In Wambo Coal Pty Ltd v- Ariff, a liquidator was held personally liable as constructive trustee for payments made by mistake to the company during liquidation.
The simplified facts were that Wambo, a previous debtor to the company paid $46,130.15 to the company during liquidation when no money was owed to the company.
The money was paid in error without any consideration. When Wambo discovered the error, it demanded repayment.
Prior to the receipt of the demand, part of the mistaken payment had been disbursed by the liquidator to pay disbursements in the liquidation.
Approximately three weeks after the receipt of Wambo's demand, the liquidator disbursed $18,150 from the mistaken payment.
The problem for the liquidator was that the MYOB ledger showed that Wambo was a debtor of the company, however, the liquidator had bank statements which showed that the Wambo debts shown on the MYOB ledger had been paid. The liquidator knew that the MYOB ledger was not up to date. The amount of the debt shown on the MYOB ledger was not claimed to be outstanding in the directors' report.
There was no issue that the company was liable to repay Wambo, however, the company was insolvent. Wambo sought payment from the liquidator.
In relation to the mistaken payment, it was held that a constructive trust arises from the time the payee acquires knowledge of the mistaken payment, not from the date of the receipt of the payment.
It was said the mistaken payment would be an unwarranted windfall for the recipient and against conscience for the recipient to use the money as its own, once it knew of the mistake. The fact that the company was insolvent did not effect this conclusion.
The knowledge required of a payee who is paid by a mistake is the same knowledge required to render a third party liable under the second limb of Barnes v- Addy.
A payee will be treated as having knowledge if the payee has:
- actual knowledge; or
- wilfully shuts his or her eyes to the obvious; or
- wilfully or recklessly fails to make such enquiries as an honest and reasonable person would make; or
- has knowledge of circumstances which would indicate the facts to an honest or reasonable person.
On the facts it was held that when the $18,150 was disbursed some three weeks after the receipt of the demand the liquidator knew or was wilfully shutting his eyes to the obvious fact that the debtors' ledger was wrong, or that he wilfully and recklessly failed to enquire as to whether the debts shown on the debtors' ledger had been paid.
It was held that at that time, the liquidator had sufficient knowledge that the monies paid by Wambo had been paid by mistake and that the company had no right to keep the monies which were held by the company on constructive trust.
The liquidator was liable for repayment of $18,150 made on his direction.
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