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
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
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
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This Update highlights two recent cases that considered circumstances where liens could take priority over a registered security interest.
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