Unclaimed money – again
Table of Contents
A surprising number of bank cheques are never presented for payment. The New Zealand High Court was asked to consider the issue of whether funds held by banks to pay unpresented cheques are unclaimed money. It was further asked to consider the question on the basis that the Privy Council was wrong in Thomas Cook (New Zealand) Ltd v. Inland Revenue (New Zealand) [2004] UKPC 53. Remarkably, it did so in Westpac Banking Corp v Commissioner of Inland Revenue [2008] NZHC 1695.
1. Background
People forget about accounts. They are bad bookkeepers, they move to different places and don't receive notices, they become insane or demented and they die. All of these unfortunate facts of life mean that there are substantial sums of "unclaimed money" in the hands of companies.
Our legal system, in common with most others, has taken the view that unclaimed money should benefit the public purse rather than be a private windfall. Unfortunately, there is little consistency in the way that this policy is implemented. Each state and territory has unclaimed money statutes, and often more than one.
For an Authorised Deposit Taking Institution ("ADI"), the relevant statute is s 69 of the Banking Act 1959 (Cth).
…/*unclaimed moneys*/ means all principal, interest, dividends, bonuses, profits and sums of money legally payable by an ADI but in respect of which the time within which proceedings may be taken for the recovery thereof has expired, and includes moneys to the credit of an account that has not been operated on either by deposit or withdrawal for a period of not less than 7 years.
The phrase "sums of money legally payable" is typical of the phrases used in unclaimed money statutes to define the concept of unpaid money. It raises the obvious question of what it means to be "payable". It seems fair to say that it was generally thought that it referred to a debt which was due and which, if not paid, could be sued upon.
That general presumption was called into question in Thomas Cook (New Zealand) Ltd v. Inland Revenue (New Zealand) [2004] UKPC 53. The case concerned travellers' cheques. The cheques were not actually "payable" unless they were countersigned and presented for payment. According to evidence in the case, more than NZ$500,000 worth of cheques were not presented after a period of six years. The Commissioner of Inland Revenue sought to recover the sums represented by the unpresented cheques as "unclaimed money".
The relevant part of the New Zealand statute is s 4(1)(e) of the Unclaimed Money Act 1971 (NZ) (the "UMA"):
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 obvious argument on behalf of Thomas Cook was the that money had not "become payable" since the cheques were never presented. This argument was accepted at first instance. It was also accepted by the NZ Court of Appeal but the Commissioner succeeded on a technical interpretation of the Bills of Exchange Act 1908 (NZ). The Privy Council rejected the argument on the general grounds that "payable" simply means that the money is due to be paid if demanded, but that no demand is necessary. See the discussion of the case in (, ).
The Privy Council specifically noted that it was absurd to require that a demand be made. That would mean that money could only be "unclaimed" once it had, in fact, been claimed.
2. The Westpac case
Westpac v Commissioner of Inland Revenue [2008] NZHC 1695 was concerned with the application of the Unclaimed Money Act 1971 (NZ) (the "UMA") to unpresented foreign currency drafts and New Zealand currency bank cheques issued by the plaintiff.
It might be thought that this question had been settled by the Privy Council, and it was so held by Mackenzie J at para [23]. However, the Court was asked to consider the question on the assumption that the Thomas Cook case was not binding. Surprisingly, the Court accepted the challenge.
Under New Zealand law, a bank cheque is a promissory note: s 84 Bills of Exchange Act 1908 (NZ) (the "NZBOEA"). In form, it is an order to pay, but both the drawer and the drawee are the issuing bank. The purchaser of the bank cheque pays by cleared funds, usually by the bank debiting the account of the purchaser with the amount of the cheque together with any fees. The amount of the cheque is credited to a suspense account.
Evidence was that bank cheques are never considered to be "stale", and that none of the New Zealand banks would dishonour a bank cheque solely due to its age. Most New Zealand bank cheques are non-transferable instruments. The plaintiff banks estimated that about 1% of bank cheques remain unpresented after six months. Bank cheques are dishonoured only in very rare circumstances: see (, a) at [4.800]ff for a discussion of bank cheques and their dishonour.
Foreign currency drafts perform a function similar to bank cheques, but differ in form. They are drawn by a New Zealand bank on a foreign bank and denominated in a foreign currency. Foreign currency drafts are bills of exchange, and are also cheques under the definition contained in s 3 of the NZBOEA. Evidence presented to the Court showed that foreign currency drafts, like bank cheques, were not dishonoured because of age, that is, they are never treated as "stale".
Mackenzie J found that the unpresented instruments did represent money subject to the UMA. His reasoning in respect of the foreign currency drafts, as bills of exchange, was in five essential steps:
- the contract of the drawer is complete because of the presumption of delivery contained in s 21(4) of the NZBOEA;
- the drawer, as the only party signing, is the party primarily liable on a cheque;
- by s 55(1), the drawer engages that the cheque will be paid upon due presentment; it is a liability that arises at the time of issue;
- the liability which arises is "money payable" for the purposes of the UMA;
- a demand is unnecessary in determining if the funds are unclaimed money.
The first point called for a certain amount of argument under the NZBOEA. By section 21(1), a contract arising out of the drawing of a cheque is incomplete and revocable until the cheque is delivered. However, s 21(4) provides a presumption that where the cheque is no longer in the possession of the drawer a valid and unconditional deliver is presumed until the contrary is proved. Needless to say, the bank plaintiff could not displace the presumption.
In the case of a promissory note, however, s 85 requires not only delivery, but delivery to the payee or bearer. Mackenzie J held that this requirement was satisfied since the handing of the note to the bank's customer was an authorisation to deliver to the payee: see Yan v Post Office Bank Ltd [1994] 1 NZLR 150. This was sufficient to determine the case of the bank cheques since, as demand promissory notes, a cause of action arises from the moment of delivery.
The second point is elementary banking law. In the usual case, the drawer will be the only person who has signed the instrument and is, therefore, the only party liable on the cheque. The third point is, similarly, part of Banking Law 101. Mackenzie J noted that it was reinforced by considering the commercial aspects of the cheque: both the bank cheque and the foreign currency draft have arrangements which ensure that funds are available. It is simply commercially unrealistic to regard the drawer bank as having no liability unless and until the drawee bank fails to make payment.
The fourth step is the difficult one. It must be accepted that there is no cause of action until such time as the cheque is dishonoured. However, Mackenzie J observed that the existence of the obligation must be distinguished from the cause of action. Indeed, "…there can be no breach unless there is a pre-existing obligation." (at para 52).
Under the UMA, the essential question is when the obligation arises, not the cause of action. This is the heart of the Privy Council decision in Thomas Cook. Mackenzie J indicated that he would reach the same conclusion, based in part on the commercial aspects of bank cheques and bank drafts, even in the absence of the Privy Council decision: see para 53.
Given that the obligation of s 55(1) arises at the time the cheque is delivered, the measure of the obligation, or rather, the breach of the obligation, is given by s 57.
The final point, that demand is unnecessary, is from the Privy Council in Thomas Cook. Time runs from the existence of the obligation, and the fact that there is no cause of action until breach is irrelevant. There is considerable force in the Privy Council's observation that to require a demand would mean that money can become unclaimed only after it is, in fact, claimed.
3. Australian application
Section 69 of the Banking Act 1959 refers to money "in respect of which the time within which proceedings may be taken for the recovery thereof has expired". This, alone, would suggest that it is necessary to establish a cause of action before the money may be unclaimed. The last part of the section, however, casts doubt on this, for the section "includes" demand deposit accounts. It is elementary banking law that time does not begin to run for the Statute of Limitations until such time as a demand is made: see Joachimson v Swiss Bank Corp [1921] 3 KB 110.
As noted above, Mackenzie J's reasoning with respect to bills of exchange is equally valid in the context of the Cheques Act. The issue is whether the results of that reasoning fall within the realm of s 69 and should be treated as unclaimed money.
3.1. Cause of action necessary
Let's assume that the proper construction of s 69 is that a cause of action must have arisen. When does "time begin to run" against the drawer of a cheque?
In some old cases, it was suggested that time begins to run at the time of delivery of the cheque: Re Bethell (1887) LR 34 Ch D 561; Norton v Ellam (1837) 2 M & W 461; [1837] EngR 183; Robinson v Hawksford (1846) 9 QB 52. However, the Court of Appeal in Thomas Cook held that a demand was necessary in order to cause a breach of the drawer's obligation. It argued that the cases mentioned are really about loans and/or demand promissory notes.
Re Bethell was not mentioned in the Court of Appeal, but that case was decided explicitly on the grounds that presentment for payment was excused under the equivalent of s 59(b)(i) of the Cheques Act 1986. Thus, it seems that the view of the Court of Appeal is to be preferred, and a cause of action against the drawer does not arise in the normal case until presentment for payment.
Halsbury's Laws of England state that where a bill or note is payable on demand, then time begins to run from the making of the instrument. Norton v Ellam is cited as the authority.
Under Australian law, a bank cheque is a cheque governed by the Cheques Act 1986 (Cth): see s 5. Like all other cheques, a bank cheque is transferable by negotiation: s 39(1).
Section 5(2) provides a list of sections of the Cheques Act which do not apply to bank cheques. Three of these are relevant to the present discussion:
- Section 59(b)(i) dispenses with the need for presentment as regards the drawer under certain circumstances;
- Section 88 provides that the drawing of a cheque does not, of itself, operate as an assignment of funds;
- Section 89 provides that a bank may, and in some cases, must refuse payment of a stale cheque unless instructed otherwise by the drawer;
Section 89 provides, in effect, that a bank cheque never becomes stale. This and the exclusion of s 59(b)(i) precludes any argument that presentment is dispensed with as a precondition to liability.
The Commissioner floated the idea of an implied contract. According to this argument, there is an implied promise by the bank to repay the customer if the instrument has not been presented after becoming stale. Apart from the fact that an Australian bank cheque does not become stale, there are few reasons to find an implied contract. It clearly is not necessary to make the contract work. The bank customer is not disadvantaged since he or she has received consideration for the bank cheque when handing it to the payee. Payment is complete at that time subject to a condition subsequent that the cheque will be met on presentment: see National Australia Bank Ltd v KDS Construction Services Pty Ltd (1987) 163 CLR 668.
The Court of Appeal in Thomas Cook did not find it necessary to consider the argument seriously, but expressed doubts about its potential success.
Section 88 leaves open the tantalising possibility that a bank cheque is an assignment of funds. Should that be the case, then time begins to run at the time when the cheque is delivered. This is, to say the least, highly speculative. Even before the passage of the original Bills of Exchange Act 1882 (UK), it had been held that the holder of a cheque had no equitable claim on the drawee banker: see Hopkinson v Forster (1874) LR 19 Eq 74.
However, the explicit exclusion of bank cheques from the rule regarding assignment must be given some effect, and the application of the unpaid money statute might be a good place to start.
Mackenzie J raised the possibility of a restitutionary claim by the customer against the bank. The fact that the instrument is "pre-paid" suggests that there might be a basis for such a claim. However, once again we must note that the bank customer is not disadvantaged by the non-presentment. He or she has received value for the bank cheque when handing it to the payee. The bank has been unjustly enriched, but not at the expense of the customer.
3.2. Is a cause of action necessary?
Assuming that a cause of action is necessary produces the "absurd" result that the money in question can become "unclaimed money" but only after it has been claimed and the limitation period has passed. Further, as pointed out earlier, the statute "includes" a class of money which clearly does not have an associated cause of action.
Strictly speaking, s 69 does not require a cause of action. "[T]he time within which proceedings may be taken for the recovery thereof" makes no explicit reference to the Limitations Statutes. If proceedings are barred by a contractual term, then there is no reason why s 69 should not apply. This conclusion is reinforced by the fact that the limitations period may be altered by contract: see, for example, Commonwealth v Verwayen [1990] HCA 39. This principal is important in considering "smart cards" and other instruments where there is a contractual "expiry" term: see (, ).
However, there seems little scope for such an argument in the case of unpresented bank cheques, particularly since the contract is between the bank's customer and the bank.
3.3. Australian practice
ASIC is responsible for monitoring ADIs for unclaimed money. The ASIC website calls for reports to list "all accounts with balances of $500 and over which, at 31 December of the previous year, have not recorded a deposit or withdrawal by the owner of the account for seven years."
In other words, ASIC considers only the dormant account type of unclaimed money. It is unknown what, if anything, happens to the main class of unclaimed money.
3.4. Conclusion
In Australia, the funds held by banks for unpresented bank cheques is probably not "unclaimed money" for the purposes of s 69. This probably should be considered as a windfall for the banks and a circumvention of the clear policy of unclaimed money statutes. Correction would require a redrafting of s 69 to avoid the "cause of action" requirement. To avoid open ended liabilities, either bank cheques should be subject to the general "staleness" provisions or some alternative means provided for holders to claim against the unclaimed money pool.
Short of statutory reform, the only attractive argument in favour of claiming the money is that a bank cheque, by its very special nature, represents an assignment of funds held by the bank for the purposes of paying the cheque when presented. In this author's view, such an argument is highly speculative.