#6888 - National Bank Of New Zealand V. Waitaki - Restitution of Unjust Enrichment BCL

National Bank of New Zealand v. Waitaki

Facts

Waitaki was a customer of the appellant (the bank). Following deregulation in late 1984, Waitaki became involved in foreign currency transactions. The bank adopted certain procedures for the operation of foreign currency transactions and the relevant aspects of these were made known to Waitaki, in particular to its then treasurer Mr Nichols. In 1986 large numbers of transactions took place, which coupled with the need for immediate processing meant that the procedures were, as Gallen J put it honoured more in the breach than the observance.

It was common for Mr Nichols over this period to operate in blocks of US$500,000. On 12 June 1986 he purchased from the bank a sum of US$500,000 on what is described as a spot transaction. A transposition error in respect of this purchase was made by the bank, and on 20 June Mr Nichols advised the bank that Waitaki's account had been debited with this amount when it should have been credited.

The bank made a correction, but subsequently when attempting to reconcile its account with Lloyds Bank in New York, concluded that it had retained a sum of US$500,000 which was the property of Waitaki. As a result the bank sought payment instructions from Waitaki, and Mr Nichols said that over a period of some three months he had discussions with bank personnel, maintaining throughout that the fund was not the property of Waitaki. Gallen J accepted the substance of Mr Nichols' evidence in this respect. In the end Mr Nichols agreed to take the sum concerned, but realised that at some time in the future the bank was likely to appreciate the correct position and seek a refund. He therefore decided to place the fund in such a way that it would be available if Waitaki was later faced with a demand for repayment. The fund was deposited with a finance company called AA.

In late 1987 the bank, in the course of carrying out reconciliations, discovered that it was US$500,000 short and concluded that this represented an unpaid debt from Waitaki. This was disputed by Waitaki, and as a result the bank carried out extensive investigations and eventually in January 1990 ascertained that there was no debt owed by Waitaki, but that a sum of that amount had been erroneously paid to Waitaki in the transaction of 28 October 1986.

Meantime in mid-1987 Mr Nichols had advised Mr Frost of AA that the deposit represented by the US$500,000 would be required. Funds were purchased for this purpose, but never became available to AA which went into liquidation. For reasons which are not entirely clear, the security was worthless to Waitaki with the result that the whole of the fund was lost, at the latest by June 1988.

Holding

Thomas J (Majority)

Section 94B does not apply – Waitaki did not rely on the validity of the payment

I respectfully differ from Henry J in that I do not consider that s 94B applies to the present situation. While I accept that Waitaki received the payment in good faith, I cannot accept that the company “altered . . . [its] position in reliance on the validity of the payment” as required by the section. To reach this conclusion it is necessary to place an unduly strained meaning on the words ``the validity of the payment''. Nor do I consider that it can be said that Waitaki altered its position as contemplated by the section.

When, as in this case, the recipient is aware of the mistake, it is not possible to say that he or she has acted in reliance on the validity of the payment.

Waitaki’s knowledge does not amount to lack of good faith

Neither Waitaki's knowledge of the mistake nor the difficulty in identifying how it changed its position in reliance on the validity of the payment present a problem in the application of this equitable principle.

If justice is to be done, it cannot be accepted that knowledge will be invariably fatal. As Professor Birks has stated, care is to be taken not to assume that the recipient's knowledge, even actual knowledge, of the defect in his entitlement will be decisive in itself. See Peter Birks, “Change of Position: The Nature of the Defence and its Relationship to Other Restitutionary Defences” in Restitution: Developments in Unjust Enrichment, M McInnes (ed), (1996), at p 59. In a further comment, which I endorse without qualification, this eminent academic said:

“There are situations in which, despite that knowledge, the recipient's conscience will be absolutely clear and his behaviour absolutely reasonable. Though the recipient knows that he is not entitled he may have been led to believe that he must apply what he has received in a particular way.”

The essential point is that, notwithstanding his or her knowledge, the recipient's conscience is clear. Recognising this factor as the key factor is consistent with the equitable principle and the application of that principle when granting relief. Thus, in this case, Waitaki more than once pointed out the mistake to the bank and accepted the money only after the bank insisted that it was due. There is no reason why Waitaki's conscience should be troubled by its response to the bank's insistence.

Detrimental reliance is not necessary

With respect to the change of position, it is apparent that Lord Goff of Chieveley's broad formulation of the equitable principle is not restricted to circumstances where the recipient actually alters his or her own position. It is enough that circumstances have changed. In this respect it is to be noted that the American Restatement of the Law of Restitution (1937), §142, requires only that “circumstances have so changed'' that it would be inequitable to require full restitution. This formulation is obviously superior. Thus, if money or property which has been paid or transferred to an innocent recipient is stolen, fraudulently appropriated, lost, or destroyed, there will be a change of circumstances which makes full restitution inequitable, but which will not have come about as a result of anything the recipient has done in reliance on the payment or transfer. Circumstances such as these obviously should be embraced within the concept. In this case, I agree with Gallen J that it was the collapse of the company which held the money on investment that amounts to a change in circumstance. It is only the loss of the money as a result of that development which prevents full restitution being made.

Minority

Knowledge does not equate to bad faith

In support of his submission as to the absence of good faith Mr Dalkie relied on the fact that Mr Nichols, and therefore Waitaki, knew that the money did not belong to Waitaki. In the unusual circumstances of this case I do not think it can be said that Mr Nichols was acting in bad faith. The Judge's findings of fact all point to the...