David Securities Pty Ltd & Ors v Commonwealth Bank of Australia

•

. '

• -~~

IN THE HIGH COURT OF AUSTRALIA
Office of the Registry

Sydney No Sll7 of 1990
B e t w e e n -
DAVID SECURITIES PTY LTD

First Appellant

A & T RAHME & SONS PTY LTD

Second Appellant

ANTOINE RAHME

Third Appellant

THERESE RAHME

Fourth Appellant

and
COMMONWEALTH BANK OF AUSTRALIA

Respondent

MASON CJ
BRENNAN J

DEANE J
DAWSON J
TOOHEY J
GAUDRON J
MCHUGH J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 3 OCTOBER 1991, AT 9.56 AM
(Continued from 2/10/91)
Copyright in the High Court of Australia

David(2) 91 3/10/91

MASON CJ: Yes, Mr Emmett.

MR EMMETT:

May it please Your Honours.

Before I resume

submissions, may I just deal with the additional
material which has been made available to

Your Honours. Your Honours now have a folder in
which we have inserted the additional material
taken from the Full Court appeal book to which
reference is made in the written document that I
handed up yesterday. It also has an index at the

front of it. Some of that material I have already
referred to. Some of it I will refer to briefly
directly.
Your Honours, I was yesterday afternoon addressing on the course of the conduct of the
trial before Mr Justice Hill, and I think I had
taken Your Honours to page 250 of the appeal book,
where Mr Justice Hill sets out the issues as he
understood they were formulated before him on the
second hearing which took place on 24 May 1989.
Item 3 on that page is the item which is now before
Your Honours. Significantly, no mention is made in
the formulation of the issue of mistake.
His Honour dealt with the matter at pages 263 and following. Having stated the question and set
out section 261, he then at page 265 at line 15
indicated the way on which he was approaching the
matter:
It is however unnecessary for me to decide
this issue because in my views 261 does not
really arise for decision in these
proceedings.
For some time prior to default the

borrowers paid interest and pursuant to
clause 8(b) paid to the Bank an amount equal
to the 10 per cent withholding tax ..... These
amounts, if clause 8(b) was, as a result of

s 261, void, were paid by the borrowers under
a mistake of law, the mistake being that
clause B(b) required the payment to be made.
So far as appears the payments were not made
under protest; certainly there is no evidence
of any such protest and indeed, it is highly
doubtful whether the borrowers' case, as
pleaded, claimed at all a recovery of amounts
wrongfully paid under the clause. However, I
am content to assume that such a case was
pleaded.

In other words, His Honour then made some observations on an assumption that there was a pleading of a mistake for the reason of saying,

"Well, the law is decided now. I would have

David(2)

3/10/91

dismissed this case had it been made out on the

pleadings". He then, at page 266, referred to
Werrin, Mason, and J & S Holdings, and expresses
the view again in this hypothetical situation, at
line 12:
the present is in my view clearly a case where
the mistake was one of law.

In other words, even if it had been pleaded and it
was possible for the applicants to raise the
matter - implicitly they were not entitled to, but
even if they were I would have to dismiss this case
as being a mistake of law and the matter is covered
by longstanding authority.
In the second half of page 266, he indicates

again his view that section 261 really did not
arise in the proceedings and the question would
only arise - looking at line 23 - when the Bank
seeks to enforce whatever obligation might arise
under clause 8(b) to recover the additional amount
that had been paid:
It will be at that stage, if at all, that an
issue under s.261 could arise and then only if
the Bank relying upon clause 8(b) calls upon
the borrowers to pay in effect the amount of
the withholding tax. That is not a matter
before me and in the circumstances I do not
believe it appropriate that I comment further
upon the matter.
I draw Your Honours' attention to that

material to indicate quite clearly that the trial
judge made no finding of fact as to a mistake by
the present appellants.
In the document which I handed up late

yesterday afternoon, we also draw attention to
other material in the appeal book before the

Full Court which would militate against the
inference which the Full Court drew that there was

a mistake. I will not take Your Honours to the
detail. We have given references to the pages in
the appeal books before Your Honours and also the
additional material that we have handed up. If I
just might mention what they were, and basically,
it is concerned with the involvement of Mr Morgan,
the tax advisor and accountant.
The Bank, in its letter, had referred

expressly to withholding tax and invited the
appellants to obtain accountant's advice in
relation to withholding tax - - -

David(2)

3/10/91

DEANE J:

Mr Emmett, I do not quite follow why you say that

at page 265, line 22, that is not a finding of
fact.

MR EMMETT:	Because it has to be read, Your Honour, in the context of what His Honour had already said at
lines 15 to 17:

It is however unnecessary for me to decide
this issue because in my view s.261 does not
really arise for decision in these
proceedings.
What he is, in effect, saying is there was pleading
of a mistake of fact and it is by no means clear

that the parties would be entitled to raise it. If

it were a mistake, however, it was one of law: These payments, if clause 8(b) was, as result
of s.261, void, were paid by the borrowers
under a mistake of law, the mistake being that
clause 8(b) -

What he is saying there is, "This is the contention

which would be put". He is not saying, "I make a
finding of fact by reference to any evidence".

DEANE J: But that is not what he is saying at all. What he

is saying is, "It is unnecessary for me to decide
whether section 261 applies to withholding tax" and
he then goes on to give the reasons, that is that
the thing fails in any event.

MR EMMETT:

But in context, he does not say, "I make this

finding on the basis of any evidence".

DEANE J: But he is explaining why he does not have to deal

with the question whether section 261 applies to withholding tax. In explaining that he makes an express finding:

if clause 8(b) was, as result of s.261, void -
were paid by the borrowers under a mistake of
law -

the payments -

MR EMMETT: Well, it is a question of what he is, in effect,

saying but one thing is clear, he does not -

DEANE J:	I just cannot read it the way you read it.
MR EMMETT:	We read it, Your Honour, on the basis of what he had said above and in the context of what he then
says on the next page. At the bottom of the page:

David(2)

3/10/91

it is highly doubtful whether the borrowers'
case, as pleaded, claimed at all a recovery of
amounts wrongfully paid under the clause.
However I am content to assume that such a
case was pleaded.

DEANE J:

In other words he is disposing that aspect of the

case on the basis of those two paragraphs.

MR EMMETT:	Yes.
DEANE J:	He puts aside because of what he says there the

question whether the section applies to withholding
tax and also the question whether the point is

adequately raised by the pleadings. So his
decision on this point was on the basis of those
two paragraphs.

MR EMMETT: Well, just leaving that for the moment, if that

were so, then of course our criticism of what was
done in the Full Court applies equally to what was
done by Mr Justice Hill.

DEANE J: That might be so.

I was just querying your

statement that His Honour had made no finding. It
seems to me he has made a quite clear and express
finding.

MR EMMETT: Well, we can only put our proposition,

Your Honour, that in the way in which the case had
been conducted - that is why I took Your Honours to
the course of the case - it just was not an issue,
that is, the question of a finding of fact as to
whether or not there was a mistake simply was not

an issue. It had never been pleaded, it had never
been opened, it was never the subject of address in
the principal trial.

DEANE J:

Was it the subject of address in the trial leading

up to this judgment?

MR EMMETT:

I can give some evidence from the bar table

about that. There is no record of what was the
subject of those proceedings.

DEANE J:

I see. Because the inference from His Honour's

judgment is that the parties identified the issue
as being on Mr Spender's side that mistake of law
would have been good enough, and on your side, that mistake of law was not good enough, and that no one on your side said, "There wasn't a mistake".

MR EMMETT:

I cannot give evidence from the bar table, but

we would strongly contest, if that were put by the
other side, that the question of whether or not
there was a mistake was in issue before
Mr Justice Hill.

David(2)

3/10/91

DEANE J:	And was squarely raised in address?
MR EMMETT:	In address it was raised for the first time by

counsel for the applicants, and at that point the
Bank said, "Well, this has never been pleaded. It
wasn't the subject of any evidence before" There
was, indeed, a reference to the possibility of
calling some evidence. That application was
rejected.

McHUGH J:

Do you have a transcript?

MR EMMETT:

There is no transcript, Your Honour.

mentioned yesterday that we did make an effort to
get the judge's notes, and we were unsuccessful in
doing that. One possible reason is because of the
lateness with which we attempted to do it, I have

to say. We do have notes that were taken by one of

my juniors on the argument. We thought it
appropriate not to rely on those without trying to
get some formal record.

MASON CJ:

Did you say an application to call evidence was

rejected?

MR EMMETT:

Yes, Your Honour.

DEANE J: What, on this issue?

MR EMMETT:	On this issue.
DEANE J:	To show that there had been no mistake?
MR EMMETT:	An application by the applicant to call evidence

to show that there was a mistake was rejected.

DEANE J:	I see.
MR EMMETT:	Because of the pleading - the pleading did not

raise the question of mistake, and there was no
application to amend to allege mistake. Again, I
am saying all of this from the bar table and my

and that is why we have not mentioned them before. learned friends have no notion of these matters,

GAUDRON J: But, is it not absolutely implicit in raising

the matter that there is an allegation or a claim
of mistake? Why else would it be raised, other
than for that purpose? There could be no other
purpose in referring to it in the statement of
claim at all.

MR EMMETT: Well, with respect to Your Honour, there could

be a basis upon which it would be contended that
money paid under an obligation rendered void is
recoverable.

David(2)	96	3/10/91
GAUDRON J: Yes.

MR EMMETT: That is paragraph 3 of the notice of appeal.

That, as we understood it, is an alternative way of

putting this case. Even if there was no mistake,
there is still a right to recover moneys paid under

an obligation rendered void by statute. In other
words, a Kiriri Cotton type of contention, and that
is the way in which - again I am giving evidence
from the bar table - the Bank conducted the case,

there being no mention of mistake. Can I take
Your Honours back to what the trial judge said in
relation to these matters - - -

BRENNAN J:

Why was there no transcript available?

MR EMMETT:

Because it was argument only.

I cannot tell

Your Honour why not. His Honour dismissed with the
transcript on the basis that it was thought that
the matter would simply be legal argument and, as
is common in trial cases, a transcript is not taken of legal argument, and it was only in the course of the argument that the basis upon which the
applicants were putting their case became clear
that questions of evidence arose. But the reason I
took Your Honours to page 250 is to indicate
His Honour's summary of the contentions that were
being put. There were four issues on this further
hearing of the cross claim. Issue 1 was concerned
with a matter involving the construction of the
facility agreement. Issue 2 was concerned with
whether or not certain of the payments constituted
a penalty. Issue 3 was the one we are now
concerned with:
It was said that clause B(b) was void as
offending s.261 ..... with the consequence that
the cross-defendants were entitled to a
refund.

No mention of mistake, simply that a payment made

pursuant to an obligation rendered void is recoverable, and it was only then, in the course of argument, when the question was raised as to why it

should be recoverable, that mistake was mentioned. contend that money paid under a void obligation is
recoverable.

GAUDRON J: All that does, if you put it that way, is

convert the issue so that it is for you to
establish mistake of law, and therefore the amount
is irrecoverable.

MR EMMETT: With respect, no.

GAUDRON J:

No?

David(2)

3/10/91

MR EMMETT:

The appellant has to show some basis upon which

they are entitled to recover.

GAUDRON J:

If it is being put on the basis of

Kiriri Cotton, paid though void, regardless of
mistake, then the issue of mistake on the way
His Honour dealt with it at least must have arisen
on the basis that your side said, but it is none
the less irrecoverable because it involved a
mistake.

MR EMMETT:

No, with respect, Your Honour.

We also want to

contest that other proposition. We would want to say that there is no basis in these circumstances
for recovery under an obligation rendered void, as
distinct from an obligation rendered illegal, so
that we would say, mistake or no mistake, there is
no entitlement to recover. That is something which
we develop later on in the written document I
handed up yesterday.

GAUDRON J: But when you think about it, really, Mr Emmett,

it is not anything to do with the plaintiffs, as I
shall call them, to establish mistake, because it
must have been up to you to say, "irrecoverable
because they were paid under mistake of law".

MR EMMETT:

With respect, no, Your Honour.

The plaintiff

has to establish a cause of action and a basis for
recovering the money.

GAUDRON J:

Money had and received.

MR EMMETT:

But that is not a cause of action.

It is a

formula, but you cannot simply say it was money had
and received unless you explain the circumstances

in which it was received. It was paid pursuant to
a contract. That is the Bank's first answer, the
plaintiff - - -

GAUDRON J: Paid pursuant to a void stipulation, let us say.

MR EMMETT: That then raises the issue - does the fact that

it is made pursuant to a void stipulation of itself
entitle recovery.

GAUDRON J: That is almost - I mean, it may not be

exhaustive but it is almost invariably the
situation in which the issue of mistake of law
arises, is it not?

MR EMMETT: Well, with respect, no. There are a number of
instances which we will take Your Honours to, for

example: contracts rendered void because a party is an infant; money lending legislation; bills of
sale legislation which renders bills of sale void.
They are circumstances where payments are made

David(2)

3/10/91

pursuant to obligations rendered void but
nevertheless the courts consider the question of

restitution and the like. One is normally looking
at it from the other side.

McHUGH J: Well, Hurst v Vestcorp.

MR EMMETT:

Indeed, we will be taking Your Honours to

Vestcorp and also the NR}fA case in which
Your Honour Mr Justice Deane sat in the Full Court
of the Federal Court.

DEANE J:

Mr Emmett, if seeing the full force of what you

are saying one were to finally come to the view
that that paragraph - the second paragraph on
page 266 - is simply wrong as a matter of law and
the corresponding paragraph in the judgment of the
Full Court is simply wrong as a matter of law, has
not this aspect of the case been disposed of on a wrong basis? Now, it may well be that the points
you raise mean either that this Court should go to
all the evidence and try and work out what the
pleadings were and so on or, alternatively, the
matter, if that stage were reached, should simply
be remitted to the trial judge. But I just cannot
read either this judgment or the Full Court's
judgment as having properly disposed of this point
if what is said in that paragraph is wrong.

MR EMMETT:

I am not sure that I follow what Your Honour is

putting to me as being wrong; which part of the
paragraph?

DEANE J: Assume that the distinction between mistake of law

and mistake of fact is unacceptable, which is
Mr Spender's argument.

MR EMMETT:

Yes.

DEANE J: Then there is an aspect of the case that has never

been properly disposed of.

MR EMMETT:

Well, by the trial judge. He did not make a

finding one way or the other, is what our
submission is.

DEANE J: But assume against yourself that the view is taken

that that is a finding and that it is accepted by
the Full Federal Court.

MR EMMETT:

If Your Honours decide that the question of law

is wrong as well, that is that the mistake of law
was of itself sufficient to entitle recovery, in
our submission, Your Honours, the proper course is
to see whether, on the material, the inference of a
mistake of law was open. In other words, the
applicant should not be allowed to go back and be

David(2)

3/10/91

allowed to reopen to give evidence about these
matters.

DEANE J: Well, it may be, or alternatively, it may be that

the Court would think the appropriate course was to
send it back to the trial judge, who could decide
whether, in the light of the judgment of this
Court, leave to reopen should be given.

MR EMMETT: Well, our submission is that is not the

appropriate course, having regard to the material
which is here and having regard to the course of
the trial.

DEANE J: But we would need to do something.

MR EMMETT:

The view we have taken is that Your Honours

should look at the material and form the view that
the inference could not have been drawn on the
evidence, and there is no basis upon which the
plaintiff now should be allowed to go back to
contest a ruling about leading further evidence.
That is not a ground of appeal, that leave was refused.

DEANE J: Well, except if one takes a different view of the

effect of that finding, there was no reason why the
appellant should have contested the refusal to
allow them to lead further evidence, in that they
had won on the point.

MR EMMETT:

But if the proper rule was that mistake of law

is no different from mistake of fact, then the
plaintiff should have called that evidence at the trial; and if that rule is wrong, then it is just
as much the basis for the wrong ruling rejecting
the evidence as it is for rejecting the claim in
the final result.

BRENNAN J:

Mr Emmett, it seems to me that if His Honour's

ruling refusing the plaintiff the right to reopen
and to call evidence to establish a mistake was

founded on the view that the issue was not live
before him, the question arises as to whether the

rest of the proceedings, including the arguments
that were advanced, were founded upon His Honour's
then decision. Is there anything of which you can
inform us as to what happened?

MR EMMETT:

I am not sure that I am following what

Your Honour is putting to me.

BRENNAN J: Well, it seems to me that, on your side of the

bar table, relying upon His Honour's conclusion, if
it were made, that there was no live issue of
mistake, you abstained from addressing on that

David(2)

100

3/10/91

question, it would have been inappropriate to make
a finding that there was a mistake.

MR EMMETT:

I do not suggest that we refrain from addressing

on the question of mistake.

BRENNAN J:

So the question of whether there was or was not

a mistake, whether there had been or had not been a
mistake, was the subject of address on both sides
of the bar table?

MR EMMETT:

No.

The matter was not gone into.

I must say I

am speaking partly from hearsay. Although I
appeared in the trial, I was not in court for the

whole of the argument on 24 May. I am not sure
that I can take the matter much further than that,
Your Honour.

GAUDRON J: Could I ask you what you say is the consequence

if there is no basis for the finding of mistake of
law? What is the consequence? Money was paid
under a void stipulation.

MR EMMETT:

Under a void stipulation for which there had

been full consideration.

GAUDRON J: For which there had been.

MR EMMETT:

That is something we will address when we come

to deal with the unjust enrichment alternative.

GAUDRON J: That is right. What I do not understand is this

- I mean, I could well understand why your side
might wish to claim mistake of law as a basis for
saying, "irrecoverable", or a basis for saying, "no
unjust enrichment", but assume no basis for a
finding of mistake, there is equally no basis for a
finding that it was voluntarily handed over in full
knowledge of its voidability and was done out of
the goodness of their heart because they thought the Commonwealth Bank was in greater need of the

funds than they were.

MR EMMETT:	We do not suggest that, Your Honour.
GAUDRON J:	Of course you do not, but where do you go

on

MR EMMETT:

It raises, at an earlier stage, an a fortiori

case, the same sorts of issues that arose in Pavey

v Matthews. We do want to address these matters in
some detail when we get to the issue but just to
respond to Your Honour, the additional payments in
respect of withholding tax were paid at the end of

each interest period. By the end of that period,
of course, the appellants had had the use of the
Bank's money at an interest rate which is,

David(2)

101

3/10/91

effectively, less than their contractual rate.
Your Honour, in argument yesterday, referred to the possibility that if the Bank had been told these
provisions were unenforceable it would have
insisted on a higher rate of interest to compensate
it for the loss that it was going to suffer by
reason of the deduction of withholding tax.
So that, in effect, the Bank had fully

performed its side of the bargain and the other
party comes along after the event, after there had
been performance, and says, "I now want to get back what I paid to you as consideration for what you've
done". So, we will be wanting to put the
submission that this is an a fortiori case on a
Pavey v Matthews unjust enrichment basis.

GAUDRON J:

I just do not see how you assist your position

by saying, "No basis for a foundation of a
mistake". That is all.

MR EMMETT:

If there is no mistake at all, then the

plaintiff has to - - -

GAUDRON J:

Your Bank has got money which, according to the

argument, it never had any legal right to have.

MR EMMETT:

No, that is right, but on the other hand, it has

given full consideration. That comes to the unjust
enrichment question.

GAUDRON J: Yes, but that is a different issue.

MR EMMETT:

But the only way in which the plaintiff can

recover is, in our submission, on some basis of
unjust enrichment or mistake. Absent mistake, the
plaintiff has to find some other way of recovery.

GAUDRON J:

I would have thought that when you looked at

mistake of law, it really was a denial that there
was unjust enrichment in the particular

circumstances.

MR EMMETT:

No, with respect, Your Honour.

The defendant

never points to mistake. The mistake of the
plaintiff is never a defence for the defendant.

GAUDRON J: Well, that is how it was decided.

MR EMMETT:

No, with respect.

What was decided is that

assuming there is a principle whereby if you pay
money under certain types of mistake, namely, a
mistake of fact, then it can be recovered. But if
the plaintiff cannot prove that he has made a
mistake of fact, then he cannot recover. What the
plaintiff here wants to say is, "It is recoverable
if I have made a different sort of mistake, namely,

David(2)

102

3/10/91

a mistake of law." And we say the law has been
clear for 200 years or more in relation to that
question, and you cannot extend the basis for
recovery, namely, mistake, to a mistake of law.

GAUDRON J:

I thought the basis for recovery was that it was

"to the use of".

MR EMMETT:

But that begs the question, with respect.

One

cannot -

GAUDRON J: Well, of course it does, and it depends where

you approach it. I would have thought that you
were saying it was not received to the use of in
circumstances where it was paid under mistake of
law.

MR EMMETT:

No, that is not a defence. Mistake of law on

the part of the plaintiff is not a defence that is
raised by -

GAUDRON J:

It goes to the question whether it is to the use

of.

MR EMMETT:

The defendant would say, "You paid this because

you wanted to pay it. You were prepared to take
the risk of whether it was payable or not, or you
were not prepared to take the risk of litigating
and finding out whether or not the amount was
payable." We do want to go to these matter in some
detail, Your Honour, and I do not want to avoid the
question at this stage. It is slightly

sidetracking. I am happy to proceed with this
area.

GAUDRON J: Proceed with your argument.

MR EMMETT:

It may make more sense though if I do it in the order in which I had intended. Could I ask

Your Honours to assume for the moment though that

our first proposition is that the plaintiff says,

"I can recover this money because it was money paid

was mistake of fact or mistake of law." That, in

under a mistake and it does not matter whether it

our submission, requires a finding of a mistake,

and our proposition on the notice of contention is

that having regard to the way in which the trial

was conducted, it was not open as a matter of law

for either Mr Justice Healy, if that is what he

did, or for the Full Court, and that does seem to
be what they did, to make a finding of a mistake of

any sort in the absence of any evidence.

Now, the matters we point to are that there
was no direct evidence given by the plaintiffs of
any such mistake in circumstances where they were
the best ones to give evidence about that matter.

David(2)

103

3/10/91

Secondly, the pleadings never hint at mistake.
Third, there was express reference to this question
of withholding tax and the plaintiffs had retained
a tax consultant in relation to these matters,
thereby giving rise to an inference that at least
Mr Morgan might have had some knowledge of
withholding tax, and may conceivably have had some
knowledge of the possible effect of section 261.
They are matters about which one can only draw
inferences in circumstances where these questions
were not put to the witnesses.
The proposition of law we rely upon is one

based upon Jones v Dunkel type principles that just
as much if a witness could be called to give
evidence and is not called, if a witness who can
give relevant evidence is called and is not asked
questions by his own counsel, then a similar
inference can be drawn, or at least if an inference
is otherwise available then that inference can the
more strongly be drawn by reason of the failure to
ask those questions.
That proposition was the subject of a judgment

given by Mr Justice Handley in a matter which is
now on appeal to this Court, although that question

is not the subject of the leave to appeal. Can I
take Your Honours to Commercial Union v Ferrcom,
which is reported in an unauthorized series at
present. It is reported in 6 ANZ Insurance Cases,
which is a CCH publication. It is case No 61-042

and appears at page 76,984. The judgment of
Mr Justice Handley begins at page 77,004. This
case involves section 54 of the Insurance Contracts
Act, as some of Your Honours who sat on the leave
application will recall. The question arose as to
what the insured would have done had his attention
been drawn to a requirement of the relevant
insurance policy. At page 77,005,
Mr Justice Handley indicates the issue, towards the
bottom of the right-hand column:

As the trial judge said:
"Regard must also be paid to what Ferrcom
would have done -

Ferrcom being the insured -
if told by CU, upon notification having been
given, that CU would no longer cover the
crane."
The appellant could not give direct

evidence as to the reaction of the insured in
this hypothetical situation.

David(2)

104

3/10/91

The trial judge inferred that the insured
would have asked the appellant for the terms
on which it would cover the crane and upon
being told that it would provide cover by way
of the commercial motor vehicle policy -

et cetera -
"would have enquired as to the terms on which
that endorsement would be dispensed with".

Then going over to page 77,007, His Honour, about
half-way down the right-hand column, His Honour
says:
There is no suggestion Mr. Ferrarese -

who was a principal of the insured -
would have approached the appellant direct.
When Mr. Green ceased to handle insurance
business -

missing out the next paragraph:
Given the trial judge's finding that

Mr. Green would have continued to act for the insured after 7 May it is, in my opinion, a
matter of speculation whether he would have
succeeded in arranging new insurance and if so
with which underwriter and on what terms.

So that there was a question left up in the air as
to what might have happened if certain
circumstances had occurred, and that depended very
much upon what the reaction of the insured would
have been. And, over the page, His Honour states
the principle, in the third line:
As I have already said the insured made no attempt to prove that it could and would

have obtained cover for this mobile crane
without the endorsement by pursuing the course
that Mr. Hughes said would alone have achieved
that result.
In my opinion the Court should not draw

inferences favourable to the insured on these
matters when no attempt was made to prove them
by direct evidence and in particular when no
relevant questions were asked of
Mr. Ferrarese. Rather it seems appropriate to
apply the principles of Jones v Dunkel.
There appears to be no Australian

authority which extends the principles of
Jones v Dunkel to a case where a party fails

David(2)

105

3/10/91

to ask questions of a witness in chief.
However I can see no reason why those
principles should not apply when a party by
failing to examine a witness in chief on some
topic, indicates "as the most natural
inference that the party fears to do so".
This fear is then "some evidence" that such examination in chief "would have exposed facts
unfavourable to the party."
His Honour then refers to some American Text. We
have given Your Honours a reference to two of the
American texts, and I think we have also provided
Your Honours with copies of the material.
The first American text that we refer to is

American Law Reports, Annotated, second edition, at

page 949. We understand that Your Honours have a
photocopy of that material. In the left-hand
column, half-way down, the title is, "Failure to
question witness as to particular issues when

called". The proposition is:
The fact that a witness is called and
gives testimony but is not examined as to some
of the issues in the case as to which he
apparently has information has also been held
to justify an adverse inference against the
party calling the witness, and it appears in
at least some of the cases that the
relationship between the party and the witness
gives weight to the inference -

a fortiori, if the witness is actually a party
himself then the inference must be all the more
stronger.
There are then summarized or digested a number

of cases. Reference is made to Milliman v
Rochester, at the bottom of the right-hand column.
Mr Justice Handley cites from the judgment in that
case in his judgment in Ferrcom. Mention is also

made towards the bottom of the left-hand column on

the next page to Marks v Thompson. That case was
cited by Mr Justice Asprey in the Supreme Court of
New South Wales in another case to which we have
given Your Honours a reference to in our written
outline, that is Ex parte Harper; re Rosenfield,

(1964-5) NSWR. I will not take Your Honours to the
case. But Mr Justice Asprey, there, relies upon
the American authority.
What we say, Your Honours, is that what

Mr Justice Handley says is correct in principle.
If it is correct in principle then, in our
submission, in the circumstances of this case where the witnesses called for the plaintiff were in fact

David(2)

106

3/10/91

the plaintiffs themselves, it is not appropriate
and it is erroneous for the court to draw an
inference favourable to the party. Going back to
Commercial Union v Ferrcom, in the right-hand
column, about a quarter of the way down the page,
Mr Justice Handley says:
Indeed I think the omission to interrogate a
friendly witness in respect to facts
presumably within his knowledge is more
significant than the failure to call such a
person as a witness, and that the presumption
that the testimony would not have been
favourable to the party's case is stronger
than the one which arises from the failure to
produce such a person as a witness."
We, with respect, adopt those statements as

correct in principle. If they are correct in
principle then, in the state of the evidence before
Mr Justice Hill, it was not appropriate for him to
make a finding. Similarly, in the state of the
evidence before the Full Court, it was
inappropriate for them to draw the inference which
they did.

McHUGH J:

I appreciate the force of the point between

calling a witness and not calling him. Perhaps
that is the explanation of some of the defamation
actions where it has been held that although the
plaintiff is not called to give any evidence,
nevertheless the jury can infer hurt to his
feelings from the publication of defamatory

material. I have got a recollection that at least
one of the cases in the defamation area has gone
further and even when the witness has been called
and has been asked about a matter which goes to his
state of mind nevertheless you are entitled to
infer - I have just sent for it.

MR EMMETT: There may be a question, though, as to whether

there was other evidence of the hurt feelings.

McHUGH J: Well, there is. One infers it from the

publication itself.

MR EMMETT:

Yes, but it is one thing to infer hurt feelings;

it is another to infer a mistake. One does not
assume that people are mistaken, in our submission,
whereas one might assume that somebody's feelings
are hurt by what is clearly a defamatory article.
We will be, later on, dealing with the question of the status, if there is such a
presumption, of the presumption of knowledge of the

law. Even if it be the fact that presumption of
knowledge of the law is a rebuttable presumption,

David(2)

107

3/10/91

it may nevertheless be a presumption which it is up

to the party who has the opportunity to rebut. In
other words, if a party says, "I put my case on the basis of mistake of law", but does not himself say,
"I didn't know what the law was", then the
presumption that everyone is presumed to know the
law may work against the party in that case.
So that, even at a very low level the

presumption of knowledge of the law, however - if
it were an irrebuttable presumption, then it is a
harder proposition to maintain, but at this level
all we have to say is that even if there is a
rebuttable presumption that all citizens know the
law, it is up to the citizen when he gives evidence

to say, "Well, I didn't know the law. I was
mistaken about those matters".

DEANE J: Except here it does go a bit further, does it not,

in that if you be wrong on the ultimate question of

law, the Bank required these payments to be made to
it acting on a mistake of law.

MR EMMETT:

The Bank acted on a mistake of law as well?

DEANE J: Yes, if you be wrong.

MR EMMETT:	Yes, that would be right, yes.
DEANE J:	I mean, the documents make it quite obvious that

the Bank, acting on a mistake of law, required
these payments to be made.

MR EMMETT:

Yes.

DEANE J: Well, now, it is a very small step from that to

infer that payment made by a customer to the Bank
under a requirement imposed by the Bank on a
mistaken view of the law was made under mistake of
law.

MR EMMETT:

It is nevertheless a step that has to be taken, but in circumstances where the plaintiffs

themselves go into the witness box and do not say
they were mistaken, then it is a step that ought
not to be taken. That is really the significance
of the - - -

DEANE J:	I follow the way you put it.
MR EMMETT:	Yes.
McHUGH J:	Can I add one further point to what Justice Deane

has just put to you. The Bank represented that the
money had to be paid in this case.

David(2)

108

3/10/91

MR EMMETT: Well, with respect, it did not, Your Honour. It

has never been suggested that there was a
representation that was relied upon by anybody.
The Bank said, "We require you to pay this amount".
It always said -

McHUGH J:

"Because it is your obligation, because it has got to be paid" .

MR EMMETT: Well, "We want it to be paid". There is no

evidence that the Bank said, "Clause 8(b) requires

you to make a payment". The letter simply said -
perhaps I should take Your Honours, in that
context, to some of the material which is in the
folders that we have handed up, because it is clear
that every rollover took place as a result of a
request by - - -

McHUGH J: All I had in mind was the statement, "Withholding

tax of 10 per cent on interest payments to an
offshore lending centre must be met by you at the
end of each rollover period".

MR EMMETT: That is the bargain; that is the letter of

offer: "We are entering into this agreement on the
basis that you will do that. If you were to tell
us you do not want to pay it, then we will make a
different bargain with you. We might charge you an
interest rate that doesn't give you the flexibility

that you might otherwise have". You see,
Your Honour - again this will arise when we come to
deal with the question of whether or not there has
been any unjust enrichment - the Bank had two
alternatives. It could have said to the borrowers

what it did say, that is, "We'll charge you a rate
of interest calculated in accordance with the
formula based upon some inter-Bank rate in

Singapore, and that's all we want to get. However,
if, because of the operation of some statute you
have to deduct something from that, and we don't
get that full amount, then we want you to make up

the difference".

McHUGH J:

I appreciate it is a powerful point on unjust

enrichment that, in effect, this is a
consideration, a fee in consideration, from your
point of view.

MR EMMETT: Indeed, yes.

McHUGH J: But I must say, when you read that statement

about the withholding tax and the discussion of
clause 8 in the same document, it seems to me that the Bank was making it very plain to the appellant
that there was an obligation on it to pay the
money.

David(2)	109	3/10/91
MR EMMETT:	No.	The letter is an indication of the terms

upon which the Bank was prepared to enter into a
bargain. It is an offer: we are prepared to do

business with you on these terms. One of the terms

is we must be paid. We are not saying you have an
obligation to pay, because at that stage there is

no agreement. The Bank is simply saying, "You must
pay this if you want us to lend on these terms.
One of the quia pro quo is that you will pay this
additional amount if it becomes payable".

McHUGH J: But when you do enter into the agreement the

obligation is on you, that is what they are telling
you.

MR EMMETT:

Yes.

McHUGH J: Well, that is all I am saying.

MR EMMETT:

The agreement said - well, no, the letter does

not say that, that passage of the letter is not
talking about the agreement.

McHUGH J: Well, the next page is. Clause 8, which

stipulates that all interest and principal payments
must be made free and clear of any taxes, including
Australian withholding tax.

MR EMMETT:

That is the effect of that clause, if it is

given effect to. That is the bargain that the Bank
is making, it is saying, "The bargain I am prepared to make with you, the borrower, is that I get a net

amount of interest. If you do not want to make
that bargain then we will renegotiate and we will

do something else". The Bank could have said - one
way of overcoming the operation of section 261
would simply be for the Bank to add on 10 per cent
or 11 per cent to the amount of the interest. That
would have had a disadvantage to the borrower
because if the borrower was able to obtain the
exemption under section 128, whatever it is, that

the Income Tax Assessment Act contemplates, then
the borrower would have been deprived of that
possibility.
Similarly, if withholding tax was reduced,

that would not be for the benefit of the borrower,

it would have been a windfall for the Bank. By the
same token, of course, if withholding tax were
increased the Bank would have been out of pocket.
There are reasons on both sides why this flexible arrangement might have been entered into. That, of
course, will be relevant when we come to consider
the question of whether or not the Bank gave
consideration for the payment which it received.
What I am putting in response to Your Honour
Mr Justice McHugh is that one cannot find in the

David(2)

110

3/10/91

letter something whereby the Bank said you must do

something. The Bank is simply saying this is the
bargain which we are prepared to enter into. The
"must" means if you want to contract on the basis
of the interest rate which we have specified, then
you have to agree to reimburse us for whatever
withholding tax is deducted at source.
Your Honours, the second way in which we say

the Full Court erred in relation to this finding is
that even if it were appropriate for them to
consider whether or not a mistake was made, they

asked themselves the wrong question. They assumed
that it was common knowledge that section 261 did
apply in these circumstances. In our submission,
it is by no means clear - and that, in one sense,
is brought out by the debate yesterday - there are
at least arguments that can be advanced by the
Bank, in our submission very sound arguments, as to
why section 261 does not apply in these
circumstances.
So what the Full Court should have been

considering is whether, if the appellant's
attention had been drawn to the possible
application of section 261, would they nevertheless
instead have gone ahead and made the payments in
order to secure whatever other benefits would arise
from the continuation of its relationship.
It is not appropriate to say, with the benefit of hindsight, if they had been told the section was void - because nobody knew the section was void
in 1984 - there might have been some arguments, but
it was not a matter that was concerning anybody.
The question is, had they been told about the possible arguments, would they, nevertheless, have been prepared to say, "Well I still want to get the
benefit of this lower interest rate and the
opportunity of getting an exemption and possibly
getting the benefit of any reduction in withholding

by what is said in a case to which my learned tax rates". That sort of proposition is emphasized friend referred Your Honours yesterday, Brisbane v
Dacres, 128 ER.
This was a case involving the practice, as

Your Honours may recall, of ships captains charging
freight for the carriage of gold and dollars. The practice was that the ship's captain would account
to the admiral under whom he served for a share of
the freight that he received. At 645,
Mr Justice Gibbs was dealing with the question and
about line 6 or 7:

David(2)

111

3/10/91

With respect to the freight of private
dollars, we are all agreed; and as
captain Brisbane had no right to carry those
dollars at all, and stipulated for and
received a freight to which he had no right,
and afterwards in pursuance of an
understanding with Admiral Dacres, imparted a
part to him in manner agreed on; we are all of
opinion, that this carrying of the dollars was
an illegal transaction, that the whole which
followed was tainted with the same illegality,
and that the money paid cannot be recovered at
all ..... I think as to the 20 pounds, he cannot

recover back the one-third of that. We must
take this payment to have been made under a
demand of right, and I think that where a man
demands money of another as a matter of right,
and that other, with a full knowledge of the
facts upon which the demand is founded, has
paid a sum, he never can recover back the sum
he has so voluntarily paid. It may be, that
upon a further view he may form a different
opinion of the law, and it may be, his

subsequent opinion may be the correct one. If
we were to hold otherwise, I think many
inconveniences may arise; there are many
doubtful questions of law: when they arise,
the Defendant has an option, either to
litigate the question, or to submit to the
demand, and pay the money.
Now, what we say is the question that the court
should have considered is that if a possible question of the operation of section 261 had arisen, the inquiry should have been, "Would these
appellants have decided to litigate that question
or would they have simply decided to submit to the
demand and make the payment?".

GAUDRON J: But that really does depend on where you begin

the question. If you start with the question,

"Should people be allowed to keep money which the
law says they should not have, they have got no
right to have", then different questions arise.

MR EMMETT:

Yes, questions of unjust enrichment, and that is

the question that arose in Pavey v Matthews:
should Mrs Paul be allowed to keep what she
received, namely, the built extensions, without
having to pay for it? She received it. She could
not have been forced to pay but she was,
nevertheless, required to pay, and the same
situation arises here, only we have not even got to
the stage - we have got one stage further. It must
follow that if Mrs Paul had paid the price payable
under the unenforceable building contract - it must

David(2)

112

3/10/91

follow from what this Court said, that she could
not have recovered that amount.
So that the case we are concerned with today

is concerned with the situation where that
If Mrs Paul was still required to give
consideration has been paid. In either case, the bargain.
restitution by paying a reasonable sum, a fortiori,
she would not have been able to recover it back had
she paid it. Similarly, in this case, the
plaintiffs ought not to be allowed to recover it
back if they have been given it, but again I am
jumping forward.

Again, I am jumping forward. The proposition

we are simply putting at the moment is that the Full Court asked itself the wrong question. It
assumed that at the time when this matter was drawn
to the attention of the appellants, the appellants
would have been told, "This provision is totally
void." The most that could be inferred is that
they would have been told, "There may be an
argument as to whether or not this provision is

void. Do you want to contest that, or do you want

to pay the money and proceed in any event? Do you
want to litigate, or do you want to pay and
continue the relationship with the company?"

BRENNAN J:

I suppose the problem is to identify what is

meant by "mistake of law", is it not?

MR EMMETT: Indeed, what is the mistake that was made? A

finding was made by the Full Court, and the
language of the finding was they were ignorant of
section 261 and its operation on clause 8(b). But
what is the operation? What would have been told
to these people had their attention been drawn to
it? It is unlikely they would have been told,
"This provision is totally void." They may have
been told there is an argument about it, and one

would then have to make a finding as to whether in those circumstances they would still have made the payment in any event.

BRENNAN J: Well, for the purpose of making a finding as to

the existence of a mistake of law, is it necessary
to distinguish between a state of mind which is
relevant in the case of mistake of fact, which is
simply a disconformity with the phenomenon of the
fact, and mistake of law, which is disconformity
with what a court ultimately decides, though there
may be no faith in the law as believed by both
parties?

MR EMMETT:

Your Honour, that might be a reason why one draws a distinction, as we will come to later,

David(2)

113

3/10/91

between mistake of fact and mistake of law.
Mistake of fact can be investigated and
established. Mistake of law can only be decided by
a court, by litigating. And that is the
proposition that we rely on, that sentence that I
just read from Brisbane v Dacres, that where you
have a question of law, the only way you can
resolve it is by asking a court to decide it for
you unless you decide to take the risk.
If the court had asked itself the right

question, then it would have required to see some

evidence. By way of example, can I take
Your Honours to South Australian Cold Stores, No 1,
98 CLR 65, where there was detailed evidence of the
mind of the party who was said to have been in

error. The passage to which I want to take
Your Honours is at page 73. This is the case that
Your Honour Justice McHugh anticipated with the
example that Your Honour gave in argument
yesterday. This is a similar case. The
electricity authority in South Australia sent a
demand for electricity based on rates pursuant to
an invalid order. At page 73 there was a reference
made in the joint judgment to the evidence of the
manager of the recipient of this demand, four or
five lines from the bottom:
The manager did not know and he did not
inquire whether the trust as a public utility
or authority stood in a different position
from ordinary suppliers of services, and he
did not know and did not inquire whether the
prices commissioner had made any and what

order. Had he seen the order he is unlikely
to have been aware, at all events unless he
took legal advice, that without gazettal it

possessed no force. In a vague general way he
may have supposed that if any conditions
precedent existed upon which the trust's title
to charge higher rates depended, those

conditions had been fulfilled. As it turns

out the question whether they were fulfilled
or not depends upon a matter of law. Perhaps
that does not matter, because if the document

had been otherwise expressed, the conditions prescribed by law might have been fulfilled.

And the manager was unaware of the need for the document or its existence, much less of its contents or terms. What does matter is
that he entertained no belief as to the
existence or non-existence of facts as such

which turned out to be mistaken. It was a
simple case of a bona fide assertion of right
on the part of the trust which the company
acceded to without inquiry or investigation.
Had the company objected to paying and had the

David(2)

114

3/10/91

form and contents of the notice been brought
under critical consideration, it is a
reasonable conjecture that the defects would
have been remedied by a new notice before all
the overpayments which the company now seeks
to recover had been made.
In other words, in our case, if it had been

drawn to the attention of the applicants, they
said, "We do not want to pay withholding tax", the
Bank would have said, "Well, in that case, we will

add on to the amount of the rate of interest, the amount of withholding tax. It does not matter to

you. We are not prepared to lend you, unless you
agree to bear whatever the withholding tax might
be".
Now, that is the sort of evidence that might

be given, and could have been given. The fact that
it was not given is a reason why the Court should
not draw the inference. It is also a reason why

the Court considered the wrong question. Had this
matter been drawn to the attention of the
appellants, something different might have

happened. You cannot simply conclude that they
would have said, "We are not going to pay. That is
it, the whole deal is off". They may have said,
"We are perfectly happy to pay an extra 11.1 per
cent of the interest, because the interest rate is
still so favourable compared with the Australian
rate, that it is still worth our while,
commercially, to continue". That is the sort of question which the Court should have considered, but it did not.
So that we say for two reasons: one, it should

not have drawn the inference which it did, in the
absence of evidence from the plaintiffs; secondly,
if it did so, it should have considered a different
factual question than the one that was put. We
have given Your Honours also a reference, and I

think we have provided a copy of an unreported
judgment of Mr Justice Giles in the Supreme Court of New South Wales, in which he did just that. A question arose in a cheque case as to whether or

not one of the banks was under a mistake. No
evidence was called by the bank as to the making of
the mistake, and His Honour said, I am not going to
infer a mistake in circumstances where nobody calls
any evidence.
That, Your Honours, I think, is what we wanted

to say in relation to the second issue arising on
the notice of contention. That brings us now to
what is perhaps seen as the more significant issue,
although, with respect, the first two matters are
very important matters in terms of these foreign

David(2)

115

3/10/91

currency loan cases, and in relation to other

cases. The question of section 261 is a matter of
some significance continuing, whether or not in
relation to the sort of litigation that is involved
in this case.

BRENNAN J:

Mr Emmett, before you go on, could you tell me

whether, in the cross claim made by the Bank
against the other party, was there an item, or an
amount, claimed as due under 8(b)?

MR EMMETT:

No.

That is one reason why Mr Justice Hill

said, this question does not arise. If the Bank
makes a claim for a payment, then we might have to
consider - in other words, if the Bank seeks to
recover an amount that has not already been paid,
then different questions might arise. There was
some misunderstanding in the Full Court by counsel who appeared for the appellants in the Full Court.
That was all clarified and it was made perfectly
clear that the Bank was making no claim under 8(b)
in the proceedings. It was only a question of a
claim by the appellants to set off or recover back
amounts that had already been paid under
clause 8(b).

BRENNAN J: So, His Honour's reference to 266, to a

discharge to the borrowers under 221YV, is in
relation to the payment that may be made by them in
respect of interest, not being amounts payable
under 8(b).

MR EMMETT:	No.	The scheme of the Act is that money - - -
BRENNAN J:	I am talking about the claim, actually, the claim that was made.	Do I understand that there

was a claim for interest in the Bank's claim?

MR EMMETT: There was interest unpaid.

BRENNAN J: Unpaid.
MR EMMETT:	Yes, but the claim did not include any claim in

respect of an additional amount under B(b).

BRENNAN J: But the question was, I take it, from what

MR EMMETT:

You see - I am sorry to interrupt Your Honour.

BRENNAN J: What His Honour had in mind there, at the bottom

of 266, is that if there is withholding tax to pay
in respect of that interest, then that will be
deducted from the judgment as recorded and a credit
will pass under 221YV?

MR EMMETT:

Yes, and it would only be on that occasion where

the Bank says, "Well, under clause 8(b) that's been

David(2)

116

3/10/91

deducted, I now require you to pay it", that the
question would arise.
I now come, Your Honours, to the question of

mistake of fact or mistake of law. Our primary
proposition is that the distinction is
well-established and Your Honours should not

dispose of it. We say that there are good reasons
for having a distinction and that those would
justify the maintenance of the distinction.
The two reasons that we advance are, first of

all, the old maxim that people are presumed to know the law and that ignorance of the law should excuse no one; happily turned into Latin, in various ways: as ignorantia juris neminem excusat, or how et
excusat, or non excusat, depending upon which Latin
one likes to use. That is the primary
justification that was put forward by the court in
Bilbie v Lumley.
The other justification put forward by the court in Bilbie v Lumley, we also adopt, although
we put it in a slightly different way. Their case
was really the floodgates. That might be the
consequence of what we say is the second reason why
the distinction should be maintained. What we say
is that by making a payment, rather than raising a
dispute, and if necessary litigating, the payer
must be presumed to assume the risk of being in
error about the law.
One could always inquire about any demand and

decide whether or not to pursue it, but as the
High Court said in the South Australian Cold Stores
case, a claim was received, apparently made in good
faith. One could, if one were very careful, check
every single claim that is made to see if there is

some legal question that might excuse one from
paying. If that were so, then commercial

enterprise would be thrown into confusion. Nobody
would pay anything without getting legal advice;

certainty because of the possibility that somebody nobody would ever be able to accept a payment with
might subsequently take legal advice that he was
not liable to pay it and endeavour to recover it.
Now, those sorts of principles one finds, as I

have said, set out in cases of some antiquity, but
we do want to take Your Honours to brief passages
in some of the cases to indicate the reasoning that
compelled courts to come to the conclusions which
they did.
Starting with Lowry v Bourdieu, 99 ER 299,

Mr Justice Buller said:

David(2)

117

3/10/91

It is very clear to me that the
plaintiffs ought not to recover. There was no fraud on the part of the underwriters, nor any

mistake in matter of fact. If the law was
mistaken, the rule applies, that ignorantia
juris non excusat. This was a mere gaming
policy, with interest. There is a sound
distinction between contracts executed and
executory -

that is a distinction that we will come back to.
It is a matter of great significance in relation to
the question of unjust enrichment.
There is a sound distinction between contracts executed and executory, and if an action is
brought with a view to rescind a contract, you
must do it while the contract continues
executory and then then it can only be done on
the terms of restoring the other party to his
original situation. There was a case of
Walker v Chapman, some years ago in this
Court, where a sum of money had been paid in

order to procure a place in the Customs. The
place had not been procured, and the party who
had paid the money having brought his action
to recover it back; it was held, that he
should recover, because the contract remained
executory. So, if the plaintiffs in the
present case had brought their action before
the risk was over, and the voyage finished,
they might have had a ground for their demand;
but they waited till the risk, (such as it
was, not indeed founded in law, but resting on
the honour of the defendant,) had been
completely run.
In other words, it is one thing to say, "I

have a void obligation; I won't perform it and you
don't have to perform", but if people have void
obligations and they make payments and there is
then performance it involves undoing transactions.

A party can think, "Should I perform, should I not;
shall I take advice to whether or not there is
anyway in which I can avoid this liability?". But
if one consciously decides to make a payment
without considering whether or not one is liable to
pay it then there are good reasons of policy, in
our submission, why one should say that the
payment, having been made, should remain paid.
Bilbie v Lumley, 102 ER 448, is then said to

be the foundation of these principles. The
judgment of Lord Ellenborough, at page 449:
Lord Ellenborough C.J. asked the

plaintiff's counsel whether he could state any

David(2)

118

3/10/91

case where if a party paid money to another
voluntarily with a full knowledge of all the
facts of the case, he could recover it back
again on account of his ignorance of the law?
(No answer being given, his Lordship
continued;) The case of Chatfield v Paxton is
the only one I ever heard of ..... But when it
was afterwards brought before this Court on a
motion for a new trial, there were some other
circumstances of fact relied on ..... Every man
must be taken to be cognizant of the law;
otherwise there is no saying to what extent
the excuse of ignorance might not be carried.

It would be urged in almost every case. In
Lowrie v Bourdieu, money paid under a mere mistake of the law (was endeavoured to be recovered back), and there Buller J. observed
that ignorantia juris non excusat, &c.
The same notions appear in Brisbane v Dacres.
I have already read to Your Honours some passages
from the judgment of Mr Justice Gibbs - that is in
128 ER, on page 646, about line 4:
Lord Mansfield mentioned in his judgment many
cases where money paid could not be recovered
back, although, if it had not been paid, it
could not have been enforced; and he concludes
by saying, that where money is paid under a
mistake, which there was no ground to claim in
conscience, it may be recovered back. Mistake
may be a mistake of law or of fact; but I
cannot think Lord Mansfield said "mistake of
law;" for Lord Mansfield had, six years
before, in Lowry v Bourdieu, heard it said,
"money paid in ignorance of the law could not
be recovered back," and had not dissented from
the doctrine, and Buller J sate by him, who
had expressly stated the distinction six years
before in Lowry v Bourdieu, and would not have
sate by and heard the contrary stated without
noticing it. Lord Mansfield's dictum is, that

money paid by mistake, which could not be claimed in conscience, might be recovered

back. I have, however, considerable
difficulty in saying that there was any thing
unconscientious in Admiral Dacres, in
requiring this money to be paid to him, or
receiving it when it was paid. Ever since the
date of this correspondence, it had been the
practice of the admirals to receive this;
their right to it had never been questioned at
the time when Admiral Dacres received this
sum.

Then there is another example of what undoing
completed transactions might cause. At the top of

David(2)

119

3/10/91

page 647, an example of various underwriters at
Lords:
One underwriter chose to pay, rather than
resist, another resisted and succeeded; in all
similar cases it would be very easy to say, "I
paid this without a knowledge of the law, and
therefore may recover it back." Our only
question, then, in all cases was, whether the
facts were known: this was the universal
practice -

until it was raised in Bilbie v Lumley, and then
found to be confirmed.
Mr Justice Chambre, to whom reference was made

by my learned friend, dissented. Mr Justice Heath,
at page 648, about one-third of the way down the
page:
As to the question whether a payment made
under ignorance of the law without ignorance
of the facts, will enable a man to recover his
money back again, it is very difficult to say
that there is any evidence of ignorance of the
law here; an officer is sent on a profitable
service, the admirals are in the habit of
receiving a proportion of the officer's
recompence, and it is very likely the officer
should acquiesce in the demand. He might not
like to contest the point with his superior

officer. I think a payment made with
knowledge that a request would be made, is not
distinguishable from the case of an actual

demand. Now if money be received without
expressing the use to which it is paid, it is received to the use of the payer; but when it
is expressed to what use it is paid, that
presumption does not arise; here the use was
distinctly expressed.

Reference is made to Moses v Macfarlane, although

that is spelt incorrectly:
has properly been questioned in many cases,
and particularly by Eyre CJ ..... in which the
Plaintiff sought to recover back the amount of
a debt recovered by law from him, whereas he
had paid it before, but it was held that the
action was not maintainable. That was the
case of judicium redditum in invitum -
which is more or less a res judicata -
but this is a stronger case; for the Plaintiff
is a judge in his own cause, and decides

David(2)

120

3/10/91

against himself; and he cannot be heard to
repeal his own judgment.
In other words, any party who receives a demand is
entitled to decide whether or not to meet the
demand, or to dispute it, or to litigate it. If he
chooses not to dispute it, or litigate it, he ought
not thereafter, simply because of a
misunderstanding of the law, or ignorance of the
law, be entitled to get it back.
Chief Justice Mansfield refers to the practice that prevailed in relation to ship's captains:
I think in this case, the Plaintiff ought not to recover. If it was against his
conscience to retain this money, according to
the doctrine of Lord Kenyon, an action might
be maintained to recover it back, but I do not
see how the retaining this is against his
conscience; for how is it claimed? Before
1801 the captains always paid freight to
themselves both for private and public
treasure, before they paid over the residue of
the dollars. At that time it was thought
proper that that practice should be
discontinued ..... but in order to make captains
more attentive to their charge, the treasury
and admiralty thought it would be proper to
make them an allowance, and that was to be
paid to the captain by a warrant from the
treasury; but so it had before been, when the
captain deducted it, that was paid to the
captain, and before that a practice had
prevailed, one knows not how, but probably by
some analogy to the practice of prize-money -

and going down to the bottom of the page:

This then being so, the admiral doing no more
than all admirals do, is it against his
conscience for him to retain it? I find

nothing contrary to aequurn et bonurn, to bring
it within the case of Moses v Macfarlane, in

his retaining it. So far from its being
contrary to aequurn et bonurn, I think it would
be most contrary to aequurn et bonurn, if he
were obliged to repay it back. For see how it
is! If the sum be large, it probably alters
the habits of his life, he increases his
expenses, he has spent it over and over again;
perhaps he cannot repay it at all, or not
without great distress: is he then, five
years and eleven months after, to be called on
to repay it?

David(2)

121

3/10/91

an allusion, no doubt, to the statute of
limitations. But that is the sort of rationale
that is advanced in relation to these matters. If
there is a mistake of fact, then you can go and
check up on the facts and you decide whether or not
to pay. If there is a mistake of law, or if there
is a question of law, you can litigate it if you
want to. But if you choose not to litigate, for
whatever reason, if you choose not to investigate
the question of whether or not there is a liability
but you make the payment requested, then the law
says that payment should stand, unless there is
some other basis upon which it might be recovered.
For example, it might be unlawful for the recipient
to receive the money, and that is a reason why it
might be recovered, as we will see in relation to
Kiriri Cotton and that line of authority.
We have given Your Honours a reference to

Kelly v Solari - I will not read that - and to

Cooper v Phibbs. One then gets to what this Court,

in past years, has done. By the 20th century it is
quite clear that the principle of the distinction
between a mistake of fact and a mistake of law was
well established. In Werrin v Commonwealth a
question under the sales tax legislation arose.
Money had been paid to the Commissioner by way of
sales tax and after a determination had been made
that such sales tax was not payable the taxpayer
sought to recover. Three of the judges decided the
matter on the basis of section 12A of the
legislation, which expressly precluded recovery of

the tax paid. The two of Their Honours, the
Chief Justice and Sir Edward McTiernan, decided the
matter on the basis that assuming the statute did not apply, nevertheless by common law principles.
Werrin is in 59 CLR, at page 150.
The general rule, as stated in Leake on

Contracts, is that money paid voluntarily,
that is to say, without compulsion or
extortion or undue influence and with a

knowledge of all the facts, cannot be
recovered although paid without any
consideration.

And at page 158, reference is made to a judgment of
Mr Justice Walton in Whiteley v R, and about half-
way down the page he cites from Mr Justice Walton,
again adopting what is said in Leake:
"There is no doubt as to the general rule
stated in Leake on Contracts to which I have
already referred, that money paid
voluntarily - that is to say, without
compulsion or extortion or undue influence,
and, of course, I may add without any fraud on

David(2)

122

3/10/91

the part of the person to whom it is paid, and
with knowledge of all the facts, though paid
without any consideration, or in discharge of
a claim not due, or a claim which might have
been successfully resisted, cannot be
recovered back.
And then, the rationale for that appears at the
bottom of page 159, the paragraph that begins about
eight lines from the bottom:
The principle appears to me to be quite

clear that if a person, instead of contesting
a claim, elects to pay money in order to

discharge it, he cannot thereafter, because he
finds out that he might have successfully
contested the claim, recover the money which
he so paid merely on the ground that he made a
mistake of law.
In other words, everybody knows when he receives a
demand that he can take advice and decide whether
or not to dispute it, but if you elect not to take
advice and not to dispute it, then there should be
no recovery, in order to ensure certainty of
transactions.
If I can take Your Honours back to South

Australian Cold Stores (No 1), 98 CLR. I have
already read the passage at the bottom of page 73

and at the top of page 74. May I go down to the
last third of page 74:
The present case may also be regarded as

of the description which Lord Abinger CB had
in mind when in Kelly v Solari he said:
"There may also be cases in which, although
he" (the payer) "might by investigation learn
the state of facts more accurately, he
declines to do so, and chooses to pay the
money notwithstanding; in that case there can
be no doubt that he is equally bound".

Going over to page 75:
On the side of the company it was simply taken
for granted that somehow or another the
charges might be lawfully made. This seems to
fall outside the reason of the rule under
which an action of money had received lies in
cases of payment by mistake.

And here is the distinction:
Under that rule the action is available when
the payee cannot justly retain the money paid
to him because it would not have come to his

David(2)

123

3/10/91

hands if it had not been for a false
supposition of fact on the part of the payer
causing the latter to believe that he was
compellable to make the payment or at all
events that he ought to make it. It is to be
noticed that Parke B. in Kelly v Solari
defines the requisite mistake as "the
supposition that a specific fact is true,
which would entitle the other to the money,
but which fact is untrue". According to the
decision of Pilcher J ..... it is too
restrictive to say that the fact would if true
have entitled the payee to the money; and
perhaps the word "specific" may also be too
definite. But here there was nothing but an
assumption that in some way or other the
increased charge might lawfully be made and a
readiness to comply with the payee's demand
without more, a demand which but for formal
defects in the authorisation would have been
enforceable.
That cannot be enough to support an

action for money had and received.
Then the Full Court of the Federal Court in
J & S Holdings v NRMA Insurance, 61 FLR, a
unanimous judgment of Mr Justice Blackburn,
Your Honour Mr Justice Deane and
Mr Justice Ellicott, and this was a case involving
interest payable under a loan agreement where the
rate of interest exceeded that permitted by the
money lending legislation if copies of the

documents were not provided. The money lending
legislation says that where the interest rate
exceeds 12 per cent, then the lender must furnish
copies of the documents, evidencing the transaction
to the borrower, and that if that circumstance does
not occur, then the borrower is not liable for more

than 12 per cent. Interest was paid at a rate in
excess of 12 per cent, and the borrower then sought

to recover that money on the basis that it was

money paid pursuant to a void obligation. The
terms of the statute are set out at page 113 of the
report, about a third of the way down the page:
At the time of the loan, s. 12(1) of the

Ordinance provided: "Where money is or has
been lent at a rate of interest exceeding
twelve per centum per annum, every document
executed after the commencement of this
Ordinance by the borrower ..... to evidence the

contract ..... shall be ..... executed in
duplicate and one of such duplicates shall at
the time of execution be or have been
delivered by the lender -

David(2)

124

3/10/91

and subsection(2):
"If a lender does not comply or has not
complied with the last preceding sub-section,
the contract, if made for the payment of a
higher rate of interest than twelve per centum
per annum, shall, to the extent of the excess,
be absolutely null and void ... "

Language somewhat similar to the language of subsection 261(2). Now, as I have said, the borrower paid interest in excess of 12 per cent in
circumstances where there had not been compliance
with subsection 12(1), and then sought to recover
it. That finding appears at the bottom of
page 115. If I could then take Your Honours to
page 117, about half-way down the page:
The consequence of N.R.M.A. 's failure to

comply with the requirements ..... was, under
s. 12(2), that "the contract" was, to the
"extent" that it was "made for the payment of
a higher rate of interest than" .....
"absolutely null and void". The rate of
interest payable on the loan was not the
agreed seventeen per cent reducible to sixteen
per cent ..... it was twelve per cent per annum.
As has been mentioned, J. & s. paid

interest ..... The evidence before the Supreme
Court was to the effect that those payments
were made voluntarily and without protest and
in the belief, on J. & S.'s part, that it was
legally liable to pay interest at that rate -

so again, there was actually evidence here of a
mistake.
While a mistake as to private rights or
obligations may, in some circumstances, be a
mistake of fact in that it is the result of an
error as to, for example, the actual terms of

a private document -

reference is made to Coo-per v Phibbs -
it is common ground that J. & S.'s mistake in
the present case was a mistake of law and it
has not been suggested, either in evidence or
argument, that it consisted of other than
ignorance of or inadvertence to the existence
or operation of the general statutory
provisions contained ins. 12 of the
Ordinance -

David(2)

125

3/10/91

very similar to the finding of fact that was made
by the Full Courts. Going over to page 118,
half-way down:
In a case where the payment or receipt of

money is itself illegal or where money is paid
for an illegal consideration or in pursuance
of an illegal contract, there is scope for the
operation of two conflicting principles of

public policy. The first is that a payee who
has received money illegally or for an illegal
consideration or in pursuance of an illegal
contract should not be entitled to retain the

fruits of illegality. The second is the
principle which underlies the maxim that where

two persons are equally involved in illegality
the position of him who is in
possession ..... is the the stronger.

I think there is a wrong case there. Obviously, in
this case Your Honour Mr Justice Deane did not
write it.
That underlying principle is that the courts should not ordinarily lend their aid to a
participant in illegality by permitting what has been done in contravention of the law to be made the subject matter of an action.

That is a distinction which we will emphasize
shortly. It may be that if illegality is involved,
then there is a basis for recovery because a person
who participates in an illegal transaction ought not to have the benefit of his own unlawful act.
That is the Kiriri Cotton type of situation.

DEANE J: In a defence, Mr Emmett, it is not a wrong case.

The word "of" is left out.

MR EMMETT: Well, it is a mistake one way or the other, is

it? Does that indicate Your Honour did write the

judgment?

DEANE J:	I was not commenting on that.
MR EMMETT:	Going back to the passage:

Ordinarily, the principle that the courts
will not aid a participant in illegality
prevails to preclude the recovery of money
paid in circumstances where the payment or
receipt was illegal in itself or where the
payment was made for an illegal consideration
or pursuant to an illegal contract. Where,
however, the relevant illegality is brought
about by a law which was introduced to protect
a class of persons of which the payer is one,

David(2)

126

3/10/91

the position will be different. In such a
case, the parties will ordinarily not be
regarded as being equally involved in the
illegality and the principle that a person
should not be entitled to retain the benefit of a payment which he has illegally obtained
from another will apply.
Thus, it was well-established by cases

under the statutes of usury that a borrower
could recover from the lender the excess
interest which the lender was prohibited from
stipulating or receiving. In such cases,
actual receipt of the excess interest was the
subject of a specific statutory prohibition
which was seen as being imposed "to protect
weak or necessitous men from being
overreached, defrauded or oppressed".
There is reference made to those authorities.
Half-way down though:
Examination of the provisions of s 12

discloses that the contract and securities in
the present case were not illegal at the time

when they were made or given. The
requirements of s 12 could still have been
satisfied by the delivery of a memorandum
setting out particulars of all the essential

parts of the transaction. Nor did the failure
of NRMA to deliver duplicates of the relevant
documents or such a memorandum in compliance
with the section have the effect of rendering
the contract of loan illegal either in whole
or in part. The effect of that failure was,
in so far as the contract and securities were
concerned, that which the section stipulates,
namely, that their provisions were void to the
extent of the excess ..... Otherwise, their
validity was unaffected. In so far as payment
of the excess interest was concerned, the
Ordinance did not provide that the void

provisions of the contract should also become
illegal nor prohibit the payment or receipt of

the excess interest. Under the Ordinance,
that excess interest could be paid and
received without illegality.

Now, that certainly is the case here, in our
submission. There is nothing in section 261 that
says it is unlawful for an additional amount to be
paid by way of reimbursement of withholding tax,
and if the appellants in this case had been told of
the existence of section 261 and said,
"Nevertheless, we think we made a bargain. In
honour we are bound to make the payment", the Bank
could have received that without any illegality;

David(2)

127

3/10/91

different, of course, from the position in Kiriri
Cotton, but similar to the case in J & S Holdings v
NRl!A.
It then goes on to page 120:
It follows that the special principles

and considerations applicable to cases, such
as those under the statutes of usury, where
the payment or receipt of money is itself
illegal or where such payment or receipt is in
pursuance of an illegal contract are not
operative in the present matter.

That is the proposition from which we start.
Reference is then made to the decision of

Lord Mansfield in Moses v Macferlan. I go over
then to page 121. Reference is made to the
judgment of Sir Vicary Gibbs in Lowry v Bourdieu:
arise on insurance
"Among all the practitioners of the Court of very frequently
transactions, we were universally of this
opinion, that where the money was paid with a
knowledge of the facts, it could not be

recovered back. One underwriter -

and then cites the passage that I read to
Your Honours a short moment ago. Going then to
page 122:
It must, today, be accepted as settled

that there is no general principle of the law
that money paid by mistake of law is

recoverable simply because idiosyncratic ideas of justice support a conclusion that, ex aequo
et bono, it should be refunded. To the extent
that Lord Mansfield's comment, when properly
understood, support the existence of such a
general principle, they cannot be accepted as
good law. Particular grounds, such as a

complete failure of consideration, or abuse of
a fiduciary relationship (for example, undue
influence), or the particular situation of the
payer (trustee or personal representative) -
that was the case in Lipkin v Gorman -
or recipient (an officer of a court), or
mistake of fact, or involuntariness, or
unequal responsibility for the mistake of
law -

In other words, if the mistake of law is induced by the conduct of the recipient that might be a factor
to overcome the prima facie principle -

David(2)

128

3/10/91

must be shown to exist before a recipient of
money which was paid, under mistake of law, to
him for his own use can be held to have
received it to the use of the payer and
ordered to refund it. It is true that the
distinction which has been drawn between
mistake of fact and mistake of law has been
subjected to much learned criticism and is
often difficult to apply. It is, however, at
least in so far as this Court is concerned,
firmly entrenched. Thus, the Full High Court
in South Australia Cold Stores Ltd rejected a
claim of a company, which was a consumer of
electricity, to set off against current
electricity charges -

et cetera. Then there is a reference to the
judgment of the court. Going over then to page
123:
The insufficiency of mistake of law as the foundation of an action for recovery of
money paid is commonly stated as a general
principle or rule of law precluding any right
of action in a case where the payment was
voluntary. Thus, for example, Latham C.J. in
Werrin said that the "general rule, as stated
in Leake on Contracts, is that money paid
voluntarily, that is to say, without

compulsion ..... cannot be recovered". Such
statements of a general rule precluding
recovery require to be hedged around by
categories of exceptions which while "more or
less canalized or defined" need not
necessarily be regarded as closed. It is
preferable to frame the general rule in terms
of insufficiency rather than in terms of
preclusion. So stated, the general rule is
that a mistake of law does not, on its own,
found an action for the recovery of money paid

there must be some additional circumstance such as
the matters that are referred to there: extortion,
illegality and the like. At page 124, those
principles having been stated, the principles were
then applied. At the top of the page:
The overall payment of interest (both
payable ..... and excessive) was made in
consideration of the loan of the principal and
cannot be said to have been for a

consideration which failed. Our conclusion
that the receipt of the money by NRMA was
neither, in itself, illegal nor tainted by
illegality has the result that, putting to one
side the reference to "money paid by mistake"

David(2)

129

3/10/91

which has been dealt with above, the present
case does not come within any of the
particular types of cases mentioned by
Lord Mansfield or within any of the particular circumstances in which either the common law
or equity would order repayment. Prima facie,
the general rule that money paid voluntarily
under mistake of law, by itself and without
more, cannot be recovered is applicable. That
general rule can however obviously be excluded
or modified by contrary provision in the
Ordinance. It is necessary to examine the
overall provisions of the Ordinance.
Then there was an examination of the ordinance to
see whether a different conclusion should be
reached.
Then finally, the conclusion at page 127, at

line 6 or 7:
In the present case, J & Shad neither an

actionable claim to recover at law the surplus
of interest paid during the currency of the
loan nor any recognized equitable ground for
setting off the amount of surplus interest
paid against either principal or future
interest.

There was also a question involved in that case concerning the interest which had not yet been paid
and whether or not there was any basis for a
recovery of that. That, of course, just does not
apply here. That might have been the case that

would have arisen in the next round. In other
words, once payment is made of the unpaid interest,
and there is a deduction, and the Bank sought to
recover the 8(b) payment, that might be a different
matter.
Just summarizing then, Your Honours, what we

say in relation to this primary principle: it is a
principle which is well established. It is a
principle of considerable antiquity, and for
reasons that are referred to in those authorities
there is good reason for maintaining such a
distinction between mistake of fact and mistake of

law. Such a distinction is one not unknown to
ancient lawyers, and that may be something which
impressed itself upon a lawyer who, no doubt, would have been educated in the 18th century. The judges
in the late 18th century, early 19th century would,
no doubt, have been brought up on the civil law and
for that reason we have given Your Honours a
reference to some ancient law and, I think, we have
made available copies of extracts from the digest
and from Gaius' Institutes.

David(2)

130

3/10/91

We have also made available to Your Honours
some pages from a book by Zimmerman called the Law
of Obligations which is, essentially, a book about
Roman law, but it does consider the development of
these principles, at least in outline, in
subsequent civil law countries, particularly
reference is made to Germany, and more cursorily,
to France. That is a significant matter in itself.
Your Honours will be aware from the matters

referred to in the judgment of the Full Court that
in some jurisdictions legislation has been passed
to overcome the distinction: in Western Australia,
for example, and in New York, and my learned friend
has referred Your Honours to the report of the New
South Wales Law Reform Commission, advocating
change of the law by legislation. When modern,
civil jurisdictions came to write their codes, for
various reasons they decided to change what had
been an entrenched distinction in Roman law.
Could I take Your Honours just briefly to some

of the pages in Zimmerman, to illustrate what we
say. There are three passages that we would refer

Your Honours to. The first is - I think
Your Honours have copies of extracts from the book?

MASON CJ: Yes.

I do not have the first extract that is

referred to.

MR EMMETT:

Your Honours might find it without the title

page. It was material we made available yesterday,
additional copies were made available yesterday.

MASON CJ: But I take it it is not necessary to read all

these extracts out, anyhow, Mr Emmett.

MR EMMETT:

No, I was not proposing to read all of it but

simply to indicate the nature of the material. It
is clear from classical times that there was a
distinction, recognized by Roman lawyers, between

mistake of fact and mistake of law, based on a similar sort of principle from that adopted in
Bilbie v Lumley, namely that citizens were expected
to know the law, particularly legislation.

It may well be that a distinction was drawn between private matters, the effect of a particular
contract, on the one hand, and the existence of
statute. That distinction is drawn at the top of
page 606 in the extract. At page 607, reference is
made to the distinction which was introduced in
Roman law that, in circumstances where it is
unreasonable to make a mistake, then you should not
be excused from it, and knowledge of the law was
something which was expected, therefore it was
unreasonable to excuse somebody from mistake of law

David(2)

131

3/10/91

because it is something about which one can take
advice.
At the top of page 609 reference is made to

Russian and Prussian codifications of the law,
which maintained the distinction although, in the
German Code, the distinction was abolished.
I think we have given Your Honours also a copy

of the whole of the section concerning unjustified
enrichment. I do not wish to take Your Honours to
all of that but it seemed desirable that
Your Honours might have the whole of the section. Could I ask Your Honours to go to page 848, where
the author deals specifically with the condictio
indebiti, which is, in a sense, the equivalent
Roman law cause of action to the one we have under
consideration here. There were various
condictiones which the Roman lawyers recognized.
That which was applicable to mistake, in other
words, a common money count, was the condictio
indebiti, and it certainly became the most
important of them.
There are others, such as the condictio for a

failed expectation, which was the subject of
considerable analysis by the House of Lords on
appeal from a Scottish court in the case to which I
think we have given Your Honours a reference - it
is referred to at some length in Fibrosa - in

Cantiare v Clyde, (1924) AC 226. The House of
Lords considered - because, of course, Scots law
being a civil law jurisdiction, considered one of the other condictiones, that is the condictio for
failed consideration, but then in Fibrosa, the
House of Lords said that, in many respects, the
common law of unjust enrichment and restitution is
similar to Scots law, thereby suggesting that some
of these principles may have some relevance. At
pages 848 and following is a consideration of that
particular condictio.

At page 851, there is a reference to the attempt made by the ancient lawyers to try to

find

some general principle of unjust enrichment. At
the bottom of page 851:
The carving out of specific claims, each with
their own requirements, is clearly conducive
to legal certainty; at the same time, however,
there is always a good chance of new cases
cropping up which also deserve to be remedied
but which do not fit into one of the existing

niches. The question then arises whether, and
if so how, to adapt the system in order to
accommodate such novel situations. This
question naturally presented itself to the

David(2)

132

3/10/91

Roman lawyers as far as unjustified enrichment claims were concerned; and what they obviously
had to do was to try to find a common
denominator for all the existing condictiones.
What was the general principle that had
justified the granting of specific enrichment
actions and that could now be used to expand,
but at the same time suitably contain, the
range of claims?
Well, they are the compelling considerations that
one still has to consider in the issue before
Your Honours.
Originally, of course, the condictio had

been the fertile (procedural) mother of the
(substantive) claims. But, for one thing, it
had become barren with the demise of the
formulary procedure; and, for another the
"dare oportere" had, of course, been much too
abstract to play any useful role in giving
shape and substance ..... Another similarly
resourceful mother of legal rules and
institutions was natural equity. That nobody
should enrich himself at the expense of
another, was an important precept based on it.
Then leaving out the latter:
But, of course, it had never been a legal rule
of immediate applicability. The Roman economy
could hardly have flourished as it did if
every enrichment at the expense of another had
been frowned upon: all businessmen, after
all, tend to make their profits at the expense
of their competitors. The general equitable
principle needed to be transformed into more
specific legal rules. This is in fact what
happened after the time of the Republic, and
in a whole variety of fields do we Pomponius'
principle at work behind the scenes.

Then there is an observation made at page 853, just
starting at the third line:
What is significant about the text is the
historical link, of which it bears witness,
between the precepts of fairness and equity
and the use of the condictio as a claim to
recover whatever of one's property happened to
be, without good cause, in the hands of

another. The condictio causa data causa non
secuta -

which is the condictio considered by the House of
Lords in the Clyde case -

David(2)

133

3/10/91

is likewise said to be grounded on the idea of
what is just and fair -
in other words, where there is a total failure of
consideration. In that case there was an agreement
to build a ship; the war intervened but a payment
had been made; no shipbuilding had been done so
there was recovery.
All these texts have been subjected to radical
criticism: how could the classical Roman
lawyers, one argued, be taken to have
conceived of such an intimate connection
between the various emanations of the
condictio ..... on the one hand and natural law

and equity on the other! We must be dealing
here with one of those typically Byzantine
attempts to replace the clear rules of
classical Roman law by a somewhat amorphous
equity jurisprudence -

something perhaps that no doubt this Court takes
into account in its consideration of these matters.
The third part of the extract we wish to take

Your Honours to begins at page 869: a distinction
between what might roughly be translated as
reasonable mistake and unreasonable mistake. Then,
going to the top of page 870, line 4, having cited
from Augustin Leyser:
The source of inspiration that he had in mind
was "recto ratio" -

right reason -
and it induced him to cut the Gordian knot by
distinguishing between ignorantia vincibilis
(surmountable and hence unreasonable or
inexcusable) and invincibilis. Excusability
of the mistake as a general criterion to

determine whether or not to grant the
condictio indebiti quickly gained
ascendancy ..... though not, of course, merely
on the basis of "sound reason".

Leaving out the reference to the Code and the
Digest:
The consequence was not a complete rejection
of the error iuris/error facti dichotomy, but
merely its relegation to a secondary place.
For even if excusability (or reasonableness)
now appeared to commend itself as the
principal criterion that was bound, to a

certain extent, to cut across all the

David(2)

134

3/10/91

established distinctions, it could still be
maintained that errores facti, as a rule, were
excusable, whereas errores iuris, by and
large, were not. Yet, legal certainty was

seriously jeopardized. An error of law could,
after all, sometimes be regarded as
reasonable, an error of fact as unreasonable;
certain presumptions were sometimes applied
and at other times rejected in this regard -
and then there is a reference to the codification
under the modern German Code.
One purpose for referring Your Honour to that

material is, in effect, to provide a bridge between
what we now come to deal with and what we have just

dealt with. We say that the old distinction ought
to be maintained, but if it is not something must
be put in its place. If the pillar is pulled down
there must be something to support the whole area

of law which is concerned in this area. Even in
the leading Canadian case where Mr Justice Dickson,
dissenting as he then did, said that the
distinction ought to be abolished, what he put in
its place was a reference to principles of unjust

enrichment. You cannot recover under a mistake
unless you can show that it would be unjust or
unconscionable for the defendant to retain what he
has received.
So that what we say, and this arises only if,

of course, Your Honours are against us in relation
to the primary principle which we put on the main
issue in the appeal, if Your Honours, contrary to
what we have suggested, conclude that there ought
to be a change in the law, Your Honours cannot
simply say it is gone. There must be some
juridical basis for recovery, and that can only be, in our submission, unjust enrichment. That was the
course which the civil lawyers took and that must

be the course which Your Honours must take. If

money is paid under a mistake of law it can be

recovered. It can only be recoverable in so far as
the recipient has been unjustly enriched at the
expense of the payer and it would be unconscionable
for the recipient not to give restitution to the
payer.
That is the principle that one finds running

through what Your Honours have said in Pavey v
Matthews and in ANZ v Westpac. It is important to

look at those judgments to see the way in which

Your Honours develop the matter. Can I start with
Pavey v Matthews, 162 CLR 221. At 227, in the joint judgment of His Honour the Chief Justice and
Mr Justice Wilson, towards the bottom of the page,
just before the end of that paragraph:

David(2)

135

3/10/91

We are therefore now justified in recognizing,
as Mr Justice Deane has done, that the true
foundation of the right to recover on a
quantum meruit does not depend on the
existence of an implied contract.
Once the true basis of the action on a

quantum meruit is established, namely
execution of work for which the unenforceable
contract provided, and its acceptance by the
defendant, it is difficult to regard the
action as one by which the plaintiff seeks to
enforce the oral contract. True it is that
proof of the oral contract may be an
indispensable element in the plaintiff's
success but that is in order to show that (a)
the benefits were not intended as a gift, and
(b) that the defendant has not rendered the
promised exchange value.
Your Honours had previously, towards the top of that page, about line 6, referred to your
understanding of what Mr Justice Deane was doing:
Deane J., whose reasons for judgment we

have had the advantage of reading, has
concluded that an action on a quantum meruit,
such as that brought by the appellant, rests,
not on implied contract, but on a claim to
restitution or one based on unjust enrichment,
arising from the respondent's acceptance of
the benefits accruing to the respondent from
the appellant's performance of the
unenforceable oral contract.

Then going over to page 254, where Your Honour
Mr Justice Deane deals with the matter, perhaps
starting page 255, Your Honour refers to some of
the writings on the basis. About two-thirds of the
way down page 255:
It is not necessary to pursue here the

question whether, now that the common law is
released from the controls of the old forms of
action, there is a continuing need for or

utility in the traditional approach that any
claim which would in previous times have been
asserted by a common indebitatus count must be
seen as lying either in contract or
quasi-contract. It suffices to say that, even
accepting that traditional approach, it is
clear that the old common indebitatus account
could be utilised to accommodate what should be seen as two distinct categories of claim:
one to recover a debt arising under a genuine
contract, whether express or implied; the
other to recover a debt owing in circumstances

David(2)

136

3/10/91

where the law itself imposed or imputed an
obligation or promise to make compensation for
a benefit accepted. In the first category of
case, the action was brought upon the genuine
agreement regardless of whether it took the
form of a special or a common count. It
follows from what has been said above that the
cases in which a claimant has been held
entitled to recover in respect of an executed
consideration under an agreement upon which
the Statute of Frauds precluded the bringing
of an action should be seen as falling within
the second and not the first category. In
that second category of case, the tendency of
common lawyers to speak in terms of implied
contract rather than in terms of an obligation
imposed by law should be recognized as but a
reflection of the influence of discarded
fictions, buried forms of action and the
conventional conviction that, if a common law
claim could not properly be framed in tort, it
must necessarily be dressed in the language of
contract. That tendency should not be allowed
to conceal the fact that, in that category of
case, the action was not based upon a genuine
agreement at all. Indeed, if there was a
valid and enforceable agreement governing the
claimant's right to compensation, there would
be neither occasion nor legal justification
for the law to superimpose or impute an
obligation or promise to pay a reasonable

remuneration. The quasi-contractual
obligation to pay fair and just compensation
for a benefit which has been accepted will
only arise in a case where there is no
applicable genuine agreement or where such an
agreement is frustrated, avoided or
unenforceable. In such a case, it is the very
fact that there is no genuine agreement or
that the genuine agreement is frustrated,
avoided or unenforceable that provides the

occasion for (and part of the circumstances
giving rise to) the imposition by the law of
the obligation to make restitution.
Now, the significance of that passage,
Your Honours, is that it first of all recognizes
the possibility of unjust enrichment where an

obligation has been avoided. We say, as was the
case here, that the claimants seek to have the best
of both worlds. They seek to keep the benefit
which they have had but deny liability to
compensate for the unjust enrichment which they
would otherwise have had.

David(2)

137

3/10/91

McHUGH J: But what about the policy of this statute? It

seems to take the view that if you cast your
obligation in this particular form then it is void.

MR EMMETT:

Void but not illegal.

McHUGH J:

Then the question is:

should it be recoverable?

What is the point of the statutory injunction
against this if you can do it and get paid and then
keep the money?

MR EMMETT:	The Bank is not seeking to recover it. That might be the reason - - -
McHUGH J:	I know but it has got the money and - - -

MR EMMETT: Well, it has

McHUGH J:

- - - now it seeks to hold onto it.

MR EMMETT: Indeed. If - an example I gave before -

Mrs Paul had paid the price, Mrs Paul might have
said, "I have paid the price however the policy of
the Builders Licensing Act was that I shouldn't
have to make such a payment; that any obligation to
pay that is unenforceable".

McHUGH J:

I know, and that is what I said in the Court of

Appeal -

MR EMMETT: Well, Your Honour was wrong.

McHUGH J:	- - - and this Court overruled it.
MR EMMETT:	Yes.

McHUGH J: But here she had got an immediate benefit; she

had got a concrete benefit.

MR EMMETT:

So have the borrowers in this case.

They have

had the use of the money at the reduced interest

rate.

McHUGH J: Well, maybe, maybe not.

MR EMMETT:	But that is what we say.
McHUGH J:	Maybe they would not have done the deal with you.

MR EMMETT:

They may not have

but that goes back to a

different question. Maybe they would not have done
the deal and that is the very point we were making
before in relation -

McHUGH J:

You have structured this agreement in a form

which, by hypothesis, the law forbids.

David(2)

138

3/10/91

MR EMMETT:

No, it does not forbid it. That is an important

distinction.

MCHUGH J: Well, it voids it.

MR EMMETT:

It voids it and that is a distinction that was

recognized in NRJ,!A. The Court said, as a matter of
policy people should not charge more than
12 per cent interest unless the payee is told quite
clearly by being given a copy of the document that
that is what the agreement says. But it is not
unlawful to make the payment or receive the
payment. In South Australian Cold Stores, the
Court said it was illegal to make the payment and
to receive the payment and the parties were in pari
delicto therefore the Kiriri Cotton exception would
not have applied.
But there is nothing in section 261 that says,

"Thou shalt not require the payment." There is
nothing that says, "Thou shalt not receive the
payment." It simply says it is void. But if the
parties choose to perform it nevertheless, there is
nothing in the policy which says it should be given
back in circumstances where the parties have, in
effect, performed their agreement.

McHUGH J: Well supposing, for example, you deducted it, or

you debited the debtor's account or some other
factual situation, what about then? Could the
money be recovered back?

MR EMMETT:

I am not sure I am following the example

Your Honour is giving.

McHUGH J: Well, in this particular case the money has

actually been paid over to you. But supposing the
Bank had debited the overdraft with these payments,
for example?

MR EMMETT: Well, that would not be a voluntary payment if

the Bank simply exacted the money without
participation. But here, the payment was made by
cheque pursuant to a request by the Bank.

McHUGH J:

No, I am assuming that the Bank has, with the consent of the debtor, debited the debtor's

account.

You would say there is no difference.

MR EMMETT:

No difference, no.

The payment is the same.

You can have a payment by a book entry or what have
you. It is important to accept that this statute does not involve any illegality at all, and there
is a clear distinction which seems to be drawn in
the cases, in our submission a good distinction, a
rational distinction, between a statute which says
it is unlawful to receive a payment on the one

David(2)

139

3/10/91

hand, and a statute which simply says the
obligation to pay is void, but says nothing about
whether or not the payment itself - - -

McHUGH J: Well, it is a separate question as to whether it

is unjust for you to retain the payment when you
have got it by means of a device which the law
voids.

MR EMMETT:

If we gave good consideration for it, it would

not be unjust. And that is the very point. If you
have given consideration it cannot, by definition,
be unjust, particularly when that
consideration - - -

MCHUGH J: Well, it might.

MR EMMETT:	No doubt, one could imagine some circumstances, but a starting point is that if you have given consideration which is bargained for between
parties in commercial transaction, prima facie, it
is not unjust to keep the consideration which is
the subject of the bargain if you have performed your bargain. It would be a different matter if
the Bank was saying in advance, "We want you to
make these payments to us before we lend you the
money" as a matter of contract. But in this case,
the Bank has said, "We have given you the money. contractual rate. One of the quia pro quo for our agreeing to lend at that rate was your agreeing to
indemnify us to this extent, and therefore the Bank
has given full consideration."

This is not the case here, but our contention
would be that even if the Bank was seeking to
recover, there may be a basis for saying it would
be unjust for the Bank not to recover the
additional amount since the borrower has had the
benefit of the money at the reduced interest rate.
But we do not have to worry about that proposition

at this level. It is the applicant who is seeking to recover the money. The Bank is not seeking to
recover anything.
Now, those sorts of principles, that is, the notion of unjust enrichment as being the basis for
recovery, are also to be found in what Your Honours
said in ANZ Bank v Westpac, 164 CLR 662, approved
by the House of Lords, of course, quite properly
so. At the top of page 673 in the joint judgment:
ANZ's submission about the nature of its claim

can be readily accepted. The basis of the
common law action of money had and received
for recovery of an amount paid under
fundamental mistake of fact should now be

David(2)

140

3/10/91

recognized as lying not in implied contract
but in restitution or unjust enrichment.
The same thing, we would say, would apply if,
contrary to our primary submission, money is
recoverable paid under a mistake of law. Reference
is made to Fibrosa, Goff & Jones, Birks, and Moses
v Macferlan:
In other words, receipt of a payment which has been made under a fundamental mistake is one
of the categories of case in which the facts
give rise to a prima facie obligation to make
restitution, in the sense of compensation for
the benefit of unjust enrichment, to the
person who has sustained the countervailing
detriment.

There is a reference made to Pavey v Matthews:

The common law right of action may arise in
circumstances which also give rise to a
resulting trust of specific property or funds
or which would lead a modern court to grant
relief by way of constructive trust. However,
notwithstanding that the grounds of the action
for recovery are framed in the traditional
words of trust or use and that contemporary
legal principles of restitution or unjust
enrichment can be equated with seminal
equitable notions of good conscience, the
action itself is not for the enforcement of a
trust or for tracing or the recovery of
specific money or property. It is a common
law action for recovery of the value of the
unjust enrichment and the fact that specific
money or property received can no longer be
identified in the hands of the recipient or
traced into other specific property which he
holds does not of itself constitute an answer
in a category of case in which the law imposes

a prima facie liability to make restitution.
Before that prima facie liability will be
displaced, there must be circumstances (e.g.
that the payment was made for good
consideration such as the discharge of an
existing debt or, arguably, that there has
been some adverse change of position by the
recipient in good faith and in reliance on the
payment) which the law recognizes would make
an order for restitution unjust.
The same principles are to be found, as I
said, in what Mr Justice Dickson said, in what is
regarded as an important dissenting judgment, in
Hydro Electric Commission of Nepean v Ontario
Hydro, 132 DLR (3d) 193. At 209, having dealt with

David(2)

141

3/10/91

various reasons as to why the principle of the
distinction should be abandoned, in the middle of
page 209, His Lordship says:
Finally, the most significant judicial

development in the area of mistake of law is
not an exception or qualification to the rule
but rather the resurgence in English and
Canadian jurisprudence of the doctrine of
restitution or unjust (or unjustified)

enrichment. The Fibrosa decision, supra, and
Lord Wright's reasons in particular, marked
the "modern revival of restitution as a
flexible and growing system" ..... Once a
doctrine of restitution or unjust enrichment
is recognized, the distinction as to mistake
of law and mistake of fact becomes simply
meaningless.

We do not agree with that last proposition, but
what His Lordship is clearly saying is that if
there is no distinction, then the only basis upon
recovery must be that of unjust enrichment and that
is consistent with what Your Honours have said in
ANZ v Westpac and in Pavey v Matthews.
It is also something that is hinted at in

Your Honour Justice Gaudron's Judgment in Trident,
165 CLR 107 at page 174 where Your Honour
recognizes the distinction between suing on the
contract and suing for the debt. Starting,
probably, to put it in context, the third line:
Although the position of the third party

is commonly expressed - and in my view
accurately expressed - in terms of inability
to sue on the contract, common understanding
is that the consequence of the rules is that
no obligation is owed by the promiser to the
third party and no right is created in the
third party to secure the benefit of the

contract. For the sake of simplicity I leave
out of account conduct by the promiser which
may create some other recognizable obligation
to the third party, or which may lead to an
assumed state of affairs -

et cetera.
The source of the obligation to perform a

contractual promise is the contract itself,
but there is no reason in logic or in law why
the existence of a contract should preclude
the existence of another obligation ordinarily
corresponding in content and duration with the
contractual obligation, but having its source

in law rather than in the contract. Thus an

David(2)

142

3/10/91

obligation to pay a debt to which a contract
has given rise is separate and independent
from the contractual obligation, although
corresponding in content with it. An action
to recover the debt is an action on the debt

and not an action on the contract. In Young v
Queensland Trustees Ltd, the position was put
as follows:
"The common law does not and never did
conceive of indebtedness in a sum certain for an executed consideration as a mere breach of
contract: it is rather the detention of a sum
of money ... "
The reference is made to Turner v Bladin and Pavey
& Matthews.
So too, if consideration has been wholly

executed under an unenforceable contract, the
law imposes an obligation or imputes a promise

to make compensation for the benefit accepted:

Pavey & Matthews. The obligation may be
limited by the terms of the contract to
correspond in content with the unenforceable
contractual obligation, but it is an
obligation which has its source in law and not
in the contract.
All of which, in our submission, Your Honours,
leads to the conclusion that if Your Honours are
going to pull down the pillar, a new pillar must be
erected, and that pillar is that of unjust

enrichment, which may be related to the notion of
unconscionability or unconscientious receipt of
money.
This is not a case where the retention of the

funds by the Bank would be unconscientious, for the
reasons which, in answer to questions, I have to
some extent developed. There is no policy in the

to receive these payments, so it is not a Kiriri or statute which says that it is unlawful for the Bank a South Australian Cold Stores case. It is not
unconscionable to retain money paid as
consideration for performance where there has been

complete performance by the recipient. And our
submission is that, in that circumstance, the
question just does not arise.
If a payment has been made in consideration of

a performance where there is no illegality, then
there is no injustice, there is nothing
unconscionable, in the retention. Unless one can
find in the statute a provision which says, "You
may not keep a consideration paid in those
circumstances", then the law would not impose an

David(2)

143

3/10/91

obligation to refund which would give rise to an
injustice.
This notion of distinction between wholly executed and executory contracts is one which also
finds mention in the earlier authorities, where the
distinction between mistake of fact and mistake of
law developed. Can I take Your Honours to Moses v
Macferlan, 97 ER 676, at page 680, starting about half-way down the page:
The Court said, that the extending those actions depends on the notion of fraud. If
one man takes another's money to do a thing,

and refuses to do it; it is a fraud: and it
is at the election of the party injured,
either to affirm the agreement by bringing an
action for the non-performance of it; or to
disaffirm the agreement ab initio, by reason
of the fraud, and bring an action for money
had and received to his use.

That is, in effect, the total failure of consideration type of circumstance that was dealt
with in Fibrosa and in Clyde Shipping:
The damages recovered in that case, show

the liberality with which this kind of action
is considered: for though the defendant
received from the plaintiff two hundred and
sixty two pounds ten shillings, yet the
difference money only, one hundred and seventy
five pounds, was retained by him against
conscience: and therefore the plaintiff, ex
aequo et bone, ought to recover no more;
agreeable to the rule of the Roman law - "Quod
condictio indebiti non datur ultra, quan
locupletior factus est, qui accepit".
If the five shares had been of much more

value, yet the plaintiff could only have
recovered the two hundred and sixty two pounds

ten shillings by this form of action. The notion of fraud holds much more
strongly in the present case, than in that:

for here it is express. The indorsement which
enabled the defendant to recover, was got by
fraud and falsehood, for one purpose, and
abused to another.
This kind of equitable action, to recover

back money, which ought not in justice to be
kept, is very beneficial, and therefore much
encouraged. It lies only for money which ex aequo et bone, the defendant ought to refund:
it does not lie for money paid by the

David(2)

144

3/10/91

plaintiff, which is claimed of him as payable
in point of honor and honesty, although it
could not have been recovered from him by any
course of law; as in payment of a debt barred
by the Statute of Limitations, or contracted
during his infancy, or to the extent of
principal and legal interest upon an usurious
contract, or, for money fairly lost at play:
because in all these cases, the defendant may
retain it with a safe conscience, though by
positive law he was barred from recovering.
But it lies for money paid by mistake; or
upon a consideration which happens to fail; or
for money got through imposition, (express, or
implied;) or extortion; or oppression .....
In one word, the gist of this kind of

action is, that the defendant, upon the
circumstances of the case, is obliged by the
ties of natural justice and equity to refund
the money.

In other words, the plaintiff has to establish injustice in order to recover. He cannot simply
say I made a mistake, therefore I want to get it
back. If all of the circumstances of the case show
that it is not unjust for the Bank to retain the
money, then the law, as a matter of policy, would
not require it to regurgitate that a.mount.
I have already referred Your Honours to Lowray

v Bourdieu, 99 ER. There is a footnote at page 301
which refers to a number of authorities that are
concerned with the distinction between wholly
executed contracts on the one hand and executory

contracts on the other. The distinction is clearly
drawn so far as recovery is concerned in the sorts
of cases that were referred to in Moses v
Macferlan. If somebody makes a payment which could
not have been recovered because the statute of
limitations had run, he cannot recover it because

it is not unconscionable for the recipient to
retain it.
Under a wagering contract, although the

payment of the wager cannot be enforced by the
successful wagerer, if the payment is made, it is
not unjust for the wagerer to retain it. The
distinction is between an executory contract, on
the one hand, where the consideration has not
passed, and an executed 9ontract, on the other,
where consideration has been given. If
consideration has been given, then it would not be
unjust for the recipient to retain what is paid
pursuant to an unenforceable or void obligation for
the performance of that consideration.

David(2)

145

3/10/91

I will not take Your Honours back to Brisbane
v Dacres. Valentini v Canali, 24 QBD 166, is one
of a series of cases to which we refer on infants
contracts. Reading from the headnote:
By s .1 of the Infants' Relief Act, "All

contracts, whether by specialty or by simple contract, henceforth entered into by infants
for the repayment of money lent or to be
lent ..... and all accounts stated with infants
shall be absolutely void; provided always that
this enactment shall not invalidate any
contract into which an infant may, by any
existing or future statute, or by the rules of
common law or equity, enter, except such as
now by law are voidable."
The plaintiff, an infant, agreed with the

defendant to become tenant of a house, and to
pay a certain sum for the furniture therein.
The plaintiff paid the defendant part of this
sum and occupied the house, and used the
furniture during several months.

Lord Coleridge, at page 167:
Under the contract in question, which was one
for his advantage, the plaintiff, an infant,
undertook to pay the defendant a sum of money.
He paid the defendant part of this sum, and
gave him a promissory note for the balance.
The judge satisfied himself that the plaintiff
was an infant at the time when he entered into
the contract, and, having satisfied himself of this, did, in my opinion, justice according to

law. He set aside the contract, and he
ordered the promissory note to be cancelled.
It is now contended that, in addition to this relief, the plaintiff was entitled to an
order for the re-payment of the sum paid by

him to the defendant as money paid under a

contract declared to be void. No doubt the
words of s.1 ..... are strong and general, but a
reasonable construction ought to be put upon

them. The construction which has been
contended for on behalf of the plaintiff would
involve a violation of natural justice. When
an infant has paid for something and has
consumed or used it, it is contrary to natural
justice that he should recover back the money
which he has paid. Here the infant plaintiff
who claimed to recover back the money which he
had paid to the defendant had had the use of a

quantity of furniture for some months. He
could not give back this benefit or replace

David(2)

146

3/10/91

the defendant in the position in which he was
before the contract.
In our case, the claimant has had the use of the money for the period of each successive interest

period. He cannot give back that benefit otherwise
than by paying what was contracted to be paid.

GAUDRON J: There is some difficulty, however, is there not,

in equating money with goods and having the benefit

of it. I mean, it is not as though - money is,

after all, money. We are not talking about used
money as against new money.

MR EMMETT:

But the rent paid for the occupation of the

premises did not - it was not rejected on the basis
that there was some deterioration in the premises,
but for that period the landlord could no longer
let the premises. For the period of each
successive interest period the Bank could no longer
lend that money to someone else.

GAUDRON J:

We are not talking about the Bank being deprived of the opportunity of interest on the money in any

real sense.

We are talking in more limited terms

in this case.

MR EMMETT:

No, with respect, Your Honour.

We are talking

about the Bank being deprived of that additional
amount which it - - -

GAUDRON J:	The 11 per cent of 6 per cent?
MR EMMETT:	Yes, which it would not have had to pay had it

lent this money to somebody else outside Australia.
The money was lent by the Bank in the course of its

business in Singapore. One can assume that it
could lend this money out at the rate which was
bargained in this arrangement. But if it lent the
money outside Australia to a non-resident, there
would be no obligation for withholding tax to be

deducted, and one can imagine that there may well
be tax liabilities that arise in Singapore,
whatever they were.
But what the Bank was saying is "If you want

us to lend at this favourable rate, then we do not
want to have to have deducted to pay some not have to pay if we lent to someone else." So
that the Bank is deprived of the opportunity of
getting that - we are only talking of that
additional amount. There is no claim to recover
the interest that is paid, but there is a claim to
recover back an additional amount which the parties
bargained for, and which this borrower thought it
was commercially desirable to pay. Apart from

David(2)

147

3/10/91

section 261 this borrower was prepared, as a matter
of the bargain, to pay this additional amount. It
is only by pure fortuitous chance that he now
finds, "I have a way of getting back something that
I was prepared, before I knew about it, to pay in
good conscience."
So that it is, with respect, the same sort of

situation - the use of the money for that
additional amount, or the use of the premises, the
subject of the void contract in Valentini v Canali,

or the use of the furniture. The refusal of the
claim was not because of some deterioration in the
furniture, but because the use was had by the

plaintiff. She had had the benefit of living in
the premises and the use of the furniture.

GAUDRON J: This does presuppose, I suppose, that one does

not discern a legislative intent that in no event
shall a liability to tax be passed on.

MR EMMETT:

If the statute had wanted to say that it could

have said it.

GAUDRON J: Yes.

MR EMMETT:

Indeed, it could have made it illegal to make

this payment. That is the distinction between this
case and - you see, Kiriri Cotton is very similar
in a sense in the facts to Valentini v Canali. In
Kiriri Cotton the law said a landlord may not
charge a premium for the grant of a lease, and it
was unlawful for the landlord to do that. It was a
crime for him to receive the payment, to solicit or
receive a payment of a premium.
The House of Lords considered in those

circumstances it was clear that the payer was
intended to be protected; that the landlord should
not have the benefit of his illegal act in

receiving the payment. And because of

considerations of the class of persons who intended
prevented recovery in the case of an illegal act did not stand in the way of recovery.
to be protected by the statute, the House of Lords
held that the tenant was not in pari delicto.

But it is a different case altogether.
legislature could have said, in relation to
section 261, "A lender or a mortgagee shall not
The
receive payment in the circumstances outlined", but that is not what it says. That is the significance
of the distinction that we have endeavoured to harp
on that was recognized in the Full Court of the
Federal Court in NRHA in allowing the lender to

David(2)

148

3/10/91

retain the a.mount of interest that was paid in
excess of the a.mount which it was void to enforce.
The second case in the series of infants cases

is Steinberg v Scala (Leeds) Ltd, (1923) 2 Ch 452.
Here the circumstances were that an infant had
agreed to take up shares which were partly paid and

made a payment for the shares. The infant then
sought to recover the payment that had been made on
the basis that the contract was void under the
legislation to which I have just referred in
relation to Valentini v Canali. At the bottom of
page 457 the facts are stated:
The plaintiff is a young lady still an

infant, and when still more an infant some
year or two ago she paid 50 pounds as a
payment on application for shares in the
defendant company and subsequently paid a
further sum of 200 pounds for calls after the
shares had been allotted to her, so that she
paid altogether 250 pounds for shares in the
defendant company.

And leaving out most of that page, if I can go down
to about six or seven lines from the bottom after
the words in quotation marks:
That seems to me to be only stating in other
words the principle which is laid down in a
number of other cases that, although the
contract may be rescinded the money paid
cannot be recovered back unless there has been
an entire failure of the consideration for
which the money has been paid. Therefore it
seems to me that the question to which we have
to address ourselves is: Has there here been
a total failure of the consideration for which
the money was paid?
Now the plaintiff has had the shares; I

do not mean to say she had the certificates;
she could have had them at any time if she had
applied for them; she has had the shares
allotted to her and there is evidence that
they were of some value, that they had been
dealt in at from 9 shillings to 10 shillings a

share. Of course her shares were only half
paid up and, therefore, if she had attempted
to sell them she would only have obtained half
of that a.mount, but that is quite a tangible
and substantial sum.
In those circumstances is it possible to

say that there was a total failure of
consideration? If the plaintiff were a person
of full age suing to recover the money back on

David(2)

149

3/10/91

the ground, and the sole ground, that there
had been a failure of consideration it seems
to me it would have been impossible for her to
succeed, because she would have got the very
thing for which the money was paid and would
have got a thing of tangible value.
If she has obtained something which has money's worth then she has received some
consideration, that is, she has received the very thing for which she paid her money, and
the fact that, although it has money's worth,
she has not turned that money's worth into
money, does not seem to me to prevent it being
some valuable consideration for the money
which she has paid.
Therefore denial of recoverability. That line has
been accepted in Australia - at least at single
court level in Woolf v Associated Finance, (1956)
VLR 51. I will not take Your Honours to read the
passage, but the principle is there and it was

accepted by the Victorian Supreme Court. We have
also given Your Honours a reference to the judgment
of the Supreme Court of Tasmania, in Hall v Wells,
(1962) TasSR, similar application of the same
principle. The position is also confirmed by the
House of Lords in the recent case of Lipkin
Gorman v Karpnale, (1991) 3 WLR 10 and, as I think my learned friend indicated to Your Honours, this was a case involving attempt by solicitors to
recover moneys lost in gambling transactions by
their fraudulent clerk.
The real question which taxed Their Lordships, and we are not concerned with the result that they
came to, but the question that taxed
Their Lordships was whether or not there was consideration given, the clear acknowledgment
appearing to be that had there been consideration
given for the payment then the moneys would not

have recovered, and certainly it is acknowledged
that if the gambler himself, as between the
gambling club and the gambler, if he sought to
recover money paid under an unenforceable gambling
contract then there could be no recovery.
The difference between Lipkin Gorman is that

there was an additional element involved, namely
that the moneys that were gambled were not the
moneys of the gambler, they were moneys which he
held as constructive trustee because he had stolen
them from his employer and, as I say, the
proposition we get from it - all that the House of
Lords was concerned with was to see whether, on
proper analysis, it could be said that the club had given consideration. Just by way of example of the

David(2)

150

3/10/91

way in which it was approached, can I refer
Your Honours to page 35 of the report:
The defence of change of position is akin to the defence of bona fide purchase; but we
cannot simply say that bona fide purchase is a
species of change of position. This is
because change of position will only avail a
defendant to the extent that his position has
been changed; whereas, where bona fide
purchase is invoked, no inquiry is
made ..... into the adequacy of the

consideration. Even so, the recognition of
change of position as a defence should be
doubly beneficial. It will enable a more
generous approach to be taken to the
recognition of the right to restitution, in
the knowledge that the defence is, in
appropriate cases available; and while
recognising the different functions of
property at law and in equity, there may also
in due course develop a more consistent
approach to tracing claims, in which common
defences are recognised as available to such
claims, whether advanced at law or in equity.

I think we have given Your Honours the

references to the passages that we rely on
specifically and I will not take the trouble to

read perhaps other than - - -

MASON CJ:

I think you can take it, Mr Emmett, we will

probably look at it closely.

MR EMMETT:	I will not take Your Honours' time by reading the passages.	The proposition is clearly enough
made.

Again, to summarize what I have just been
putting by taking Your Honours tediously to those
authorities is that it is not unjust for a

recipient to retain moneys that were paid as a
consideration for a performance that has already

taken place. Even where the party who has the
benefit of a statute has received the other side of
the bargain but has not paid, he may still be
required to give restitution in respect of an
obligation which would otherwise have been
unenforceable. That seems to be what flows from
what Your Honours said in Pavey v Matthews, and if
I can take Your Honours - perhaps before I take
Your Honours back to that, can I take Your Honours

to what Your Honour Mr Justice McHugh said in Hurst
v Vestcorp, 12 NSWLR 394. Your Honours have copies

of that, I understand. We think we made
photocopies available yesterday.

David(2)

151

3/10/91

This was a case involving the Companies Code
and what was intended to be a taxation minimization
scheme involving films. An element of the proposal

involved the making of a loan. The scheme was
hawked about in circumstances where it was held
that there was a contravention of the Companies
Code because the scheme constituted an interest,
there was no prospectus, and it was being hawked to
the public, so there was illegality.

The headnote indicates those brief

propositions, at page 384. It was held:
In the circumstances there was an offer of an
interest to the public within the meaning of
the Companies Act.

Proposition 2:
A contract which results from the offer of an
interest made in breach of the Companies Act
is unenforceable.
(3) The loan agreements were such an integral
part of the scheme which constituted the offer
of the interest that they could not be severed
therefrom and were therefore unenforceable.

And the question then arose, bearing in mind that
the money had been lent, whether it could be
recovered. And the question on which we wish to
take Your Honours is what was said by Your Honour
Justice McHugh in relation to what is set out in

the fourth proposition on pages 394-395. May I
take Your Honours to page 442, half-way down the
page between D and E:
If a statute prohibits the carrying on of

a business generally or subject to
restrictions, the proper conclusion will often
bet that the legislature intended that a

contract, which was made only because of a
breach of that prohibition, should be
unenforceable.

then there are some examples, and a reference to
what Your Honour Mr Justice Mason said in Yango.
Unfortunately, the text of the statute

rarely provides direct assistance to the
solution of the problem. As a result the
courts have invariably found the consequences
of invalidating a contract to be the decisive
consideration. If the purpose of the
statutory prohibition is the protection of a
section of the public and the invalidation of
a contract made in consequence of a breach of

David(2)

152

3/10/91

the prohibition will directly assist that
purpose, the courts are more ready to conclude
that the legislature intended that the

contract should be unenforceable. But if the
consequences of invalidity will lead to
injustice or absurdity or will penalise the
innocent, the less likely it is that the courts will hold that the purpose of the
legislation was to invalidate a contract made
as a consequence of the breach of the
legislation.
Now, that was the argument which led to the conclusion that the loan agreement was
unenforceable because it was part of the unlawful

transaction. One can make the observation, of
course, that the holding was that the conduct was
illegal; it was a prohibition under the Companies
Act so that what made the loan agreement
unenforceable was because the loan agreement itself
was inextricably tied up with a breach of the law. So this was a case stronger than the present case;
a case on a par with Kiriri Cotton because it
involved illegality. At page 444, Your Honour
dealt with the question of the application of those
principles and concluded, at letter G:
In these circumstances, I think that the effect of s 86 and the doctrine of illegality is that the loan agreement as well as the
other agreements are unenforceable.
Then at page 445 Your Honour came to consider

whether in those circumstances principles of
restitution would nevertheless entitle the person
who it engaged in illegal conduct to recover the
amount of the money lent:
When, as the result of a breach of the

law passed for the protection of certain
persons, one or more contracts come into

existence, the rationale of the illegality
doctrine requires the invalidation only of a
contract or part of a contract which defeats
that protection. In many cases the unaffected
contractual provision will be severable from the affected part. But in other cases, such
as the present, severance may not be possible.
Although a provision is outside the scope of the statute, it may be inextricably linked with the affected part of the contract or
contracts. But it does not follow that the
parties are without remedy in respect of
executed transactions entered into under the
unenforceable contract.

David(2)

153

3/10/91

In some cases the doctrine of restitution
will enable a party to recover compensation
for a benefit accepted by the other party
under the contract even though the contract is
unenforceable. Recovery of compensation in these cases does not depend on the terms of

the unenforceable contract. The right of
recovery is based on an obligation or promise
which the law itself imposes ..... As the
decision in that case shows, compensation may
be payable in respect of work done and
accepted under a contract even though a
statute declares that the contract is
unenforceable. Whether restitution is
possible in respect of benefits accepted under
a contract declared by statute to be
unenforceable depends on the intention of the
legislature. That is to say, the question is
whether the legislation evinces an intention
not only to invalidate the contract but to
preclude the recovery of compensation by way
of restitution for benefits given and accepted
under the unenforceable contract.
In the present case the contract of loan

is invalid because it was made as the result
of a breach of the Companies Act .....
Although the contract of loan is

unenforceable, the appellants have received
and have had the benefits associated with the
loans. With one exception, they have had the
benefit of the tax deductions associated with
the amounts of the loans. They have also been
able to increase their interest in the films
as the result of the loans. Yet the result of
my judgment is that the contracts of loan are
unenforceable. If appellants are not required
to refund the moneys which they have borrowed
they will reap an unmerited benefit. That, of
course, is often the result of the illegality

doctrine. But the modern doctrine of
restitution enables the court in appropriate
cases to overcome these injustices.

Now, if one applied those principles here, the Bank
would be entitled to recover under clause 8(b) even
if the moneys had not been paid. A fortiori, if
the moneys have been paid there is no basis for
recovery. It is the same as the Pavey & Matthews
situation. Here, the party who made the loan which
was unenforceable was nevertheless entitled to
recover the amount because it would have been
unjust for the beneficiary of the statute to have
retained the amount of the loan.

David(2)

154

3/10/91

In the present case, the borrowers have had
the benefit of interest at the rate bargained for.
They now want to say, "Having had that benefit we
shouldn't be required to pay the full amount that

was bargained for. We want to recover".
If these principles apply, in our submission,

the present case would entitle the Bank to recover

even if the payments had not been made. A
fortiori, the plaintiff cannot recover the amounts
simply because they have been paid, the principle
being that there was good consideration given by

the Bank. The inference that one might draw is
that had the plaintiffs said, "We don't want to pay
this", then the Bank would have said, "Well, we're
not going to lend you the money". At the next roll
over the interest rate would have been different
or, alternatively, going back to the original
offer. If the plaintiffs had said, "Section 261
says that I don't have to pay this amount", the
Bank would have said, "In that case, we'll
structure the agreement in a different way and in a
way which may be prejudicial to you in this way.
If we do it this way, then you may get the benefit
of an exemption from withholding tax, in which case
you won't have to pay it. Similarly, if we
structure the loan in this way, there will be
flexibility if there's a change in the withholding
tax rate, for example, if wittholding tax were

abolished". The borrower would have got the
benefit of that abolition. Certainly, if the
withholding tax were increased, the Bank would also
be compensated, but that is fair having regard to
the bargain.
The parties bargained on the basis that the

Bank would get a net interest rate in return and
that is something which the evidence shows quite

clearly was the bargain. One of the documents
which we have included in the bundle that we handed
up, is a handwritten note by Mr Morgan, or his

partner, referring expressly to the operation of
withholding tax requirement and said that the Bank
requires to get the interest net of withholding
tax.

McHUGH J: Is it Veale you are referring to?

MR EMMETT:	Yes.
McHUGH J:	Was he a partner or an employer?
MR EMMETT:	I am not sure - certainly he is a partner, I am

told; I just do not remember now, Your Honour.
The same principle, in our submission, is to

be found in Pavey & Matthews. If I can perhaps

David(2)

155

3/10/91

just give Your Honours a reference to the pages in
Pavey & Matthews, where we say one finds this same

principle. Even where a party who is intended to
be benefited by the statute will still be required
to give restitution and that, of course, is Mrs
Paul in the Pavey & Matthews circumstance. The
pages that we would refer Your Honour to - - -

DEANE J:

Mr Emmett, there is no way that if the payments

had not been made the Bank could recover a
section 261 amount here, because that would be
quite contrary to the policy of the Act and that
what section 261 provides is that if parties make a
bargain requiring, in effect, one to pay the
withholding tax construed against you, then the
bargain will stand, except to the extent that it
requires the payment of the amount of withholding
tax. Well now, if you sued in restitution,
obviously, so far as the principle is concerned,
the considerations that Justice McHugh referred to
would apply, but there is no way you could say, "On
the basis of restitution, I recover the principle,
the interest other than withholding tax and the
withholding tax that the Act says I am not entitled
to recover" .

MR EMMETT:

One could not recover it under the contract

because the contract is voided by the operation of
section 261.

DEANE J: But that is the whole point of the restitution

law, that it gives way to the legislative intent.
I do not want to take time, but here the
legislative intent seems to be fairly clear.

MR EMMETT: Well, except to the extent that there is unjust

enrichment. In other words, if the Bank were the
plaintiff and it could be shown that the borrowers
had the benefit of a cheaper interest rate than
they would otherwise have been able to get anywhere
else, then they have been unjustly enriched to that
extent.

recover is not the full amount of the withholding It may well be that what the Bank can
tax, but it is something. It is something I do
want to take Your Honours to in relation to void
loans that are struck down, but I see the time is
almost - - -

MASON CJ:	Can I ask how long you will take?
MR EMMETT:	No more than about 10 to 15 minutes I should

think, Your Honours.

MASON CJ: Very well, we will adjourn until 2.15 pm.

AT 12.45 PM LUNCHEON ADJOURNMENT

David(2)

156

3/10/91

UPON RESUMING AT 2.18 PM:

MASON CJ: Yes, Mr Emmett.

MR EMMETT:

Your Honours, before the adjournment I was about

to deal with specific examples where obligations
were rendered void by statute, nevertheless the
party who was intended to benefit by the statute

was, in effect, required to give restitution. The
most striking example of that is North Central
Wagon Finance Co Ltd v Brailsford and Another,
(1962) 1 WLR 1288. This was a case where a

transaction was held to be a bill of sale. It was
not registered and was therefore void by the
operation of legislation. Page 1293,
Mr Justoce Cairns, about half-way down the page,
said:
In my view, this is a case where the real
transaction was a loan on the security of the
Albion -

the Albion being a motor vehicle -
and the higher-purchase agreement was a bill
of sale and is void for non-registration.
It is conceded by the plaintiffs that in

these circumstances the variation agreement
and the transfer agreement must also be void.

Then he goes on to deal with matters. Then, at the
last paragraph at the bottom of that page:
I now turn to the plaintiffs' alternative

claim for money had and received. In Davies v
Rees it was held that a bill of sale void for want of form is void for all purposes, but nevertheless it was held at first instance,

could be recovered by the lender with and not contested on appeal, that the money
reasonable interest. In Bradford Advance Co.

Ltd. v Ayers Bailhache J. held that the money could be recovered, not on the basis of any
oral agreement leading up to the bill of sale,

but as money had and received. In my view,
the same considerations apply where money is
advanced on a bill of sale which is void for
non-registration.
What that seems to concede is that whereas

there might have been the contractual obligation to
repay the loan together with contractual interest,
the law would nevertheless impose an obligation
which may in many instances be coterminous with

David(2)

157

3/10/91

that obligation - what Your Honour Justice Gaudron
referred to in Trident - that there may be two
identical obligations: one being the contractual

obligation; the other that imposed by law. The
contractual obligation is struck down but the law
nevertheless imposes an obligation to give
restitution if failure to do so would result in
unjust enrichment.
The same principle is then extended into our

present case. Let it be assumed that the Bank has
agreed to lend on this particular basis. It would
still be able to recover, not necessarily, as I
said before lunch in answer to Your Honour
Mr Justice Deane, one would not necessarily be
entitled to recover on an unjust enrichment claim
the same 11.1 per cent, but the Bank would be
entitled to recover, at least, what would be a
reasonable additional amount to ensure that there
was no unjust enrichment of the borrower. being the amount that was contractually payable,
there is no right to recover because that recovery
would result in unjust enrichment of the borrowers.
I will not take Your Honours to the two cases

that are referred to by Mr Justice Cairns. There
is a reference to them in our list. They are
really specific examples of all of the instances to
which we referred in paragraph 10 of the written
outline, the cases which I took Your Honours to in
more detail before lunch. That is, where there has
been consideration given it would be unjust for the
person who has received that consideration not to
give compensation for it, and if the person has
paid under a void obligation the amount which is
payable as the quid pro quo for that consideration,
then there is no basis for saying that there has
been any unjust enrichment of the recipient of the
payment.

There is nothing in the policy of section 261

that says that the mortgagor should be entitled to
get an unjust enrichment in circumstances where he
has had the benefit of money but has not paid the
contracted rate of interest.
That brings us, Your Honour, to the final

proposition which we wish to advance, and it is a
further alternative. Assuming Your Honours,
contrary to the submissions we have made, conclude
that this is prima facie a case for recovery,
notwithstanding that there has been consideration,
we say, as a final answer, the Bank has changed its
position such that it would be unjust now for the
borrowers to be able to recover the amount which
has already been paid.

David(2)

158

3/10/91

McHUGH J:	I suppose, Mr Emmett, if you have unjustly retained these moneys then what should be recovered
should be more than the payments. For example, you
have had the use and benefit of the money.

MR EMMETT: Well, we have not because we have paid the

Commissioner.

McHUGH J: Well, you have discharged an obligation you had. MR EMMETT: But an obligation we would not have had but for

this arrangement. That is the point of it all. We
would never have incurred this obligation but for
agreeing to lend on these terms and that is a

reason why we have changed our position. We are in
the position now where we have this liability to
the Commissioner; whether we have paid it or not we
have the liability - - -

DEANE J: Is the payment not credited to your benefit

against your tax?

MR EMMETT: Well, it may or may not be, depending

MCHUGH J: Well it is, under 221YR - - -

MR EMMETT:

Yes, but we would not have incurred the

liability to pay that tax had we not entered into

this transaction. We entered into this transaction
and agreed to charge interest at the contractual
rate on the basis that we would not have to pay
that tax because we would be reimbursed for that

amount. The payment of the tax discharges the
liability but the liability is the acting to

detriment or change of position. We incurred a
liability which we would not have otherwise
incurred had the borrower not agreed to reimburse

us for that amount. So we have this position,
Your Honours, that - - -

BRENNAN J:

Mr Emmett, did you pay that money to the

Commissioner as agent for the borrower?

MR EMMETT:

Yes, to discharge a liability which we incurred.

BRENNAN J:

How does that happen?

MR EMMETT:

The Act says that the recipient of interest is liable to pay the 10 per cent withholding tax, so

that the Bank incurs a liability to pay the

withholding tax - that is a liability which we say

we incurred, in effect, in reliance upon this

bargain, but I will come back to that.

The Act

then specifies a mechanism whereby the Commissioner

can collect that withholding tax.

He says where

the Australian resident is under an obligation to

pay to somebody outside Australia, he must deduct

David(2)

159

3/10/91

the withholding tax, that is, the payer, the
borrower, must deduct the withholding tax and pay
it to the Commissioner.

TOOHEY J: But the liability to pay tax falls upon the

person who receives the interest.

MR EMMETT:

Oh yes.

And what the Act says is that the

payment of the withholding tax by the borrower is,
pro tanto, a discharge of the borrower's liability to pay the interest, because it is discharging the
liability which the lender has to pay the
withholding tax.

TOOHEY J:

No, the lender does not have an obligation to pay

withholding tax, does he? The lender has an
obligation to pay income tax.

MR EMMETT:

No, he has to pay withholding tax.

TOOHEY J: Is that what the Act says?

MR EMMETT: Yes, I think so, Your Honour.

TOOHEY J: If you have a look at 128B(S).

MR EMMETT:

Yes:

A person who derives income to which this
section applies ..... is liable to pay income

tax.

TOOHEY J: Yes. That was the distinction I was drawing your

attention to.

MR EMMETT:	Yes, but that is the withholding tax.
DAWSON J:	It does not matter what you call it, it is tax.

MR EMMETT: It is tax, yes.

DAWSON J:

Withholding tax in the hands of the

recipient -

TOOHEY J: But there is a liability to pay income tax.

There is an obligation on the part of the payer of the money to ensure that sufficient is withheld to meet the obligation to pay withholding tax.

MR EMMETT:

Yes.

There is no doubt that the Bank incurs the

liability to pay the tax.

BRENNAN J:

But if you pay that tax on behalf of the

borrower, then the borrower was discharged from its
liability to the Commissioner, and the Bank, pro
tanto, was discharged from its liability.

David(2)

160

3/10/91

MR EMMETT:

Your Honour, we did not pay the amount to the

Commissioner on behalf of the taxpayer. We were
simply the Australian organ or organization - is
simply the mechanism whereby the taxpayer
discharges - sorry, the borrower discharges the
obligation which it has under 128B(2)(a).

BRENNAN J: Well, did the Commonwealth Bank of Australia, at

Dee Why or elsewhere in Sydney, send money to the
Tax Commissioner?

MR EMMETT:

Yes.

BRENNAN J: And in doing so did it act as an agent for the

borrower?

MR EMMETT:

Well, it was the means whereby the borrower made

the payment which he was obliged by the Income Tax
Assessment Act to pay. Whether as agent or conduit
or whatever, the Bank was the means whereby the
borrower made the payment.

BRENNAN J: So, in respect of that payment, relevantly, the

Bank was paying on behalf of the borrower?

MR EMMETT:

I do not like the words "paying on behalf",

Your Honour, because the Bank did not make the

payment. The borrower made the payment through the

agency or through the mechanism of the Bank. The
Bank was the means whereby it could be done. It
could have been done by a different bank
altogether.

BRENNAN J:

The Bank was not using its money to pay its

debt.

MR EMMETT:	No.
BRENNAN J:	Now, on that basis, the borrower was liable to

pay to the Commissioner 10 per cent of the base
interest rate.

MR EMMETT: Yes.
BRENNAN J:	How did the borrower become liable to pay the 1.1 per cent?
MR EMMETT:	Under clause 8(b).
BRENNAN J:	So that what was grossed up was the total

amount, out of which 11.1 per cent was deducted, and that 11.1 was then paid to the Commissioner,
the Bank receiving the balance on its own account.

MR EMMETT:

No, I am not sure the figures quite work out

like that. The total amount that was received by
the Bank was the contractual interest rate plus

David(2)

161

3/10/91

11.1 per cent. Ten per cent of that amount then

had to be paid to the Tax Commissioner. I do not
think that is necessarily the same as 11.1 per
cent. It is 10 per cent of 111 per cent of the
rate.

DAWSON J:

So it received a credit with the Tax Commissioner

for 10 per cent and cash in hand of one point - - -

BRENNAN J:	No, it is of a different sum.
MR EMMETT:	Your Honour, the idea is to gross up, so that

the Bank gets that amount which, when you deduct
10 per cent of that amount, leaves the contractual
rate of interest.

DAWSON J: That is right, but the 10 per cent goes to

the - - -

MR EMMETT: Well, it is slightly more than 10 per cent that

goes to the Commissioner.

DAWSON J: Yes, whatever it is.

DEANE J: But not in payment of the borrower's tax as a

credit towards your tax. The withholding tax is
not in payment of the borrower's tax. It is a
credit to be credited to your benefit in payment of
your tax.

MR EMMETT:

Yes.

DAWSON J: That is what I was saying.

MR EMMETT: Well, maybe I misunderstood what Your Honour was

putting to me. And pro tanto, that is a discharge
of the liability to pay whatever under the contract
the borrower had to pay to the lender.

DEANE J: But it does appear, does it, that in fact, the

Bank paid it to the Commissioner as withholding tax

payable by the borrower to the Bank's account, and
that the Bank did not, as it were, just apply it
towards its own income tax?

MR EMMETT:

Yes, that is correct.

I am not sure whether

this came out of that, but that indicates though
that the Bank did not get any benefit from having

this money. The Bank has not had the use of the
money because it was paid then to the Commissioner
of Taxation, certainly in discharge of the Bank's
liability, but a liability which the Bank would not
have incurred but for this contractual arrangement.

McHUGH J:

But at the end of the fiscal year when the Bank

is assessable for the interest it earns on this

David(2)

162

3/10/91

contract, it is entitled to credit in relation to
the withholding tax paid, is it not?

MR EMMETT:

That may depend on what the Bank's arrangement

is in Singapore. The Bank's branch in Singapore is
a separate enterprise, and it may well be, for
example, that the income in Singapore would be
exempt in Australia by reason of the operation of
section 23Q because it is - - -

DEANE J: What, the Commissioner allows the Bank to get

interest in Sydney and then says it derived it in
Sydney because the Bank says it is carrying on
business in Singapore?

MR EMMETT:

I am not saying anything about what the

Commissioner allows, Your Honour, I do not know.

DEANE J:

I see.

It would be rather strange.

MR EMMETT:

But there is a wrong premiss in what Your Honour

just put to me. The Bank does not receive interest

in Sydney. The Bank receives interest in
Singapore.

DEANE J: But that is because you say the Bank receives a

payment in Sydney as agent for itself. That
strikes me as - - -

MR EMMETT:

No.

If I said that, I did not mean to say quite

that, I do not think.

DEANE J: Well you may not have said that.

MR EMMETT:	The Bank acts as banker and does what bankers do, that is, it makes a payment on behalf of its
customer to the creditor of the customer.
DEANE J:	To itself.
MR EMMETT:

In this case, to the Singapore branch of itself
which is the same legal entity, but for income tax
purposes that overseas branch is, in certain
respects, regarded as a separate legal entity.

DEANE J: Depending on where the income is derived.

MR EMMETT:

Yes.

Without going into the question of what

tax consequences there are - and this has never
been in issue, of course, and I do not pretend to
say this is the position, but it may be that the

Bank is entitled to treat this improperly. It is
entitled to treat this income as income derived in
Singapore because the Swiss francs the Bank
borrowed in Singapore, it then lent those Swiss

francs to the borrowers. The borrowers then

David(2)

163

3/10/91

converted them into Australian dollars and they
then had Australian dollars -

DEANE J: Nothing turns on it.

I find it hard to see it is

not relevant because unless the Bank derived this
income in Singapore, withholding tax was not
payable at all.

MR EMMETT:

Except that 128B(2A) says that it is payable.

Where income is derived - - -

DEANE J: I have put that, perhaps, badly. Unless the Bank

did not derive this interest in carrying on its
business in Australia and dealing with an
Australian customer, no withholding tax was
payable.

MR EMMETT:

I am sorry.

carrying on its business in Australia, then no
withholding tax would be payable?

If the Bank did derive it in

DEANE J: Yes.

MR EMMETT:

Yes, I agree with that, but this case proceeded

on the assumption that the Bank was carrying on
business in Singapore and, therefore, withholding
tax was payable.

DEANE J:

That might well be so.

I have trouble on the

facts in the limited extent that we see them in
seeing that, but it seems to be quite irrelevant.

MR EMMETT:

Your Honour, we think it is.

It has never been

suggested that the Bank was not liable to pay
withholding tax. That would be a different matter

altogether. The Bank might then be the plaintiff v
Commissioner of Taxation, trying to recover
something on the same basis, but that has never
been a contention and we think it is irrelevant for
that reason, Your Honour.

BRENNAN J:

Mr Emmett, if one looks at clause 8(b) and the

opening sentence, it requires:
All interest payments hereunder shall be paid by the Borrower to the Bank without deduction of any tax or duty or other imposts of any
kind whatsoever.

Is that an obligation which requires the borrower to pay to the Bank that which the Bank is to
receive on its own account plus that which the Bank
is to receive for transmission to the Commissioner
of Taxation in discharge of the borrower's
liability?

David(2)

164

3/10/91

MR EMMETT:

Your Honour, I am not sure this is a response to the question, but I will say what I am going to say

and Your Honour can tell me if I have answered your

question or not. What clause 8(b) requires is that

there be no deduction and if the borrower has the

option of either deducting or not, then he is

contractually bound not to deduct.

However, if the

act imposes the obligation and the borrower has no

option but to deduct, then the Bank says, "You

must, if you do deduct, pay us an additional amount
by way of consideration". However:

Should the Borrower at any time be compelled
by law to deduct any such taxes ..... from any
payment ..... the Borrower will pay such
additional amounts as may be necessary in
order that the net amount received shall equal the full amount the Bank would have received -
but for such a deduction.
So the Bank said, having failed to get an

exemption, because the correspondence contemplated
the possibility of an exemption but exemption was
not available so the evidence showed, therefore the
borrower was compelled by the Income Tax Assessment
Act to deduct the 10 per cent of what was payable, the Bank therefore said, "Well, in that case you
have agreed to pay this additional amount, so that

is the additional amount you will pay us". The
second limb of paragraph (b) is that having paid us
that amount you are deemed to have paid a little
bit more and the Income Tax Assessment Act then
strikes on that as well and, as a matter of
arithmetic, I am told, and I do not profess to say
that it is - I am sure it is right, but the net
result is that the additional amount is
11.1 per cent of the original interest although it
is only 10 per cent of the total amount then
payable.

BRENNAN J: Well then, my question relates to the latter

part of 8(b) and that is the obligation to pay that
which follows the word "together", is an obligation
to pay to the Bank money which is not received by
the Bank to its own use, but received by the Bank
for transmission to the Commissioner.

MR EMMETT:

Yes.

BRENNAN J: It does not so read, does it?

MR EMMETT: Well, it does not say that, but that is the

effect of it. The Bank pays it to the Commissioner
certainly in discharge of a liability which the
Bank has under 128B(5), but nevertheless the Bank
receives that amount so that that then can be paid

David(2)

165

3/10/91

to the Commissioner pursuant to the borrower's
obligation to deduct that amount and pay it to the
Commissioner on account of the Bank's liability under 128B(5).

BRENNAN J: If the Bank failed to make the payment, what

would be the borrower's remedy?

MR EMMETT:

The borrower would have a claim against the Bank

for breach of the Bank's mandate. If a customer
says to the Bank, "Please make this payment on my
behalf", and the Bank fails to do so, then the
customer has an action for breach of mandate.

BRENNAN J:

How would that be, having regard to the language

of 8(b), when the amount that is to be paid is to
be the amount for which the Bank and not the
customer is liable.

MR EMMETT:

Both have a different liability.

The customer

has the liability by the operation of the
collecting provisions - 221Y - whatever-it-is - so
that the customer does have the liability. He has
a liability under the Income Tax Assessment Act to
discharge the Bank's liability under the Income Tax
Assessment Act.

BRENNAN J:

Is the arrangement for the payment by the Bank

of the customer's liability something which lies in
the collateral arrangement?

MR EMMETT:

Under section 261 - is that what Your Honour has

in mind?

BRENNAN J:

You spoke a moment ago about a mandate given by

a customer to a Bank. One does not see any mandate
appearing in 8(b).

MR EMMETT: Yes. It is a separate arrangement. It is not

in here because the customer might have had an arrangement with a totally different bank. It

might have had an arrangement with Westpac or ANZ to do this sort of thing. This agreement is with
the Bank in its guise as carrying on business in
Singapore. This says nothing about the ordinary
banker/customer relationship which existed between
the Dee Why branch of the Bank and the customer.

BRENNAN J: Then everything which is received by the Bank

under 8(b) is received to its own use?

MR EMMETT: Well, that depends on what Your Honour means by

"received to its own use".

BRENNAN J:

I mean that there is no obligation affecting

moneys received in favour of discharging the
customer's obligation under 8(b).

David(2)

166

3/10/91

MR EMMETT:

If the Bank does receive an amount of money

under 8(b) it is for the benefit of the Bank, yes.
It is the Bank's money.

BRENNAN J:

It is the Bank's money to do with it what it

wishes.

MR EMMETT:

Yes, indeed, but the reason why is - it has not got the full amount, though.

The net amount that

the Bank gets as a result of the application of
8(b) is only the contractual interest rate; it is
not something more than that, that is the Bank in
its capacity as Singapore lender.

BRENNAN J: Well then, when the Bank sends the money to the

Commissioner it sends - - -

MR EMMETT:

It is not the Bank as Singapore lender that

sends the money; it is the Dee Why branch of the

Bank which sends the money to the Commissioner. It
is important to draw a distinction between the two
capacities in which the Bank operates.

BRENNAN J: But why is that? If the Bank in Singapore has

the Bank's money, does it make the slightest
difference that the Bank in Dee Why sends money to
the Commissioner?

MR EMMETT:

I am not quite sure if I follow what Your Honour

meant by "the Bank's money".

BRENNAN J: Well, the Bank in Dee Why has got no other money

in its pocket to send to the Commissioner save that
which its Singapore branch has got.

MR EMMETT:

The Bank at Dee Why receives money equal to the

contractual interest rate plus 11.1 per cent of

that amount. The Dee Why Bank pays some of that to
the lender in Singapore, namely the Bank itself in
its guise as carrying on business in Singapore, the
balance it pays to the Commissioner - 11.1 per cent

it pays to the Commissioner. So the Bank in
Singapore receives net the contractual amount under
the contract. Your Honour does not look convinced.

BRENNAN J:	I think we have taken it as far as we can.
MR EMMETT:	Your Honours, what I was endeavouring to do was

to indicate that even if Your Honours are against
us in concluding that where consideration has been
given by the Bank as it has in this case, that is
not sufficient to resist this claim. It would be
sufficient if the Bank shows that it has acted to

its detriment or changed its position. I was going
to take Your Honours to the authorities that say
that that is an answer. We have set them out in
paragraph 13 of the written document. Could I

David(2)

167

3/10/91

simply read two passages from ANZ v Westpac,
164 CLR.

GAUDRON J:

Does this not raise precisely the same problem

you tried to raise with respect to the mistake? If
this is relevant surely it must be proved and at a
later stage.

MR EMMETT:

If what is relevant? I am sorry, Your Honour.

GAUDRON J: Change of position.

MR EMMETT:

Yes, but what we are pointing to is clearly a

change of position. Perhaps I should indicate what
we say on the facts is the change of position. In effect there are two, possibly three, things: one is that the Bank entered into an agreement - I am
sorry, the Bank incurred an obligation after each
roll over on the same basis as the previous one,
namely it incurred a liability to pay withholding
tax which it would not have incurred in which it
was entitled, under the terms of the agreement, not
to incur by simply not agreeing to roll over. Now,
that follows from the terms of agreement that I
took Your Honours to yesterday afternoon and
perhaps I need to go back to them, at page 82 of
the appeal book. First of all there are two
definitions:
"Advance" - each amount drawn under this
agreement ..... and each drawing subsequently
renewed.
"Availability Period" - the period from the
date hereof up to and including June 1989 or
such earlier date as the Bank in its absolute
discretion may determine.

DEANE J:

My copy has "June" crossed out and "December"

inserted.

MR EMMETT: There was a subsequent variation of the

agreement, and I think that is simply - - -

DEANE J: So, what, December is right?

MR EMMETT: Ultimately it was December, yes, to make it

clear that the term of the loan was for five years
rather than for four-and-a-half:
or such earlier date as the Bank in its
absolute discretion may determine.

Clause 4(a) says that:
The Borrower will repay the Overseas Loan at
the end of the Availability Period.

David(2)

168

3/10/91

Now, had, at any time, the borrowers said, "We
don't want to pay this additional amount
notwithstanding that that is what we bargained
for", the Bank would have been entitled to say, "In
that case, in the exercise of my discretion, I will
determine today or next week or the end of this
period as being the end of the availability period,
and you'll have to pay that money back to me". The
fact is the Bank did not do that, so it follows, of
necessity, that it changed its position, and that
it lost the opportunity of doing that.

GAUDRON J: But it does not follow; that is precisely what

does not follow. Was there evidence from somebody
that if the borrowers had said, "We're not paying"
then this is what would have happened?

MR EMMETT:

Having regard to the way the case was conducted,

that evidence was not called, of course, but what
we say is - - -

GAUDRON J:

No, and you ask, then, that an inference should

be drawn that that is what, as a matter of fact,
would have happened?

MR EMMETT:

No, we do not have to put it as high as that,

with respect, Your Honour. All we say is the
opportunity was lost, and there is no doubt that
the opportunity was lost. Whether we would or
would not have is a different matter. What we say
is, the opportunity was lost.

GAUDRON J: Is that the same as "changed its position or

acted to its detriment"?

MR EMMETT:

Yes.

It changed its position, it lost the

opportunity of calling up. Now, if we do have to
have the positive evidence, we say an inference
should be drawn, having regard to the way the case
was conducted. If an inference of mistake is to be
drawn, in circumstances where the plaintiff could

Bank ought to be entitled to an inference in its have given evidence but did not, a fortiori, the favour that where it had bargained for getting an
interest rate net of withholding tax and it had the
means whereby it could say, "I don't want to
continue this arrangement if I don't get that
amount", it would have exercised the rights which

it had to bring that arrangement to an end. So
that we say, one, we do not need to, but if we do,
an inference should be drawn.

And in that way, we say, it is clear that by

these continual rollovers - and the rollovers were

at the request of the borrower expressly. In the
folder we have handed up we have included copies of
all of the rollover requests, signed by the

David(2)

169

3/10/91

borrowers. I do not think I need to take
Your Honours to them, other than to make it clear
that this was not something which the Bank imposed.
Each time, at the end of each period, the borrowers
exercised a right which they had, either to roll over in the same currency or, they could, as the
saying goes, come onshore and convert this finance

into a bill facility. But each time they chose not
to, and each time the Bank lost the opportunity of
bringing the arrangement to an end and insisting
upon Australian dollar interest rates in respect of
a bill facility.
So that we say it changed its position because

it lost the opportunity; or alternatively, if we
have to go further than that, we say that in the
circumstances of this case an inference should be
drawn that having regard to the terms of the
bargain it would have exercised whatever
contractual rights were open to it to ensure the
performance of its bargain, or to ensure that it
did not lose the benefit of that bargain.
That is the factual proposition that we put,

and I was going to take Your Honours to what we say
is the law that supports the principle that if
there has been a change of position or an acting to
detriment, then that is an answer to a claim based
on alleged unjust enrichment, even though we fail
on the earlier proposition that the giving of
consideration is sufficient to answer that claim.
I was going to refer to two passages in ANZ

Bank v Westpac, 164 CLR 662, first of all at
page 673 point 8, and this is a passage which I did
read before, but it is only a few lines that I now
want to emphasize, about three-quarters of the way
down the page just before the end of the long
paragraph:
Before that prima facie liability will be

displaced, there must be circumstances (eg,
that the payment was made for good
consideration such as the discharge of an
existing debt or, arguably, that there has
been some adverse change of position by the
recipient in good faith and in reliance on the
payment) which the law recognizes would make
an order for restitution unjust.

What we say is that it would be unjust now to
require the Bank to repay the money which it has received in circumstances where it has adversely
changed its position in the way that I have just
outlined.

David(2)

170

3/10/91

A similar, certainly tentative proposition
appears at page 682 point 5, the last half of the
paragraph at the top of the page just after the
reference to Fitzpatrick v M'Glone:
In those circumstances, the benefit of the
payment has been effectively passed on to the
principal who will be prima facie liable to
make restitution if the payment was made under
a fundamental mistake of fact. If the matter
needs to be expressed in terms of detriment or
change of position, the payment by the agent
to the principal of the money which he has
received on the principal's behalf, of itself
constitutes the relevant detriment or change
of position. In that regard, no relevant
distinction can be drawn between payment of
the principal or payment to another or others
on behalf of the principal -

an explicit recognition that payment acting to
one's detriment or changing one's position
detrimentally, could well constitute an answer to a
claim for unjust enrichment.
The same is to be found in Lipkin v Gorman,

and I will not take Your Honours to the passages.
In the Canadian cases, can I refer Your Honours to
one passage in Mr Justice Dickson's judgment,
132 DLR 214 point 2. Having considered all of the matters which led Mr Justice Dickson to reject the dichotomy of mistake of fact, mistake of law, and
to substitute unjust enrichment in lieu of that
dichotomy he then, at the bottom of page 214, says:
If Ontario Hydro changed its position for the
worse by distributing to some utilities moneys
illegally collected from others (or by
undercharging the former), it was not prompted
by any action on the part of Nepean or by

reason of the payment from Nepean. payment - perhaps I should go back to the previous

But what is implicit in that is that by making the
page, at the bottom of page 213, and this is all
part of various matters which are raised by
Mr Justice Dickson as answers. If Your Honours go
to the opposite page, 212:
The first matter was -

and in that context, at the bottom of page 213 - The fact is that Ontario Hydro did receive,
and did have the use and benefit of Nepean's

money. What it did with it is, as Mr Laidlaw

said, a problem for Ontario Hydro. The mere

David(2)

171

3/10/91

spending of the money is not, of itself,
sufficient to establish a defence ..... The
authorities are clear that for a defendant to
succeed he must show a detrimental change of
position as a result of the payment, something
which Ontario Hydro is unable to show.
Difficulty in restoring the parties to their
original position will not be reason for
denying recovery where the ground for relief
is well established.
So it seems to be recognized, although in the
circumstances of this case Mr Justice Dickson did not find that there had been a relevant change of
position because the payment was made quite
independent of the receipt of the moneys that were
not due.
In Bank of New South Wales v Murphett, which

is a decision of the Full Court of the Victorian
Supreme Court - I will not take Your Honours to
it - but there is a reference there to this same
proposition, that it is an answer to a claim for unjust enrichment that the recipient has, having received the money, in reliance on that, acted to
his detriment or has changed his position.
Similarly, Mr Justice Goff, in Barclay's Bank v

W.J. Sims. We have also given Your Honours a
reference to some texts, and I will not read them,
but we do invite Your Honours' attention to what is
said by Mr Butler in his article in Finn's
collection on unjust enrichment.
All of those authorities in our submission

support the conclusion that quite apart from the
other matters which we put to Your Honours, if we
are successful in persuading Your Honours that
there was a change of position by the Bank as a
result of the continued payment by the borrowers
without protest, then that is an answer to any
claim now for recovery.

Legislation recommended by the Law Reform

Commission, I think, contains an express acknowledgement of that as a defence, and
similarly, I think, in Western Australia the same
position prevails, that change of position is
recognized as a necessary defence assuming payment
under a mistake of law is otherwise recoverable
contrary to the submissions we have otherwise made.
For those reasons, in our submission,

Your Honours, the appeal should be dismissed.

DEANE J:

Mr Emmett, Goff & Jones suggest that if you do

obliterate the distinction between fact and law for
relevant purposes, none the less, recovery should

David(2)

172

3/10/91

not be permitted when the payment was made in
submission to, or in satisfaction of, an honest claim. Is there anything you want to say about
that?

MR EMMETT:	Your Honour, that really, in a sense, was one of the bases upon which, we say, the distinction ought
to be maintained - - -

DEANE J: It is a half-way point.

MR EMMETT:	A fortiori, everything we have said in relation to that would apply here, but even if the distinction is abolished any claim which is an
honest claim and is met without dispute ought to be
enough to discharge any entitlement to recover the
payment. It is what is sometimes referred to as
the voluntary settlement, or voluntary compromise
concept.
DEANE J:	You do adopt that then as an alternative way of

putting it?

MR EMMETT: Yes, indeed. It applies, a fortiori, if the

principle does not apply. The matter is taken up
more specifically in the article that I just
referred to of Butler, and it is pages 102 and
following. Perhaps I should take Your Honours to
that. Do Your Honours have a copy of it? It was
on our list, I understand. It is at page 102 in
the article by Mr Butler, headed, "Scope and
rationale of the voluntary submission principle and
equitable developments". Then, there is a
reference to what Lord Esher says and Master of the
Rolls, and then at the bottom of the page there are
some propositions put forward as to the
circumstances in which the voluntary submission
principle should apply. That is the passage that
we had in mind specifically in the reference that
we have given in the notes.

BRENNAN J:	Mr Emmett, can I put an analysis of what happened under 8(b) to you in a form on which you
might care to comment, so that if any question
arises in the course of reply, it can be dealt with
also.

The moneys payable, and paid, under 8(b) are
moneys payable by the borrower to the Bank and

received by the Bank to its own use. The Bank, in
fact, takes 10 per cent of the moneys thus received
and transmits them to the Commissioner in discharge
of its own liability. By doing so, it relieves the
borrower of its liability to pay the amount which,
otherwise, the Commissioner could recover against
it.

David(2)

173

3/10/91

MR EMMETT:	With respect, Your Honour, that analysis ignores the distinction between the Dee Why branch of the
Bank and the Singapore branch of the Bank.
Foreign, though it be, to a lawyer, it is one which, in our submission, has to be borne in mind
in the context of the Income Tax Assessment Act.

BRENNAN J: But why does the Income Tax Assessment Act

affect the character of a payment received under a
contract which does not incorporate the income Tax
Assessment Act?

MR EMMETT:

Because the Income Tax Assessment Act operates

on it. That is what section 261 purports to
do - - -

BRENNAN J:

Be it so.

MR EMMETT:

- - - and one has to consider what effect section 261 has in the light of the way in which

the withholding tax provisions operate and for
those purposes the mere fact that the payment is

made to the Bank in its capacity of carrying on

business overseas is a reason why this payment has

to be made.

If the payment had to be made to the

Bank at Dee Why, then no obligation would arise

under the Income Tax Assessment Act to make the

deduction.

So that the analysis is that the

Dee Why branch, as conduit or agent or whatever for
the borrower, uses the borrower's money to do two
things: one of the things is to pay to the
Singapore branch the net amount; the other is to

pay, on behalf of the borrower to the Commissioner,

the withholding tax in discharge of the Singapore

Bank's liability to pay that withholding tax to the

Commissioner.

BRENNAN J:

..... I do not know that it is against you

actually, but at all events -

MR EMMETT:

But under the terms of the agreement the money was payable in Singapore not in Sydney.

The Bank

was entitled to be paid in Singapore and in so far
as the Bank was involved in the transfer it was
doing it in its capacity as banker, not under this

agreement. So that all that the Bank received
under this agreement was the net amount that was
remitted to it by the Dee Why branch as banker of
the customer. Clause 7(a)(ii) - and perhaps I
should take Your Honours to the clause just to make
that clear - it is on page 91 of the appeal books:
All payments to be made by the Borrower hereunder:-
(ii) In an Optional Currency, shall be made to
the Bank not later than 10.00 a.m ..... on the

David(2)

174

3/10/91

due date in lawful money of the currency of
that country and in immediately available
funds which are freely transferable and
convertible into United States Dollars to the
account of the Bank in such place in the
currency of that country as shall be
designated by the Bank.
And the Bank designated Singapore as the place for payment. Clause 4(b) recognizes that the Bank
might, as banker, want to have something to do with
that but no entitlement. 4(b) says:
Each Advance -

et cetera -
shall be repaid or paid in the currency in

which such Advance is denominated. The
Borrower agrees that it shall ensure that the
Bank has the opportunity to quote for the supply of any United States Dollars and/or
Optional Currency required by the Borrower to
meet its obligations hereunder.

The agreement itself recognizes the different capacities in which the Bank is going to be
involved. In so far as the Bank is giving the
opportunity of quoting, it is being the given the
opportunity to compete with any other bank who
might have access to foreign currency.

DEANE J: Except clause 7(a)(iii) - - -

MR EMMETT: Yes, if any amount is to be payable in

Australian dollars, but where the loan is drawn
down in Swiss francs then the interest has to be
paid in Swiss francs; so paragraph 7(a)(ii)
applies. If the borrowers had elected for the bill
discount facility there the amounts would have been
payable in Australian dollars and 7(a)(iii) would

have been applicable.

BRENNAN J: Just one further question. Was the total amount

payable by the borrower under clause 8(b) an amount
payable to the Bank in Singapore?

MR EMMETT:

Under the terms of the agreement, yes.

BRENNAN J: Upon which, in other words, the -

MR EMMETT:

No, I am sorry, no, I withdraw that.

BRENNAN J: Well, if it was not -

MR EMMETT:

The only amount that the Bank wants to get - - -

David(2)

175

3/10/91

BRENNAN J:

I am not interested in what it wants to get but

in the character which the payment bears.

MR EMMETT: Clause B(b) contemplates the payment of the

additional amount only if there is an obligation to
deduct so clause B(b) assumes that the Bank will
not receive that amount in Singapore. If it was
entitled to receive it in Singapore then
clause B(b) would not apply and there would be no
additional amount payable.

BRENNAN J: But when it does apply then it applies to

increase from $100, say, to $111.10 - the amount

payable under B(b). Why is it that the amount
payable under B(b) does not, as a whole, bear the
same character?

MR EMMETT:

The additional amount is payable in Singapo: ~

but the only amount that is payable if clause 6,b)
applies, by definition, is the net amount so that
the Bank only ever receives for its own use in
Singapore the net amount - the contractual interest
rate. Because, by definition, there has been an
obligation that the borrower has been compelled by

law to deduct the other amount. If it were not
compelled then B(b) just would not apply.
I have just been given an example. Might I just
take a moment to look at it, Your Honours, to see
if I can understand it. It is a simple example in
terms of the dollars. If the contractual interest
was $100, then withholding tax would be $10, the
Bank would get a net $90 and $10 is remitted to the

Commissioner of Taxation, not to Singapore. So

that the Bank gets $90. One then adds that amount
of $10, pursuant to clause B(b). That further $10
is paid to the Bank in Singapore, so that the
amount which the Bank receives in Singapore is $100
net, but the amount which the borrower has paid is
$110.

You then have to graft on to that the second limb of B(b), because the borrower has paid $110,
there is a further little bit of withholding tax

payable, and the same procedure has to go. One
could go on ad infinitum, getting smaller and
smaller and smaller, but as a matter of arithmetic
it - - -

BRENNAN J: It works out at 111.1.

MR EMMETT:

Yes.

BRENNAN J: But how much of that 111.1 is payable under

B(b)? Is that $10 payable?

MR EMMETT:

The $10 is payable under 8(b).

David(2)

176

3/10/91

BRENNAN J: Well, you would say the whole 111.1, in that

case.

MR EMMETT:	No, no.
DEANE J:	I think your answer should have been $100 of the

111.1.

MR EMMETT: Well, I am not sure -

DEANE J: And the 11.1 represents withholding tax which is

taken to be paid to the Commissioner.

MR EMMETT:

But the amount which is payable

under 8(b) is

only the $11.1. The rest of it is payable as

interest under the earlier clause. That is the
distinction I mean.

DEANE J:	I see.
MR EMMETT:	You see, 8(b) is only concerned with an

additional amount. The interest itself is payable
under clause 3 or 4, whatever it is.

DEANE J: But it is the 11.1 being part of the 100 that is

payable under 8(b), on your argument. The 11.1,
borrower to be submitted to the Commissioner.
being over the 100, has nothing to do with 8(b).

MR EMMETT: That is right, in discharge of the Bank's

obligation, yes. But it is never received in

Singapore. The withholding tax is never received
by the Singapore branch in Singapore.

DEANE J: Put differently, the 100 is payable under the

agreement, the 11.1 is payable dehors the
agreement. The 11.1 on top of the 100.

MR EMMETT:

No, the 11.1 is payable under 8(b).

DEANE J:	You have misunderstood me.
MR EMMETT:	Maybe I did.
DEANE J:	The amount payable under the agreement is the 100.

The 11.1 payable to the Commissioner is payable
outside the agreement.

MR EMMETT:

Because of the operation of the Income Tax

Assessment Act.

DEANE J:

- - - but it is that payment which gives rise to

the 11.1 being part of the agreement which is
payable under 8(b).

David(2)	177	3/10/91
MR EMMETT:	Yes.	The other way of looking at it is that if

there were not an obligation to deduct, what could happen is that the Bank says, "You pay me $111, or
whatever it is" - $110 - "and I will deduct 10 per
cent of that and send it to the Commissioner of

Taxation." But that is not what happens. The net

result is the same, but it is taken on the way. It
never gets to Singapore, in answer to Your Honour
Mr Justice Brennan's proposition.

GAUDRON J:

On that analysis, Mr Emmett, I have some little

difficulty marrying it up with the lost opportunity

on which you rely. Which of the capacities of the
Bank lost the opportunity?

MR EMMETT:

The Singapore branch.

GAUDRON J: But it never received the 11.1. That went to

Dee Why and straight to the Commissioner.

MR EMMETT:	But if the plaintiffs succeed now, the Singapore branch, having received only $100 will have to give
back $11, so it will have received net interest
10 per cent below the contractual rate. Now, had
it been told that that is what the position would
have been, it would have exercised its contractual
rights to say, "Well, I do not want to continue
this arrangement. That is not the bargain I made.
I will now bring forward the termination date and I
will require the money payable back and we will
then renegotiate, and in order to get around
section 261 we will simply specify a rate of
interest which gives me the net result that I
want." That is something that could have been done
in the first place, but in order to give both
parties flexibility it was done this other way.

In other words, if, when this bargain was
originally made the borrowers had said to the Bank

in response to the provisions in the letter that
Your Honour Mr Justice McHugh drew attention to,

"We do not have to pay withholding tax because of
section 261, and we are not going to pay it." The Bank would have said, "All right well, thanks very
much, we are not going to do business with you."
However, the Bank might have said, "All right - - -

GAUDRON J: That was Dee Why?

MR EMMETT:

No, it was Singapore.

The letter was written on

behalf of the Singapore branch. The Singapore
branch would have been entitled to say, "We do not
want to do business on the basis that we get less
than our contractual rate. However, if you tell us
that you are going to rely on section 261 and
refuse to pay the additional amount under

clause 8(b), we will restructure our agreement. We

David(2)

178

3/10/91

will simply require that you pay an interest rate
equal to 110 per cent of what you would have had to

pay if we maintain this flexibility." Now, had
that been done we would not be wasting
Your Honours' time today. It is only because the
form in which the transaction was cast -

GAUDRON J:

I think it shows up though that there are some

difficulties bifurcating the Commonwealth Bank and
by locating it.

MR EMMETT:

No, with respect, it confuses things but it does

not matter. If one is prepared to accept that the
Bank is there in two capacities then it does not
cause any problem. The Dee Why branch could have
said, "Well, we will have nothing more to do with

this". The borrowers said, "We don't like the Dee
Why branch anymore, we are going to go to Westpac",
but they still maintained this agreement with the
Singapore branch. All of the mechanisms of paying
that we have been referring to would have been
carried out by Westpac but the net result would the
same: the Singapore branch receives no more than

the net amount that it contracted for. It could
have achieved the same result by saying, "You will
pay interest calculated in accordance with the
formula plus 10 per cent so that when you deduct

the 10 per cent I'll still get my net amount". But
the agreement would simply say, "A fixed amount of
interest" without any reference to withholding tax.
Now, once one accepts that that could have

been done, there is nothing unjust now in the Bank
saying, "Well, you have got what you bargained for,
you can't now say that it is unjust, you having got
what you bargained for and me having given away

what you bargained for. It is not unjust for me to
keep what I stipulated for as a consideration for
that arrangement".
Unless Your Honours want to ask me something

further, I do not have anything further to say. I
would have finished almost within the time allowed
if I had not been examined.

MASON CJ: Yes, that is probably true, but I think you

probably have to expect that you will be asked
questions.

MR EMMETT: Yes, well, in that case I apologize for my

underestimate, Your Honours.

MASON CJ: Yes, thank you, Mr Emmett.

MR EMMETT:

May it please Your Honours.

MASON CJ: Yes, Mr Spender.

David(2)

179

3/10/91

MR SPENDER:

Your Honours, please may I deal with my learned

friend's submissions in the order in which,
generally, he put them? May I go first of all to
the submission which was made in respect of
section 261 and what was said in respect of the
argument that the document in question is not

collateral. May I remind Your Honours that under
section 261(5), "mortgage" is given a certain
meaning:
For the purposes of this section, "mortgage"
includes any charge, lien or encumbrance to
secure the repayment of money, and any
collateral or supplementary agreement -

I put some emphasis upon the disjunction between
collateral and supplementary agreement. I would
put it to Your Honours that the meaning to be - - -

MASON CJ:

Mr Spender, we need not trouble you on the

application of section 261.

MR SPENDER:

Thank you very much, Your Honour. would understand, Your Honour, that I need not

Therefore, I

address any submissions on the expression
"covenant" or "stipulation" as well?

MASON CJ:

No.

MR SPENDER:

Thank you very much. made the concession, of course, that if it is not

And my learned friend has

section 261(1), it is certainly section 261(2), and
I shall not trouble Your Honours with that area
either.
May I therefore, next, Your Honours, proceed

to some evidentiary matters, which I shall confine
as much as I may, in answer to what my learned

friend has said. He has put certain additional

material to Your Honours. May I supplement that

very briefly - - -

DEANE J:

Mr Spender, I am sorry.

I did not understand what

you meant by your reference to 261(2).

MR SPENDER:

Your Honour, in the course of argument, one of

Your Honours said that 261(1) may not be
appropriate and my learned friend then, in the
course of his argument, said, "Well, we would
concede that if it is not" - these are not his
exact words - "that if it is not section 261, then
the transaction certainly falls within
section 261(2)". And that was all I was seeking to
convey by that, Your Honour, and as I understand it
there is no contest upon that and therefore I shall

not spend time upon that. So that if Your Honours
are of the view that that is the appropriate

David(2)

180

3/10/91

section, it simply means that one changes from
261(1) to 261(2).
Your Honours, if I may go to what has been

said by my learned friend and if I may have leave
to pass up to Your Honours some brief supplementary
material in respect of the evidence which was given
below.
I would start off in respect of the attack

which is made upon the findings of mistake,
Your Honours, to the effect that there was no
evidence of mistake, by pointing out the very
obvious, and that is that there are co-ordinate
findings of two courts in respect of this matter,
and that the case was put, as my learned friend has
indicated, on withholding tax in the first

instance. I do not for a moment suggest that it
was perfectly put or that it was perfectly pleaded,
but it was there, and it was certainly before the
Court of Appeal, and the mistake case was run
before that court. And one would infer from the
fact that Mr Justice Hill has referred specifically
to mistake in the context of his judgment, that it
was before him in one sense or another, because
otherwise there could be no reason for His Honour
referring to it.
My learned friend, Your Honours, has submitted

that the inference which was drawn by the court was
wrong and that the court should have inferred, in
substance, that payments were made because rollover
was desired; that the wrong inference had been
drawn; and also that the appellants were aware of

the provisions of section 261. He also made
reference and developed an argument in relation to
Jones v Dunkel.

And if I may first of all deal with those matters together, or in globo.

The appeal book,
Your Honours, at pages 168 point 9 and 169 point 4

shows that the accountant from whom advice was
taken was an accountant nominated or suggested by
the local bank manager and it appears at the bottom
of page 168 point 8 that there were three names and
it appears at page 169 that:
Mr Morgan had been a client of the

Dee Why branch -

Mr Morgan being the accountant referred to -

had a friendly professional relationship with
Mr Craig -
the Bank manager -

David(2)

181

3/10/91

He had mentioned ..... in passing to
Mr Morgan ..... that he he had been involved in acting for a client who had such a loan -
and, as I understand the evidence, that is the
totality of his experience in foreign exchange

transactions of this kind. And that was how the
relationship came about.
Now, if I may next go to the letter of offer.

Your Honours have seen it and I would make only these brief comments on it, namely that if one
looks at the letter of offer and in particular at
what appears at pages 301 and 302 of the appeal
book, that this document is designed very carefully
to complement the provisions that appear in the
loan itself, that is 8(b) and, in short, they are
being told that, "You have a liability, and that is
the whole basis upon which we are dealing with
you". There is no suggestion here that they should
be asked to go off and check upon section 261. All
that they were told about was the possibility, as I
read it, of getting a certificate under the Income
Tax Assessment Act, a certificate which was not, in
fact, open to them as at the time this transaction
came into existence because of the existence of
section 128G(3) of the Income Tax Assessment Act.
And if Your Honours go over to page 303, leaving
aside the stipulation about withholding tax at
page 302, and if one goes over to page 303 you see
what is said about clause 8. Clause 8 - and
incidentally the definitions of stipulation, which
is no longer of any concern, is provided there, one
might say:
Clause 8 which stipulates that all interest
and principal payments to our Dee Why NSW branch must be made free and clear of any
taxes.

There is no question there of any discussion of any

matter being raised for examination by these people or by any accountant. What my learned friend put
in his submissions on this subject, that is, at
page 3 of his factual submissions, as I read them,
he says there in the fifth line:
Attention was drawn expressly to clause 8 -

it certainly was, but not in any way which was
going to be of any assistance to the appellants:
and the Bank said that it assumed that the
appellants had discussed the matter of
withholding tax with their accountant -

David(2)

182

3/10/91

he refers to appeal book page 302, lines 25 to 31

and page 303, lines 12 to 22. I would put it to
Your Honours that on any reading of that it was not
an invitation to discuss the simple matter with his
accountants.
Next, Your Honours, we now have the situation

emerging where my friend has made a very frank
concession - and, we say, a very critical
concession - that the Bank was seeking to avoid the
application of section 261. If one looks to the
letter, it raises nothing concerning an examination
of withholding tax and the assertion is simply in
terms of a positive obligation.
And Your Honours will recall the earlier

evidence to which I have referred, where there is
correspondence from the Bank to the appellants
saying, "Make provision for withholding tax" and,
in one particular letter, where there was, in fact,
a calculation of withholding tax.
We know this, Your Honours, that the Bank was

under no misapprehension as to the existence of
section 261. The inference, on the basis of what
has been put as to the Bank's knowledge, was that
it knew the law and was seeking to avoid it, and
that the agreement, and in particular clause 8(b)
and the correspondence that led up to that
agreement, and the correspondence subsequent to
that agreement during the course of the
relationship, was all expressed in terms of an
obligation, and what it sought was what it
achieved, and that was a purpose contrary to
section 261.
It was all intended to create in the minds of the borrowers that there was a legal obligation
that had to be met. That is, the appearance of
legal compulsion, backed with a reality of

commercial pressure. And there is nothing, we

submit, in the oral evidence, to support the Bank's
argument and, indeed, quite to the contrary.
My learned friend said yesterday that

withholding tax was, in fact, discussed by the
appellants with their accountant and, it is
assumed, they would have known of withholding tax.
Now, as to this, I put to Your Honours, there was
nothing to discuss. There was, in fact, no such

evidence. We have furnished Your Honours with
additional evidence which is some of the
examination of Mr Morgan, the cross-examination of
Mr Morgan, and there is no such evidence of that.
If one looks to Mr Craig's diary note, and

that is the Bank manager himself, which appears at

David(2)

183

3/10/91

page 177 point 4 of the appeal book, one sees - and
one would have thought that if this matter was
being raised it would have been conveyed to the
Bank itself - one sees there a complete absence of
any reference to withholding tax. This is the
diary note of 17 October, that is a few weeks
before the deal was, in fact, done.
If one looks to the statement of Mr Veale,

which has been provided to Your Honours by my
learned friends in the course of supplementary
material, and he is a qualified chartered
accountant who was working with Mr Morgan,
Your Honours will find that there is absolutely no
reference in that evidence to withholding tax, save
in paragraph 12, as to clause 8, where he says:
I said words to the following effect: "Looks
like you need exemption from withholding tax
as soon as possible".
David said: "I'll get a copy of the agreement
immediately and have a look at it".

That was the only discussion, and in the material
which we have furnished to Your Honours you will
find that there was cross-examination as to what
took place at the meeting when the letter of offer
was available, and this was cross-examination of
Mr Morgan himself. This was subsequent to that
conversation with Mr Veale. Although he was asked
in detail what was said in the course of those
conversations, not a word is said about withholding
tax and that appears in the supplementary material
that we have furnished to Your Honours which
includes, first of all, a statement by Mr Morgan.
That appears at 00281 being part of exhibit 109 and
next, Mr Morgan's cross-examination, parts of which
have been included, and I believe all the relevant
parts have been included which start - going

towards the back - at page 01158. The only
evidence that emerges from the material is the

evidence concerning the need to get a certificate,
and Your Honours will recall it was said that he
went through the letter of offer, which was a
critical document, which was the letter of early
December, the agreement being reached a few days
later. He went through that line by line and he
was asked about it. There is not a mention anywhere
there of withholding tax.
One would think, we would put to Your Honours,

that if there was any mention of section 261 or any
suggestion that there was no need to pay
withholding tax, that that would have arisen. We
put to Your Honours that that is the irresistible
inference, that somebody said "By the way,

David(2)

184

3/10/91

section 261 applies, you do not need to pay your
withholding tax". It is obvious, we put to
Your Honours, that that was not the case.

TOOHEY J: But I rather thought, Mr Spender,

that the

criticism that has been made of the primary judge's
finding was not so much in terms of whether the
matter was discussed or not but the alleged absence
of any evidence from the plaintiffs

MR SPENDER:

Yes, that is one thing, Your Honour, yes.

TOOHEY J: Perhaps you had better let me finish the

sentence.

MR SPENDER:	I am sorry.
TOOHEY J:	- - - any evidence from the plaintiffs that they

made the payment under a mistaken belief as to the
existence or non-existence of section 261, which is
not quite the way you are dealing with it at the
moment.

MR SPENDER:

Your Honour, what my learned friend put, as I

understood him, that precisely it was that
withholding tax was in fact discussed by the
appellants with the accountant and he also put at,
I think it is, 83.9 of the notes of argument - I
may be wrong - that the appellants were aware of
section 261 or, alternatively, that that is the

proper inference to draw. We would put to
Your Honours that that most certainly was not the
case.
Now, of course, my learned friend did mount an

attack upon the findings made by Their Honours in
the Full Court. That is quite so, Your Honour,
and in respect of the question of mistake and I
will come to that but I wish to deal with the
evidentiary matter and to, as it were, get that out
of the way so that one can put to rest, in our

submission, the notion that there was any inkling
about the possibilities of section 261. It simply,

on the evidence, did not exist. Now, if one goes,
Your Honours, to the inferences drawn by the Full
Court.

TOOHEY J:

I think I may have spoke of the primary judge; it

is really the inference -

MR SPENDER: Yes, I did understand in fact Your Honour was

probably talking about the Full Court. If one goes
to the inferences drawn by the Full Court, we know
that these people had a very close concern about
their finances, about their cash flow, about what

they would get. We would submit, Your Honours,
that the inference that one would say, "Well now,

David(2)

185

3/10/9

look, in some way" - and I will come to it in a
little more detail later - "that there should be an
inference that payments were made because they
wanted to roll matters over", well, that simply
never arises because they were making the payments;

they believed they had to make the payments. The
agreement was structured so as to engender that
belief in their minds and, that, we put is the sum
of what happened, relevantly, for the purposes of
this appeal.
And, indeed, as I put to Your Honours, there

is nothing to support the notion that there was a
desire to keep rolling over and that was the reason

why clause 8(b) was met. To the contrary. It is
because of the way in which the Bank itself clothed
the deal. That is to conceal.
Now, if one comes then to the question of

Jones v Dunkel, and I remind Your Honours that my
learned friend, in referring to what took place at
first instance, something which we are unable to
either concede or to deny, for very obvious
reasons, but he said one thing which we will
certainly accept. That was that there was an
attempt by the applicants to call evidence on
mistake, which was resisted by the Bank and
rejected by the judge.
Now, if one takes that in the context that the accountants themselves have given evidence and been
cross-examined, then there is really no room for
the operation of any inference contrary to the
appellants. They sought to give evidence, they
could not, and the people who were best able to
give evidence and who indeed came from the Bank's
side of the record, gave evidence and were

cross-examined. We therefore say that it is
impossible in those circumstances to infer
anything - I am reminded, of course, that the
accountants were, themselves, parties, and that it

is impossible therefore to infer anything from the failure of counsel, which was also put, to put an
argument until somewhat late in the day.
We would therefore submit that it is plain

that it was a proper inference to be drawn, and a
proper inference to be drawn here, that the appellants were unaware of the existence of
section 261 or of any possible rights under that
section.
My friend put that the wrong question had been addressed by Their Honours, and we would put, in
brief, on that, that - as I put earlier - that the
natural inference to be drawn was that they would
pay no more than they had to and, furthermore, and

David(2)

186

3/10/91

insofar as reliance is placed upon the operation of
section 8(c) as providing a window of opportunity
for the Bank not to rollover, we put to
Your Honours that, if 8(b) goes, then the clause
which depends on it, 8(c), would also go because if
there is a void provision, then there is nothing

for clause 8(c) to operate upon. And we would put
therefore, in broad terms, that Their Honours, on
the whole of the evidence, were perfectly justified
in drawing the inferences they did in respect of
mistake by the appellants, that is, that they were
unaware that they had any rights under section 261.
Now, if I may go to the more general topic of

change of law and unjust enrichment and do so
without traversing any of the areas I hope that I
covered in my remarks in-chief and say this: that
first of all the law should be put on the same
basis as mistake of fact for the reasons which we
advanced earlier. This does not require
enunciation of any sweeping doctrine, and if I may
refer briefly to the case of ANZ v Westpac,
164 CLR, and to a short passage there - perhaps I
may have to go back to that in a moment,
Your Honours.
But effectively, what we would say is that

payment under a mistake of law should be, to quote
the Court -
one of the categories of case in which the
facts -

that is, the fact of such payment -
give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the
person who has sustained the countervailing
detriment.

page 673 at around about point 4, which is the The relevant passage, Your Honours, appears at
passage that we adopt for the purposes of this

argument. And the emphasis that we place here is
on the words "prima facie obligation". If there is
a payment made under mistake of law, we contend

that prima facie, just as in the case of a payment under mistake of fact, that should be recoverable.
And we would, if we may, adopt what was said

by His Honour Justice Deane in Pavey & Matthews,
where Your Honour said that before that prima facie
liability will be displaced there must be
circumstances effectively which the law recognized.
And His Honour said that matters were not to be
dealt with on the basis of some idiosyncratic

David(2)

187

3/10/91

notion as to what is fair and just. Therefore,
one has to find a good ground for saying that
restitution would be unjust, and I will come to
that in a little more detail if a may.
Both the prima facie obligation to make

restitution and, in our submission, the absence of
a defence are established here. In the first
place, there is a benefit conferred, or which has

been obtained, by a mistake of law. I put to
Your Honours, I think, originally that this was a
mistake of law that seemed to be common to both
parties, although one party was in a much better

position to know. In view of the concession made
by my learned friend, I would put it to Your Honour this was a mistake of law made by one party, and by
that one party only. That is the first point.
The second point is that this benefit was

obtained contrary to the legislative scheme which
was designed to protect the payer from imposition
and that is, we submit, plainly the intent of

section 261. I would further put to Your Honours
that the existence of the scheme is, of course, now
known to have been known to the Bank which sought
consciously and carefully to circumvent it and to
get and to retain the benefits the legislature said
it should not have.
The fourth point we would make is this: that

the inferences are overwhelming. That with that
knowledge, and in furtherance of that design, the
Bank set out deliberately to mislead the borrower
as to its position through its precontractual
assertions, "You shall be liable". Through
clothing the obligation with the words of contract,
because it is one thing for well-informed lawyers
to sit down and have a look at 8(b) and 8(c), I put
it to Your Honours it is entirely a different
proposition for the average commercial person, even advised by an accountant, to come to any view other

our obligations", and that, moreover, it continued than, "This is part of the deal. These are part of to mislead the borrower as to its position through
the assertions made throughout the contractual
relationship to the effect that, "You should make

provision for your withholding tax. You have to
pay withholding tax", a statement on one occasion
of what the withholding tax was.
In sum, they were were all the indicia of

legal compulsion backed by commercial pressure and
we would submit that that cannot amount to a
circumstance which the law should recognize as
giving rise to any rights in the Bank to say, "No,
even if the law is changed we should not be obliged
to repay".

David(2)

188

3/10/91

The Bank's submission, in summary we would
say, in answer to this, that it would be out of
pocket in respect of precisely the money and that
it has benefited from precisely the obligation
which the legislature has said it shall not have,
and which the Bank, acting in full knowledge of

this proposition, has sought to get. We are not
saying that that amounted to fraud, but we are
saying that what it was designed to do was to
create a certain appearance of legality, of
compulsion and to lead entirely to one conclusion,
that having failed in this exercise, that is having
reached a situation where the matter has been
ventilated in the court, if the court should
conclude that the law should be changed the Bank
then seeks to say that the Court should assist it
by concluding that had it known that its attempt to
circumvent the statute and to impose on the
borrower would be challenged and would fail it
might have done things differently so as to get the
same benefit by some other way, perhaps more
skillfully designed.
Now, if I can move on now and briefly,

Your Honours, to what was said by my learned friend
in relation generally to the proposition on mistake
of law, and without taking up much time with it, to
answer as briefly as I may the general argument
which has been addressed that the law should not be

changed. I do not think there is anything to be
gained by going over the old authorities.

McHUGH J: Well, can I just ask you this? Why do you place

so much emphasis on the question of a mistake of
law being involved in this particular case? Your
case is rather that money was paid under a void
stipulation in a contract and that being so, you
can argue on general principles that it is unjust

that the Bank retains the money. Why is this
question of whether there is a mistake of law or
whether you are induced by it, so important?

MR SPENDER:

Your Honour, we put it two ways.

We put it

that there was a mistake of law, relevantly within
the Kiriri kind of description, and the Hydro
Electric case, where it was pointed out that in
most cases where there is such a mistake the
parties are entirely unaware that they are making
one.
The second way that we would put it is, as

Your Honour said, that, in any event, a payment which has been made under a stipulation which a legislature has enacted should be void is a payment
which this Court should recognize as being contrary
to public policy in the sense that it is contrary
to legislative policy and, therefore, should be

David(2)

189

3/10/91

recoverable. And so we put it, Your Honour, on
those two bases.
But it was a case, of course, in which special

leave was granted originally upon the mistake of
law principle - - -

McHUGH J:

Can I just get this clear.

On your claim for

money had and received under the mistake of law
basis, is it your case that, if there was a mistake
of law, you are entitled to recover the moneys and
that there are no relevant defences?

MR SPENDER: Yes, Your Honour, it is.

McHUGH J: Full stop?

MR SPENDER: Yes. It amounts to that. So whether one looks

at it in terms of a mistake of law, as the
Full Court did, or whether one looks at it in terms
of money which has been paid contrary or under a
provision rendered void by statute, in either case
we say the money is recoverable, in our hands.
Your Honours, if I could say something

briefly, as I may then, about the general

propositions advanced by my learned friends. I do
not, of course, need to go back over the cases
which he has cited under paragraph 6 of his

submissions. The only case to which I would wish
to refer briefly, because both South Australian
Cold Stores v Electricity Trust and Werrin v The
Commonwealth have been examined, is J & S Holdings
Pty Limited v NRMA Insurance, and to say, Your
Honours, that in addition to the passages which my
learned friend referred to there is a passage at
page 123. That is 61 FLR 108.
Your Honours will recall that this was

effectively decided on the basis - holding 7 in the
headnote:

The general rule that money paid voluntarily
under mistake of law, by itself and without
more, cannot be recovered is applicable to the
appellant's payments of interest to the
respondent at the agreed rate.

And His Honour Justice Deane, at page 123, at about
point 7, said this, after referring to Kiriri's
case:
There is nothing in the circumstances of the present case which, either alone or in
combination with the mistake of law, entitles
J. & s., as a matter of general principle, to

David(2)

190

3/10/91

recover from N.R.M.A. the excess interest
which it paid during the currency of the loan.
There has been no suggestion of mistake or ignorance of fact.
Now, of course, mistake of law was then the

received doctrine. It is the doctrine which is
here being challenged and in respect of past cases,

in so far as they rely upon that, we have said that

they should be overruled by this Court. In so far
as any conclusions reached in other cases,
inconsistent with the general proposition that in
these circumstances where there is a plain
legislative intent when a provision of a document
is declared void of a contract and money has been
paid over then, in so far as past decisions do not
align up with that that they should be overruled.
My learned friend did refer at this stage of his submissions to South Australian Cold Stores and

Werrin v Commonwealth. Of course, in one of those
cases - in Werrin's case - both the Chief Justice
and Mr Justice McTiernan referred specifically to
the doctrine of mistake of law as not being good

doctrine. We dealt with those in-chief and there
is nothing further that I would wish to say except
to remind the Court, if I may, that the Court in
terms of the doctrine of unjust enrichment has
travelled a great way since then.
If I could say as to what my learned friend

said about Scots law and Roman law as to Scots law,

I would simply put that it is irrelevant. As to
Roman law that, whilst it can be illuminating for
certain purposes, considerations of law during the
republic or during the empire as to rights could
have very little impact on a discussion and a
determination of the matter in some 2000 years or
less later. So, we would say that those matters
can be put entirely to one side.

If I may, at this stage, deal very briefly

with three of four of the cases which my learned
friend referred to and do so for the purpose, as it
were, of categorizing those cases, and one can find cases on infants - money lending cases - which have
been referred to by my learned friend in support,

he says, effectively, of his situation. And if one
looks to an example of the infants case - that is
Steinberg v Scala, (1923) 2 ChD 452, at 458, what
that case determined was there was a contract made
by an infant under legislation as it then existed.
The infant had a right to affirm or to disaffirm
the contract and it was held and Lord Sterndale,
Master of the Rolls at page 458 of the report,
about half-way down the page said that - after

David(2)

191

3/10/91

referring to the rectification of the register he

said: ·

there came another question. She also wanted
the 250 pounds back, and, to a certain extent,
I think the argument for the respondent has
rather proceeded upon the assumption that the
question whether she can rescind and the
question whether she can recover her money
back are the same -

And these are two different questions, he said,
referring to what Lord Justice Turner had said, and
quoting him:
"I is clear that an infant cannot be
absolutely bound by a contract entered into
during his minority. He must have a right
upon his attaining majority to elect whether
he will adopt the contract or not." Then he
proceeds: "It is, however, a different
question whether, if an infant pays money on
the footing of a contract, he can afterwards
recover it back. If an infants buys an
article which is not a necessary, he cannot be
compelled to pay for it, but if he does pay
for it during his minority he cannot on
attaining his majority recover the money
back -

and Lord Sterndale went on:
That seems to me to be only stating in other
words the principle which is laid down in a
number of other cases that, although the
contract may be rescinded the money paid
cannot be recovered back unless there has been
an entire failure of the consideration for
which the money has been paid.

And there, of course, we are dealing with a very

special situation and very special legislation, and
all these cases have to be read subject to the
legislation, subject to the facts, and we would
submit that there is nothing in that case which is
in any way relevant to the propositions which are
being advanced before this Court.
My learned friend also referred to the decision in Hurst v Vestcorp, (1988) 12 NSWLR.
That was again a case dealing with a different subject-matter. Cases concerning infants are one
category which, in our submission, have no
relevance here; cases concerning - the Hurst v
Vestcorp situation, and that is to be found in
(1988) 12 NSWLR 394, and I wish simply to refer

David(2)

192

3/10/91

briefly to what was said by His Honour
Justice McHugh at page 445 at about F:
In the present case the contract of loan

is invalid because it was made as the result
of a breach of the Companies Act, s 83.
Nothing ins 83 ands 86 of the Act or the Act
as a whole indicates that the legislature
intended that a loan of money made to an
investor who takes up an interest is not
recoverable as a matter of restitution.
Although the contract of loan is

unenforceable, the appellants have received
and have had the benefits associated with the
loans. With one exception, they have had the
benefit of the tax deductions associated with
the amounts of the loans -

et cetera. That was a matter where the concern was
the legislative policy in relation to the sale of
interest or shares. That is a quite different
situation just as, for example, the bills of sales

cases are quite different. The purpose of the
bills of sales legislation is to protect those who
wish to understand what the situation is by going
to the register, and that is the importance of
registration in those cases.
Such a case is North Wagon Finance Co Ltd v

Brailsford, (1962) 2 WLR, and the point about that
case very simply is that that one was, in fact, a
money lending case, and it was there held
relevantly at page 1289:
that the real transaction between the parties
was a loan on the security ..... That money
advanced on a bill of sale which was void for
non-registration could be recovered with
reasonable interest as money had and received.

The point is, Your Honours, that in those cases the
legislation is enacted for the protection of the
general public.
As, therefore, generally to those cases, we

say that they are set up for particular purposes,
that is, that they reflect particular legislative
intentions and that they need be examined in their
legislative context and, in so far, however, as
there is any of those cases which are inconsistent
with the present proposition which has been
advanced, we say that they are wrong and, in
particular, when one looks at the legislative
intent that certain contracts should not be entered
into, then one arrives, in our submission, at a decision as to whether effect is to be given to

David(2)

193

3/10/91

that intention or not, and if one says, "Well, true
it is that the legislature has said that it is void
and true it is that you could have resisted making
any payment under that, but having made the payment
you cannot recover it back once you have discovered
your right not to make the payment, that is, that
you then have no remedy", in our submission, that

would nullify the legislative intent. And no
matter what may have been said in earlier days, our
submission is that this Court would not, as it
were, pass the legislative intent to one side and say, "True it is that is the intention but we are not going to do anything in respect of the right to
recover money".
If I may pass on briefly, Your Honours, in

answer to what my learned friend had to say about
consideration received under the agreement, and say
this: first of all the agreement is specifically
spelt out, that there was to be consideration which
was to be paid in terms of interest payments.
Secondly, there was the specific provision made in clause 8(b) in respect of the withholding tax, or any other tax, and that particular area, we say, effectively is outside the main consideration, and that this case should not be decided simply on the
basis that the intent to evade or to avoid the
legislation should be counted as part of the
consideration which was received by the Bank. True
it is that the Bank bargained, in its eyes, and in
terms of the eyes of the other party, to receive
the consideration, that it knew that that was
outside or contrary to legislative policy and very
carefully drew the agreement so that there would be
a part only of the agreement which would be
operative in respect of that matter and very
carefully drew the subsidiary clause which was the
clause that my learned friend has relied upon as
entitling them to say, "No, we would be in a
position where we would have reconsidered our
position."

We would say, as to that, that, in short, the

injustice lies in the obtaining of the money
contrary to legislative policy.
Now, my learned friend, Your Honours, in

paragraph 11, referred to the unjust enrichment,
and to cases such as Pavey & Matthews and Hurst v
Vestcorp, and he submits that the effect here, that
the party who has the benefit of the statute may
still be forced to give restitution where the
statute would work an injustice, and leaves that
person otherwise unjustly enriched, we say so far as this case is concerned, that it has nothing to
do with the matter, and it has nothing to do with a

David(2)

194

3/10/91

case where the borrower is imposed on by a scheme
which had been constructed by the lender to defeat
the operation of the statute.
As to paragraph 12, Your Honours, where it is

said in the present case there is nothing
unconscionable in the respondent retaining the
benefit of the payments made referable to
withholding tax, the argument really upon this has

been put and if it succeeds, then it amounts to
retaining a benefit contrary to the provision of
section 261 in circumstances where they were well
aware that they were running a risk, and they
calculated their affairs as best they could. Insofar as it is said that the case is an
instance where the appellants, having accepted the benefit of performance by the respondent, now seek to recover part of the consideration promised for
that performance, we have paid, in our submission,
for the performance, and what we seek is to put the
situation in conformity with the intent of the
legislature.
Lastly, Your Honours, coming to the subject of

change of position, we would say this. A number of
propositions were put. It was said that there was
the loss of an opportunity to call up the loan.
That does not amount to any change of position one
way or the other. It was said that they would not
have incurred the liability; that is, that they
would not have entered into the transaction if 8(b)
did not exist. There is simply no evidence of

that. The Bank is in the position of lending
money. It lends money. There is no evidence,
whatsoever, of what the Bank would have done.
If one looks to the whole doctrine of change

of position, the most recent case being the Lipkin
v Gorman case in the House of Lords, we would
simply say this: that if one looks to the

headnote, where it is said - this is
in (1991) 3 WLR 10 - the headnote which summarizes
things well says, at about point B:
Held, allowing the appeal (1) that an innocent
recipient of stolen money was obliged to pay
an equivalent sum to the true owner.

We would simply say this: where you are the
recipient of money which you obtain contrary to its
legislative intent, you are not innocent; and the
second thing is, that if one is going to have this
doctrine of unjust enrichment, it needs to be spelt
out somewhat more carefully, and to take, for
example, what is said at about E in the headnote,
where it is said this:

David(2)

195

3/10/91

that even if in restitution claims a defence
of change of position in good faith was
available so that where the defendant had
changed his position in such a manner that he
would suffer an injustice if called upon to
repay the money -
that being the test which was suggest, we would
simply say, "Well, look that is really far too
vague. That was put and that gets down to what
might be called idiosyncratic notions of what is
fair and just".
If I could say this, Your Honours, finally,

perhaps, that if one asks what change of position
is one must ask the question "What does it mean?".
It cannot apply where one party has taken a predetermined gamble. It cannot apply in the absence of any evidence whatsoever as to what would
be done and the inference we would ask the Court to
draw is that nothing, in so far as it is necessary,

that nothing would have been done. But we do not
get to that because it is all pure speculation.
That if one looks to what must be the ingredients,
if it is to be a defence, there must be some change
of position by the recipient; been a change of
position by the recipient acting in good faith
which, we submit, is not such a case here, for the
reasons we have outlined; been a change of
position which the law recognizes relevantly such
as estoppel; and been a change of position which,
in some way, can be quantified - not just
opportunity - but has to be quantified in money
terms. Whatever the defence means, we would say
that it needs to be articulated in a legally
comprehensible fashion and that it is not available
in this case.
Lastly, we would say this, that the issue is

here whether the Court is going to give effect to a
change of law. If so, whether it changes the law
but fails to give effect to a statutory provision

which has been inserted for the benefit of the

borrowers. And we would submit that if it answers
yes to the first question but says that it will not
give effect to that statutory provision, then,
effectively, what one is doing is to render
nugatory, a legislative intention which has been
aimed to protect borrowers.
For those reasons, and, of course, the

additional reason that we have put that any money
which is paid under a void provision such as the
one here under consideration may be recoverable, we
would submit to Your Honours that the appeal should
be upheld.

David(2)	196	3/10/91
MASON CJ:	Thank you, Mr Spender.	Now, Mr Emmett, you are

entitled to a reply on your notice of contention.

MR EMMETT:

I do not wish to say anything on the notice of

contention but there is one matter I would like the
opportunity of responding to which I will do very

briefly.

MASON CJ:

Can you do it in writing because we really do not

have time available now?

MR EMMETT:

It is only one sentence, Your Honours.

MASON CJ: Very well.

MR EMMETT:

Can I direct Your Honours' attention to the

bottom of page 354 in the appeal book where the
Full Court said:
There was no case put to us, or to the trial judge, that the Bank had contributed to the
appellants' mistake of law in any more
immediate way by, for example, sharp practice,
or bad faith, so as to make it bear sufficient
responsibility in the relevant sense for what
happened.

I simply make that point in response to some
remarks that my learned friend made in the course
of his reply.

MASON CJ:

Thank you.

The Court will consider its decision

in this matter.

AT 4.16 PM THE MATTER WAS ADJOURNED SINE DIE

David(2)

197

3/10/91

[1991] HCATrans 276

Key Legal Topics

Areas of Law

Commercial Law

Contract Law

Civil Procedure

Legal Concepts

Appeal

Res Judicata

Remedies

Estoppel

front of it.	Some of that material I have already
referred to.	Some of it I will refer to briefly
directly.

that the parties would be entitled to raise it.	If
it were a mistake, however, it was one of law: These payments, if clause 8(b) was, as result

statement that His Honour had made no finding.	It
seems to me he has made a quite clear and express
finding.

to say.	We do have notes that were taken by one of
my juniors on the argument.	We thought it

pursuant to an obligation rendered void is recoverable, and it was only then, in the course of	argument, when the question was raised as to why it
should be recoverable, that mistake was mentioned. contend that money paid under a void obligation is
recoverable.

restitution and the like.	One is normally looking
at it from the other side.

called".	The proposition is:
The fact that a witness is called and

made towards the bottom of the left-hand column on
the next page to Marks v Thompson.	That case was

to say, "Well, I didn't know the law.	I was
mistaken about those matters".

business with you on these terms.	One of the terms
is we must be paid.	We are not saying you have an

by what is said in a case to which my learned	tax rates". That sort of proposition is emphasized	friend referred Your Honours yesterday, Brisbane v
Dacres, 128 ER.

subsequent opinion may be the correct one.	If
we were to hold otherwise, I think many inconveniences may arise; there are many
doubtful questions of law: when they arise, the Defendant has an option, either to litigate the question, or to submit to the
demand, and pay the money.

the question.	If you start with the question,
"Should people be allowed to keep money which the

void.	Do you want to contest that, or do you want
to pay the money and proceed in any event?	Do you
want to litigate, or do you want to pay and
continue the relationship with the company?"

the Court considered the wrong question.	Had this
matter been drawn to the attention of the
appellants, something different might have
happened.	You cannot simply conclude that they

certainty because of the possibility that somebody	nobody would ever be able to accept a payment with
might subsequently take legal advice that he was not liable to pay it and endeavour to recover it.

Cooper v Phibbs.	One then gets to what this Court,
in past years, has done.	By the 20th century it is

and at the top of page 74.	May I go down to the
last third of page 74:

to recover that money on the basis that it was
money paid pursuant to a void obligation.	The

say in relation to this primary principle:	it is a
principle which is well established. It is a principle of considerable antiquity, and for

simply to indicate the nature of the material.	It
is clear from classical times that there was a

mistake of fact and mistake of law, based on a	similar sort of principle from that adopted in
Bilbie v Lumley, namely that citizens were expected
to know the law, particularly legislation.
It may well be that a distinction was drawn between private matters, the effect of a particular
contract, on the one hand, and the existence of
statute. That distinction is drawn at the top of
page 606 in the extract. At page 607, reference is made to the distinction which was introduced in
Roman law that, in circumstances where it is
unreasonable to make a mistake, then you should not
be excused from it, and knowledge of the law was
something which was expected, therefore it was unreasonable to excuse somebody from mistake of law

some general principle of unjust enrichment.	At
the bottom of page 851:

be the course which Your Honours must take.	If
money is paid under a mistake of law it can be
recovered.	It can only be recoverable in so far as

different question.	Maybe they would not have done
the deal and that is	the very point we were making
before in relation -

at this level. It is the applicant who is seeking	to recover the money.	The Bank is not seeking to
recover anything.

of it.	I mean, it is not as though - money is,
after all, money.	We are not talking about used

receiving the payment.	And because of
considerations of the class of persons who intended

was, in effect, required to give restitution.	The
most striking example of that is North Central
Wagon Finance Co Ltd v Brailsford and Another,
(1962) 1 WLR 1288. This was a case where a
transaction was held to be a bill of sale.	It was
not registered and was therefore void by the operation of legislation. Page 1293,

payment.	The borrower made the payment through the
agency or through the mechanism of the Bank.	The
Bank was the means whereby it could be done.	It
could have been done by a different bank
altogether.