In the recent decision of Westpac Banking Corp v Commissioner of Inland Revenue  NZSC 36, the Supreme Court has confirmed the correctness of Commissioner of Inland Revenue v Thomas Cook (NZ) Ltd  UKPC 53,  2 NZLR 722 (Thomas Cook) with respect to the meaning of “payable” under the Unclaimed Money Act 1971 (“the Act”). In Thomas Cook, the Privy Council held that foreign currency drafts (in that case, travellers cheques) that had not been redeemed for six years were “unclaimed money” under the Act, despite the fact that a bank draft is not payable until it is presented for payment.
The Supreme Court in Westpac approved the Privy Council’s approach in Thomas Cook, stating that it accorded with the “broad” meaning of the word “payable” and the purpose of the Act “whereby money which is in the hands of another and not claimed by the owner is not to be retained and treated as the holder’s revenue” (at ).
The appellant banks (Westpac New Zealand, Bank of New Zealand and ANZ Bank) together challenged the High Court decision in which McKenzie J held that foreign currency drafts and bank cheques that had not been presented for payment within the six-year period prescribed by the Unclaimed Money Act 1971 were unclaimed moneys payable to Inland Revenue.
The policy justification to the Act is that where money is left unclaimed, it should go to the state rather than becoming a private windfall. Section 4(1)(e) of the Act provides as follows:
4 Unclaimed money
(1) Subject to this section, unclaimed money shall consist of–
(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.
The bank cheques and foreign currency drafts at issue in these proceedings are a secure form of payment used internationally and domestically for major purchases. Under the Bills of Exchange Act 1908, a bank cheque is a promissory note (per s 84), and a foreign currency draft is a bill of exchange (per s 3). Both of these instruments are drawn on the purchaser’s account and held in a suspense account until the payee presents the instrument for payment. A bank cheque or draft is very rarely dishonoured. This provides a risk-free means of payment for international and domestic commerce. The appellant banks estimated that approximately 1% of bank cheques alone remain unpresented for at least six months.
Importantly, it is a basic tenet of banking law that there is no liability for payment on a bill until it has been presented for payment. This is repeated in s 45(1) of the Bills of Exchange Act 1908. This point was relevant to the argument over whether the instruments were “payable” under the Act.
Both the High Court and the Court of Appeal found themselves bound by Thomas Cook, in which the Privy Council held similar instruments (a form of travellers’ cheques) payable under s 4(1)(e) from the date of issue.
In the Supreme Court, it was the banks’ position that the reasoning in the Privy Council wrong, based on the plain meaning of the word “payable” and the statutory history of iterations of the Act. The Commissioner relied on Thomas Cook.
The single issue in this case was whether or not the unpaid bank cheques and foreign currency drafts held by the appellant banks had “become payable” after six years and were thus unclaimed money for the purposes of s 4(1)(e) of the Act.
McGrath J delivered the opinion for the Supreme Court, agreeing with the position taken in Thomas Cook. His Honour stated that “‘[p]ayable’ in relation to
a sum of money is capable of having a narrow or broad meaning. It can mean due or unpaid when due” (at ). His Honour subsequently adopted the Privy Council’s “broad” meaning that payable meant “no more than legally due if demanded”.
In considering the merits of the Privy Council decision, McGrath J quoted Black’s Law Dictionary, stating that “an amount may be payable without being due” (at ). He subsequently examined the legislative history, citing then Minister of Finance Hon Robert Muldoon, when introducing the bill (at ):
“Turning now to the underlying principles of the Bill, first, money not claimed should not be regarded as potential revenue. Secondly, where money entrusted as an investment, or otherwise for safe keeping, is not claimed, it is proper that, subject to any claims being established by anyone entitled, the Crown should receive the money as custodian in the first instance. In the event that such money is never claimed, the Crown should hold it for the benefit of the community as a whole.”
On the basis of these underlying principles and the purpose of the Act, McGrath J held that it was proper to adopt a broad interpretation. To adopt a “technical” approach that an instrument is only payable when liability arises would defeat the purpose of the Act (at ):
“[T]o read s 4(1)(e) as having effect in its application to money payable under foreign currency drafts and bank cheques only if demand is made for the dormant moneys would introduce a self-defeating element to the meaning of the definition that Parliament would not have contemplated.”
Therefore, the Supreme Court unanimously approved the interpretation of the Privy Council in Thomas Cook, holding that bank cheques and foreign currency drafts left unclaimed for six years are to be considered payable from the date of issue, and thus unclaimed moneys under the s 4(1)(e) of the Act. This result was reached in both the High Court and the Court of Appeal, and is a principled conclusion to a difficult question of statutory interpretation.