Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Russell Gould Pty Ltd v Ramangkura [2014] NSWCA 310
• Hearing dates: 18 July 2014
• Decision date: 09 September 2014
• Before: Bathurst CJ at [1]; Barrett JA at [2]; Ward JA at [84]

Decision

Appeal dismissed with costs

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: RESTITUTION - remedies at common law - action for money had and received - payment of company's money by a director alleged to have no authority to cause the payment to be made - no allegation of breach of fiduciary or other duty or dishonesty by the director - recovery action brought by the company against the third party recipient alone - no basis for equitable relief - whether proceeds of payment by the company identifiable in the third party recipient's hands - where the money was transferred from the company's bank account to the third party recipient's overdrawn account at the same bank - no credit balance resulting in the recipient's account - no ability to follow or trace into the overdrawn account - where the director was owed money by the company payable on demand - whether the director should be presumed to have sought and obtained payment of that money when he caused the company to make the payment
• Cases Cited: Agip (Africa) Ltd v Jackson [1990] Ch 265 Boscawea v Bajwa [1996] 1 WLR 328 Calverley v Green [1984] HCA 81; 155 CLR 242 David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353 Foskett v McKeown [2001] 1 AC 102 Frith v Cartland (1865) 2 H&M 417; 71 ER 525 Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676 Parker v The Queen [1997] HCA 15; 186 CLR 494 Rae v Russell [2012] NZCA 536 Re Hallett's Estate; Knatchbull v Hallett (1880) 13 Ch D 696 The Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; 33 CLR 199
• Category: Principal judgment
• Parties: Russell Gould Pty Ltd (Appellant) Vilailaksana Ramangkura (First Respondent) Russell Gould by his Tutor NSW Trustee and Guardian (Second Respondent) (Submitting appearance filed)
• Representation: Counsel: R E Dubler SC/J Hyde Page (Appellant) L J Ellison SC/P P O'Loughlin - 1R; Solicitors: Swaab Attorneys (Appellant) Coyne Legal (First Respondent) NSW Trustee and Guardian (Second Respondent)
• File Number(s): CA 2013/276695

Decision under appeal

• Citation: [2013] NSWSC 1114
• Date of Decision: 2013-08-16 00:00:00
• Before: Lindsay J
• File Number(s): 2011/280083

HEADNOTE

[This headnote is not to be read as part of the judgment]

Russell Gould Pty Ltd was a family investment company. Mr Gould, Mrs Gould and their son were the directors and the owners of all the shares. Mr and Mrs Gould had substantial loan accounts in the company's books following deposit by them with the company of the proceeds of the sale of their family home. The loans were payable on demand.

On 12 April 2010, Mr Gould caused $227,820.71 to be transferred from a term deposit account of the company at its bank to the home loan account of the respondent at the same bank, thus clearing her home loan debt. The respondent was a companion and carer to Mr and Mrs Gould. Mr Gould could operate the company's bank accounts by his own signature alone.

The principal issue on appeal was whether, if Mr Gould acted without the company's authority when he caused the money to be transferred, the company could recover the money from the respondent. The company did not seek recovery as against Mr Gould; nor did it allege against him breach of duty as a director, disregard of the company's interests or any kind of dishonesty. The allegation was that he lacked of power not that he abused power.

The primary judge held that Mr Gould did no more than require payment by the company of moneys owing and payable by the company to him or Mrs Gould (or both) and that he or she (or they) then made a gift to the respondent, so that the company had no claim against her.

Held (Barrett JA; Bathurst CJ and Ward JA agreeing) dismissing the appeal:

1. Because no equitable wrong was alleged, the question of recovery by the company from the respondent depended on the availability of the common law action for money had and received: [27].

Moses v Macferlan (1960) 2 Burr 1005; 97 ER 676, David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353 referred to.

2. The company was not entitled to judgment against the respondent for money had and received unless it could demonstrate that she had received the company's legal property: [30].

Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, Agip (Africa) Ltd v Jackson [1990] Ch 265 considered.

3. No process of following or tracing countenanced by the common law allowed to be identified in the respondent's hands anything that represented the legal property of the company. She did not acquire any property when money was transferred into her home loan account. She obtained the benefit of freedom from indebtedness. There can be no tracing or following into an overdrawn account: [31]-[33].

Foskett v McKeown [2001] 1 AC 102, Rae v Russell [2012] NZCA 536 considered.

4. The payment of money owing under a mortgage securing a loan obtained to purchase property is not a payment of purchase price: [36].

Caverley v Green [1984] HCA 81; 155 CLR 242 applied.

5. (Obiter): Had equitable principle been at work, tracing into the respondent's real property might have been possible on the basis that the provider of the money that caused the mortgage debt to be discharged was subrogated to the property right of the mortgagee whose debt was paid out: [37].

Boscawea v Bajwa [1996] 1 WLR 328; Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230 cited.

6. When determining whether Mr Gould caused to be paid by the company loan monies he was entitled to demand or monies to which that entitlement did not extend, there was a prima facie presumption that he intended to adopt the proper and regular course of seeking to obtain monies that he was entitled to demand. This principle applies both at common law and in equity: [74]-[80].

Frith v Cartland (1865) 2 H&M 417; 71 ER 525, Parker v The Queen [1997] HCA 15; 186 CLR 494 applied.

JUDGMENT

1 BATHURST CJ: I agree with Barrett JA.

2 BARRETT JA: On 12 April 2010, a sum of $227,820.71 was transferred from a term deposit account of the appellant, Russell Gould Pty Ltd ("the Company"), with Australia and New Zealand Banking Group Ltd at Mosman Junction to an account with the same bank maintained by the first respondent, Vilailaksana Ramangkura ("the Defendant").

3 The Defendant's account was a home loan account which, before the transfer, was in debit to the extent of $227,820.71. Money lent to the Defendant by the bank had been applied by her towards the purchase of real property of which she thereby became the owner. The transfer from the Company's account to the Defendant's account cleared the Defendant's home loan debt to the bank.

4 The instruction to debit the Company's account and effect the transfer was given to the bank by Russell Vanda Gould ("Mr Gould"), a director of the Company. As against the bank, Mr Gould had unlimited authority to operate on the Company's accounts by his own signature alone.

Parties and other persons

5 The Company was formed in 1973 by Mr Gould and his son, Vanda Russell Gould ("Mr Vanda Gould"), to take over a retailing business carried on by Mr Gould and Joan Gould ("Mrs Gould") who is the wife of Mr Gould and the mother of Mr Vanda Gould.

6 Mr Gould was born in 1919, Mrs Gould was born in 1924 and Mr Vanda Gould was born in 1948. They were, at material times, the only directors of the Company and the holders of all the issued shares (to be more precise, Mr Vanda Gould held shares both directly and through a corporate vehicle).

7 At the times relevant to the proceedings, the Company was essentially an investment company, having discontinued the retailing business in about 1989. It retained the shop premises which were leased and produced rent. It also held other investments.

8 The Defendant (known as "Viri") was said by the primary judge to be regarded by Mr Gould and Mrs Gould as "a surrogate daughter". From about 2002, she was their companion and carer. She lived in their home from time to time during periods of illness in order to care from them. A close relationship developed. There is no blood tie between the Defendant and the members of the Gould family.

Proceedings

9 The Company brought proceedings in the Equity Division of the Supreme Court against the Defendant alone. It claimed judgment in the sum of $227,820.71. It also claimed a declaration that the Defendant held particular real property "on constructive trust for the plaintiff [ie, the Company] to the extent necessary to satisfy the judgment debt, including interest and costs". The property concerned was that which the Defendant had purchased with the aid of the money lent to her by the bank on the home loan account.

10 The Company formulated its case against the Defendant in several alternative ways. It was made clear in this Court, however, that the Company no longer sought to rely on alternatives under headings "Unjust enrichment" and "Undue influence" in the further amended statement of claim. That left three pleaded alternatives, which are, in summary, as follows:

1. "Ineffective or voidable transaction": that Mr Gould, with the Defendant's assistance, obtained money standing to the credit of the Company at the bank; that the money was paid into the Defendant's bank account (being a loan account from which the Defendant had drawn money to buy the real property); that Mr Gould did not have the Company's authority to pay the Company's money to the Defendant; that the payment of the money to the Defendant was not in the interests of or for the proper purposes of the Company and was a breach of Mr Gould's duty as a director of the Company; that the Defendant knew or should have known of the lack of authority on Mr Gould's part and that he breached his duty as a director; and that the Defendant obtained no legal or equitable right to the moneys.

2. "Money paid": as for "Ineffective and voidable transaction", but with an allegation that the Defendant sought that the Company discharge her indebtedness to the bank (or assented to the Company's payment to the bank) giving rise to an entitlement of the Company "to restitution from the Defendant on the basis of 'money paid'."

3. "Contractual breach": that if the Company in truth made a payment to the Defendant that was not recoverable on a basis earlier pleaded, the payment was by way of loan by the Company to the Defendant and the Company was entitled to repayment of the loan.

11 After a trial extending over five hearing days, Lindsay J dismissed the Company's claims.

12 His Honour's decision had as its principal basis a finding that, by consensus among the three shareholders and directors of the Company, Mr Gould had implied authority to appropriate moneys of the Company to his own use as and when he wished, by way of partial payment by the Company of a substantial loan account in Mr Gould's favour recorded in the Company's books (or loan accounts of himself and Mrs Gould).

13 On the view his Honour took, Mr Gould did no more than require payment by the Company of moneys owing and payable by the Company to him (or him and Mrs Gould), direct the Company to make payment of those moneys to the Defendant and, in exercise of the Company's implied authority, cause the Company to make payment to the Defendant at his direction accordingly. The money paid to the Defendant was, on the judge's findings (at [128]), "personal property of Mr and/or Mrs Gould senior, via a repayment to them by the plaintiff [ie, the Company] of part of a debt owed by the plaintiff to them respectively". Furthermore, the primary judge found that the money was paid to the Defendant by way of gift, not loan.

The appeal

14 The Company appealed. The respondents are the Defendant and Mr Gould. He was not a defendant in the Equity Division proceedings brought by the Company but became a party through a cross-summons filed by the Defendant seeking declaratory relief only. In this Court, NSW Trustee and Guardian, as Mr Gould's tutor, filed a submitting appearance save as to costs. That left the Defendant as the active respondent on the hearing of the appeal.

15 By its amended notice of appeal, the Company contends that the primary judge erred in finding that Mr Gould had implied authority to cause the Company to make the payment of $227,820.71 without the approval of the directors. The Company said in the amended notice of appeal that the judge should have found lack of authority on the part of Mr Gould because:

(a) the payment was of a character and size beyond the ordinary course of the business that Mr Gould routinely exercised without obtaining the consent of the directors;

(b) earlier disbursements of company funds by Mr Gould for his own account with the knowledge and consent of the directors were of smaller amounts and of a different character; and

(c) the prior course of conduct of the Company and Mr Gould in respect of more significant disbursements of company funds was that they were made only with prior notice to all directors; and

(d) Mr Gould, in causing the payment of $227,820.71 to be made, acted in the erroneous belief that the money was his to do with as he pleased and he did not consult or have regard to the interests of the Company as a whole or its creditors.

16 Counsel for the Company emphasised in the course of the hearing that the basic proposition advanced was that Mr Gould lacked authority, not that he breached any duty. Counsel acknowledged that the issue in (d) above concerning use of the Company's money by Mr Gould as if it were his own in disregard of the interests of the Company as a whole and its creditors was therefore irrelevant. That part of the case outlined in the amended notice of appeal was not pressed.

17 Counsel for the Company made it clear that two alternative cases are put on appeal, both founded on lack of authority on the part of Mr Gould:

(a) that, if the payment was correctly characterised as a payment by the Company to Mr Gould (or Mrs Gould or both) by way of reduction of loan account, coupled with an immediate on-payment by that recipient to the Defendant, Mr Gould lacked the authority of the Company to cause it to make the payment to the initial recipient (or recipients); and

(b) that, if the payment was correctly characterised as a gift by the Company to the Defendant, Mr Gould lacked the authority of the Company to cause it to make such a gift.

18 It is significant that, in this Court, the Company did not maintain any allegation of breach of duty by Mr Gould. Nor does it seek any relief against Mr Gould. An important element of the pleaded cases under both the "Ineffective or voidable transaction" heading and the "Money paid" heading is therefore no longer asserted. In relation to the matters pleaded under those headings, the highest the allegation against Mr Gould is put is that he acted without the Company's authority - in other words, that there was a lack of power, not an abuse of power.

19 That being so, the Company's claim against the Defendant turns entirely on two questions: whether there was in truth lack of authority on Mr Gould's part; and, if so, whether that circumstance is the source of an entitlement of the Company, as against the Defendant (as distinct from Mr Gould), to either a money judgment or a remedy recognising or conferring an interest of the Company in property of the Defendant.

20 The grounds of appeal accept the proposition that the three persons who were the shareholders and directors of the Company had, over time, acquiesced in a course of conduct under which Mr Gould could, to some extent and in some circumstances, withdraw funds from the Company by way of reduction of his loan account and that Mr Gould's actions in that respect were binding on the Company. The Company says, however, that the authority did not extend so as to allow Mr Gould to do what was in fact done on 12 April 2010. The allegation of lack of authority is thus not that Mr Gould had no authority at all to draw funds from the Company but that his authority did not extend to a drawing of the particular magnitude made in the particular circumstances.

21 In her amended defence, the Defendant admitted that $227,820.71 was obtained from an account at the ANZ bank at Mosman Junction on the day in question. She said that she believed that the money belonged to one or both of Mr Gould and Mrs Gould. She said, in the alternative, that Mr Gould had actual or ostensible authority to act on behalf of the Company. In terms of her own belief, therefore, it was the Defendant's case that the money belonged to Mr Gould, Mrs Gould or both of them and that she was unaware of any entitlement of the Company, assuming that there was one; but if such an entitlement did exist, her position was that Mr Gould had authority to pay the Company's money for her benefit.

22 There is no dispute that, as against the bank, Mr Gould had the Company's actual authority to operate its accounts and to cause payments out of those accounts to be made, with the bank being bound by his instruction, even though no other representative of the Company joined in or confirmed the instruction.

23 The steps instigated by Mr Gould at the bank on the day in question caused the credit balance of one of the Company's term deposit accounts to be reduced by $227,820.71 and a debit balance of the same amount on the Defendant's home loan account to be eliminated. There was, in an immediate sense, a transfer of value from the Company to the Defendant but there was, on the case as argued, a question whether there was, in reality, an intermediate receipt by the Goulds (or one of them) coupled with a subsequent but immediate payment by the Gould recipients or recipient to the Defendant.

The Company's decision to rely on lack of authority alone

24 I pause at this point to consider implications of the Company's express decision in this Court to rely on lack of power to the exclusion of abuse of power and to eschew any allegation of breach by Mr Gould of any duty owed by him as a director of the Company or that he acted in disregard of, or to the prejudice of, the interests of the Company.

25 The sole allegation maintained against Mr Gould in this Court is that he acted without the authority of the Company in causing it to make a payment of its money either to the Defendant or to himself or Mrs Gould or both of them (for ease of reference in the discussion that follows, the second possibility will be taken to involve payment to Mr Gould alone).

26 The stance thus taken by the Company means that any unauthorised action of Mr Gould must be taken to have been innocent, in the sense that it did not involve any breach of fiduciary obligation, any dishonesty or any other form of unconscientious conduct that would attract the attention of equity in a way calculated to protect the position of the Company. It follows that equitable principle plays no part in the adjudication of the Company's claim and that common law rules alone are to be applied.

27 If, as the Company contends, the payment by the Company occurred through an unauthorised act of Mr Gould, the payment was made without the Company's assent. The situation is therefore the same as others in which someone receives another person's property in a non-voluntary transaction - for example, through mistake, duress or theft, although without any of the overtones of dishonesty that will commonly be present in those cases. The remedy potentially available to the Company is accordingly by way of common law restitutionary action for money had and received in which a money judgment is sought against the Defendant.

28 The essence of the common law action for money had and received to the use of the payer was recognised by Lord Mansfield in Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676 as the notion that retention of the money by the payee would be against conscience. In David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353, a case of payment under mistake, it was said by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ (at 379) that the mistake gave rise to a prima facie obligation on the part of the recipient to make restitution. The action thus lies principally against a receiving party.

29 The action may, however, lie against a party to whom the immediate receiving party has in turn made payment. But as Lord Goff of Chieveley pointed out in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572, any ability to maintain the action against such a third party depends on the plaintiff's showing that money or property in that third party's hands is the legal property of the plaintiff - a matter that, in a case such as the present, involves common law rules (as distinct from rules of equity) regarding following and tracing. In Agip (Africa) Ltd v Jackson [1990] Ch 265 at 285, Millett J said that, for the purposes of an action for money had and received, "[t]racing at common law enables the defendant to be identified as the recipient of the plaintiff's money and the measure of his liability to be determined by the amount of the plaintiff's money he is shown to have received".

30 If, in the present case, the true characterisation of events is that the Company paid money to Mr Gould and he paid equivalent money to the Defendant, a claim for money had and received cannot avail the Company, as against the Defendant, unless the requirement identified by Lord Goff in Lipkin Gorman is satisfied and the Company can, according to common law rules, follow or trace its money into the hands of the Defendant.

31 In any discussion of common law following and tracing, a valuable starting point is the following statement by Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 127-8:

"[Tracing and following] are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner.

...

Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant's property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. ... But his claim may also be exposed to potential defences as a result of intervening transactions."

32 As is here made clear, principles concerning following and tracing do not of themselves define or determine substantive rights. They facilitate the identification of particular property in someone else's hands as either the plaintiff's property or as a substitute for the plaintiff's property. Property is treated as identifiable as long as it has not become mingled with other property. The common law therefore does not allow tracing into a mixed fund (equity, by contrast, may grant or recognise a charge over such a fund in order to preserve an equitable interest arising from an addition or contribution to it).

33 Importantly, neither the common law nor equity allows money to be traced into a bank account which is overdrawn and remains so after the money is paid into it. The rationale was explained by the Court of Appeal of New Zealand (O'Regan P, French and Asher JJ) in Rae v Russell [2012] NZCA 536 at [43]:

"In the case of a payment into an overdrawn account, there is no new asset created, as there is no debt of the bank to the account holder that is created, and the account holder gains no chose in action against the bank. Instead, the account holder's debt to the bank is in whole or in part repaid. The monies paid by the account holder can no longer be identified and there is no property or replacement asset that can be restored."

34 That is the situation here. The bank made no physical payment on 12 April 2010. In response to the instruction given by Mr Gould on behalf of the Company, the bank adjusted its records to reflect, first, a reduction of $227,820.71 in the amount it owed the Company on the particular term deposit account and, second, elimination of the debt owed to the bank by the Defendant on her home loan account.

35 The Defendant thereby ceased to be indebted to the bank and, we may infer, the real property purchased by her with the aid of money originally borrowed from the bank ceased to be encumbered by any mortgage in the bank's favour.

36 To the extent that, in that context, it is sensible to speak of money having been paid by the Company, that money had no identifiable existence after the payment. The Company's action caused the Defendant's debt to the bank on her home loan account to be extinguished. The Defendant did not thereby acquire any property. She obtained the benefit of freedom from her pre-existing indebtedness but that, of course, is in no sense property. Nor can it be said that the shift of value from the Company to the Defendant represented some form of contribution to the purchase of the particular item of real property already owned by the Defendant and mortgaged to the bank. As Mason and Brennan JJ pointed out in Calverley v Green [1984] HCA 81; 155 CLR 242 at 257-8, the payment of money owing under a mortgage securing a loan obtained to purchase a property is not a payment of purchase price. In the ordinary case of a "cash on completion" conveyancing transaction, the purchase price is satisfied in full when the property is conveyed to the purchaser and, to the extent that moneys borrowed on mortgage are used to complete the purchase, those moneys are outlaid as part of the purchase price at that point. Subsequent payment of instalments owing under the mortgage is payment towards obtaining release of the charge previously created over the property purchased.

37 Had equitable principle been at work, tracing into the real property might have been possible on the basis that the provider of the money that caused the mortgage debt to be discharged was subrogated to the property right of the mortgagee whose debt was paid out: Boscawea v Bajwa [1996] 1 WLR 328 at 340-1; Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230 at [135]. But no such analysis is available in a case like the present where the common law alone operates.

38 In the circumstances of the present case, therefore, the sum of $227,820.71 which, on 12 April 2010, was credited to the Defendant's home loan account with the bank thereafter had no existence of its own; and no process of following or tracing countenanced by the common law allows to be identified in the Defendant's hands anything that represents that money.

39 The consequence is that, even if conscience is shown to be offended in a way relevant to the availability of the common law action for money had and received, there is no possibility of recovery by the Company against the Defendant by such an action unless the sum of $227,820.71 was paid direct by the Company to the Defendant so that she became a recipient of the Company's money. The action will not lie if there were, in concept and reality, two payments, one by the Company to Mr Gould and another by Mr Gould to the Defendant.

The payment

40 The events in question took place in the context of the close relationship to which reference has been made. Mr Gould and Mrs Gould were aware that the Defendant had a home loan and that she was finding it difficult to keep up the payments. The matter had been referred to in conversation over several months. The Defendant said in an affidavit that in about March 2010 Mr Gould said to her, in relation to the home loan, that "we really want to help you", the "we" being, in context, a reference to himself and Mrs Gould. The Defendant further deposed that Mr Gould said to her at the Goulds' home on 12 April 2010 words to the following effect:

"Viri, we're going to the bank this morning and we're going to pay off your loan."

41 Her response, she deposed, was to ask whether Mr Gould had asked Mr Vanda Gould to which an affirmative answer was given.

42 By April 2010, the Defendant had been accompanying Mr Gould to the bank for quite some time. She explained in cross-examination that it had been Mrs Gould's habit to attend a hairdresser at Mosman Junction every Friday and that the Defendant regularly drove Mrs Gould to her hairdressing appointments because both Mrs Gould and Mr Gould had given up driving. Mr Gould accompanied Mrs Gould on the weekly trips and went to the bank where he usually withdrew money. The Defendant accompanied him to the bank while Mrs Gould was with the hairdresser.

43 The Defendant further deposed that, on the day in question, Mr Gould asked her how much she owed the bank, to which she replied that she could not remember exactly but thought it was about $300,000. Mr Gould then looked at several term deposit documents he had with him at home and chose one of them. He took this document with him when he and the Defendant went to the bank. On arrival, Mr Gould asked a bank officer how much was owing on the Defendant's home loan (she produced her bank card to the officer so that he could identify her account). The officer said that the amount was $227,000 and Mr Gould said, "It's less than we thought".

44 The Defendant further deposed that Mr Gould then handed the term deposit document to the bank officer and said:

"I want to pay off the loan. Would you take out the money from this term deposit."

45 On the Defendant's understanding, the money was then transferred to her home loan account. She and Mr Gould left the bank.

46 Mr Gould's account is consistent with that of the Defendant. He deposed to having said to the Defendant in about March 2010 words to the following effect:

"Joan and I would like to pay out your mortgage for all the help that you have given to us over the years."

47 Mr Gould gave evidence that, on 12 April 2010, he told the Defendant that the proposed payment was approved by Mr Vanda Gould, whereas he had not actually spoken to Mr Vanda Gould about the matter since he did not think he needed to ask his son's permission. Mr Gould's evidence about the visit to the bank is consistent with that of the Defendant. In relation to events at the bank, he deposed:

"Viri and I then went to the ANZ bank at Mosman Junction and a bank officer advised me of the amount owing on Viri's mortgage and I withdrew $227,820.71 from the bank account of the plaintiff company's bank account [sic] no. XXXXX then gave this money to Viri as a gift to pay out her mortgage. It was then paid directly into her account."

48 The primary judge ruled that the words "then gave this money to Viri as a gift to pay out her mortgage" were to be read as a statement of Mr Gould's intention, not an intention of the Company.

49 Mr Gould said in cross-examination that he discussed the proposed payment with Mrs Gould in advance and that, after the event, Mrs Gould said that she was happy that the payment had been made. Mr Gould also said that he had told the Defendant at the time that the money was a gift. He said that she had not asked for it.

50 The Defendant did not say in her evidence that the particular term deposit document taken to the bank was the Company's or that she knew that the money paid was the Company's money. Mr Gould's evidence made it clear that he was so aware but there was no reference to his having said anything to the Defendant about the ownership of the money. On his account, he told the Defendant that "Joan and I" would like to pay out her mortgage. On her account, the desire to assist her financially was expressed by Mr Gould as a desire of himself and Mrs Gould.

51 It was put to the Defendant in cross-examination that she knew that the money paid was the Company's money. Her response was:

"I didn't know at that time it was company money. Russell always said, 'This is our money'. Joan always said, 'This is our money'. Joan and Russell don't even know this company money. It's their money. If they don't know, how would I know."

52 It is, however, clear that the Defendant knew of the existence of the Company and had, over a period of months before 12 April 2010, assisted Mr Gould with "book work" concerning the Company. It was, she said, her understanding that the Company (which, after all, bore Mr Gould's name) was solely owned by Mr Gould.

53 There was evidence from both Mr Gould and the Defendant that, on their return from the bank, Mrs Gould asked whether everything was "okay", to which both of them gave affirmative answers, with Mrs Gould then expressing satisfaction and saying that the money was a gift and that she and Mr Gould wished to help the Defendant. On both accounts, the Defendant said that she still wanted to pay the money back. Mrs Gould deposed that she never offered to pay off the entirety of the Defendant's home loan and did not become aware of the payment until much later when Mr Vanda Gould informed her of it.

The judge's findings concerning the payment

54 After referring to the elements of the evidence just mentioned, the primary judge turned to a matter he considered to be "very near the central focus of these proceedings", that is, a birthday card dated 30 April 2010 addressed to the Defendant by Mr Gould and Mrs Gould.

55 His Honour set out the several handwritten messages on the card, two written by Mrs Gould and one by Mr Gould. One of the sections written by Mrs Gould contained the following words:

"Please accept this money as a gift to help pay off your home loan in gratitude for your help and support over the last 10 years."

56 The judge found that Mrs Gould was there referring to the sum of $277,820.71 transferred to the Defendant's home loan account 18 days earlier, on 12 April 2010. He rejected the proposition - or, as he put it, a "faint suggestion in the evidence of Mrs Gould" - that the reference was to some other (and smaller) sum enclosed with the card in the form of cash. That proposition was rejected because it was contrary to the evidence of Mr Gould and the Defendant which his Honour accepted as more reliable - and also because of a view that any sum that could be enclosed in cash form with a birthday card was likely to be negligible in the context of any home loan.

57 The Company says that the primary judge's finding in this respect was glaringly improbable. But, apart from the conflict between the evidence of Mrs Gould on the one hand and Mr Gould and the Defendant on the other, there is no basis for any conclusion that the finding was glaringly improbable. Mrs Gould's exhortation to accept "this money as a gift" was made in a context where the Defendant had said shortly beforehand that she wanted to repay the money paid on 12 April 2010. Moreover, a suggestion that the judge should have found that Mr Gould suffered impairment of understanding (there being some evidence of a dementia diagnosis in 2012) and that his evidence should have been discounted accordingly ignores a matter to which the judge called attention in the course of the trial, namely, that the Company had not sought to challenge the retainer of the lawyers who appeared for Mr Gould after he was joined as a party during the trial.

58 The ultimate finding was that the funds transferred on 12 April 2010 represented a gift made by Mr Gould or Mrs Gould or both of them to the Defendant. The birthday card message bears out that characterisation, as do various statements made by Mr Gould. Furthermore, his Honour held that the money given by one or both of the Goulds was obtained from the Company by way of part payment of loan balance owing by the Company and payable on demand.

The Company's financial statements

59 The judge had before him financial statements of the Company for a number of years commencing with the year ended 30 June 2005. These were prepared by Mr Vanda Gould (a qualified accountant) or members of his staff under his supervision. There is no need to go into much detail about the financial statements. Salient points are that there was, in each year, a very small profit or loss typically of the order of $1,000 (so that there was never any dividend); that management fees consumed virtually all income not otherwise absorbed or applied; that income consisted of rent from the leased shop premises and interest on bank deposits; and that, until substantial loan account balances in favour of Mr Gould and Mrs Gould were created in the year ended 30 June 2007, there was very little change in assets, liabilities and income from year to year. Assets were almost exclusively the shop premises (recorded at 1973 cost) and bank deposits. Liabilities were almost exclusively in respect of loans to the Company by Mr Gould, Mrs Gould, Mr Vanda Gould and Melbourne Corporation of Australia Pty Ltd, a company owned by Mr Vanda Gould.

60 The principal outgoing, apart from management fees, was salary and wages. The Company had no employees as such. Salary and wages was a label given to sums withdrawn by Mr Gould and Mrs Gould for personal purposes, although it is clear from an analysis of certain cheque butts in evidence that not all of their drawings were so classified.

61 The loan account balances at 30 June 2005 and 30 June 2006 were as follows:

	2005	2006
Mr Gould	$ 62,083.59	$ 27,888.54
Mrs Gould	57,348.16	22,861.36
Mr Vanda Gould	10,000.00	10,000.00
Melbourne Corporation	329,000.00	372,000.00

62 The financial statements for the year to 30 June 2007 reflect a significant increase in loan accounts balances owing to Mr Gould and Mrs Gould. In Mr Gould's case, the increase was $416,737.35 (from $27,888.54 at 30 June 2006 to $444,625.89 at 30 June 2007) and in Mrs Gould's, $412,540.50 (from $22,861.36 to $435,401.86). It was accepted in this Court that these increases occurred when Mr Gould and Mrs Gould deposited with the Company their respective shares of the net proceeds of the sale of their family home - funds which, in the ordinary course, might have been expected to be deposited in the recipient's bank account or placed in some other separately owned income-earning investment. Each of Mr Gould and Mrs Gould was instead content to lend the money to the Company on an interest-free basis (the annual accounts do not, in any year, record an interest expense), thus allowing the Company to derive benefit from deployment of the funds.

63 The availability of these new cash resources brought about increased interest income. The Company's interest income in the first two complete financial years after the large increases in loan account balances was more than $80,000 ($83,923.19 in the year to 30 June 2008 and $85,126.83 in the year to 30 June 2009), compared with $13,312.05 and $18,080.30 in the years to June 2006 and June 2005. There were also very substantially increased management fees, despite the absence of any change in assets (apart from increased bank deposits) or activities.

64 There were some changes in the loan account balances in years subsequent to the year in which the significant increases occurred. Mr Gould's balance at 30 June 2007 ($444,625.89) reduced in each of the following years. As at 30 June 2009, the balance was $247,005.35. As at 30 June 2010, it was $234,160.53, disregarding any impact of the transaction of 12 April 2010. The reductions no doubt indicate that demands were made by Mr Gould and satisfied by the Company.

65 There is little evidence about how expenditure by the Company was accounted for and what it represented. The fact that there was, in each of the years mentioned, a very small profit or loss and that management fees were such as to consume virtually all income not otherwise absorbed or applied leads to a distinct suspicion that those management fees were, in a real sense, no more than an arbitrary and artificial balancing item. The salary and wages expense represented substantially, if not wholly, payments to Mr Gould and Mrs Gould for their personal use. They did not render services warranting such payments to them. There is therefore again a distinct element of artificiality.

66 What was in no sense artificial, however, is the loan accounts or, at least, those in relation to which there was evidence regarding their source in moneys that Mr Gould and Mrs Gould received from the sale of their family home and deposited with the Company. The reductions in Mr Gould's loan account balance in years following the year ended 30 June 2007 suggest that, to the extent that drawings from the Company for personal purposes were not classified as salary and wages (or perhaps, in part, management fees), it was recognised that Mr Gould had made and the Company had met demands for payment of moneys owing by it to him and payable on demand.

Authority of Mr Gould

67 It was not in dispute that Mr Gould had actual authority to draw funds from the Company for the personal use of himself and Mrs Gould. Key findings made by the primary judge and stated at [110] of the judgment include, first, that Mr Gould, with the acquiescence of Mrs Gould and Mr Vanda Gould, was authorised by the Company, without limit, to operate the Company's bank account and to transact business (including the payment of "wages" for Mr Gould and Mrs Gould and, apparently, payment of their personal expenses generally) on behalf of the Company; and, second, that the Company owed to each of Mr Gould and Mrs Gould a debt, repayable on demand, in excess of the amount that Mr Gould caused to be transferred to the Defendant's home loan account.

68 Mr Vanda Gould was the principal witness for the Company. He accepted in cross-examination that he was content for Mr Gould and Mrs Gould to use the assets and income of the Company for their personal purposes provided that they did so in "the ordinary course of business" - a concept he explained as excluding "transactions of any substance". He explained that, in the case of a transaction "of any substance", he expected that he would be asked first and that his father would obtain "my blessing and approval for it". Examples he gave from past dealings involved withdrawal of funds for an overseas trip and for the purchase of a car for the Defendant, both of which had been discussed with him by his parents in advance and had received his "blessing and approval".

69 On Mr Vanda Gould's view of matters, therefore, Mr Gould's authority to withdraw money from the Company for the personal use of himself and Mrs Gould was not unlimited. Rather, it was subject to some imprecisely defined "ordinary course of business" qualification according to which the assent of Mr Vanda Gould was needed for expenditure which, in nature or amount, was inconsistent with some undefined course of prior dealing.

70 Mr Vanda Gould also accepted that, as at 30 June 2010, the Company was indebted to Mr Gould in the sum of $234,160.53 (disregarding any impact of the transaction of 12 April 2010) and that the loan account balance from time to time represented a debt of the Company that was interest-free and payable on demand, provided that the Company had the capacity to pay. Further, Mr Vanda Gould accepted that Mr Gould's share of the proceeds of the sale of the family home had been lent by Mr Gould to the Company and formed the basis of the loan account; and that the loan account arose from a deliberate act of Mr Gould following the advice of Mr Vanda Gould that the sale proceeds should be lent to the Company.

71 It was (and is) the contention of the Company, however, that, even though Mr Gould could, in his personal capacity, require repayment of the loan by the Company as and when he wished, he nevertheless lacked the Company's authority to act alone to satisfy any such demand unless the particular case was within the "ordinary course of business" concept that excluded "transactions of any substance".

Analysis

72 Much attention was paid at trial to whether Mrs Gould was aware of what Mr Gould intended doing on 12 April 2010, whether they discussed the matter in advance and after the event and whether Mrs Gould acquiesced in Mr Gould's actions. Those questions are of no real importance if the correct characterisation of events is that Mr Gould acted to obtain money for himself by way of part repayment of his own loan account and then made a gift of his own money to the Defendant. Nor, in that eventuality, is it important to decide whether the Defendant received a loan or a gift from Mr Gould (although I would observe that, in my opinion, the evidence supported the judge's finding of intention of both Mr Gould and the Defendant that the money received by her should be a gift; and this was so despite her initial protestations - said by the judge to be a product of "Thai cultural norms" - to the effect that she saw it as a loan and would pay it back). The crucial question is whether the money received by the Defendant was the Company's money or Mr Gould's money.

73 As the primary judge observed at [98] and [99], the Company bore the onus of proving the character of the payment made by it and its allegation that Mr Gould acted without authority in withdrawing funds from its bank account and directing the bank to credit those funds to the Defendant's home loan account.

74 Let it be assumed that, as at 12 April 2010, the position was as Mr Vanda Gould accepted, that is, that Mr Gould had authority to resort to company funds for personal purposes subject to an "ordinary course of business" qualification and that Mr Gould was owed a substantial sum of money that the Company was bound to pay as and when he demanded, subject only to its financial capacity to meet the demand. On that footing, Mr Gould was perfectly entitled to call upon the Company at any time for payment of the money that the Company owed him; and the Company was bound to satisfy the demand if its financial capacity permitted it to do so.

75 The primary judge concluded (at [94]) that, neither on 12 April 2010 nor in the days that followed, did Mr Gould subjectively turn his mind to a particular characterisation (vis á vis the Company) of the transaction effected on that day. That finding is not challenged. Because Mr Gould did not decide (or even consider) whether he was exercising the authority he had from the Company to resort to its funds without reference to the loan account or, by contrast, was exercising his right to require payment of money payable by the Company to him on demand, it should be inferred, at a prima facie level, that he was taking the latter course. The situation was, in concept, as described by Page Wood V-C in Frith v Cartland (1865) 2 H&M 417; 71 ER 525 at ER 527 in a passage quoted by Jessel MR in Re Hallett's Estate; Knatchbull v Hallett (1880) 13 Ch D 696 at 719-20:

"If a man has £1000 of his own in a box on one side, and £1000 of trust property in the same box on the other side, and then takes out £500 and applies it to his own purposes, the Court will not allow him to say that money was taken from the trust fund. The trust must have its £1000 so long as a sufficient sum remains in the box."

76 That example was given in the course of a discussion of equitable following and tracing. But it is of wider and more general significance. In Parker v The Queen [1997] HCA 15; 186 CLR 494, a person was charged with a statutory offence of conversion of property. The statute defined "property" in a way that included a bank deposit. The act said to amount to unlawful conversion was withdrawal of money from a bank account into which had been deposited money belonging to the accused and money belonging to others. The impugned withdrawal was of an amount less than that deposited by the accused from his own funds. His defence was that he had withdrawn his own money. Brennan CJ (at 502) quoted the statement of Page Wood V-C in Frith v Cartland and continued:

"This rule does not depend on the man in charge of the box being a trustee. It is a common law - and, one may add, a common sense - rule by which the law gives effect to the common morality of the community."

77 Brennan CJ later said (at 503):

"[W]hen an account holder makes a withdrawal for his own private purposes from an account containing a mixed fund, the rules of equity and the common law run parallel in attributing the withdrawal to the moneys that can lawfully be so used so far as those moneys extend."

78 Here, the man in charge of the box was Mr Gould to whom the Company had given authority, as against the bank, to operate the corporate bank accounts without any co-signatory and who, as a director of the Company, was "entitled to the presumption of honesty" referred to by Starke J in The Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; 33 CLR 199 at 228. According to the state of affairs accepted by Mr Vanda Gould, the box of which Mr Gould had charge contained, in a figurative sense, money that he was entitled to demand at any time and money to which that entitlement did not extend. Under the common law rule giving effect to the common morality of the community (and in the absence of proof by the Company to the contrary), Mr Gould, in acting unilaterally to seek an unusually large sum of money from the Company's bank account, must be presumed to have adopted the proper and regular course of seeking to obtain money that he was entitled to receive merely through his own demand (subject to the Company's capacity to pay), as distinct from money to which that entitlement did not extend.

79 The Company's capacity to pay $227,820.71 on 12 April 2010 was clear. Current assets in the form of cash at bank and bank term deposits exceeded $1.27 million on 30 June 2009 and stood at more than $1.04 million on 30 June 2010 after the payment had been made. If and to the extent that Mr Gould's right to demand payment of money payable to him on demand was in some way conditional on the Company's capacity to pay, the condition was amply satisfied.

80 The primary judge was, in my opinion, correct when he decided that the true characterization of events on 12 April 2010 involved action to obtain repayment of money owing by the Company and payable on demand. His Honour was of the view that the money concerned was that represented by Mr Gould's loan account, Mrs Gould's loan account or both of them. In my opinion, for the reasons I have stated, the finding indicated by the evidence is that Mr Gould acted to obtain repayment of money owing to him and payable on demand.

81 There remains, however, the Company's contention that, even if Mr Gould was entitled to demand part repayment of his loan at any time and the Company was bound to pay him, he had no authority to act for the Company in causing it to meet such a demand because to do so was beyond the relevant concept of "the ordinary course of business". According to that contention, Mr Gould was not authorised to cause the Company to meet a demand made by him that it was obviously bound to meet. Rather, it was necessary for some process of consultation and decision-making to be undertaken within the Company on the question whether the Company should pay money that it was legally bound to pay. Let it be assumed that that is so. The situation is then one in which Mr Gould received an unauthorised payment by the Company out of the Company's funds and caused the proceeds to be applied in paying off the Defendant's home loan debt. While, in that situation, the action for money had and received may lie against Mr Gould, it does not, for the reason stated at [39] above, lie against the Defendant.

Conclusion

82 On the analysis that I consider to be consistent with the evidence, the financial benefit received by the Defendant was conferred on her by Mr Gould, not the Company; and Mr Gould's ability to confer that benefit arose from his causing the Company to pay money that was payable by it to him upon demand. Whether or not Mr Gould had authority to activate the Company to satisfy his demand, there was, in the circumstances, no ability of the Company to maintain against the Defendant (as distinct from Mr Gould) an action for money had and received, that being the cause of action to which it was confined by its decision to allege against Mr Gould lack of power and not abuse of power.

83 In my opinion, the appeal should be dismissed with costs.

84 WARD JA: I have had the advantage of reading in draft Barrett JA's comprehensive reasons. I agree that for those reasons the appeal should be dismissed with costs.

Amendments

23 September 2014 - removed duplicate paragraphs
Amended paragraphs: -

Decision last updated: 23 September 2014