Thomas Cook (New Zealand) Limited v. Inland Revenue (New Zealand) [2004] UKPC 53 (10 November 2004)
Privy Council Appeal No. 11 of 2004
Thomas Cook (New Zealand) Limited Appellant
v.
The Commissioner of Inland Revenue Respondent
FROM
THE COURT OF APPEAL OF NEW ZEALAND
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JUDGMENT OF THE LORDS OF THE JUDICIAL
COMMITTEE OF THE PRIVY COUNCIL,
Delivered the 10th November 2004
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Present at the hearing:-
Lord Bingham of Cornhill
Lord Clyde
Lord Millett
Lord Scott of Foscote
Lord Brown of Eaton-under-Heywood
[Delivered by Lord Brown of Eaton-under-Heywood]
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- For over a hundred years New Zealand has had legislation under which holders of unclaimed monies are required in certain circumstances to pay it over to the Commissioner of Inland Revenue (the Commissioner) for use by the Crown for the benefit of the community (or for payment by the Commissioner to the owner if subsequently a claim is made and established).
- The legislation presently in force is the Unclaimed Money Act 1971 (the 1971 Act). It applies to five categories of unclaimed money (specified by section 4), situated in New Zealand (section 2), held or owing by certain holders (specified by section 5). Each holder is required to keep a register of unclaimed money which must be updated on 1 June in each year by including particulars of money unclaimed within the course of the preceding year (section 6). The register is open to public inspection and the holder must send a notice to the owner at his last known address of any money entered in the register no later than 30 June of the year it is entered (section 7 (1)). Notice of entries in the register must also be given to the Commissioner (section 7 (2)). If money entered in the register remains unclaimed until 30 September, it must be paid to the Commissioner by 30 October when it becomes recoverable by the Commissioner on behalf of the Crown as a debt due to the Crown (section 8). The holder is then relieved of all further liability to any claimant in respect of the money (section 8 (4)).
- The appellants ("Thomas Cook") are a specified holder under section 5 (1) (a) of the 1971 Act, being a company incorporated in New Zealand. In the course of their business, Thomas Cook issue to customers foreign currency drafts (entitled international cheques) against payment of the New Zealand dollar equivalent together with commission. For whatever reason, a number of these drafts are never presented for payment. The dispute between the parties is as to whether the sums represented by these drafts (some NZ$500,000 up to December 1992) are unpaid monies which Thomas Cook are required under the 1971 Act to pay over to the respondent Commissioner.
- At the heart of the appeal lies section 4 (1) (e) of the 1971 Act:
"[Unclaimed money shall consist of] (e) Any other money, of any kind whatsoever, which has been owing by any holder for the period of six years immediately following the date on which the money has become payable by the holder."
What is the meaning of "payable" within that section? More particularly, in the case of a cheque or other instrument payable on demand, for money to be "payable" and thus (six years later) "unclaimed money" for the purposes of the 1971 Act must payment actually have been demanded (or a cause of action otherwise have arisen) so as to set time running under the Limitation Act? That ultimately is the issue for the Board's determination on this appeal.
- Unfortunately this issue was not addressed by either court below. Rather the proceedings hitherto have been conducted on the assumption that money only becomes "payable" under section 4(1)(e) once an action to claim it could have been brought, and such, indeed, was the continuing assumption underlying both parties' written cases before the Board. 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. Since, for reasons which will appear, their Lordships are satisfied that this is the correct view, it becomes unnecessary to say much about the various arguments advanced below, many of them turning on abstruse points of law arising under the Bills of Exchange Act 1908 (the 1908 Act).
- With that brief introduction their Lordships turn at once to the agreed facts which they gratefully take from the Court of Appeal's judgment below [2003] 2 NZLR 296, 298-299:
"[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.
[7] ...
[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."
- Although, as noted in paragraph 6 of that factual summary, Thomas Cook for their own purposes treat as stale only those drafts which remain unpresented twelve months from their date of issue, the Court of Appeal in fact held that drafts become stale after six months at which point the foreign drawee banks are under no obligation to honour them.
- On the assumption already indicated, namely that a cause of action must have arisen against the holder before the six-year period specified by section 4 (1) (e) of the 1971 Act can start to run, the Commissioner's sole argument before Chambers J at first instance was that presentment of these drafts for payment was not a necessary pre-condition of Thomas Cook's legal liability to the payee so that the six-year period began to run (both for Limitation Act and 1971 Act purposes) immediately upon their issue. That argument failed before the judge (see Commissioner of Inland Revenue v Thomas Cook (NZ) Ltd [2002] NZAR 625) and it failed again on appeal before the Court of Appeal (Blanchard, Tipping and McGrath JJ) [2003] 2 NZLR 296, 304. The Court of Appeal held at paragraph 27 of its judgment that "presentment is not just a practical means of payment, it is also, unless dispensed with, a legal pre-condition to the drawer's liability on the cheque".
- Before the Court of Appeal, however, the Commissioner advanced in addition a radically different alternative argument upon which he succeeded. This was to the effect that the cause of action on these stale drafts arose, not at the date when they were issued, but rather six months later when they became stale. It assumed (contrary to the Commissioner's first argument) that in the ordinary way these drafts had to be presented before any legal liability on the drawee arises, but contended that, once they become stale, the 1908 Act, properly construed, dispenses with any such requirement. This argument the Court of Appeal accepted, holding that the sums in question were therefore "payable" six months from when the drafts were issued, and "unclaimed money" within the meaning of the 1971 Act six years later (i.e. six years and six months after issue). More particularly the Court of Appeal held that after six months the drawee bank is no longer obliged to pay the cheque; accordingly presentment for payment is dispensed with under section 46(2)(c)(i) of the 1908 Act; thus the cheque is deemed to be dishonoured by non-payment under section 47(1)(b); notice of dishonour is dispensed with under section 50(2)(c)(iv); an immediate right of recourse against the drawer thereby arises under section 47(2), such right of recourse not being subject in these particular circumstances to the ordinarily requisite proceedings on dishonour; that the payee can accordingly bring proceedings against the drawer to recover the amount of the cheque as liquidated damages pursuant to section 57 of the 1908 Act, time, therefore, starting to run both for limitation purposes and under the 1971 Act.
- On this appeal Thomas Cook were concerned to challenge virtually every limb of that chain of reasoning. Most especially they contested on the facts that they (as drawers) "ha[d] no reason to believe that the [stale] bill would be paid if presented" within the meaning of section 46(2)(c)(i) of the 1908 Act. They further submitted that, even if presentment was excused under section 46, the bill was not to be regarded as "overdue and unpaid" within the meaning of section 47(1)(b) and so was not to be deemed dishonoured by non-payment. And they submitted that no liability on these stale cheques could possibly have arisen without at the very least some demand for payment or notice of dishonour.
- Although, as already indicated, it has proved in the event unnecessary for the Board to address any of these difficult issues, their Lordships certainly ought not to be taken to be endorsing the Court of Appeal's conclusions upon them. Quite the contrary. The Court of Appeal's final conclusion that a payee, by carelessly (acting, indeed, contrary to his express obligation under section 45(2)(b) of the 1908 Act to present the bill within a reasonable time after its issue) letting a bill become stale, immediately thereby becomes entitled to sue for liquidated statutory damages to include interest and expenses is, to say the least, a surprising one. Rather, however, than spend further time on these questions, their Lordships turn instead to the central issue now arising (the new point raised for the first time by the Board): must a cause of action have arisen in respect of money before it is to be regarded as "payable" within the meaning of section 4(1)(e) of the 1971 Act?
- In addressing this question it is instructive to consider first the other categories of unclaimed monies specified by section 4. These are, put shortly, (a) money on interest-bearing fixed term deposit, six years after the term expires; (b) money deposited without limitation of time (or to be treated as reinvested if not withdrawn after a fixed term), twenty-five years after the customer has not operated the account; (c) money deposited on current account or other non-interest-bearing account, (i) if with a savings bank, twenty-five years after non-operation of the account, (ii) otherwise six years after non-operation of the account; (d) "money payable or distributable" on a life policy six years after (i) the policy matured otherwise than by death or (ii) the holder first had reason to suppose that the policy had matured by death, whichever is the earlier.
- Two points immediately fall to be made in respect of these other categories of unclaimed monies: first, that they contain no suggestion that a cause of action must already have arisen in respect of the relevant money before time starts to run under the 1971 Act – on the contrary, as Joachimson v Swiss Bank Corporation [1921] 3KB 110 long ago established, no cause of action arises in respect of money standing on current account until the customer demands payment by the bank; secondly, that the periods of time required to elapse before the monies become "unclaimed" are not in all cases coincident with periods applying under the Limitation Act. Six years is, of course, generally the limitation period in respect of contractual liability. But under a specialty the period is twelve years. And there is no twenty-five year limitation period. In any event no limitation period would ever start to run, for example, by reference to when "the holder [the putative defendant] first had reason to suppose that the policy has matured".
- It is, moreover, plain from the scheme of the 1971 Act as a whole that it is essentially unconcerned with Limitation Act considerations. Not only, as just demonstrated, do the various categories of unclaimed money generally arise quite independently of the expiry of Limitation Act periods, but the procedure whereby the holder must annually register particulars of such monies, then attempt notification of them to the owners, and eventually pay them over to the Commissioner, postulates rather that the owner's claims would not be defeasible under the Limitation Act than that they were already time barred. Why, one wonders, if money becomes "unclaimed" only when the entitlement to recover it from the holder becomes statute-barred, does the 1971 Act expressly contemplate the holder paying it to the owner by 30 September of the year in which it became "unclaimed money" and registered as such? And why, indeed, does section 8 (4) of the Act expressly provide that, once money is paid over to the Commissioner, the holder shall "be relieved of all further liability to any claimant?" None of this makes any sense on the appellant's case.
- The word "payable" is to be found time and again in this legislation. Take, for example, section 4(2)(a):
"(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."
- As the promoting minister made plain in Parliament, the policy of the 1971 Act is that unclaimed company dividends shall ordinarily accrue to the group within which the money arises rather than to the Crown. Not so, however, in respect of dividends payable by a mutual association. The point is, however, that the word "payable" is used to mean simply that, as between the company and its shareholders, the money is due to the shareholders. They are entitled to it, whether it has been demanded or not and whether, indeed, the company or mutual association can trace them. Money may, of course, be payable only at some specified future date. That is why section 4(1)(e) speaks not merely of money "owing" but of money owing for six years after it "has become payable". But that is not to say that under this legislation it only becomes payable on demand and thus is not payable until claimed. That surely would be the greatest nonsense of all: to say that money can only become unclaimed money once it has in fact been claimed.
- That, really, is the long and the short of this case. The monies 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.
- It is on this basis (a basis never previously contended for) that their Lordships will humbly advise Her Majesty that the appeal should be dismissed. Having regard to this conclusion and each party's responsibility for the misconception underlying the earlier proceedings, their Lordships conclude that both parties should bear their own costs throughout.
