Chapter 14 - The commercial provisions in the Judicature Act 1908

 

Sections 94A and 94B: Payments under mistake

Sections 94A and 94B were inserted, as from 28 September 1958, by section 2 of the Judicature Amendment Act 1958. Section 94A(1) provides that where a payment has been made under a mistake, relief is available regardless of whether the mistake is one of fact or law or a mixture of both. Under section 94A(2), a mistake is to be judged according to the law at the time the payment was made, not the law as it is prior to alteration.431 Money paid on the strength of case law that is subsequently reversed is still not recoverable.432

Section 94B provides that relief can be denied in the case of a payment made under mistake of fact or law if three factors are present:433

  • the payee received the money in good faith;
  • the payee altered its position in reliance on the validity of the payment; and
  • the Court considers it inequitable to grant relief.

In cases falling under these provisions, the Court is entitled to look at the equities from the point of view of both the payee and the payer.434 The weighing up of these equities can be summed up in the question of whether it would be unconscionable to grant relief in the light of the reasonable expectations of the parties.435 The onus is on the defendant to show that the three factors are present.436

In order to meet the alteration of position factor, it is not enough for a defendant to use the money in the ordinary course of business.437 If the payee is aware of the mistake, it is not possible to find that the payee altered its position in reliance on the validity of the payment.438

Section 94B was introduced for the purpose of alleviating the harshness of the common law, and to achieve a fair and just result where money has been paid by mistake by relieving the payee from what would otherwise be an unfair burden when the funds have been lost in whole or in part.439

Effect of common law developments

Case law has made it clear that the statutory defence to having to repay payments received under a mistake in section 94B does not exclude the equitable defence of change of position. If the payee’s position has so changed that it would be inequitable in all circumstances to require restitution in whole or in part, the payee will not have to repay the money.440 This common law defence is wider than section 94B. The payee simply has to have changed their position rather than altering their position in reliance upon the validity of the payment.441 It has been suggested that the common law rule has now overtaken and encompasses section 94B:442

The Lipkin Gorman principle can be stated as being that it is a defence to a claim for repayment of money paid under a mistake that the defendant’s position has so changed that it would be inequitable in all the circumstances to require restitution in whole or in part. If that is a wider concept than s 94B, then it can sit comfortably alongside it, just as s 94B can sit with the doctrine of true estoppel. It may be that the equitable principle has now overtaken and embraces the statutory provision, which could be seen as no longer necessary to provide an otherwise unavailable remedy. But the existence of s 94B is no reason for refusing to allow the equitable principle to operate, nor for inhibiting its development.

It follows that it may no longer be necessary to retain section 94B to provide the defence, or that if there is to be a statutory defence to repayment of payments made under mistake that it should encompass the whole of the law applying in this area. It has been suggested that the “practical effect of the Court’s recognition of the common law version of the change of position defence is to render s 94B redundant.”443 Because the scope of the common law defence is considerably wider than section 94B, there is no reason to rely upon the statute.

The cases of Lipkin Gorman and National Bank of New Zealand have raised a wider issue of importance in relation to the interaction between statutes and the common law. These decisions have not allowed a statutory intervention to freeze further development in the common law or to make development entirely dependent on further legislative attention. Commentators have generally considered this to be a positive step.444 However, it does raise questions about whether Parliament would want to retain a statutory defence that has now been superseded by the common law. Grantham and Rickett state:445

… Parliament has expressed its will on the subject and has chosen to afford a defence only in limited circumstances. Consequently, there must be some unease with the judicial recognition of a co-extensive defence that effectively abrogates those statutory limitations.

A further issue relates to section 94A(2). The statutory position in New Zealand is clearly that relief will not be given in regard to a payment made at a time when the law is or is understood to allow the payee to keep the payment only on the basis that the law is subsequently changed or shown not to have been as it was understood to be at the time of the payment. However, the House of Lords has held that there is no principle of English law that payments made under a settled understanding of the law that was subsequently departed from by judicial decision were not recoverable in restitution on the grounds of mistake of law.446 In this respect, therefore, the common law differs from the position in the statute.

 

Reform

We have given consideration to whether sections 94A and 94B should be amended to reflect the common law developments. However, we do not think that such a step can be recommended as a part of this review. Rather, there may be cause for the provisions to be reviewed as a part of a full review of the law of mistake. There are significant issues to be considered regarding the relationship of statute and the common law. Our preliminary view is that, for the present, these provisions should be retained in statute in their current form.

Q45

Do you agree that sections 94A and 94B of the Judicature Act should be retained until they have been considered as part of a review of the law of mistake?

McGechan on Procedure (online looseleaf ed, Brookers) at [J94A.01].

Julian v Mayor of Auckland [1927] NZLR 453, [1927] FLR 359 (SC). In this case, the plaintiff made rate payments at an increased level in respect of a property at a time when the municipal corporation was required to give notice of increases to rates. In the intervening period, the Supreme Court decided the case of Mayor of Auckland v Irvine and Stevenson’s St George Co [1926] NZLR 734; GLR 538 (SC) and found that a Municipal Corporation was not entitled during the year for which a rate had been struck to increase the rateable value of a property then entered on the rate-book and to charge the rate upon the increased value. However, the plaintiff in Julian could not benefit from this decision when the payment had been made voluntarily.

McGechan on Procedure (online looseleaf ed, Brookers) at [J94B.02].

Thomas v Houston Corbett & Co [1969] NZLR 151 (CA).

Farmers’ Mutual Insurance Ltd v QBE Insurance International Ltd [1993] 3 NZLR 305 (HC) at 316; Wellington City Council v New Zealand Law Society [1990] 2 NZLR 22 (CA) at 26.

Bank of New Zealand v Westpac Banking Corporation Ltd (1991) 3 NZBLC 102,442.

KJ Davies (1976) Ltd v Bank of New South Wales [1981] 1 NZLR 262 (HC) at 264 and 265; Farmers Trading Co Ltd v Holdgate (1986) 1 PRNZ 26 at 28 and 29. In KJ Davies, the appellant company drew an open cheque for $2500 on the respondent bank but later countermanded the authorisation for the bank to make payment. A teller, not having been notified of the countermand, paid the cheque. The proceeds of the cheque were paid to the company’s account and used in the normal course of its business. The Court of Appeal held that the bank was entitled to receive the payment back.

National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA) at 227 and 232, where the payee argued with the payer bank that the payment was a mistake but kept it at the bank’s insistence and then invested it.

National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA) at 218.

National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA), applying Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512.

National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1997] 1 NZLR 724 (HC) at 732, affirmed National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA).

National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 (CA) at 219.

R Grantham and C Rickett “Change of Position in New Zealand” (1999) 5 NZBLQ 75 at 77.

P Birks “A Bank’s Mistake Payments: Two Recent Cases and their Implications” (2000) 6 NZBLQ 155 at 162; P Watts “Restitution” [1999] NZ Law Rev 276; C Cato “Restitution, Mistake and Change of Circumstances” [1999] NZLJ 132; R Grantham and C Rickett “Change of Position in New Zealand” (1999) 5 NZBLQ 75 at 77.

R Grantham and C Rickett “Change of Position in New Zealand” (1999) 5 NZBLQ 75 at 77.

Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349; [1998] 4 All ER 513.