Recovering unauthorised or mistaken payments
In September 2014, the New South Wales Court of Appeal delivered its decision in Russell Gould Pty Ltd v Ramangkura  NSWCA 310. A copy of the decision is available here.
The proceeding concerned a claim by Russell Gould Pty Ltd (Company) against Ms Ramangkura.
Ms Ramangkura was the companion, carer and ‘surrogate daughter’ of Mr Gould, the 91 year old director of the Company. Mr Gould’s wife and son were also directors of the Company.
In 2010, Mr Gould and Ms Ramangkura attended a branch of the ANZ bank. Mr Gould instructed the teller to transfer $227,820 from the Company’s account to Ms Ramangkura’s home loan account. This was the precise amount required to discharge Ms Ramangkura’s mortgage.
Mr Gould was owed a substantial amount by the Company, which was payable on demand. He had authority to operate the Company account as a single signatory, despite the Company having multiple directors. Further, the Company was well funded and was able to pay the $227,820 sum.
The Company brought proceedings against Ms Ramangkura, seeking judgment in the sum of $227,820 and a declaration that Ms Ramangkura held the house on trust for the Company.
The Company did not seek to recover the $227,820 sum from Mr Gould and did not allege that he acted dishonestly or in breach of his duties in directing the transfer. The allegation was simply that Mr Gould lacked power, not that he had abused a power which he possessed.
The trial judge held that Mr Gould did no more than require payment by the Company of moneys owing and payable by the Company to him and that he then made a gift to Ms Ramangkura. As a result, the Company had no claim against her.
The issue on appeal was whether, if Mr Gould acted without the Company’s authority when he caused the sum to be transferred, the Company could recover the money from Ms Ramangkura.
The Court of Appeal (constituted by Bathurst CJ, Barrett JA and Ward JA) upheld the trial judge’s decision in favour of Ms Ramangkura.
Barrett JA delivered the leading judgment and made the following comments:
- The Company did not allege any wrongdoing by Mr Gould, and so his action must be taken to have been innocent and not involve any form of unconscientious conduct that would give rise to claims in equity.
- Since equity was not invoked, the Company’s claim against Ms Ramangkura depended on the common law restitutionary action for money had and received. To succeed in the action for money had and received, the Company had to prove that Ms Ramangkura received the Company's legal property.
- Since no equitable wrong was alleged, only the narrower common law rules regarding tracing and following applied. Tracing is the process of identifying a new asset as the substitute for the old. Following is the process of following the same asset as it moves from one person to another.
- Under the common law rules of tracing and following, Ms Ramangkura did not hold any Company property. This is because she did not acquire any property when money was transferred into her home loan account. Rather, she obtained the benefit of freedom from indebtedness.
- Both at common law and in equity, there can be no tracing or following into an account which is overdrawn and remains overdrawn after the payment. The payment does not create an asset, since no right is obtained by the recipient against the bank.
- However, had equitable principles applied, tracing into Ms Ramangkura’s house might have been possible on the basis that the Company caused the mortgage debt to be discharged, and so would have been subrogated to the bank’s rights as mortgagee.
- For these reasons, Ms Ramangkura did not receive the Company’s money. Consequently, there could be no claim against her regardless of whether Mr Gould had the power to authorise the payment or whether he was required to first discuss the proposed payment with his fellow directors (the Court found that he was authorised to make the payment).
- When authorising the transfer, Mr Gould did not turn his mind to whether he was transferring loan monies he was owed by the Company, or other monies he was not entitled to transfer. However, there is a common law ‘presumption of honesty’ that a person withdrawing funds, some of which he is entitled to withdraw and some of which he is not, is withdrawing the permitted funds. The Court therefore presumed that Mr Gould was transferring the monies owed by the Company to him and not other funds belonging to the Company.
Key points for making restitutionary claims
The decision highlights the difficulties in making a restitutionary claim for monies had and received, when there is no allegation of wrongdoing against the person who transferred the property. Had Mr Gould acted in breach of his director’s duties, the result may well have been different.
It is a defence to a claim for monies had and received if the recipient can show that it has changed its position, in the belief that the money was paid correctly. That defence was not argued by Ms Ramangkura, but as outlined in our previous update this defence has recently been reconsidered by the High Court and is an evolving area of law.
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