Westpac New Zealand Ltd v Ma

JurisdictionNew Zealand
CourtSupreme Court
JudgeTipping J
Judgment Date16 August 2011
Neutral Citation[2011] NZSC 89
Docket Numbersc 98/210
Date16 August 2011

[2011] NZSC 89



Elias CJ, Blanchard, Tipping, McGrath and William Young JJ

sc 98/210

Westpac New Zealand Limited
Map & Associates Limited

R B Stewart QC for Appellant

B D Gustafson and K A Van Houtte for Respondent

Appeal from Court of Appeal decision that bank was in breach of its mandate by refusing pay out money to respondent in accordance with respondent's instructions — bank suspected it would have been dishonestly assisting in the commission of a breach of trust — overseas transaction involving Bolivian and Venezuelan banks — whether a bank could defend a claim for breach of mandate on a suspicion.

The issue on appeal was whether a bank could defend a claim for breach of mandate on any basis short of establishing that it would actually have incurred liability for dishonestly assisting in the commission of a breach of trust (or other wrongful action), or, whether a lesser standard based on a reasonable belief, suspicion or concern was sufficient.

Held: The starting point was that as a matter of contract, a bank's clear initial duty was to act in terms of its customer's intentions ( US International Marketing Ltd v National Bank of New Zealand Ltd). Too ready or easy an undermining of that obligation would introduce inconvenience and uncertainty into a fundamental commercial relationship. To allow a bank to justify a breach of mandate by demonstrating a suspicion or a belief, even on reasonable grounds, would significantly lower the threshold on which the bank could decline to act, which would be inconsistent with the need for security of contract in this area.

Westpac had never endeavoured to establish that if it had acted on MAP's instructions it would actually have become liable to such an action. There was no evidence that any breach of trust had been involved. Acceptance of Westpac's submission would leave a customer bearing the loss when there was in fact no problem with their instructions. Banks were in the business of receiving customers' money and using it to their advantage. The risks involved were inherent in their business. A customer should not a bear a loss occasioned by a breach of mandate unless the breach was justified because the bank would actually, rather than potentially, incur liability by acting on the instructions.

If a bank decided not to pay, it took upon itself the burden of proving the fraud. The point of principle did not depend in the nature of the contract which gave rise to the bank's liability to pay. Although letters of credit could be distinguished from a bank's general duty to its customer, for policy reasons, a bank should not have a non-contractual defence short of proving that payment as directed by the customer would actually have given rise to liability for dishonest assistance.

Westpac could not show that any breach of trust would have actually occurred had it followed MAP's instructions and had no defence to a clam for a breach of mandate.

Appeal dismissed.

  • A The appeal is dismissed.

  • B The appellant is to pay the respondent costs in the sum of $15,000.00 plus disbursements to be fixed, if necessary, by the Registrar.


(Given by Tipping J )


The appellant bank (Westpac) declined to pay monies standing to the credit of the respondent (MAP) in accordance with MAP's instructions. Prima facie it thereby breached its mandate. When sued by MAP for breach of mandate, Westpac raised as a defence the proposition that it had good reason to be concerned that if it had paid in terms of MAP's instructions, it would have been dishonestly assisting in the commission of a breach of trust. Westpac's contention is that its belief that it was vulnerable to a claim for dishonest assistance should be recognised as a valid defence to MAP's claim for breach of mandate. That, very shortly and broadly put, is the compass of this appeal.


The issue is whether a bank can defend itself against a claim for breach of mandate on any basis short of establishing that it would actually have incurred liability for dishonestly assisting in a breach of trust (or other wrongful conduct) by acting on its customer's instructions. 1 MAP contends that nothing less will suffice as a defence. Westpac contends that banks should not have to go so far in order to have a good defence. The precise nature of Westpac's proposed defence was the subject of some reconsideration and discussion during the course of the hearing. Various formulations were advanced, including reasonable or well-founded grounds for suspicion, or for belief, or for concern that the bank would or might be involved in dishonestly assisting in a breach of trust.


The significance of the issue is that Westpac has never endeavoured to establish that if it had acted on MAP's instructions it would actually have become liable to an action for dishonestly assisting in a breach of trust. There was no evidence that any breach of trust was involved. Hence Westpac cannot and does not contend that by acting on MAP's instructions it would actually have assisted any such wrongdoing, whether dishonestly or not.


As we are of the view that MAP's submission on this point should be accepted, Westpac's claim to have a defence to the proceeding for breach of mandate must fail. Its appeal is determined by the decision on the point of law. The factual background is therefore of no moment. It is, however, desirable to sketch that background in outline so that the legal discussion that follows has some factual context. A fuller reference to the facts can be found in the report of the case in the Court of Appeal. 2 The outline which follows is taken largely from the headnote to that report.

Factual background

Some 20 or so shareholders in a small privately-owned Bolivian bank known as Prodem wished to sell their shareholdings, which together comprised 94 per cent of Prodem's share capital. A Venezuelan bank, which can be referred to for short as BIV, was identified as a potential purchaser. In due course the shareholders entered into an agreement with BIV for the sale and purchase of their shareholding. MAP, which is a New Zealand firm of chartered accountants, agreed to act as deposit agent for the transaction and to hold the purchase monies in escrow until due diligence had been carried out and the sale was settled. MAP therefore opened, in its own name, a foreign currency account with Westpac. It provided Westpac with information about the transaction and the parties involved.


In December 2006 MAP supplied Westpac with a sealed envelope containing instructions to action specified transfers of money. Westpac was instructed to open the envelope and implement the transfers once it had received authority to do so from MAP. Sums totalling almost US$50m were paid into the account opened by MAP to be held under the escrow arrangement. Westpac did not receive instructions from MAP to disburse the funds until February 2008. It is not necessary to discuss the reasons for this delay.


BIV had in the meantime assigned its rights in the transaction to another bank called Bandes. On 31 January 2008 MAP gave Westpac another sealed envelope containing replacement instructions. Westpac was again instructed to open the envelope and execute the transfers in accordance with the latest instructions when it received authority from MAP to do so. On 26 February 2008 MAP instructed Westpac to act on the latest instructions. By this time Westpac had, for various reasons, become concerned about the transaction. Its concern, as outlined in this Court, was primarily that the money it was holding was in substantial part to be paid out to people or organisations who appeared not to be shareholders and it was unaware of the basis upon which they were to receive payment. It asked for further information and clarification of certain matters. On 2 March 2008 it was given a copy of a communication from a Mr Anker, who held a power of attorney from the selling shareholders, confirming that the transfer instructions were in accordance with their wishes. Westpac was nevertheless unwilling to act on the instructions supplied to it and instead invited MAP to apply to the High Court.


MAP applied to the High Court, seeking an order that Westpac carry out its instructions and also seeking compensation by way of interest on the sum withheld, and costs. The High Court made an order, unopposed, requiring Westpac to act on the instructions 3 and, subsequently and separately, determined that Westpac had no answer to MAP's claim for breach of mandate and that Westpac ought accordingly to pay interest and costs. 4


Westpac appealed against the interest and costs orders to the Court of Appeal. That Court held that it would have been dishonest for the bank to pay out until it received Mr Anker's communication on 2 March, but not thereafter. Hence interest should run from that date rather than 26 February, as fixed by the High Court. The Court's focus was on dishonesty. It appears that the Court was not directed to the underlying issue of whether there would have been a breach of trust involved in the payment instructions. Hence the Court did not address specifically whether the bank could have a defence in the absence of there actually being a breach of trust involved. But, because of its approach to the interest commencement date, the Court thereby implicitly held that to have a defence the bank did not have to prove all the ingredients of a cause of action. As the bank's submissions were developed in this Court they included the proposition that something less than the establishment of a cause of action would suffice.

The issue

It is worth emphasising that it is not necessary, in order to answer the single issue raised, to consider in any detail all the ingredients of the...

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