Westpac Banking Corporation and Ors v The Commissioner of Inland Revenue

• Jurisdiction: New Zealand
• Judge: McGrath J
• Judgment Date: 07 April 2011
• Neutral Citation: [2011] NZSC 36
• Docket Number: SC 83/2009
• Court: Supreme Court
• Date: 07 April 2011

Between

Westpac Banking Corporation

First Appellant

And

Bank of New Zealand

Second Appellant

And

ANZ National Bank Limited

Third Appellant

and

The Commissioner of Inland Revenue

Respondent

[2011] NZSC 36

Court:

Elias CJ, Blanchard, Tipping, McGrath and Anderson JJ

SC 83/2009

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against decision of the Court of Appeal that unpaid moneys in relation to foreign currency drafts and bank cheques were unclaimed money under Unclaimed Money Act 1971 and were payable to respondent — meaning of “unclaimed money” under s4(1)(e) Unclaimed Money Act 1971 — whether money was owing and payable by the bank — whether a contingent liability to pay money can be defined as “money”.

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

• A The appeal is dismissed.

• B The appellants are ordered to pay the respondent costs of $15,000 together with reasonable disbursements to be fixed if necessary by the Registrar.

JUDGMENT OF THE COURT

REASONS

(Given by McGrath J)

Introduction

1 The question in this appeal is whether the provisions of the Unclaimed Money Act 1971 apply to sums of money that are to be paid under certain financial instruments issued by the three appellant banks. The financial instruments concerned are foreign currency drafts and bank cheques which have not been presented for payment by payees within six years of their purchase. If the provisions of the 1971 Act apply, the appellants are required by the Act to record particulars of the unclaimed money arising over the past 12 months on a register and, if owners do not claim it, pay the money to the Commissioner of Inland Revenue.

2 In 2004, in Commissioner of Inland Revenue v Thomas Cook (New Zealand) Ltd, 1 the Privy Council held that the appellant company was liable to the Commissioner of Inland Revenue under the 1971 Act in respect of similar instruments, in that case referred to as “international cheques”. The appellants acknowledge that, in order to succeed in the present appeal, they have to persuade this Court that the Privy Council's reasoning was wrong and that the different reasons given in the judgment of the Court of Appeal in Thomas Cook 2 should be preferred.

Background facts

3 The appellants are banks. In the course of business, they issue foreign currency drafts (“drafts”) and bank cheques as a means for their customers to make payments. A draft is a direction by the drawer, a New Zealand bank, to the drawee, a foreign bank, to pay on presentment an amount denominated in a particular foreign currency. Payment must be made to the payee named in the draft, or in some circumstances its indorsee, on presentment. A draft is a bill of exchange in terms of the Bills of Exchange Act 1908. A bank cheque is a form of promissory note by which the drawer, a New Zealand bank, promises to pay a stipulated amount denominated in New Zealand dollars to the named payee, or its indorsee, on

presentment of the draft. The cheque is drawn by the bank against its own account. A bank cheque is not a bill of exchange. Under both instruments the named payee, in most cases, is not the customer of the bank who purchased the draft or bank cheque

4 The typical procedure involves a customer requesting from a New Zealand bank a draft for a specified amount in a stipulated currency to effect payment for an overseas transaction. The New Zealand bank will draw a draft on a drawee bank at the place where payment is to be made and make the draft available to the customer on receipt of payment, in New Zealand currency, covering the face value of the draft plus fees. The drawee bank will be one with which the New Zealand bank has an account, or has made other arrangements to provide funds, from which the drawee makes payment of the draft.

5 Payees present drafts for payment to the drawee bank, normally using the services of payees' own banks to collect the money. In the great majority of cases, a draft will be presented and paid within a short time of issue. Drawees, in general, pay drafts whenever they are presented, regardless of their age. If they decline to do so on the grounds that the draft is stale the New Zealand bank will, on request, issue a new draft.

6 Arrangements in respect of bank cheques are broadly the same but none of the appellants will dishonour a bank cheque, if presented, solely on account of its age.

7 The evidence is that a very small minority of drafts and bank cheques are never presented for payment. It is these instruments that the respondent, the Commissioner of Inland Revenue, contends give rise to “unclaimed money” under the 1971 Act. The Commissioner argues that once they have remained unpresented for six years following the date of purchase, the provisions of the 1971 Act apply.

Unclaimed Money Act 1971

8 The 1971 Act applies to “unclaimed money held or owing” by stipulated holders. 3 Such holders include companies incorporated in New Zealand and companies and banks carrying on business in New Zealand. 4 It is common ground that the appellants are holders under the Act. Holders are required on 1 June of each year to enter on a register particulars of unclaimed money arising during the previous 12 months. 5 They are also obliged to notify owners of unclaimed money entered on the register, at their last known address, of the money they are holding and that it is unclaimed money. 6 If, within four months of entry on the register, the owners do not claim the unclaimed money, the holders must pay it to the Commissioner. 7

9 Central to the obligations of holders is the definition of the term “unclaimed money” in s 4 of the Act, which relevantly provides:

4 Unclaimed money

• (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:

  • …

• (2) Unclaimed money shall not include-

  • (a) Any dividends, not being dividends payable by a mutual association in relation to money deposited with the association, payable by a company to any of its shareholders:

  • (b) Any rebate payable by a mutual association (other than a holder of the kind referred to in paragraph (f) of subsection (1) of section 5 of this Act) to any of its members in relation to the trading transactions of the member with the association, not being a rebate payable in relation to money deposited with the association:

  • (c) Any benefits payable from any pension or superannuation fund.

…

10 Unclaimed money is defined in the Act in terms that confine it to unclaimed money situated in New Zealand. 8

11 The question the Court has to decide is whether the moneys represented by drafts and bank cheques that remain unpresented after six years from their purchase become unclaimed money in terms of s 4(1)(e). The focus of argument accordingly is on whether from the time of purchase by customers of the instruments concerned money is “owing” and “payable” by the bank, within the meaning of s 4(1)(e). If so, six years thereafter, it becomes unclaimed money.

12 The Court of Appeal 9 and the High Court 10 took the view that they were bound by the Privy Council judgment and upheld the Commissioner's contentions.

The Thomas Cook case

13 It is convenient at this stage to refer to the judgments in the Thomas Cook case as they illustrate the different approaches that the parties in the present appeal take to the 1971 Act.

14 The Thomas Cook case concerned instruments referred to in the proceedings as international cheques or international drafts. The documents specified a payee, an amount in foreign currency and the foreign bank which was to make payment to the payee. The instruments were not presented for payment within six years of their purchase and issue.

15 In the High Court, 11 the Commissioner contended that, in these circumstances, the money held by Thomas Cook had become “payable” under s 4(1)(e) of the 1971 Act. He...