Introduction

[1] The plaintiff seeks to recover US$455,600 from the defendants. The case arises against the background of the defendants’ involvement in Nigerian bank scams. The first defendant banked what on its face was a US Treasury cheque for US$455,600 with the plaintiff in May 2002. The plaintiff paid out on the cheque in favour of the defendants on the first defendant’s instructions. The plaintiff later learnt that the cheque was counterfeit and valueless. The plaintiff seeks to recover its losses.

Parties

[2] The plaintiff is a wholly owned subsidiary of ASB Bank Limited. ASB Bank Limited operates the plaintiff as a sharebroker. In addition, the plaintiff is a branch of ASB Bank. The first defendant is a landlord. He lives in Rotorua. The second and third defendants are trustees of the Pargeter Family Trust. The Pargeter Family Trust was a customer of the plaintiff for some years prior to these events.

Nigerian bank scams

[3] Nigerian bank scams provide the background to these proceedings. Such scams involve the offer of substantial sums to the dupe, if the dupe will facilitate the release of monies held in security deposit. Typically the approach is made by or on behalf of a purported ex senior minister in an African government who has come into possession of substantial sums of US dollars, but who for “security reasons” is unable to personally access or utilise the funds. The dupe is invited to assist by accepting a transfer of the funds in return for a substantial commission. If the dupe expresses sufficient interest they are invited to travel overseas where they are shown money in a secured bank deposit facility (the consignments). They are told the money in the consignments has a security film on it that requires cleaning. They are shown the cleaning process and are given a genuine bank note as evidence of the validity of the money in the consignments. The dupe is requested to advance money to pay for the hire of a “cleaning machine” and chemicals to clean the money. They are also asked to provide funds to insure the cleaning machine and sometimes to pay a transfer/assignment fee. The dupe is strung along by a series of requests for further payments to insure the securities or to insure the consignments - for as long as the dupe will continue paying; or until, as was the case with the second and third defendants in the case, they are finally told the funds have been stolen.

[4] In this case both the first defendant and the second and third defendants were drawn into such scams. As long ago as June 1999 the third defendant was approached by a person calling himself Choice Voteman. He offered the third defendant a share in a substantial sum of money held with a security finance company in the Netherlands. Later in March 2002 the second and third defendants travelled to Holland. The third defendant made an agreement with Mr Voteman. The agreement purported to gift 25% of the total managed funds of US$15.5 million held in secure deposit to the third defendant. The second and third defendants had spent a considerable sum of money to get to this stage. On their return to New Zealand they were anxious to obtain further funds to maintain their interest in the consignment. Coincidentally, on the defendants’ evidence, at about the same time the first defendant had also been drawn into a similar scam. The first defendant was not in a position to pay for the hire of the cleaning machine or for the chemicals so was put in touch with a company known as United Securities and Exchange Limited. He was told he could borrow US$450,000 from that entity. United Securities and Exchange Limited ultimately forwarded a cheque for US$455,600 to the first defendant on 6 April 2002. United Securities and Exchange Limited then sought payment from the first defendant of an insurance fee to ensure the continued validity of the cheque. The payment was required by 3 May 2002. The first defendant initially tried unsuccessfully to bank the cheque through an overseas account he held in Vanuatu. He also apparently spoke to Mr Busch, a financial advisor, about the cheque. Mr Busch put the first defendant in touch with the second and third defendants.

[5] Against that background the first defendant was introduced to the second and third defendants on 2 May 2002. He met them for the first time on that day. At the time the second and third defendants were very keen to obtain funds to pay for their continued involvement in the scam that was being perpetrated on them. On the second and third defendants’ evidence all they knew was that the first defendant wanted to clear a cheque for approximately $US450,000 and also urgently needed $12,000 to pay an insurance fee to ensure the validity of the cheque. The second and third defendants agreed to help the first defendant clear the cheque. They initially intended to do so by banking it through the Pargeter Family Trust account. For providing that assistance, and for advancing $12,000 to the first defendant, the second and third defendants were to get $212,000 when the cheque was cleared, i.e. the repayment of $12,000 and a commission of $200,000.

[6] After learning about the first defendant (and more particularly his cheque), the second defendant contacted Mr Watson, the plaintiff’s head of Margin Lending on 2 May 2002. The second defendant told the plaintiff they (the Trust) had a financial deal involving an American cheque made out to a certain gentleman, that they “were commissioned” and that he wanted to bank the cheque into the Pargeter Family Trust Account. The second defendant told Mr Watson the cheque was issued by the United States Treasury. A copy of the cheque was faxed through to the plaintiff’s office. Later on the same day the third defendant spoke in more detail to Mr Watson. The second defendant was initially present during that conversation and then handed the phone over to the third defendant. During the course of the conversation the third defendant told Mr Watson that the first defendant, who the cheque was made out to, “is a partner of ours”. The third defendant also said that the first defendant was listening to the conversation and “... he is right standing beside me, he’s a partner of ours”. The conversation concluded on the basis that Mr Watson would fax forms down to the first defendant for an account to be opened in his name to enable the cheque to be received by the plaintiff and cleared. The first defendant completed the forms. They were faxed back to the plaintiff.

[7] On 3 May the plaintiff opened an account in the first defendant’s name. On that day the plaintiff received the original cheque by courier. The plaintiff then processed the cheque through ASB Bank’s Treasury and Financial Markets Division and National Support Centre to the Bank of New York, ASB Bank’s US correspondent bank for collection. On 10 May the Bank of New York advised that US Treasury cheques could no longer be handled on a collection basis. On 16 May the plaintiff advised the Bank of New York to process the cheque on an immediate credit basis.

[8] On 22 May the plaintiff received advice that the cheque had been paid and passed that information on to the second defendant. On 23 May the first defendant instructed the plaintiff to transfer $212,000 to the Pargeter Family Trust Account. The first defendant also instructed the plaintiff to transfer $150,000 to his BNZ account. Subsequently he directed the plaintiff to make other transfers from the account. The plaintiff acted on those instructions. By 17 June 2002 the first defendant’s account with the plaintiff had a nil balance.

[9] On 17 June 2002 the US Federal Reserve gave debit advice to the Bank of New York in relation to the cheque. On 19 June the Bank of New York debited ASB Bank’s account with the sum of US$455,600 and gave formal advice to the ASB of debit on 21 June. The US Federal Reserve dishonoured the cheque as it was counterfeit.

The plaintiff’s claim

[10] The plaintiff seeks to recover the US$455,600. It says the defendants were acting in partnership and all three are liable to reimburse the Bank pursuant to the express contractual term to indemnify the Bank against loss accepted by the first defendant at the time he opened his account with the Bank. In the alternative the plaintiff says there is an implied term to the same effect.

[11] As a further cause of action the plaintiff says it has paid monies out by mistake to or for the benefit of the defendants or that the defendants have had and received money not properly due to them. In the event the parties are partners, the plaintiff says all three are liable for the full sum. In the event the defendants are not partners, then the plaintiff accepts the second and third defendants’ liability would be limited to the $212,000 under this cause of action.

[12] Finally, the plaintiff says that in the event the defendants are not partners, the defendants are in any event liable in deceit for the full sum of the plaintiff’s loss, namely US$455,600.

[13] The defendants deny liability. They all deny the existence of a partnership. The first defendant denies any express contractual relationship with the plaintiff. He rejects the implication of the term sought by the plaintiff. All defendants deny the plaintiff is entitled to relief on the basis of mistake or money had and received and plead positive defences including s 94B of the Judicature Act 1908. All defendants also say the claim in deceit is not available to the plaintiff. Finally, the defendants say if there is any liability to the plaintiff at all the claim should be reduced for the plaintiff’s contributory negligence.

Issues

[14] The issues for the Court are:

• Whether the first, second and third defendants were in a partnership in relation to the cheque.

• The basis of the contractual relationship between the plaintiff and first defendant.

• If the defendants were not in partnership, are the defendants or any of them liable for monies had and received or for monies paid by mistake?

• Whether the defendants have a defence under s 94B Judicature Act.

• Whether there is any other defence available to the defendants.

• Are the defendants liable in the alternative in deceit?

• Should the plaintiff's claim be reduced for contributory negligence?

Procedural issues

[15] During the course of the trial a number of procedural issues arose. At the outset of the trial the plaintiff sought and was granted leave to file a second amended statement of claim. Next, on the plaintiff’s application I also admitted a report from the United States Secret Service Office of Investigations dated 21 April 2004 confirming the cheque in question was counterfeit. It was admitted under s 3(1)(c) of the Evidence Amendment Act 1980 (No. 2). Finally, during the course of his evidence the first defendant gave evidence for the first time of an additional telephone conversation on 2 May other than those referred to by the plaintiff’s witnesses. This was not raised in cross-examination. The plaintiff was granted leave to adduce further evidence as to whether there had been such a conversation.

Preliminary issue

[16] Mr Johnson took a preliminary point in his closing submissions. He submitted the plaintiff’s claim must fail as the loss had been sustained by ASB Bank Limited, not the plaintiff. The point was not taken by the first defendant. The plaintiff is a branch of ASB Bank Limited. ASB Bank Limited is its holding company. The best evidence on the point is that of Mr Magee, an employee of ASB Bank Limited. His evidence was that the plaintiff processed the cheque through ASB Bank which in turn processed it through banks in the United States. Mr Magee’s evidence in re-examination was:

ASB Securities accepted the cheque from its customer, ASB Securities is a customer of ASB Bank, ASB Bank gave ASB Securities value for the payment, value for the cheque and when it was dishonoured we [ASB Bank] debited ASB Securities.

[17] The plaintiff has sustained a loss in that it has a liability to ASB Bank. The liability is based on the total failure of consideration for the cheque presented to it by the first defendant. On the evidence before the Court I find the plaintiff has sustained a loss of US$455,600.

[18] Further, if necessary, I would have been prepared to amend the name of the plaintiff to ASB Bank Limited (under rules 11 and 97) because as Mr Johnson was driven to concede, there could be no possible prejudice to the defendants by such amendment. The defendants’ case would not have been presented in any other way if ASB Bank was the plaintiff.

Were the defendants in a partnership?

[19] The first issue is whether the defendants were in partnership. Whether the defendants were in partnership is a question of mixed law and fact that depends upon the substance of the agreement between the parties as ascertained from the contents of any relevant documents and the parties’ conduct.

[20] As Mr Johnson submitted, there are three essential elements required for a partnership:

• there must be a business;

• the business must be carried on with a view to profit;

• it must be carried on by or on behalf of the alleged partners.

Webb and Molloy, The Principles of the Law of Partnership, 6th ed para 1.2.

[21] In the present case the plaintiff says the defendants were in business in partnership for the purpose of obtaining clearance of the cheque for $US455,600. The plaintiff relies on the introduction of the first defendant to it by the second and third defendants and the references by the third defendant in particular to the first defendant as their partner. Mr Waalkens submitted that the defendants had held the first defendant out as their partner, and all three were liable as partners.

[22] Against that, however, is the fact that the bank account through which the cheque in issue was transacted was in the first defendant’ sole name. The Customer Services Agreement provides for partnerships, but that part of the form was not completed. The first defendant alone had authority in relation to the account. According to its own records the plaintiff never dealt with the defendants on the basis they were partners.

[23] Even on the plaintiff’s best case on this issue, the only evidence is that the partnership was limited to the one transaction with the cheque. The difficulty for the plaintiff is that the parties chose to make an agreement about that one transaction in terms inconsistent with a partnership. The second and third defendants (as trustees of the Pargeter Family Trust) agreed to assist the first defendant by advancing the $12,000 to him to make the insurance payment in exchange for receiving $212,000 if the cheque was cleared, effectively taking a $200,000 commission for their involvement. The parties recorded their agreement in two documents. The first records the second and third defendants’ agreement to bank a cheque for a fee. The second, which replaced the first, refers to a commission. Neither document is in the nature of a partnership agreement involving profit sharing. The concepts of fees and commissions are both quite different to a profit sharing arrangement. The documents do not support a finding of partnership.

[24] The high point of the plaintiff’s case on partnership is the third defendant’s reference to the first defendant as their partner. While those references have other implications (to which I will return later) they do not of themselves constitute the defendants as partners. It is possible to refer loosely to people as being partners without there being the necessary legal relationship to constitute a partnership. The question is whether or not the relationship is in substance one which the law would characterise as partnership: see Ness Training Limited v Triage Central Limited [2002] SLT 675, at para [17].

[25] In this case in my judgment the relationship between the defendants in relation to the transaction involving the cheque is not that of partnership. The defence raised by Mr Johnson of breach of the Financial Transactions Reporting Act 1996 does not require consideration in light of that finding.

The basis of the contractual relationship between plaintiff and the first defendant

[26] The plaintiff relies on both the express terms and conditions of the Client Services Agreement concluded by the first defendant on 2 May 2002 and also an implied term, if necessary, that proceeds of any cheques that the first defendant deposited with the plaintiff would be cleared and funds paid by the plaintiff from the account but not cleared would be reimbursed by the first defendant.

[27] The first question under this head is whether the express terms and conditions of the Client Services Agreement were part of the contract between the plaintiff and the first defendant. There is a conflict in the evidence between the parties on this point. Mr Watson’s evidence was that on 2 May he faxed a copy of the Client Services Agreement including the terms and conditions to the number given him by Verna, the second defendant’s employee. It is accepted that the fax ran to nine pages. The Client Services Agreement was in two parts, the application to open an account and the schedule of terms and conditions. The first defendant completed and faxed back the first part of the Client Services Agreement. He did not fax back the terms and conditions. In evidence the first defendant denied that he received the terms and conditions with the other part of the Client Services Agreement. Mr Watson’s evidence is that the nine pages faxed to the first defendant included the schedule to the Client Services Agreement with the terms and conditions. He thought that at the time, in May 2002 the entire agreement including terms and conditions ran to eight pages. Mr Watson’s understanding is consistent with the nine page fax (allowing one page for a cover sheet). Mr Watson confirmed that was his recollection of the form, and of what he sent. He also confirmed that he had no reason to send anything else. Against that the first defendant maintained he had not received the terms and conditions. He said he had a telephone conversation with Mr Watson while he filled in the forms before returning them. Mr Watson did not accept that.

[28] It is beyond argument that Mr Watson faxed nine pages to the first defendant on 2 May. The first part of the Client Services Agreement completed by the first defendant and returned to the Bank only included four, or at most five, pages. The first defendant gave no explanation what the additional pages he had received from the plaintiff may have been. Further, the first defendant’s evidence about the telephone conversation with Mr Watson on 2 May is inconsistent with both the record of calls and the transcripts of the telephone calls between Mr Watson and the defendants that day. There is no record of a call of the nature described by the first defendant even though the plaintiff records all incoming and outgoing calls. The only call between the parties after the fax was sent was the third defendant’s call to the plaintiff to confirm instructions regarding the disbursement of the funds when cleared. The content of the calls that day are also inconsistent with the first defendant’s evidence on this point. I prefer Mr Watson’s evidence about the documents that were faxed to the first defendant as opposed to the first defendant’s evidence. The plaintiff satisfies me on the balance of probabilities that the first defendant received the full Client Services Agreement including the terms and conditions relied on. He had those terms and conditions at the time he completed the Client Services Agreement and is bound by them.

[29] The first defendant’s counsel also criticised the plaintiff’s inability to produce a full copy of the terms and conditions in the form that applied at the time that the first defendant completed the Client Services Agreement in May 2002. Mr Watson accepted that the original copy of the terms and conditions was no longer available as the copy had not been retained in his file and a new form was now used. However he confirmed in evidence that the terms and conditions in the new form were identical in content to the terms and conditions contained in the Client Services Agreement at the time it was completed by the first defendant. Mr Watson produced a copy of those terms and conditions. I accept his evidence the terms and conditions are the same.

[30] The plaintiff relies on two express provisions in the terms and conditions. First, clause 11.17. Clause 11.17 reads:

You will indemnify us against any actions, claims, demands, proceedings, costs, damages, expenses, liabilities and losses (including legal costs on a solicitor and client basis) paid, suffered or incurred by us directly or indirectly as a result of undertaking your instructions in respect of any dealings in securities or of any failure by you to comply with our terms and conditions.

[31] Mr Malcolm submitted that clause 11.17 only applied to instances of dealing by the plaintiff in securities on behalf of its clients and did not apply to the transaction in the present case. I accept that the thrust of the clause is directed at dealing in securities. Clause 11.17 does not assist the plaintiff.

[32] However, the plaintiff also relies on clause 14 of the terms and conditions which includes:

• I/We agree that the following conditions apply to transactions and accounts held with ASB Bank Limited and ASB Securities Limited, collectively referred to as “ASB Securities” ...

• I/We agree at all times to keep ASB Securities indemnified from and against ...

all losses, liabilities and expenses of any type whatsoever incurred by ASB Securities as a result of accepting the above instructions, whether or not those instructions are valid.

(emphasis added)

[33] Mr Malcolm again submitted that the provisions of this clause were ambiguous and did not apply. I do not agree. The indemnity extends to losses incurred as a result of the plaintiff acting on the customer’s instructions, (which can be telephone or fax) in relation to both transactions and accounts and whether or not those instructions are valid. In the present case the loss the plaintiff has sustained is as a result of the first defendant’s instructions to process the counterfeit cheque through the first defendant’s account with it and later to pay out on it.

[34] The wording of clause 14 as a whole satisfies me that the clause refers to the operation of accounts such as the one held with the plaintiff as a branch of ASB. Later clause 14 provides “cheques cannot be drawn against until the proceeds have been cleared ...”

[35] I accept the plaintiff’s submission that the first defendant is bound by clause 14 of the terms and conditions. Pursuant to clause 14 of those terms and conditions he contracted to indemnify the plaintiff from a loss of the type or nature sustained by the plaintiff in this case and is contractually obliged to do so. The plaintiff succeeds against the first defendant on this cause of action.

Implied term

[36] In light of the above finding it is strictly unnecessary to consider the plaintiff’s alternative submission that the Court should imply a term requiring the first defendant to reimburse the plaintiff for subsequently dishonoured cheque proceeds. However in deference to counsel’s submissions I refer to the matter briefly. Mr Malcolm submitted the Court should not imply a contractual term referring to the rejection of an implied term by Gallen J (at first instance) in National Bank of NZ Limited v Waitaki International Processing (NI) Ltd [1997] 1 NZLR 724, 728. However, the rejection by Gallen J of an implied term in that case was in part at least, due to the nature of the transaction in that case which the Judge found was that of a gratuitous bailment as opposed to a contractual one.

[37] The term sought to be implied by the plaintiff is of its nature so general that if it ought to be implied in this case then it ought to be implied into all contracts between a bank and a customer: Liverpool City Council v Irwin [1977] AC 239. Put another way it would be a term necessary for the reasonable operation of the type of contract in issue: see Burrows Finn & Todd Law of Contracts 2nd ed at para 6.3.3.

[38] In considering whether to imply such a general term into all contracts between a bank and its customers it is necessary to bear in mind the general reluctance expressed in a number of leading authorities to the extension of the duties of care owed by a customer to a bank: National Bank of New Zealand Ltd v Walpole and Patterson Ltd [1975] 2 NZLR 7; Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Limited [1985] 2 All ER 947. In the Tai Hing case the Privy Council considered that wider duties of care by the customer were not necessary incidents of the banker customer relationship and that if the bank wished to impose such wider obligations they ought to be the subject of express terms made known to and accepted by the customer.

[39] While focused on duties of care rather than implied contractual terms, the reasoning in the above decisions is of relevance to the submissions that an implied term ought to be imposed in this case. Also of relevance in my view is that the relief provided by the implied term argued for by the plaintiff can also be provided by the alternative cause of actions argued for by the plaintiff; namely the recovery of monies paid under mistake or recovery of monies wrongly had and received: see ANZ Banking Group v Westpac Banking Corporation (1988) 164 C.L.R. 662. If the plaintiff relies on those causes of action, the overall equity of the case also can be considered.

[40] In the circumstances of this case I would not for my part have been prepared to find that it was necessary for the term argued for by the plaintiff to be implied generally into the contractual relationship between plaintiff and its customers including the first defendant. However, for the reasons noted above, the first defendant is bound by the express clause in the agreement to indemnify the plaintiff in any event.

Monies paid by mistake/Monies had and received

[41] Although there is a degree of overlap between the causes of action of monies paid by mistake and monies had and received the plaintiff has pleaded each separately.

Monies paid by mistake

[42] The position of a bank which has paid out monies under a mistake of fact was authoritatively stated by Robert Goff J in Barclays Bank Limited v WJ Simms Son & Cooke (Southern) Ltd & Anor [1979] 3 All ER 522. In that case he summarised the principles as follows:

1. If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact.

2. His claim may however fail if: (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; (c) the payee has changed his position in good faith, or is deemed in law to have done so.

(p 535)

[43] When the bank credited the first defendant’s US dollar account with the US$455,600 the bank retained legal title to it with the first defendant having rights against the plaintiff for the value of the money.

[44] When the plaintiff transferred the money from the first defendant’s US account it did so in the mistaken belief, either as to the validity of the cheque or the availability of cleared funds in the first defendant’s account. This is not a case where the plaintiff’s mistake was in the nature of a misprediction or a voluntary risk, as in Dextra Bank & Trust Company Limited v Bank of Jamaica [2001] UKPC 50.

[45] In total the plaintiff paid $218,671.87 by mistake to the first defendant. $524,219.02 was paid to Smart Products of Taiwan and $212,000 to the second and third defendants. The plaintiff must recover the monies paid by mistake from the recipients of the mistaken payments. The plaintiff’s claim under this cause of action against the first defendant is limited to the claim for $218,671.87. Subject to the positive defences raised by the first defendant, he is prima facie liable to repay that sum.

[46] The plaintiff’s claim in relation to the monies paid out to the second and third defendants is limited to the $212,000 paid out to their benefit at the first defendant’s direction.

[47] Mr Johnson submitted that the plaintiff could not succeed in its claim to recover the $212,000 from the second and third defendants because in making the payment the plaintiff had effectively accepted the first defendant’s request for overdraft facilities, so the payment was within the plaintiff’s mandate and, while the Bank was entitled to recourse from the first defendant, as the first defendant’s obligations to pay the second and third defendants had been discharged, the Bank was not entitled to recover from the second and third defendants. Mr Johnson referred to and relied on passages in Robert Goff J’s judgment of Barclays Bank Limited v W J Simms Son & Cooke (Southern) Limited & Anor supra at 539. Mr Johnson relied in particular on the following passage from Goff J’s judgment:

The two typical situations, which exemplify payment with or without mandate, arise first where the bank pays in the mistaken belief that there are sufficient funds or overdraft facilities to meet the cheque and second where the bank overlooks notice of countermand given by the customer. In each case, there is a mistake by the bank which causes the bank to make the payment. But in the first case the effect of the bank’s payment is to accept the customer’s request for overdraft facilities; the payment is therefore within the bank’s mandate, with the result that not only is the bank entitled to have recourse to its customer, but the customer’s obligation to the payee is discharged. It follows that the payee has given consideration for the payment, with the consequence that, although the payment has been caused by the bank’s mistake, the money is irrecoverable from the payee unless the transaction of payment is itself set aside. Although the bank is unable to recover the money, it has a right of recourse to its customer.

[48] However, in my view Mr Johnson’s analysis that the situation discussed by Robert Goff J in that case applies in the present case is incorrect. Accepting for the purpose of argument that the transaction falls into the first situation discussed by the Judge, the transaction of payment has itself been set aside, so that the payment is not irrecoverable from the second or third defendants. The “debt” the first defendant owed the second and third defendants that Mr Johnson’s submission is premised upon was based entirely on the validity of the cheque. The cheque was counterfeit. The basis for the payment does not exist.

[49] The second and third defendants expressly acknowledged they were only to receive the full payment of $212,000 from the first defendant if the Treasury cheque was valid. The initial agreement between the defendants (as recorded on the second defendant’s letterhead) was not the operative document, as it was premised on the basis the cheque would be processed through the Pargeter Family Trust account with the plaintiff. That did not occur. The best evidence of the actual agreement between the defendants is the agreement subsequently recorded by the second and third defendants’ resolution, namely that:

NZ$200,000 (two hundred thousand NZ dollars) commission fee will be payable on funds becoming available from the proceeds of the cheque should the cheque prove valid.

(emphasis added)

[50] The cheque was not valid. The first defendant had no obligation to pay the $200,000 to the second and third defendants. This is not a case where the payment of $12,000 can properly be severed from the payment of the $200,000. The agreement to pay the $212,000 was made as one deal. Again, subject to the positive defences raised, the second and third defendants are prima facie liable to repay the $212,000 paid to them on the basis of payment by mistake of fact.

Monies had and received

[51] As noted there is a degree of overlap between the plaintiff’s claim for return of monies paid by mistake and its claim for monies had and received.

[52] Mr Johnson submitted that the elements required for a cause of action of money had and received were:

• an ascertained sum;

• money or its equivalent must have been actually received by the defendant;

• the money must be either the plaintiff’s money; or

• money in which he is directly interested; and

• the money must be clearly proved to have come into the defendant’s hands (what Mr Johnson referred to as the tracing requirement).

[53] Strictly Mr Johnson is right in identifying those elements as required for the cause of action arising as they do from Halsbury’s Laws of England 4th ed vol 9 (1) para 1140. However as the Court of Appeal recently accepted in National Bank of New Zealand Limited v Waitaki International Processing Limited (NI) Ltd [1999] 2 NZLR 211, in certain circumstances, whether the claim is classed as a claim in restitution, a payment made by mistake, or a claim for money had and received does not practically matter. In my judgment that is the case here.

[54] The elements required to be established by a bank in these circumstances to entitle it to recover can be summarised as:

• enrichment of the defendant by receipt of a benefit;

• which was at the expense of the bank; and

• circumstances rendering it unjust that the enrichment be retained.

[55] In the case of the first defendant prima facie the first two elements are satisfied. The first defendant has had the direct benefit of the $218,671 paid to him. That was at the expense of the plaintiff, which has received no consideration and currently has an obligation to ASB Bank in relation to that sum (together with the funds paid to others).

[56] The second and third defendants are enriched in relation to the $212,000 received by them. Mr Johnson of course accepted that that sum had been paid and received by the second and third defendants.

[57] The focus of the second and third defendants’ opposition to the plaintiff’s claim under monies had and received was on the tracing element that Mr Johnson identified. He submitted that the plaintiff’s claim must fail as it failed to satisfy “the tracing requirement”. He referred to a number of authorities dealing with tracing and admixture: Agip (Africa) Ltd v Jackson & Ors [1990] 1 Ch 265 and Agip (Africa) Ltd v Jackson & Ors [1991] Ch 546; Nimmo v Westpac Banking Corporation [1993] 3 NZLR 218. However with respect to Mr Johnson’s submissions the plaintiff’s claim is not dependent on tracing. The admixture with the funds in the United States occurred before the payments which the plaintiff sues on under its causes of action for monies paid by mistake and monies had and received were made. In relation to these causes of action the plaintiff’s claim against the second and third defendants is based on the monies paid out to them of $212,000. The claim is not dependent on tracing funds through electronic transfers or admixture in the United States.

[58] The real issue in relation to the monies paid by mistake/unjust enrichment elements of the plaintiff’s claim is whether the defendants, or any of them have defences under s 94B of the Judicature Act or otherwise.

Section 94B Judicature Act 1908

[59] Under s 94B parties such as the plaintiff making a payment by mistake may be denied recovery in whole or in part if the person receiving the payment has:

a) received the payment in good faith; and

b) so altered their position in reliance upon the validity of the payment that it would be inequitable to grant relief in full or otherwise.

[60] The first issue is whether the defendants received the payments in good faith. They say they received the payments in good faith because they relied upon the plaintiff clearing the funds and dispersing them. The defendants say that once they were advised by the plaintiff the cheque had cleared they were entitled to accept that advice and act accordingly. For the plaintiff Mr Waalkens submitted that the defendants did not receive the money in good faith by virtue of their prior conduct and their lack of candour.

[61] There is a superficial attraction to the defendants’ argument that they received the payments in good faith as they acted in reliance on the plaintiff’s advice that the cheque had cleared. However, the receipt of the monies and subsequent actions must be seen in the context of the defendants’ prior knowledge of the circumstances relating to the receipt by the first defendant of the cheque, the involvement of the second and third defendants in clearing the cheque, the defendants’ knowledge of the schemes that they were involved in, and the reservations the second and third defendants had regarding the validity of the cheque as expressed in the agreement the second and third defendants made with the first defendant and as reflected in the significant amount of the commission.

[62] The first defendant should have had real reservations about the validity of the cheque. The letter that accompanied it was not the type of letter one might expect to receive from a national Treasury. On its face the cheque was valid for one year yet the first defendant was requested for funds to insure it so that it was not cancelled. United Securities and Exchange Limited gave no explanation why the cheque was a US Treasury cheque. United Securities and Exchange Limited directed the first defendant that in relation to the Bank “it is your responsibility to convince them that the cheque is good and free ...” and later to tell the bank “your explanation is that the payment is for a contract you did with the US Treasury”, an outright lie. As far as the second and third defendants are concerned, the third defendant accepted in cross-examination that when she saw the cheque she was “very dubious” and said “there’s a little saying if it’s too good to be true it usually is.” Further, the second defendant acknowledged that he was aware of the Nigerian bank scams, but said in cross-examination that after going to Holland he “didn’t give it any thought.”

[63] The question is whether the effect of that knowledge and the suspicion the defendants had that the cheque was not genuine can be entirely wiped by the advice from the plaintiff that the cheque had cleared so that the subsequent payments were received in good faith. If the entire circumstances of the transaction are considered, which in my view they should be, then the defendants’ receipt of the monies remains tainted by their earlier knowledge and suspicion about the cheque so that it cannot be said that they received the proceeds of the cheque and the payments in good faith as is required for relief under s 94B. Put another way, using the words of Thomas J in National Bank of New Zealand Limited v Waitaki (supra), the defendants’ conscience in this case cannot be said to be clear or absolved.

[64] Alternatively and in any event in my judgment it cannot be said the defendants altered their position in reliance upon the validity of their payments so that it would be inequitable to grant relief in full or otherwise, so that the defence under s 94B fails on that ground also.

[65] As was noted by Lord Goff in Lipkin Gorman v Karpnale Limited [1991] 2 AC 548 p 580 when considering the similar common law defence:

At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress, however, that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions ...

It is not enough that the defendants have spent the money. More is required for an alteration in position.

[66] The first defendant did not lead evidence directly on the issue of alteration in position. Mr Malcolm submitted that through various telephone discussions Mr Watson for the plaintiff had represented that once cleared the monies were available to the defendants. However, the telephone advice was no more than communication of the advice the plaintiff had itself received. It does not advance the position of the defendants.

[67] Nor does the submission that the first defendant relied on a misrepresentation as to the process by which the funds were cleared add to the reliance. From the first defendant’s answer to interrogatories it seems he applied the funds to repay loans or to pay accounts.

[68] The second and third defendants said in evidence that they relied on the Bank to ensure the cheque was properly cleared. Apart from that they gave little evidence of relevance as to an alteration in their position.

[69] The second and third defendants applied the funds to pursue their involvement in the scam. It appears from their evidence that they were entirely committed to the scam and were driven by the prospect of the large commission of $200,000. As the third defendant said in evidence, “... In May 2002 when I was first introduced to [the first defendant] the trust funds were almost depleted. [The first defendant’s] proposal would enable the final payments to be made in order to release the consignment.” The second and third defendants applied the monies they received in pursuit of the speculative venture which involved significant financial risk. They fall short of establishing that it would be inequitable to grant relief to the plaintiff.

[70] Counsel then submitted that apart from s 94B the Court should also consider issues of estoppel. Aspects of estoppel were variously referred to as estoppel by representation, change of position and supervening loss.

[71] As was recognised by the Court of Appeal in National Bank of New Zealand Limited v Waitaki (supra) s 94B does not provide an exclusive regime for denying relief to the mistaken payer. It is a defence to a claim for repayment of money paid under a mistake that the respondent’s position was so changed that it would be inequitable in all the circumstances to require restitution in whole or in part. As Tipping J put it:

Developments in the law of restitution, not foreseeable in 1958, have reduced, if not eliminated, the need for s 94B. Those developments afford largely parallel relief. But a defendant who cannot rely on the section, can nevertheless rely on the developing law of restitution; for, as Henry J has noted, the unavailability of s 94B does not mean that the plaintiff must succeed.

p 232

[72] However, in the present case whether the issue is considered under s 94B or the broader equitable jurisdiction, the answer turns on the equities of the case. I have considered the submissions for the defendants. The submissions must be considered against the background that the plaintiff was put in the position it is in by the presentation of the cheque to it by the defendants. At the time it was presented to the plaintiff for processing the defendants made a number of representations about the cheque and their relationship that were simply not true. The defendants then used the funds either to pay existing loans or accounts (in the case of the first defendant) or to pursue their involvement in the banking scam (in the case of all defendants).

[73] It would not be equitable to allow the defendants to rely on their expenditure of the money in that way to prevent recovery by the plaintiff where the plaintiff itself has acted appropriately and on the advice of the Bank of New York and has also acted properly when given advice that the cheque was counterfeit. I reject the defences to the plaintiff’s claims under mistake of fact and for unjust enrichment.

Deceit

[74] Finally, the plaintiff pursues claims against all the defendants in deceit. It is strictly unnecessary to consider the position of the first defendant under this head as he is liable to the plaintiff under the earlier contractual cause of action. However, the claim in deceit is particularly relevant to the quantum of the plaintiff’s claim against the second and third defendants. If the second and third defendants are liable in deceit, the plaintiff is entitled to recover the full amount of its loss, US$455,600.

[75] The elements of the cause of action in deceit are:

• the defendant(s) must make a representation of fact;

• the representation must be made in the knowledge that it is false;

• the representation must be made with the intention that it be relied upon by the plaintiff;

• the plaintiff must in fact rely upon the representation; and

• the plaintiff must suffer damage as a result of relying upon the representation.

[76] The second and third defendants made a number of representations to the plaintiff as to their relationship with the first defendant and the prima facie validity of the cheque in question. The evidence satisfies me they did so deliberately and in order to lead the plaintiff to accept and process the cheque in reliance on the representations because of their long relationship with the plaintiff as its customers. There are a number of incidents of such deliberate misrepresentation. The second and third defendants’ statements to the plaintiff must be considered against the background that both the second and third defendant, the third defendant in particular, were heavily involved in a Nigerian bank scam, and were anxious to obtain money for the same to pursue their involvement in the scam. They saw the commission of $200,000 as a means to that end.

[77] The second defendant made a number of statements to the plaintiff about the relationship with the first defendant and the validity of the cheque:

• Okay, now, when we’ve invested in something, we invested in this certain man who’s now turned up with a cheque for us ... To pay it back ...

• ... we checked it all out, the paperwork’s done – the paperwork of clearance, and, you know, clearing with banks overseas, ’cause it’s an American cheque for, you know, quite a sum of money ... And, we got all the paperwork, so what we’re doing is kosher, alright ...

[78] The third defendant also made a number of assurances to the bank during the course of her telephone conversations with Jason Watson on 2 May about the first defendant and the source of funds for the cheque:

• [with reference to first defendant] Oh, yeah, he’s right with me. He’s a partner of ours ... And we’re doing international, uh, computer software business and we’re just decimating the trust getting all the software equipment.

• Geurts, he’s right standing beside to me, he’s a partner of ours.

• Holland Pacific International, yeah, that’s what his company was but he wants to do it on his own individual name now because we were putting everything through the Trust, and we were paying for everything through the Trust, so we wanted to get it in one lump sum. You see, I, internationally, do all the medical expos and I train doctors on very expensive computer equipment, I’m talking about ninety thousand dollars a hit, and it’s been too hard on the Trust, so we’ve decided to do it this way. So if I sold twelve pieces of those equipment last year, and I’ve just sold one about two days ago here. And it’s just too difficult Jason. ... But I’m sick of this, so Geurts and I have decided to bring in this money and put it back through the Trust, ...

After the first defendant’s application to open the customer account had been faxed through to the plaintiff, the third defendant said this in her subsequent discussion with the plaintiff in response to plaintiff’s advice it would take 15 days to clear:

Oh good, yes I need that cause I have to order more software to ... I’ve gotta have that, one medical centre wants that thru by the end of the month, you said fifteen days, should be okay, shouldn’t I ...

[79] All the above representations were representations of fact made in the direct knowledge that they were false. The comments the second and third defendants made about the relationship between them and the first defendant and their business involvement were patently untrue. The evidence is that the second and third defendants had only been introduced to the first defendant on 2 May, the day they had the above conversations with the plaintiff. The representations that the cheque was received as part of the business dealings between second and third defendants and the first defendant were also false. Further, the representations the cheque was “kosher” or that the plaintiff could properly transact the cheque, it being a Treasury cheque, were made without belief in the truth or were made recklessly and carelessly. Such is sufficient for the element of knowledge required: Derry v Peek (1889) 14 App Cas 337. Put another way, in the words of Hammond J in Gloken Holdings Limited v CDE Co Limited & Anor (1997) 8 TCLR 278 the statements were made without an actual and honest belief in the truth of that representation. When making the representations about the validity of the cheque the second and third defendants knew that the first defendant had already attempted to bank the cheque or had had difficulties with banking it. They knew that the first defendant was prepared to pay them $200,000 in order to have their assistance to clear the cheque. They should at the very least have been put on inquiry into the first defendant and the cheque’s bona fides. The reason they did not make such inquiries, and indeed went further and actively misrepresented their relationship with the first defendant and the cheque’s bona fides, was because of their need for the funds of $200,000 to pursue their involvement in a Nigerian bank scam themselves.

[80] The second and third defendants’ attempts to explain the above statements during the course of cross-examination were unconvincing and evasive. The evidence satisfies me that both second and third defendants set out to deliberately mislead the plaintiff as to the nature of their relationship with the first defendant and the background to their receipt of the cheque to ensure that the plaintiff would accept and process the cheque promptly and without question.

[81] Next, the plaintiff must satisfy the Court it relied upon the representations. In this case the plaintiff relied upon the representations in three particular ways. First in opening the account with the first defendant and accepting the cheque for processing. Second, by processing the cheque on an immediate credit or cash letter basis when it was advised that Treasury cheques were no longer able to be handled on a collections basis. Finally, the plaintiff relied on the representations in dispersing the funds at the first defendant’s direction.

[82] Mr Magee’s evidence was that an international cheque can normally be cleared in one of two ways, by collection or by way of cash letter (also called immediate credit). On a collections basis the bank at which it is first negotiated will not give value until payment is received and the funds are cleared. When clearing in this fashion the paying bank confirms the cheque is valid. It can take some weeks. The alternative method, that of cash letter or immediate credit enables the immediate credit of the cash letter or cheque on receipt with the funds being available for interest purposes but subject to later recourse. Initially the plaintiff sought to process the cheque on a collection basis. On 10 May the plaintiff through ASB Bank received advice from the Bank of New York that Treasury’s cheques were no longer handled on a collection basis. The plaintiff then processed the cheque on the immediate credit basis rather than having the cheque referred back to it for further reference to the first defendant. The evidence satisfies me it did so in part at least because of its reliance on the second and third defendants’ representations concerning the background to the cheque, their relationship with the first defendant and also because of the pressure placed on it by the second and third defendants (as longstanding clients) for access to the funds.

[83] The last element is the need for the plaintiff to suffer damage. The plaintiff has suffered damage by its reliance on the misrepresentations by the defendants. The damage is the amount of its liability to its parent, ASB Bank, the entire US$455,600. Prima facie the plaintiff is entitled to succeed against the second and third defendants in deceit. The quantum in this cause of action is not limited to the $212,000. The quantum is the full extent of the plaintiff’s loss, namely US$455,600.

[84] The defendants raised a number of defences to the claim in deceit. The second and third defendants submit the plaintiff is not entitled to succeed in both the action for breach of contract and in deceit. However the plaintiff was not in a contractual relationship with the second and third defendants for the purposes of these transactions. Section 6(1)(b) of the Contractual Remedies Act only applies to misrepresentations made to the plaintiff by or on behalf of the other party to the contract. In this case the only parties to the relevant contract were the plaintiff and first defendant. While s 6(1)(b) may apply to the plaintiff’s claim against the first defendant, it provides no defence to the second and third defendants against the plaintiff’s claim in deceit.

[85] Nor does s 6 of the Statute of Frauds Amendment Act 1828 in force by virtue of the Imperial Laws Application Act 1988 apply. It reads:

No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person, to the intent or purpose that such other person may obtain credit, money or goods upon, unless such representation or assurance be made in writing, signed by the party to be charged therewith.

[86] I note that it has been suggested that the wording of s 6 is incorrect and the section should be interpreted to read “obtain money or goods on credit”: Diamanti v Martelli [1923] NZLR 663. In any event, the section is not directly applicable in this case. The representations relied on against the second and third defendants in relation to deceit are representations as to the nature of the relationship between the defendants, and in particular the validity of the cheque held by the first defendant made in an effort to induce the plaintiff to accept the cheque rather than as to the first defendant’s credit or character as such. Finally, the benefit sought by the second and third defendants was a benefit for themselves rather than for the first defendant.

[87] I turn to consider the issue of contributory negligence. The first question is whether contributory negligence applies in relation to an action for deceit. English authority does not support a defendant pleading contributory negligence in order to reduce a plaintiff’s recovery under deceit: Chartered Bank v Pakistan National Shipping Corp [2000] 3 WLR 1692. However, in Dairy Containers Limited v NZI Bank Limited [1995] 2 NZLR 30, Thomas J suggested that the Contributory Negligence Act 1947 (the Act) could be interpreted in a way that would allow it to apply to a claim for deceit. In Gloken Holdings Limited v The CDE Co Limited (supra) Hammond J took a different view. He considered that a plaintiff’s own negligence could not furnish a complete or even partial defence to an action for deceit. I prefer the view that conduct by a plaintiff can not be “fault” within the meaning of the Act unless it gives rise to a defence of contributory negligence at common law. As there is no common law defence of contributory negligence in the case of deceit, or fraudulent misrepresentation, the Act cannot apply. However, it is unnecessary for me to make a definite finding on the issue as on the facts of this case there is no evidence of contributory negligence on the part of the plaintiff in any event. The plaintiff carried out a credit and other checks on the first defendant when opening the account. It then processed the cheque in accordance with its usual procedure. It dealt with an authorised bank in the USA, the Bank of New York. The plaintiff did not receive notice of dishonour until 21 June, some 26 working days after it instructed its agent to process the cheque on the immediate credit basis. The plaintiff has not been contributory negligent. While it has changed its practice following this case and has now increased the hold period from 15 to 21 working days, that would not have affected the position in the present case. The evidence does not support the submission the plaintiff was contributory negligent in the way it acted in this transaction.

Judgment

[88] The plaintiff succeeds in its causes of action against the first defendant in contract and for monies had and received and monies paid by mistake. The plaintiff is entitled to the New Zealand equivalent of US$455,600 on the first cause of action. It also succeeds against the plaintiff on the mistake and monies had and received causes of action, but for the lesser sum. The plaintiff also succeeds against the second and third defendants in its causes of action in deceit and for monies paid by mistake and monies had and received. As the plaintiff has succeeded in deceit against the second and third defendants it is entitled to judgment in the sum of the New Zealand equivalent of US$455,600.

[89] There will be judgment for the plaintiff against all defendants in the sum of NZ$722,543.81 taking the conversion at the mid-rate of .63055 as at 27 April 2004. In addition the plaintiff is entitled to interest. Interest at six percent per annum non compounded equates to $94,303.92 to 27 May 2002. Judgement for the plaintiff against all defendants in the sum of $816,847.73 including interest to the date of judgment

Costs

[90] The plaintiff is entitled to costs and disbursements. Costs on a 2B basis against the defendants. In the case of the second and third defendants there will be one award, with each of them, the second and third defendant, jointly and severally liable.

Signed at 3.45 p.m. this 27th day of May 2004