Unclaimed money: Westpac v. CIR

The Unclaimed Money Act applies to unpresented foreign currency drafts and bank cheques. Trading banks must hand over to Inland Revenue the face value of any issued drafts or cheques if they are not presented for payment within six years of issue. Westpac, Bank of New Zealand and ANZ National failed in their argument that banks could keep the money.

Unlike many other countries, legislation in New Zealand requires banks to close dormant accounts and hand the money over to Inland Revenue. Any person with a claim on the dormant account applies to Inland Revenue to get payment.

Three trading banks argued the position differed for unpresented bank cheques and foreign currency drafts. They argued the special status of these documents as negotiable instruments took them outside the legislation applying to dormant bank accounts: the funds were not “unclaimed” until the cheques and drafts were presented for payment.

Bank cheques and foreign currency drafts can be a commercially useful method of payment. A seller unsure of a buyer’s solvency can require the buyer to make payment to a bank and get the bank’s cheque or draft in return: the buyer’s suspect credit rating is replaced by the bank’s promise to pay. A small proportion of these bank cheques or drafts never get presented for payment, leaving a windfall for the bank – it has received payment in advance from its customer in return for issuing the cheque or draft, but has not been asked in turn to pay out by the intended recipient.

The Supreme Court ruled that the Unclaimed Money Act 1971 applied to the proceeds, even though the banks’ obligation to pay was technically conditional on the cheques and drafts being presented for payment.

Westpac v. CIR – Supreme Court (07.04.11)

04.11.006