(a) to (c) money received by the bank

(b)in s 4(1)(d) money due under a life policy, which is the fruit of the premiums and is tantamount to money received by the institution.    

[31]     Where, as here, the bank has likewise received money ([34-5] below), that receipt falls within the general policy of s 4(1)(a) to (d) which impose on the bank an obligation in rem to pay the money to the Commissioner rather than pocket a windfall.  It may be expected that the case where the bank has received money for a purpose which has failed – namely to pass the benefit of the funds to another  – does not depart radically from that concept.

[32]     Such construction is supported by the definitions.  “Holder” in relation to any unclaimed money is defined by s 2 as meaning “a holder within the meaning of section 5”, which expressly includes banks:

(1)       This Act shall apply to unclaimed money held or owing by the following holders:

…

(c)       Any bank… carrying on business in New Zealand:

[33]     Owner is defined by s 2 in relation to any unclaimed money as meaning:

…       the person entitled to the unclaimed money; and includes any other person claiming under or on behalf of that person:

That definition is very broad.

[34]     While “money” is undefined, in Thomas Cook this Court gave it too a broad construction, which was not challenged before the Privy Council:

[62]     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 Act. No definition was provided. The Act contemplates that money can either be “held” or “owing” (s 5). 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.

[63]     Guidance can be gained from the list of what unclaimed money consists of set out in s 4. Paragraphs (a), (b) and (c) of s 4(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…

[35]     Such broad meaning is captured by the Oxford English Dictionary (“OED”) in its definitions of “money” which include “b… A monetary amount or sum applied to a particular purpose or in the possession of a particular person.”

[36]     The remaining question is the meaning of the words “owing” and “payable”, as is clear from s 4(1)(e):

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: [emphasis added]

[37]     Each has a wider and a narrower meaning. “Owing” is defined by the OED“: 2. a. Of a sum of money, etc.: that is yet to be paid or rendered; owed, due (to a person or thing).”  “Yet to be paid” and “due” are related but different concepts.  The former embraces the Commissioner’s contention; the latter the banks’.

[38]     The OED likewise gives two relevant senses to “payable”:

One is “1. a. Of a sum of money, bill, tax, etc.: that is to be paid; due, owing; falling due (at or on a specified date, or to a specified person).”

The other is “b. That can be paid; capable of being paid…”

The former is the sense contended for by the banks: which must be paid without more.

The latter is a looser sense: able to be paid.

[39]     The Commissioner proposes the intermediate sense adopted by the Privy Council: which must be paid even if demand is first required, an element of which is capable of being paid.

[40]     Here the banks hold a monetary amount which is both capable of being paid and yet to be paid to another party: either the person intended to benefit by the bank cheque or draft or, if for any reason that is not feasible, the customer who provided the funds for the purpose of conferring such benefit.

[41]     The banks’ argument, that money unclaimed after the period stipulated in s 4 should become a windfall in the hands, would defeat the Act’s policy expressed in s 4(1)(a) to (d) that it should not benefit the holder but should pass to the Crown either to discharge the holder’s obligations or for the benefit of the community as a whole.  In terms of s 5 of the Interpretation Act 1999 there is no reason why (e), which textually can be construed to like effect to (a) to (d), should receive a purposive construction to different effect.  It follows that the broader and not the narrower construction of “owing” and “payable” must be adopted.

[42]     The task of identifying the owner is no business of the bank.   Its task, as holder, is simply to pay the money to the Commissioner when the terms of s 4 are met.  It may not say “but the terms of the Bills of Exchange Act as to when a bill of exchange is payable are not met”.  That is because:

(a)       the statute under consideration is the Unclaimed Moneys Act;

(b)       it uses “payable”, and “owing”,  in the wider sense.

[43]     In summary, where a bank has issued a cheque on its own account but the cheque is unpresented, possibly because it has been destroyed, the bank is the holder of the funds paid to it for the issue of the cheque.  The same is the case where the bank receives funds and uses that credit to arrange equivalent accommodation for a foreign bank to issue an overseas draft.  The question who is the owner – “… the person entitled to the unclaimed money” – is not stipulated but left to the general law which includes the UMA.  Construed in that light, the legal right to benefit from those funds may be held either by the person who owns the cheque or, on a Quistclose trust, by the original purchaser of the cheque: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; DFC (NZ) Ltd v General Communications Ltd [1990] 3 NZLR 406 (CA). It was not the customer’s intention that it should reside with the bank. Nor does the Act ascribe such intention to Parliament.

Solicitors:
Russell McVeagh, Wellington, for Appellants
Crown Law Office, Wellington, for Respondent