David Securities Pty Ltd & Ors v Commonwealth Bank of Australia - [1991] HCATrans 275

•

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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 WEDNESDAY, 2 OCTOBER 1991, AT 10.17 AM

David(2)

2/10/91

MR J. SPENDER, QC:

May it please Your Honours, I appear for

the appellants in this appeal, with my learned

friend MR N.C. HUTLEY. (instructed by Aubrey Brown
Partners)

MR A.R. EMMETT, QC:

May it please Your Honours, I appear

with my friends, MR J.E. MARSHALL and
MR G. O'L. REYNOLDS, for the respondent.
(instructed by L.E. Taylor)

MASON CJ: Yes, Mr Spender.

MR SPENDER: If Your Honours please, before commencing my

submissions may I hand up copies of the outline of
argument of the appellants together with two

volumes of additional material. One volume
comprises certain evidence which was not included
in the appeal papers and the second set of material
is a copy of the first four chapters of the Law
Reform Commission Report of New South Wales into
the subject of mistake of law.
If Your Honours please, there are two broad submissions which the appellants put to

Your Honours. The primary submission is that the
rule as to mistake of law - that is that moneys
paid under a mistake of law are not, prima facie,
recoverable - is wrong and should be overruled, and
it was misconceived in its foundation, not based
upon sound principle, unjust in its operation,
difficult in application, qualified with exceptions
that make its application even more difficult and
which expose the absence of sound principle, and
incompatible with modern notions of an unjust
enrichment.
The second submission is that if the first

submission fails on the facts of the case, the
appellants fell within an important qualification,
namely, to put it in broad terms, that the primary
responsibility for the mistake of the appellants

lies with the respondent Bank.
Before Your Honours go into the submissions, I
should like to say something briefly about the
course of proceedings and to refer Your Honours
again as briefly as may be to some of the evidence
and to the agreement under which payments were in
fact made by the appellants.
The evidence before His Honour Mr Justice Hill

showed that the appellants were engaged in the
business of building and development - that appears
at appeal books 131 and 132; that they borrowed for
those purposes, and that appears generally at
appeal book 153 and following pages. The pleadings
in the statement of claim relevantly are paragraphs

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30A and 66, which in summary allege that certain
payments were made by the appellants in respect of
withholding tax and contrary to section 261 of the
Income Tax Assessment Act and the reference to that
was put in paragraph 30A, that in purported
reliance on the relevant term of the agreement
which required that withholding tax be paid by the
appellants the Bank has required David Securities
and Rahme & Sons to reimburse the Bank for interest
withholding tax deducted by the Bank from interest
paid by it on moneys borrowed overseas and that was
admitted on the pleadings.
The obligation to pay withholding tax and the

standard form of agreement between the parties in
respect of the loans which were made by the Bank is

to be found at page 82 to page 100 and, if I may,
since that agreement is central to the submissions
of both the appellants and the respondents - - -

McHUGH J:

Mr Spender, before you go to that, could you just

tell me the precise page of the appeal book that
paragraphs 30A and 66 of the statement - - -

MR SPENDER: Yes, I am sorry, Your Honour. Paragraph 30A is

to be found at appeal book 18. It was admitted by
the Bank and by Mr Craig, the Bank manager, at
appeal book 68, Your Honour. Just to round off the
reference to the pleadings: at page 63 of the
appeal books in paragraph 66 of the further amended
defence of the first and second respondents to
the - I beg your pardon, at paragraph 66 at appeal
book 63 the claim is made:
As pleaded in paragraph 30A herein, the Bank
has claimed reimbursement of interest
withholding tax deducted from interest paid by
the bank on moneys borrowed overseas in
contravention of section 261 -

That is admitted save that it is denied that there

at page 70 of the appeal book. Also at page 64 in is a contravention of section 261 and that appears
paragraph 67(h) of the applicants' statement of
claim it was said that:
by reason of the matters pleaded in
paragraphs 30A and 66 an accounting for and a
refund of all moneys claimed by and paid to
the Bank in reimbursement of interest
withholding tax.

is sought.

MCHUGH J: Thank you.

David(2)	2/10/91
MR SPENDER:	I might say that the other respondents did not admit paragraphs 30A or 66 and that appears from
the appeal book page 71.
DEANE J:	What is the total amount involved, Mr Spender?
MR SPENDER:	Your Honours, on that subject there are

discussions between the parties. I would apprehend that we would come to an agreement in the course of the day on that subject.

BRENNAN J:

Mr Spender, could you direct me to where I would

find clause 8?

MR SPENDER: Clause 8 is to be found, Your Honour, at

page 91 of the appeal book, and since Your Honour
has asked me where that is to be found, perhaps I
can start from clause 8 and then work backwards and
take Your Honours briefly to the other provisions
of the agreement.
Your Honours will see under the heading

"Taxes" at the bottom of page 91 there is a
paragraph (a) which does not have any application
to the circumstance of this case. It simply says:
The Borrower will as soon as any Advance is drawn down or renewed in a different currency
apply to the appropriate authority for a
certificate under section 128H.

That does not appear ever to have arisen, and I
would presume that the reason for that is to be
found in section 128G(3) of the Income Tax
Assessment Act which seems to make such
certificates not applicable to transactions taking
effect after a certain date.
If one then goes to (b) which is the central

clause for the purposes of this appeal, we see
that:

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. Should the Borrower at any
time be compelled by law to deduct any such
taxes, duties or imposts from any payment to
be made by the Borrower 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
had a deduction not been made or had payment
not been made subject to such tax duty or
imposts together with -

and this is the additional payment -

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an aggregate sum equal to any additional taxes
payable by the Bank in respect of any
additional amounts (including amounts equal to
such taxes) under this clause (including this
obligation).
In short, what happened was that the

withholding tax payable by the Bank, the
10 per cent withholding tax, was paid by the
appellants to the Bank.

DAWSON J: Under the second part of that clause.

MR SPENDER: Precisely, Your Honour. There are other

provisions -

BRENNAN J:	What then is the operative mistake?
MR SPENDER:	The operative mistake, Your Honour, is that the

payments were made under a mistake of law. The
mistake being that there was an obligation to make
Court found, was a provision inserted for the benefit of borrowers, a subject which is not being contested by any notice of contention, that
the payment, whereas, in fact, section 261 of the the Full
it was paid in circumstances where that section
rendered the provision void. And I will take
Your Honours to the finding which was made by
Their Honours on the subject of that at a later stage, if I may.

The other provisions, if I can take

Your Honours very quickly to them, of the
agreement, so that its general structure is
understood, commencing at page 82 - - -

DEANE J:

Mr Spender, I do not quite follow why this clause

applied here. How does this case come within it?

MR SPENDER: It comes within it, Your Honour - so far as

section 261 is concerned, or so far as 8(b) - - -?

DEANE J:	So far as the clause itself is concerned.
MR SPENDER:	Your Honour, what happened is, and how it comes

within it, is this: the obligation for the payment
of withholding tax lay on the Bank, and the clause
provided, as I have read to Your Honours, that
there shall be paid any such tax or duty
effectively 100 per cent plus any tax which the

Bank was liable to pay. It was understood by the
parties - - -

DEANE J: That is what I do not follow, that this clause

says that. What is says is, if - as I read it -
the borrower deducts an amount, the borrower will

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pay the additional amount necessary to bring it up
to the full payment, and then I would have thought
the second part deals with any taxes payable by
reference to that additional amount.

MR SPENDER:

Your Honour, it has certainly been read otherwise, and that is - - -

DEANE J: If that is common ground - - -

MR SPENDER:

It is common ground, Your Honour. Amongst

other things, there is to be found - and I will
take Your Honours to it - a statement which, I
understand from discussion with my learned friends
since I was not in the case at any earlier stage,
which sets out withholding tax calculations being
payments by the Bank. So that what happened is
that, effectively, 100 per cent was paid by the
borrowers to the Bank, plus 10 per cent equal to

the Bank's liability to pay withholding tax. And
that is, I understand, Your Honour, common ground. Whilst we are at this clause, if I may, before
just going back to the other provisions very
quickly, Your Honours will see that in (c) it is
specifically stated:
A failure by the Borrower to comply with the
provisions of Clause 8(b) shall not constitute
a breach of this Agreement or an Event of
Default.

That is something which we would submit has been drawn very carefully, with in mind the previous provision so that even though a payment is not
made, that is not to be regarded as a default for
the purposes of the agreement as a whole.
If I can go back now, Your Honours, to

page 82, and go briefly through the agreement.
Your Honours will see that it is an agreement

between - this particular one - David Securities
and The Commonwealth Bank of Australia, and an
address in Singapore is nominated. Under (A):
The Bank has agreed inter alia to provide the
Borrower with a Bills acceptance and discount
facility.

And one goes down to definitions and one sees the
definition of the "Accommodation" offered, of the
"Availability Period":
the period from the date hereof up to and
including December 1989 or such earlier date
as the Bank in its absolute discretion may
determine.

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2/10/91

The "Bank's Lending Office" is defined on the

following page, at the top of page 83. The ''Event
of Default" is defined in clause 11.01, which
simply sets out the kind of protective provisions
which are to be found in agreements of this kind
and which allow the borrower to terminate.
There are definitions of interest date on the

following page, page 84. Interest period:
means subject as provided herein a period of
three or six months -

et cetera. The overseas loan is defined by
paragraph 2

on page 85. Renewal provisions are
referred to at page 86 in subparagraph 2(d).
Interest is dealt with by paragraph 3.

BRENNAN J:

Why is it that the money that was paid to the

Bank was not paid pursuant to paragraph 3?

MR SPENDER:

Your Honour, interest would have been paid

under the agreement, but together with the interest
payable under the agreement, was an amount which
was equal to the withholding tax payable by the
Bank, so that one gets, as I have put to the Court,
a figure of 110 per cent, to put it in simple terms, 100 per cent interest plus 10 per cent
withholding tax.

BRENNAN J:

I understand that the provision dealing with the

10 per cent additional is rendered void by
section 261.

MR SPENDER:

Yes, Your Honour.

BRENNAN J: But the amount, as I understand it, that was

paid by your client to the Bank was the amount of
interest without deduction.

MR SPENDER:

Amount of interest without deduction plus also the additional sum of 10 per cent which is referred

to in the last part of clause 8(b), Your Honour.

BRENNAN J:	I see.
DAWSON J:	It was the Bank that paid the withholding tax and

10 per cent was to cover that.

MR SPENDER: Precisely, Your Honour, yes. Your Honours, I

think that the other provisions that I need to take
you to we need only pause at briefly.

DEANE J: But on that approach to 8(b), why did not your

client - I suppose the Commonwealth Bank did not pay income tax, did it? Why did not your client
pay any income tax?

David(2)	2/10/91
MR SPENDER:	Your Honour, the evidence is silent upon that

issue and I cannot assist Your Honour upon that
matter. It operated on the basis that the Bank was
liable for withholding tax and should be reimbursed
for the payments which it was due to pay under the
Income Tax Assessment Act for that, so that,
effectively - and putting it simply - the Bank was
to be funded in respect of its obligations to pay
withholding tax.

DEANE J:

How does one deal with it if reading and

rereading, which means twice, 8(b) one simply
cannot fit this case within it in that 8(b) seems
to me to deal with the case where the borrower is

obliged to make a deduction. He then has to pay
the full amount without the deduction under the
first part of 8(b) and, under the second part, he
has to pay any additional taxes resulting from that

additional amount that he has to pay. I mean, how
does one fit this into the concept of an additional
tax in respect of an additional amount under this
clause?

MR SPENDER: Well, Your Honour, I suppose there are two

things that may be said in answer to that. The
first is that the proceedings had been conducted
entirely upon the basis that the agreement operated

in a certain fashion. The second is that if
Your Honour's contention or interpretation is the
correct one, then certain moneys would have been
payable which would have been void under
section 261, we would assert, and other moneys
would have been payable under a mistake of mixed
law and fact, namely a mistake as to the
construction of the agreement.
However, the agreement has been interpreted by

the parties and applied and the evidence, I think,
will demonstrate that as amounting to an agreement
under which the borrowers were to pay 110 per cent
and the 10 per cent was to be payable in respect of
the Bank's withholding tax. That appears from

other evidence to which I will take Your Honours,
if I may.

DEANE J: It is probably irrelevant, Mr Spender, but why I

am raising it - and I have not thought this through
at all - is that it is conceivable that a different
approach might be taken to a case of mistake of the
effect of a public law where the result would be
that every tax case decided in favour of the
taxpayer could lead to thousands of applications by
all the taxpayers who had paid in the last three
years and a case involving a mistake as to the
private legal rights between the particular parties
arising out of their own particular transactions.
Now, as I say I have not thought it through and I

David(2)

2/10/91

would think, probably, it is not vital but it could
be when one goes away and works on the case that
something could turn on the question.

MR SPENDER:

Could I put this by way a general answer, if I

may, to what Your Honour said? When one comes to
working out, if Your Honours are minded to uphold
the principal submission which is that the old law
is bad, then of course one comes, as one has come
in the area generally of unjust enrichment, to
appropriate defences and to appropriate exceptions
to the general rule. In respect, for example, of
payments made of the kind that Your Honour has
referred to, that is in respect of the
interpretation of the Income Tax Assessment Act or
some similar Act, then those payments may be
thought, on reflection, to fall within an
exception.
I do not advance that as a proposition; I

simply put it, Your Honours, that in approaching
the principal proposition that Your Honours would
not, of course, seek to lay down on any basis a
formula under which, in advance, exceptions were to be made, rather work it out on a case-by-case basis
in so far as the principal proposition is accepted.

MASON CJ:

Mr Spender, earlier Justice Brennan asked you what was the operative mistake on which you were

relying.

You gave an answer to that question.

Can

you identify for us in the findings of the

Federal Court what was the operative mistake?

MR SPENDER:

I can identify the relevant finding,

Your Honour, and take Your Honours to the evidence
which, in our submission, supports the findings.
The relevant finding of the Federal Court is to be
found at the top of page 348 - perhaps I should
start at the bottom of page 347.

Counsel for the Bank submitted that the appellants had offered no direct evidence to
the effect that without the mistake being made
on their part, by regarding sub-clause 8(b) as
valid rather than void, they would not have
made payments pursuant to that sub-clause.

However, in the circumstances of this case, there is sufficient evidence from which one
can infer that the appellants would have made
no payment but that which they regarded
themselves as legally obliged to make pursuant
to their contractual and security arrangements
with the Bank.
Their Honours have not identified the evidence

but to put it in broad terms, the evidence will
establish, Your Honours, that the Bank advised the

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respondents of their obligation to pay withholding
tax and did so on a number of occasions. The
evidence establishes that the appellants were
business people who were engaging in loan
transactions for the purposes of their business and
we would put it the Court would infer that they
would pay no more than they were legally obliged to
pay, and as has been pointed out in a Canadian
case, where there is a mistake of law the parties are frequently quite oblivious of the matter, and
it is only on subsequent reflection, or
subsequently becoming apprised of that mistake that
they take action to set their situation in
conformity with the law as it applies.
There is, Your Honour the Chief Justice, no

oral evidence to the effect that we believed our
situation was such and such and we entered into the

transaction on that basis. We would submit to
Your Honours that in the great majority of cases
people will enter into transactions quite unaware

of the fact that, for example, a provision of an
act of Parliament, inserted for their benefit,
provides that certain payments for certain
contractual relationships which would impose an
obligation on them to make payments, are void, as
is the case here.
I will take Your Honours at a later stage, if

I may, to what was said in the Canadian
Supreme Court on that subject, that is the
unawareness of the state of law and transactions
entered into in the operative sense of being a
mistake because of the fact that the parties were
unaware of the state of the law.

DEANE J:

On what basis was it put that the Bank had to pay

withholding tax, that the interest it received was
being paid to an overseas entity by it?

MR SPENDER:

I cannot answer that question, Your Honour.

am not aware of any evidence on the subject, and I
was not involved in the proceedings.

DEANE J:

One would have thought it would be your client

that would have to withhold the tax from the
payment of interest.

MR SPENDER:

Your Honour, the case has proceeded upon the

basis that the obligation was on the Bank, and I
believe, Your Honour, that the primary obligation
is on the Bank and that is provided for under
section 128B of the Income Tax Assessment Act.

DAWSON J:

Is that because the Bank paid to its branch in

Singapore the amount?

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MR SPENDER:

It was paid to the branch in Singapore in the

sense that the Singapore branch was effectively
said to be the contracting branch, because it was
the Singapore branch in Raffles that was - - -

DEANE J: Well, that means the Bank must have regarded

itself as your agent for the payment because it is
the payer who is responsible for withholding tax.
The recipient is responsible for the ultimate tax.

MR SPENDER:

I think, Your Honour,

in answer to that that

the primary obligation is on, in these

circumstances, the payee. That again is the basis

upon which the matter has been approached.

DEANE J:

The party that has earned the income?

MR SPENDER: Precisely, Your Honour, yes.

BRENNAN J: It is hardly a withholding tax in that case.

MR SPENDER:

My learned friend says that he may be in a

position, Your Honour, on behalf of the Bank, and
having been in the earlier proceedings to clarify
this, and if he can that would be - - -

MASON CJ: Well, we may offer him that opportunity.

Can he

do so now?

MR SPENDER: If it is convenient, Your Honour, I would be

perfectly happy to accept any clarification on the
subject that he could provide.

MASON CJ:

I think it might be convenient if we heard from

Mr Emmett on this point at this stage.

MR SPENDER: Yes, Your Honour.

MR EMMETT:

As I understand Your Honour my intention is to

indicate how we understand clause 8 to be affected

by section 261. The loan agreement, as

Your Honours will perceive, was expressed to be
with the Singapore branch of the Commonwealth Bank. That is treated as a non-resident entity, therefore
interest payable by the borrower to that entity
would be subject to withholding tax.
In addition, of course, the Commonwealth Bank was also the banker of the borrowers through its
local branch, and it acted as the agent of the
borrower for the purposes of deducting from
interest payments to be paid to the Singapore
branch the withholding tax that is deductible by

the borrower at source. So in effect, the Act
treats the Bank as being two separate legal

entities. The Singapore branch is the lender and
the Australian branch was, in effect, just the

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banker acting in that way. So that what happened,
in effect, is that the borrower paid the full
amount which was, in effect, the amount of the
interest plus 11.1 per cent, not 10 per cent,
because the second limb of clause 8(b) requires
deduction of the amount payable in respect of the

first additional amount. So as a matter of
arithmetic it turns out to be 11.1 per cent, not
just 10 per cent.

DEANE J:

So the case was seen as coming within the first

limb of 8(b) as supplemented by - - -

MR EMMETT: It was in both because 11.1 was the amount. It

is therefore slightly misleading to say that the

withholding tax was paid to the Bank. In effect,
the Bank as agent, in its guise as Australian
resident, deducted from the amount payable to
itself in Singapore the amount of withholding tax
as agent for the borrower, so the borrower was, in
effect, subjected to withholding tax. The Bank in
Singapore said, "Well, you have got to pay that
extra amount to make up the amount which our Sydney
branch has deducted from the payment that is being
made to us, and that is how the total additional
amount amounted to 11.1 per cent of the interest."

BRENNAN J:

Were these amounts paid on accounts stated by

the Bank? And how were they paid?

MR EMMETT:

They were paid by debit - I think the evidence

indicates they were paid by debit to the account of the borrower. It depends on what Your Honour means
by "paid".

BRENNAN J:

I was just wondering - perhaps I should ask

Mr Spender that question.

MR EMMETT:

Yes, but just to respond:

there would have been

a debit to the account of the borrower with the

Commonwealth Bank in Australia. The Commonwealth

Bank would then have paid the amount, after
deduction of the extra amount for withholding tax,

to its Singapore branch. The Bank then paid the
amount which it had deducted to the Tax

Commissioner in respect of the withholding tax. So
that the Bank, in effect, acting as agent of the
borrower, in its guise as the Australian branch,
paid the amount to the Commissioner on behalf of
the taxpayer - the borrower, I am sorry.

DEANE J:

So if we treat it the way the Bank treated it, we

regard Mr Spender's client as having paid the
withholding tax or retained and paid - - -

MR EMMETT:

Deducted the withholding tax from the Singapore

branch.

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DEANE J:

And we then treat the Bank as having, on the basis

of 8(b), debited Mr Spender's clients' account with
the whole of the interest.

MR EMMETT: Plus the additional earned.

DEANE J: Yes.

MR EMMETT:

We think that means that clause 8(b) does then,

if section 261 applies in this case - and that is a matter that is raised in the notice of contention -
then 8(b) would be affected by section 261.

DEANE J:

And also, of course, it raises the question of

whether it is money paid or money taken without
justification.

MR EMMETT:

I am not sure that that is a distinction that

has ever been raised hitherto.

BRENNAN J: But is it right to say that there was nothing

which induced the payment to be made other than the
debits that were made and, no doubt, notified from
time to time to the borrower?

MR EMMETT:

No.

The evidence would indicate, I think, that

at each rollover the Bank would indicate to the
borrower that, at the end of that rollover period,
there would be an amount payable in respect of
interest and withholding tax, and the amount would

be specified. The Bank would then say, in due
course, the amount which is now payable in respect of the period which has just elapsed is X dollars.
I do not think there is any evidence as to whether
that was broken down between interest and

withholding tax. The borrower then authorized the
debiting of its account with that full amount by
drawing a cheque payable to the Commonwealth Bank
and, pursuant to that cheque, there was then a
debit to the account of the borrower.

BRENNAN J: It was paid by cheque?
MR EMMETT:	Yes. Well, depending on how one characterizes

it. A cheque was drawn in response to a request by
the Bank.

BRENNAN J:

The Bank asserting the liability to pay?

MR EMMETT:

The Bank - again, I do not think there is in the

material the evidence of the Bank's request for
payment, other than material in which the Bank says
at the beginning of each rollover date, at the end
of the rollover period, there will be an amount

payable.

But that amount, I do not think, is

specified in advance, although it could have been

calculated in advance.

I will not say any more

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about the evidence; I will leave it to my learned
friend to indicate what evidence he relies upon.

McHUGH J:

But in all these aspects of the transaction, the

Bank in New South Wales was acting as agent, was it
not?

MR EMMETT:

The Bank in New South Wales acted in its

ordinary capacity as banker, but separately from
its branch in Singapore, which was the lender.

McHUGH J: Yes. So after the cheque was drawn, the funds

would then be remitted?

MR EMMETT: Well, the cheque would be drawn and the account

would be debited with two amounts, in effect; one
amount would go to Singapore, the other would go to
the Income Tax Commissioner in respect of the
withholding tax.

McHUGH J: Yes.

MASON CJ:

Thank you, Mr Emmett.

Yes, Mr Spender.

MR SPENDER:

I am indebted to my learned friend,

Your Honours, for that. Your Honours, might I
just, on the subject of the factual material, take
Your Honours very quickly, if I may, to the
additional folder, in which there is - these are
Bank documents, and the viability in respect of the
withholding tax is touched upon and, in one
particular instance, at least, it is specifically
calculated in a letter which is addressed by the
Bank to the borrowers.
If one goes, first of all, to the first tab

and passes quickly to the second page, 00194, one
sees that the securities which are there referred
to, just briefly, what is to be provided by way of
mortgage and the like, and at 00196, at J, under
the subject of "Withholding Tax":

Withholding Tax of 10% on interest payments to
an Offshore lending Centre must be met by you
at the end of each rollover period.

And, if one goes to the following page, at M, we
see that clause 8:
stipulates that all interest and principal
payments to our Dee Why NSW branch must be
made free and clear of any taxes, including
Australian withholding tax.

And reference is made to an exemption certificate,
which is irrelevant in these proceedings. Turning

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over then to the second tab, which is part of
exhibit 13, down at V, on page 1383, one sees this:
We suggest that regular provision by way of
weekly or monthly deposits be made towards
this contingency -

parity adjustment -
and (towards) payment of interest and
Australian Withholding Tax.

And going over to the following tab, which again is
part of 13(pt), one sees on the second page,
exactly the same provision. That is:
We suggest that regular provision by way of
weekly or monthly deposits be made towards
this contingency and (towards) ..... Australian
Withholding Tax.

And if one goes to the next tab, a letter of
25 October 1985, one sees that at the bottom of the
first page, this is said:
We shall contact you two days prior to the
interest periods and advise the Australian
dollar equivalent and withholding tax amounts.

And again, if one goes to the following tab, which
is part of Exhibit 46(pt), once again at the bottom
of the page, an injunction to make provision for
withholding tax, and if one goes to exhibit 54,
which is the following tab, one sees that there is
a specific statement there - in the first
paragraph - there is reference made to:
Details of the interest payment made on
13 January are as follows:-
Interest -

et cetera -
Grossed up Australian Withholding Tax -
which is $5181.80. That is the only reference that
I can recall where the actual amount has been
particularized.
The following exhibit, which is part of

exhibit 63, once again its only relevance is a
reference to the need to provide for Australian
withholding tax.
The last of the documents which is part of

exhibit 65 contains in it the Bank's internal
guidelines concerning withholding tax.

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Your Honours will see in the first page there is
reference to withholding tax general requirements.
If one goes over the page to what is page 01556
under the subheading of "Withholding Tax", there is
an explanation of the position as understood by the

Bank. The rate is specified in the second
paragraph. In the fourth paragraph, which starts
after the paragraph which has the three dot points:
It needs to be understood that interest
withholding tax is a tax levy upon the
recipient of the income -

and then goes on to refer to the position, for
example, in the case of the Commonwealth Trading Bank London, an explanation which seems to be in
line with what my learned friend has put to
Your Honours, and then an explanation as to how the
position would there affect the Bank's situation
has been given. It says that:
From the Australian borrower's viewpoint, a
tax deduction would clearly be sought, for the
full amount of interest paid under the terms
of the arrangement - this is why the clauses
in the loan agreement call for the payment of
"additional interest" as distinct from "tax" because a tax deduction is not available for
income taxes paid.

That is the relevant evidence on this subject, save
for two other references. One is to be found on the fourth-last page of the folder where - these are the checkpoints that the Bank officers are to
cite and they are asked to check the position about withholding tax. In the appeal book itself, in the
judgment, I believe it is, of the Full Court at
page 299, there appears the letter which was
written by Mr Craig - and this appears at the
bottom of page 299- on behalf of the Bank to
Mr and Mrs Rahrne in respect of their application,

and at page 301, under the heading of "Repayment
Arrangements" at line 10, Your Honours will see
that:
All interest and principal payments are to be
effected in the currency in which the loan is
denominated and are to be made free and clear
of any taxes (including withholding tax).

Over at page 302, at line 6, under the heading of
"Withholding Tax", it is said:
Withholding tax of 10% on interest payments to
an Offshore Lending Centre must be met by you
at the end of each rollover period.

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Again, this is emphasized once more at page 303,
commencing from line 12, where it is said:
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, including Australian withholding tax -

and reference is then made to section 128 and that
they may be:

ineligible for this exemption.

Those are the matters, Your Honours, in respect of the agreement, the arrangement between
the parties under which, clearly, it was
contemplated and which worked upon the basis that
the withholding tax was to be a liability of the

borrowers. And I have already referred
Your Honours in summary to the evidence as to the
reasons for the borrowing and the appellants'
background.
May I now go briefly to the course of

proceedings and simply summarize the course in

these terms. Mr Justice Hill dismissed the
appellants' claim and gave a lengthy judgment. The
formal orders are to be found in the appeal book at

page 243. He also gave judgment on the Bank's
cross-claim, which is to be found in the appeal
book at 244 to 260 and, in the course of that he
gave some consideration to the section 261 point.
Then the Full Court dealt with the subject and

it dealt with the contentions in respect of 8(b),
from pages 250 onwards. Before, however, going to
that part of the appeal book, which I shall come to
soon, if I may, I would take Your Honours then to
the outline of argument which has been put before
Your Honours.

The primary statement which is made there,

Your Honours, is that we are not, in this case,
talking of a fundamental principle of common law
upon which a whole system of legal concepts has
been based. After all, one does not engage in
transactions on the supposition that one is making
a mistake of law, and accordingly the kind of
considerations which concerned some of Your Honours
in the Trident case, where the doctrines of privity
and consideration were examined, are not
applicable.
Without going to what was said in that case I

would simply adopt, for the purposes of this
appeal, if I may, the approach which was taken by
Your Honour the Chief Justice and Mr Justice Wilson

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and Your Honour Mr Justice Toohey. In the judgment
given by Your Honour the Chief Justice, a clear
proposition was put, which we would embrace in the
sense of the need for the Court to look where
circumstances so require it, at law, given changing
circumstances, and to paraphrase and to put it
somewhat differently, changing perceptions.
Your Honour Mr Justice Toohey, at pages 167

and 168, also dealt with that matter. Your Honour
Mr Justice Deane dealt with the question at
pages 160 and 161 and put things in somewhat more
limited terms. But we would make the general
submission that here we are looking at something
which is quite different in principle to what was
under examination in the Trident case.
If one looks to the genesis of the rule, the quotation "a hasty and ill-considered utterance of
Lord Ellenborough" is a quotation from Lord Wright. If one goes to the judgment in Bilbie v Lumley and
sees why that is so: it was a brief extempore
judgment and the relevant passage appears at 102 ER
449, point 2, where this is said:
Lord Ellenborough C.J. asked the

plaintiff's counsel whether he could state any
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 where Lord Kenyon
at Nisi Prius intimated something of that
sort. 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; and it was so doubtful at last on
what precise ground the case turned that it
was not reported. 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.
His Lordship, in the later case of Brisbane v

Dacres, 128 ER, there made plain - if it was
necessary to have it made plain - that, in fact,
the point had not been argued. It appears at
page 649, point 5, where this is said:
The last case is Bilbie v Lumley. Certainly
it was not argued, but it is a most positive
decision; and the counsel was certainly a most
experienced advocate, and not disposed to
abandon tenable points.

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That, Your Honours, we cite, no more than
confirmation of the proposition that what
His Lordship did in Bilbie v Lumley was to make a
statement in respect of a matter which had not been
argued and he made that plain in the later case.
The judgment which His Lordship gave, in our submission, disregarded earlier precedent and that
is to be found in Farmer v Arundel, 96 ER 485.
That case, Your Honours, was a decision in which
Chief Justice De Grey and other justices said, relevantly this - it appears on page 486:

When money is paid by one man to another on
mistake either of fact or of law, or by
deceit, this action will certainly lie.

That is the relevant passage and it is put in the plainest possible terms and, in our submission,

Lord Ellenborough overlooked that proposition. We
have quoted what he said in Perrott v Perrott. I
do not believe it is necessary to take Your Honours
to it - simply to make the point where, in another
case, which was a different situation, he took a
somewhat different view as the operation of mistake
of law.
If I may now, Your Honours, go to the decision of Hydro Electric Commission of Township of Nepean

v Ontario Hydro. I do so because it contains a
very useful summary of the development of the rule
and a critique of it. And the dissenting judgment
of Mr Justice Dickson in that case has since been
accepted by the Canadian Supreme Court.
I do not think it is necessary to go to the

facts of the case. It was an unjust enrichment
case, the question being the recoverability of
certain payments and the question that arose in the
case was whether there had been a mistake of law

and whether the payments were recoverable under a

mistake of law. The examination by
Mr Justice Dickson of the subject commences at
page 201 of the report, where he says in the middle
of the page - and I may just go through a few of
the pages without, of course, quoting a big part,

but emphasizing certain particular passages. He
commences by saying this:
The immediate difficulty one faces in any

discussion of mistake of law is that to which
Professor Winfield has referred ..... namely, when we ask what is the distinction between "law" and "fact" no exact answer is

discoverable in the law reports. "The reason
for this is that the intrinsic difficulty of
laying down any hard and fast line separating

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the two ideas is so great as to make the task
a practical impossibility".

At the bottom of that page, His Honour refers to
Bilbie v Lumley et al and says this:
The distinction between a mistake of law and a mistake of fact in contract law is
commonly regarded as having been made in the
case of Bilbie v Lumley et al -

and he quotes what was said in that case. Going
over the page, he says this, after the part in
quotations, about point 2:
There is a rule of law that in certain

cases ignorance of law excuses no one; but
there is no presumption that every one knows

the law. The maxim ignorantia juris non
excusat et cetera has no relevance to the case of a man seeking to recover back money paid by him in misapprehension of his legal rights,
although it has often been so cited and
misapplied. The "hasty and ill-considered utterance of Lord Ellenborough", as it was
termed by Lord Wright ..... however, quickly
crystallized into the rule that money paid
under a mistake of law may not be recovered,
whereas an action lies for the recovery of
money paid under a mistake of fact.
May I then turn, Your Honours, to page 203

where His Honour, after the quotation from
Professor Foulke, says this, about point 2:
Until the decision in Bilbie v Lumley no

distinction had been made between mistake of
fact and mistake of law and money paid under a
mistake of law was recoverable both in law and
in equity -

and he then says:
The popularity of Lord Ellenborough's
distinction was no doubt due in part to its
coincidence with the beginning of a "period of
rigidity in contract law" as Professor Waddams
has called it, -
Dropping down, if I may, to about point 8 at that
page, to a paragraph which starts:
Legal writers and jurists have roundly condemned the rule. Cheshire (Cheshire and
Fifoot's Law of Contract, 9th ed.(1976)) would
appear to uphold the distinction in a passage

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at p.641 but in the paragraph immediately
following we read:
But while, upon the weight and length of
authority, the distinction, it is feared, must
still be maintained, the exact demarcation
between fact and law has never been
determined.

That, of course, is some 150 years or so after the decision.

If I can now move to page 204 where

Mr Justice Dickson quotes from what Lord Wright had
to say upon the subject at about point 2:
As Lord Wright has written, one cannot escape
the application of a rule of law by pleading
ignorance of it, adding:
Lord Ellenborough, however, stated as a dogma
that every man must be taken to be cognizant
of the law. Whatever force may be given to
this in criminal law, it is clearly not true
as a general proposition. It is not only
against principle and early authority but
against common sense, and has been
consistently disavowed by great judges, though
often repeated by some who should have known
better. The result has been a great confusion in the law relating to transfers by mistake of
law, so that the actual position in England
would be difficult precisely to define.

And then Mr Justice Dickson went on to say:

That the maxim has no place in civil actions

was stated in Lansdown v Lansdown: "That
maxim of law, ignorantia juris non excusat,
was in regard to the public, that ignorance

cannot be pleaded in excuse of crimes, but did
not hold in civil cases."

We would put to Your Honours that is clearly correct. It was so that if you have committed a
criminal act the law was that your ignorance of the
law, no matter what it may be, whether it is a law
concerning lotteries or whatever, did not avail
you. And that is how it should be read, how it
should be confined subject, of course, to
contemporary exceptions.
I take Your Honours then to what was said at

page 205, two or three passages there. At about
point 2 it is said:

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The adoption of the rule at the beginning of the nineteenth century occurred at a time when
the spirit of the law was becoming opposed "to
such idealistic formulations as "aequum et
bonum" -

and reference is made to the change in spirit of

the law. At the bottom of the page he quotes from
the judgment of Lord Wright in Fibrosa Spolka's
case, and then says at page 206 at about point 2:
Although the venerability of the distinction
between mistake of fact and mistake of law is
often paid lip service, legal commentators
have for a long time been calling for its
elimination and the judges have been eroding
its force by means of numerous exceptions and
qualifications. Corbin states emphatically
that its "time has come":
In spite of the many decisions and dicta pro
and con - indeed, because of them, it is
believed that the time has come to say that
the exceptions now make the rule, that social
policy requires that mistake of law and
mistake of fact be treated alike, and that in
granting relief for mistake the attention of
the court should be directed to the other
factors of the case.

There are similar observations referred to in the
balance of that page. Going over to page 207
dropping down to the bottom of it, in referring to
"means of avoiding the application of the rule", he
points out in the second paragraph from the bottom
of the page:
the most obvious one being to characterize the
mistake as one of fact.

He then says, in the next paragraph:

Another technique has been to engraft
upon an already vague distinction (that
between law and fact) an equally vague
distinction between "general law" and "private
right".

And, if I may next take Your Honours to page 209,
to the top of the page, where he says this:
A further judicial development to

circumvent the rule barring recovery under mistake of law is what might be termed the
Kiriri principle. Basically it allows a party to benefit from a "protective statute" -

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as we would say this is -
and to recover money paid under a mistake of
law, where the "law" in question is a statute
whose purpose is to protect his interests.
This is surely a common sense proposition. It
is impossible to know all the law,
presumptions and maxims to the contrary

notwithstanding. To deprive a citizen of the
benefit of a statute designed precisely for
his protection solely because he is unaware of
its existence is an absurdity.
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.

And then going lastly, Your Honours, to the two
following pages, 210 and 211, where he quotes what
Palmer had to say from The Law of Restitution, and
says this, at about point 3:
With the greatest respect for those of contrary view, I am of opinion that the
distinction between mistake of law and mistake

of fact serves no useful purpose. The
commentators have been unable to find a real
basis for its existence and have been
unsparing in their criticism of it.

And further down the page, in the last paragraph:
The policy question which must be

determined is whether this Court wishes to
recognize, and to perpetuate, what has been
rightly referred to by Judge Learned Hand as
"that most unfortunate doctrine".

And lastly, on the following page, he says this: I should prefer to reach this result by
putting mistakes of law and mistakes of fact
on the same footing rather than by increasing
the number of exceptions engrafted on the rule
and which have already, to a great extent,

emasculated the rule. One author has noted
ten exceptions to the rule, which he
characterized as a "decrepit doctrine
unsupportable on principle, and unjust in its
operation".

And at the bottom of that passage, he says:

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The true doctrine must surely be that
enunciated by Lord Mansfied CJ in Bize v
Dickason, supra: "(W)here money is paid under
a mistake, which there was no ground to claim in conscience, the party may recover it back".

And we adopt, Your Honours, the criticism made of
the rule and the solution which is advocated.
The other Canadian case is one which I can

deal with briefly, Your Honours. I think the main
effect of that is simply to adopt what had been
said in Hydro Electric Commission, and the case is
Air Canada v Reg, (1989) 59 DLR (4th) 161. The
go to the facts of that case, but simply to go to
judgment is the judgment of Jr Justice La Forest.
what Mr Justice La Forest says at pages 190 to 192
where, without going to it in any detail, what he
does is to refer to what Mr Justice Dickson said in
the earlier case and to adopt, in principle, the
criticism which has been made by

Mr Justice Dickson. He says, at page 191:
I do not intend to regurgitate what was said
by Dickson Jin his judgment. Suffice it to
say that it constitutes a thorough, scholarly
and damning analysis of the mistake of law
doctrine from its beginning and through the
egregious error of Lord Ellenborough.

Your Honours, the New South Wales Law Reform Commission Report, copies of which have been handed
to Your Honours, is a useful and, in our
submission, a very supportive analysis of the rule,
and the principle passages in that report for
present purposes are to be found in paragraphs 2.2

and 2.12. I will not take Your Honours through all
of it, if I may just touch upon various parts of

the report. At 2.5 on page 8, the report refers:

Lord Mansfield's approach to payments made by
mistake was to regard them as instances of a
general principle whereby unconscientious
receipt of money gave rise to a claim for its
repayment.

At 2.7, a rule in Bilbie v Lumley, and that case is examined and its subsequent history. At 2.10, the
report refers to the case of Brisbane v Dacres,
where Mr Justice Chambre said that it was:
a most dangerous doctrine, that a man getting
possession of money to any extent, in
consequence of another party's ignorance of
the law, cannot be called upon to repay it.

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The report then went on to refer and to do so with approval to what Mr Justice Dickson said in Hydro
Electric Commission v Ontario.
In 2.11, to refer to the difficulties of

distinguishing:
between mistakes of fact ..... and mistakes of
law.

There are criticisms to the same effect which are
to be found in Williston on Contracts, 3rd Edition,
volume 13, at page 535, in fact, not 537 as appears
in the notes handed to Your Honours, and without
going through all of that, may I simply refer to
the beginning proposition at page 535 where, under
the heading of "Mistake of Law", the learned author
says this:
There is no portion of the law of mistake more
troublesome than that relating to mistake of
law, by which is meant either ignorance of a
rule or principle of law or an erroneous
conclusion as to the operation of the law upon
a known set of facts.

Over the page, he says:
It is not actually possible to coordinate the cases so as to produce satisfactory
results, because the rule itself
distinguishing mistake of law from mistake of
fact is founded on no sound principle.
And on page 537 the author refer to the

position at the beginning of the 19th century and
says that:
Prior to the nineteenth century, no

indication of a distinction between mistake of
law and mistake of fact is to be found -

and then he refers to what took place at the

beginning of the 19th century. And in the next
paragraph:
But the injustice of some of the results

produced thereby has led to an increasing
number of exceptions which have to a
considerable extent destroyed the rule, and
often make it difficult to determine in what
cases it may still be thought applicable.

In the current work of Lord Goff and Jones, "The
Law of Restitution", Third Edition, at pages 117
to 118, criticism is also made of the rule and I
will simply read, if I may, Your Honours, the

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opening comment which was made by the learned
authors, and they say this.
Few subjects are more confused than recovery

of money paid under a mistake of law. At the
root of this confusion lies
Lord Ellenborough's judgment in Bilbie v
Lumley, a decision which has frequently been
claimed to have established the broad
proposition that all payments made under a
mistake of law are irrecoverable.

And in that work there is also an examination of the various exceptions which have ben engrafted on
to the principle, to which I shall take
Your Honours later, and briefly.
If I may lastly, in respect of this matter,

refer to a brief passage from Stoljar on "The Law
of Quasi-Contract", second edition, at page 49,
where, in the middle of the page, this is said in
respect of mistake of law:
Indeed earlier common law never doubted

that money is recoverable even if paid under
mistake of law.

And I interpolate that that was the view which had
been expressed in earlier cases, and which was

expressed in .....
"When money is paid by one man to another on a
mistake either of fact, or of law, or by
deceit, this action will certainly lie".

And that comes the passage of the judgment of
Chief Justice De Grey, to which I have already

referred Your Honours. And the author then went on
to say:
Unfortunately this original position became

obscured by three exceptions which gradually
overshadowed it.

And he went on to examine those exceptions, but I
shall come back to the question of exceptions, if I
may, shortly. May I now go to the third paragraph
of our submissions where it is said that since the
rule was first applied it has been recognised by
the courts as often producing an injustice, and I
think that is apparent - - -

MASON CJ: Well, Mr Spender, before you do that, I might say

I would be assisted if you could draw our attention
to the strongest authority that is currently extant
in support of the rule that you are trying to
overthrow.

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MR SPENDER:

The strongest authority currently extant in

support of the rule, Your Honour, would be, first
of all the Canadian - in support or against, I beg
your pardon?

MASON CJ: In support of the rule that you are endeavouring

to overthrow.

MR SPENDER:

I think, Your Honour, it would be one of the decisions of the High Court and I can think of two

passages from the decision of Werrin v The

Commonwealth, which is now quite an old case, to be found in 59 CLR 150, and it is referred to in

paragraph 4 of the submissions, Your Honour.

The

passages are to be found in the judgments of

His Honour the Chief Justice at page 159 point 8.

Werrin's case concerned an exaction of sales tax,

Your Honours, and if I could just go briefly to the

headnote it says:

Prior to the decision ..... the plaintiff had paid, though with reluctance, sales tax on
certain secondhand goods sold by him in 1931.
In an action commenced in 1935 the plaintiff
sought to recover from the Commonwealth and
the Federal Commissioner of Taxation the money
so paid as money unlawfully demanded and
received by the commissioner as tax in respect
of the sale of secondhand goods.
Held that judgment should be entered for the
defendants -

by the Chief Justice and by Mr Justice McTiernan -
on the ground that the money was paid
voluntarily under a mistake of law and,
therefore, was irrecoverable.

There are subsequent cases where there have been
payments made in respect of exactions of a

statutory kind. As I say, the passages I should
have taken Your Honours to from the Chief Justice's
judgment are to be found at page 159 point 8
starting just above the last paragraph where this
is said:
In each of these cases the money was paid, as
in the present case, to the Crown. In
Henderson v Folkstone Waterworks Co money was
paid under mistake of law to a water company
and the same principles were applied; the
money, having been paid voluntarily, could not
be recovered.
The principle appears to me to be quite clear that if a person, instead of contesting

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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 - - -

DAWSON J:

He seems there to be sliding off in the direction

of compromise than mere mistake of law, does he
not, in the sentence beginning, "The principle
appears to me to be"?

MR SPENDER:

Yes, I think that might be correct,

Your Honour. And Mr Justice McTiernan,
Your Honours, at page 168 says:
The sums sued for, as the special case shows, were paid by the plaintiff upon the demand of the Commissioner of Taxation, who required the
plaintiff to pay them as sales tax due by him
in respect of the sale of secondhand goods
although, as a decision of this court
subsequently showed, secondhand goods were not
within the scope of the Sales Tax Acts (Deputy
Federal Commissioner of Taxation (S.A.) v

Ellis & Clark Ltd (1)). The plaintiff was at

liberty to refuse the demand. But he gave up
his right to refuse to pay.

That position, Your Honour, was again taken up in
the case of Mason v New South Wales which was in
the same line - - -

MASON CJ:

Was that not a different case where really there

was a demand for payment under colour of office?

MR SPENDER:

Yes, Your Honour, that is so.

McHUGH J: They are compulsory exaction tests.

MASON CJ: They are a compulsory exaction - they stand in a

different situation.

MR SPENDER:

Your Honours, they stand in a different

situation, but they do illustrate the problem of
moneys paid under mistake of law and the

distinction that has been drawn in the compulsory

exaction cases is a distinction which, we would put

to Your Honours, is one which is difficult to

maintain where it is said that on the one hand, if

money is demanded of a citizen which he does not

owe because it is not legally owing, and pays it

but protests, he may recover it back, and on the

other hand if money is demanded of that same

citizen and he pays it without protest because he

is not well advised, because he does not understand

that there may be a problem, then he cannot recover

it back.

What that does is seen to favour those

who are well advised against those who are not well

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advised, and we would put to Your Honours that
whilst it is a separate case and might be put quite
apart from these cases, it is part of the line of
authority where moneys have been sought to be
recovered, as in the Werrin's case, and where one
runs into the argument, "Well you have paid this
voluntarily".
Now I would agree entirely, if I may, with

respect to what Your Honour the Chief Justice said
about it being a separate class of cases, but we
would say, Your Honours, that it illustrates the

problem. Your Honours, having gone - - -

McHUGH J: In Murray v Baxter, 18 CLR, Mr Justice Isaacs and

Mr Justice Gavan Duffy said:
It is true that money paid voluntarily cannot
as a rule be recovered back for mistake in

law. But that is not a universal rule for all
cases.

MR SPENDER:	18 CLR?
McHUGH J:	18 CLR, at page 630 the passage is.
MR SPENDER:	Your Honour, that is a correct statement of the

principle in light of the way in which it had
developed, and we would adopt it, save by saying
that it does not go far enough and that the
principle, as it were, should be reversed and
should be abolished and should say, "Well, look,
the general principle should be that money paid
under a mistake of law should stand upon the same basis as money paid under a mistake of fact", but
that, of course, just as in the case of money paid
under a mistake of fact where defences may exist
such as estoppel and the like, these defences would
exist in respect of a claim to recover back money

paid under a mistake of law. The defences need to
be developed on a case-by-case basis.

MASON CJ: Lord Denning said much the same thing in Kiriri

Cotton in 1960.

MR SPENDER: Yes, he did, Your Honour.

MASON CJ:

My concern only is to identify what is the pillar

we are being invited to pull down.

MR SPENDER:

Your Honour, the pillar that we are inviting

Your Honours to pull down is the one which was
erected by Lord Ellenborough and at which jurists
and courts and writers have been chopping
assiduously and in respect of which the courts have
been developing exceptions for the purposes of
overcoming what the courts have perceived to be the

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manifest injustice or, can I put it, the manifest
lack of sound principle, of applying it.
Specifically, of course, we are seeking to

chop that pillar down in respect of its application
to cases such as the one presently before
Your Honours where we contend that there is money
which has been paid over under a mistake of law, as
in the case of Kiriri, where the law being
ascertained, the person making the payment has
sought to bring it back.
It does not necessarily mean that Your Honours

then have to chop down all the other authorities
dealing with, for example, moneys which have been
paid under an official exaction, although we put
that in so far as necessary in principle, those
cases would appear to be necessary for review
because of a lack of compatibility with the notions
of unjust enrichment which this Court has embraced
and - - -

McHUGH J:

Take a case like Re Diplock where the attempt to

claim the money wrongly paid out by the estate
under the trust failed because there was a mistake
of law but succeeded as an equitable tracing
action. That sort of doctrine is entrenched, is it
not?

MR SPENDER:

What has happened, Your Honour, as I understand

it, is that there have been a number of exceptions
which have been made to the rule, including that
kind of exception. These exceptions are examined
both by Lord Goff in the most recent edition of his
work, and also by the New South Wales Law Reform
Commission so that, for example, moneys which have
been paid over as a result of deceit are

recoverable. But that illustrates the reason why
the proposition of law which was erected by
Lord Ellenborough needs to be torn down, because what the courts have sought to do is to find

sufficient exceptions to justify the just
application of the rule to particular cases which
have come before the courts. And if I - - -

TOOHEY J:

Mr Spender, I am just having difficulty in

identifying the proposition that we are being
invited to subscribe to. Is it a proposition in

general terms that money paid under any mistake of

law is recoverable? If it is that, then I suppose

we are being invited to subscribe to a general proposition that money paid under any mistake,

whether or law or of fact, is recoverable.

Or are

we being invited to say that money paid under a

mistake as to the operation of a statutory

provision is recoverable?

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MR SPENDER:

Your Honours, we have put it in the broad terms, that is that the principle which was

enunciated by Lord Ellenborough and which it has
been followed and which is the genesis for the rule

should be overturned by this Court.

We would also

put it upon the more narrow basis - - -

TOOHEY J: Yes, I understand that but having destroyed that

proposition what is left? I mean, that is the
negative. Is the positive then that money paid to
another under any mistake, whether of law or of
fact, is recoverable or that money paid under a
mistake in certain circumstances is recoverable?

MR SPENDER:

The positive of it is, Your Honour, that, in

our submission, the money paid under a mistake of
law should be put upon the same footing as money

paid under a mistake of fact. But that would, of
course, be subject to defences which would exist
depending upon particular circumstances as is the
case of money paid under a mistake of fact at
present. That is the position, Your Honour, which
the Law Reform Commission has advocated and has in
fact set out in its draft bill.
Your Honours, as to the exceptions, if I can

go briefly to them and without taking Your Honours
through them in detail, some of the exceptions are

identified in the Law Reform Commission report. If

I can just perhaps touch upon them briefly. They appear at paragraphs 3.16 to 3.31 where they are,
as it were, listed. It is said at the outset, in
paragraph 3.16:
Brief reference has already been made to the
fact that the general rule has many
exceptions. There is no common theme running through them and they "establish an elaborate
cluster of artificial distinctions and vague
standards for relief which have created an
unusually chaotic body of jurisprudence".

The Commission then lists the following - over the
page at paragraph 3.17:
Mistake of Foreign Law -

where it is pointed out that:
A mistake of foreign law is treated as a
mistake of fact for the purposes of
determining whether recovery of moneys will
lie.

In the following paragraph:

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Public Moneys Mistakenly Disbursed Without
Legal Authority -

and it is said that:
Where moneys are wrongly disbursed by a servant of the Crown it makes no difference whether there was a mistake of fact or a

mistake of law. Going over the page to paragraph 3.20:
Payments Mistakenly Made to an Officer of the
Court -

and it is said that:
Payments mistakenly made to an officer of the
court (even when the mistake is one of law)
are recoverable. Officers of the court
include trustees in bankruptcy and receivers
appointed by the court.

Then there is a reference there to what was said in
Ex parte James and the criticism is then made that
this statement:
ignores the fact that the degree of honesty
required of other people does not compel them
to repay moneys received when they are paid
under a mistake of law, regardless of the
honesty or morality of the situation.

Then, on the following page, Your Honours, at
paragraph 3.21, there is:
Payments Mistakenly Made by the Court -

and it says this, that:
Unlike the preceding category, there is no

clearly expressed policy justification for the

mistake of law to recover those moneys.
right of a court which pays out money under a moneys paid out under a mistake of law.

BRENNAN J:

We will not need to consider these if your

destruction of the pillar is successful.

MR SPENDER: If the destruction is successful, Your Honour,

then one does not have to, for example, consider
whether in any particular case one can slot - if I
can use that expression - a set of facts into an
exception so that the consequence is one which is
consistent with notions of justice and, in
particular, with the doctrine of unjust enrichment.

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If the law remains as it is, however, then the
Court is going to be forced again and again to see whether or not an exception applies or whether it
is simply going to be said, "True it is that the
money has been paid to a person who, in the
circumstances, has no right to receive it". True
it is, as in this case - - -

McHUGH J: But there has got to be more than that happening

and that may be the problem. You have got to show that the payment was induced by the mistake and it
may be more difficult to identify the inducement
where a question of law is involved than where a
question of fact is involved. If, for example, a
council send me a rate notice and I pay it
mistakenly thinking it is addressed to me, well,
it is a mistake of fact, but supposing I pay it on
the basis that I think that is what I am liable
for because the council has assessed me at that
basis but it turns out that legally they were

wrong. Now, is that a mistake of law on my part?

MR SPENDER:

Your Honour, if you make a payment on the

assumption that the payment is due by law, then
that is probably a mistake of law, but the point
is, Your Honour, that whilst - where there is a
payment made by a mistake of fact, there is a
factual situation which is wrongly understood.
Where a payment is made under a mistake of law,
there is simply not a fastening of the mind on to

the law itself. Now, even in the case of a mistake
of fact there need not be anything said by the
other party as an inducement to making the payment
because it can be simply a payment which is made as
a result of a lack of awareness that, for example, the obligation giving rise to the payment has come
to an end by expiry of time, for example, payments
due under a lease where they are due by law and

they are continued to be paid. Now, that case, of
course, may be mixed fact and mixed law, but
inducement is not essential in any of those cases,

Your Honour.
If I could, in respect of that question of
Your Honour's, refer to two cases, and we come back

to that in a minute. The first is the decision,
which has already been referred to, of Kiriri
Cotton Co Ltd v Dewani, (1960) AC 192, and the
second is a passage in one of the Canadian cases.
I refer to Kiriri Cotton Ltd. Of course, it, in
our submission, illustrates fairly neatly the
problem which Your Honour has just put to me.
In Kiriri's case, the plaintiffs in that case

were in search of premises in Uganda. They found
difficulty in finding premises. For the purposes
of securing a lease they paid what is usually

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called in Australia "key money". The payment of
key money was some 10,000 shillings and that was
contrary to the law and the particular facts of the
case appear in the headnote, and it was held that
notwithstanding the fact that they had paid the key
money and had then gone into occupation and then
had the benefit of the contract, that they could
recover the moneys so paid back.
And if one looks to the argument that was put,

there was a very brief judgment given and no actual
reference to any operable mistake of the law is to

be found anywhere. And it was argued by
Mr Elwyn Jones, QC, as he then was, that, at the
top of page 195:
There is a finding of fact that both parties
thought that the agreement was perfectly
legal.

And at about point 7, he says this and complains, understandably perhaps:
The respondent here has been in possession and
is still enjoying the fruits of his
illegality, and he seeks in this action to
have it both ways.

And what was said by the Judicial Committee on this subject can relevantly be picked up at page 200, where His Lordship, Lord Denning, commenced by
referring to the nature of the appeal; then he
looked to the particular provisions of the
ordinance; and he then went on to say, at the
bottom of page 201, at about point 9:
It was owing to the failure of the

lawyers to refer to those definitions - or at
any rate to appreciate the importance of
them - that the mistake arose.

And he made some references then to the premium
itself, and over the page at 202 point 2, he said
this:
Nevertheless, no matter whether the

mistake was excusable or inexcusable, or the
premium fair or extortionate, the fact remains
that the landlord received a premium contrary
to the provisions of the Ordinance -

as in this case. The Bank received payment of
withholding tax contrary to section 261, to the
clear intend of section 261. And then, over at
page 204, he deals with the proposition, amongst
other things, that was put by Lord Ellenborough,

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which was the foundation of Bilbie v Lumley, where
he says this, at the top of page 204:
It is not correct to say that everyone is

presumed to know the law. The true
proposition is that no man can excuse himself
from doing his duty by saying that he did not
know the law on the mater. Ignorantia juris
neminem excusat. Nor is it correct to say
that money paid under a mistake of law can

never be recovered back. The true proposition
is that money paid under a mistake of law, by
itself and without more, cannot be recovered
back.

And then he says:
If there is something more in addition to a
mistake of law -

and he is here referring to some of the
qualifications to the rule -
if there is something in the defendant's
conduct which shows that, of the two of them,
he is the one primarily responsible for the
mistake - then it may be recovered back.
Thus, if as between the two of them the duty
of observing the law is placed on the
shoulders of the one rather than the other -
it being imposed on him specially for the
protection of the other - then they are not in
pari delicto and the money can be recovered
back.

TOOHEY J:

Mr Spender, do you rely upon section 261 as the

source of the mistake or as, in some way, going to
the injustice of the Bank holding on to the money,
or both?

MR SPENDER:

Your Honour, if I may put the answer in this

way. First of all, Your Honour, it goes to the

source of the mistake. As in Kiriri's case, where
it is perfectly evident that nobody applied their
minds to what the law was, and entered into an
agreement under a mistaken belief as to legal
rights; so in this case, we say that there was an
agreement entered into under a mistaken belief as

to legal rights. The mistaken belief is referable
to section 261. Section 261 is the equivalent
with, of course, differences of degree - to the
kind of provision that was looked at in Kiriri's
case, and it also goes to the justice of
restitution in those circumstances, so it forms, as it were, two functions. It might be said to be the

source of the mistake. One looks to the policy of

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the legislature. The policy is a very plain one and that is that in such circumstances borrowers
shall not be obliged to pay to lenders withholding
tax which is payable by lenders and that, we say,
is clearly inserted, as was said by the Full Court,
for the benefit of the lenders. Therefore, where
money is received in those circumstances, contrary
to the intent of section 261 and contrary to the
clear intent of the legislature, it should be
recouped.

BRENNAN J:

How far does this proposition go, Mr Spender?

Does it mean that whenever A asserts a right to a
payment and B accepts the validity of that claim,
and makes the payment, B, on discovering an error
in A's assertion is in a position to recover it?

MR SPENDER:	Your Honour, it would depend very much on the circumstances, and I cannot give an unequivocal
response to that statement. There may be, for
example, cases where there has been a settlement of
disputed rights, where the parties are doubtful as to the law, in which event, if there is an
agreement reached in those circumstances with a
compromise of competing claims, there is no mistake
because what happens is the parties, being concerned about their situation between each other,
come to a compromise. If at a later - - -
BRENNAN J:	The problem does ·not arise there because the

payment is then made pursuant to an obligation
arising in the compromise.

MR SPENDER: Precisely.

BRENNAN J: But, when there is no obligation arising under a

compromise, is your proposition that whenever a
payment is made by B to A in response to A's claim,
B, on discovering an error, whether of fact, or
law, in A's claim, can recover the amount so paid?

MR SPENDER:

Your Honour, we do not need to go so far as

that.

BRENNAN J:

No doubt you do not, but what is the principle

for which you contend?

MR SPENDER:

The principle, Your Honour, for which we

contend is put two ways: first of all, the
principle is that money which is paid under a
mistake of law is, prima facie, recoverable subject
to defences, and one defence may be after
examination by the court a change of position in
certain circumstances. Another defence may be an

estoppel. So there would be defences to the
proposition just as there are defences in the area
of payments under mistake of fact. These have been

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developed by the courts, but the main principle we

would contend for is the broad principle. The
subsidiary principle is that where as here there
has been a payment made pursuant to a contractual
obligation which has been rendered void by statute,
that payment should be recoverable.
But the broad principle is the one that we put to the Court, should be entertained by the Court by
reason of the need, as it were, to start afresh in

this area. When I say to start afresh, to
reconcile the law which has arisen as a result of, we put to the Court, mistake in the very beginning
as to the nature of the law, the mistake being
Lord Ellenborough's, and to put the law on
conformity with present notions of unjust

enrichment and to put the - - -

BRENNAN J: Well now, in this case there is no question of

illegality arising under 261, so we do not have to
worry about in pari delicto or anything of that
kind. Here is the Bank saying, "You owe us
X dollars plus 11.1 per cent." Your client pays
it. There may be, as there seems to be, a genuine
view on the part of the Bank looking at the
documents that you have shown us that they are

entitled to this money. The fact is, looking at
that you having paid it, discovering the error in the Bank's claim, can now recover it? Is it as
section 261 and perhaps 221L, the Bank was not.
broad and as general as that?

MR SPENDER:

Yes, Your Honour.

We put it that having

discovered the error we can now recover it because
it was the error which we have put to Your Honours
is the basis on which the payment was made.
Parties who are borrowing money from banks do not
pay more than they are legally obliged to pay, and
had it been drawn to the attention of anyone
dealing with the bank that here is the bank

requiring you to pay withholding tax; whereas
section 261 says that you cannot be required to pay
withholding tax, and indeed any provision in the
contract to that effect is void, then what would
happen? It would be put to the bank, and one would
presume that the bank would agree to recast

obligations in accordance with the law. One would
not infer, I would submit, that the bank would then
seek to flout the law.

BRENNAN J: If I could just ask one further question: let

us assume that your client had obtained legal
advice and the legal advice was the Bank is
entitled to the money, and he paid it accordingly;
then, getting better legal advice, discovers the

error. Can he get it back?

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MR SPENDER: In those circumstances, Your Honour, in

principle, if it is such a plain case - and one
cannot imagine legal advice being given to the
effect that it was payable if the advisor had have
looked at the section - but in principle, if it is

paid under a mistake of law it is recoverable. One

looks to the justice of the situation: why should
the Bank be able to retain money which the
legislature clearly intends should not be paid to
it so that it should discharge its obligation out
of its own resources, that is out of what it
receives by way of income from a borrower; and not
say to their borrower, "Not only are you to be
charged interest but as well you are to pay the
income tax liability which, under the law, is
mine".

TOOHEY J: Who is the "mine" there? Is this what the Bank

is saying?

MR SPENDER:

I am sorry, Your Honour.

TOOHEY J: Who is the "mine" and the "yours" in the

situation that you just put to us?

MR SPENDER:	The "mine"?
TOOHEY J:	What is the Bank saying?
MR SPENDER:	The Bank is saying, Your Honour - and on the

evidence the Bank very carefully considered its

position. One would infer that it was not entirely
unmindful of section 261 if it had looked at its
situation as carefully as it appears from the

documents. What is put up by the Bank which has,
after all, on the evidence, carefully looked at its
situation which has, on the evidence, the
availability of advice because it has clearly taken
advice, that it is, so to speak, the directing
mind, has cast the documents in a certain form and
the obligations which flow from those documents are

obligations created by the Bank.

TOOHEY J: But I wonder how important section 261 is in all

of this? Say there had been no such section and
the Bank, in accordance with those documents that
you have directed our attention to, had called upon
the present appellants to pay sums of money
representing interest due under the mortgage plus
an amount due by way, the Bank says, of withholding
tax and your clients had duly paid that money over

because the Bank had asked them to do so. Would
they be in a worse or better position than they are
by virtue of the existence of section 261? I mean,
if in the end they paid the money over under some
sort of belief that they were obliged to pay it
over and it turned out that they were not obliged

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to pay it over, not because of section 261 but
because there was no obligation to pay that
particular part of the money to the Bank.

MR SPENDER: Well, Your Honour, they either pay the money

over under, so to speak, a mistake of fact or a
mistake of law, if I one can sensibly
decompartmentalize those - - -

TOOHEY J:

I was not really trying to get into that area of

distinction but simply to - - -

McHUGH J:

They paid, in the illustration, because they

thought they had an obligation.

TOOHEY J:

The Bank wrote to them from time to time and

said, "You have to pay interest and you have to pay
withholding tax".

MR SPENDER: Well, in our submission, in such a case it

would be recoverable; section 261 entirely to one
side. If the obligation that one is required to
discharge is the Bank's obligation to the
Commissioner for Taxation to pay income tax upon
its receipts and it then seeks to obtain that from
another person and that person mistakenly, as to
his obligation, makes a payment over to the Bank
then, in our submission, that would be recoverable.
But, of course, we do not need to go so far here because of the existence of section 261. That
section makes plain the legislatures policy and
that policy is that the Bank shall be responsible.
I am reminded, Your Honours, that there is a

case of Moore v Vestry of Fulham, in answer to what
Your Honour Mr Justice Brennan said about disputes
and resolution of disputes and that kind of

situation. I will simply give the reference if I
may: it is to be found in Moore v Vestry of Fulham,
(1895) 1 QB 399. That was in a mistake of fact
situation, but we would submit that in that general

area there is no particular difficulty in starting
off with a general principle just as
Lord Ellenborough did, except that what we are
asking for, of course, is to reverse
Lord Ellenborough's principle and to start with a
different general principle.

GAUDRON J: It is, perhaps, important to note though whether

you base your new principle on unjust enrichment,
or whether you say the old rule should go because
the doctrine or the notion of unjust enrichment

shows it to be of no just purpose. I ask you that
because if you put it on the former basis, the
question might well be, "Was the Bank in this case
unjustly enriched?", and that may depend on its
relationship with the Singapore branch.

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MR SPENDER:

Your Honour, as to that, we would answer it in

two ways, if I may. The first is that the doctrine
should go because the doctrine is bad and was
misconceived and has - apart from unjust enrichment
it is manifestly out of keeping with the proper
development of the law and for all the reasons that
the critics and the textbook writers and juries
have said that the doctrine should go.
The second reason that we put is that the doctrine is, after all, entirely out of keeping
with the notions which this Court has very clearly adopted of unjust enrichment because if you take a
payment which was made under a mistake of law -
that assumption being made - so that the person who
has received the payment, the recipient, has no
claim to it in right or law or morality, there is,
we put to the Court, no reason why any distinction
should be maintained between such a payment and a
payment made under mistake of fact. Morality or
justice cannot be different simply because, in the
one case, I mistake my legal rights and make a
payment and, in another case, I mistake a factual
situation and make a payment.

McHUGH J: Well, what if the parties make a common mistake

about the law? And just following on, does this
apply to judicial decisions which are subsequently

reversed? Now, insurance companies paid out
millions of dollars in excess of interest rates
relying on the decision of Cullen v Trappell, which
this Court overruled. Can the Government Insurance
Office and other insurance offices recover that
money from plaintiffs who wrongly received those
interest payments?

MR SPENDER:	Your Honour, might I, in answer to that, put the way in which it has been dealt with by Stoljar
in his work, where, in the 2nd edition of "The Law
of Quasi-Contract", he says this, at page 88:

We have seen above that money paid under
a judgment reversed by a higher court is
recoverable by a party to that judgment; and
we have also seen that payments to a public
authority can be held to have been ultra vires
or invalid if based on a statute turning out
to be unconstitutional. There yet remains
another situation, namely, the one where a
payment is made on the basis of an established
legal decision which is then overruled by a

later case not involving the same sides. Such
a payment has of course been taken to be
irrecoverable precisely on grounds of mistake of law, this being indeed the major situation
where the old rule of Bilbie v Lumley,
enunciating the irrecoverability of money paid

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under legal error, has been accepted to be
fully justified. For see, so goes one
warning, what the consequences might be: every
reversal of a decision would give rise to
hundreds of actions to recover back money
previously paid.

Then going on:
"Floodgates" arguments are often easily
overdone, but they do make a point just for
this sort of situation; the American Legal
Tender cases offer a well nigh perfect
illustration of the very real upheavals that
legal reversals can cause.
But while recovery here is certainly very

justifiably denied, it is difficult to see
what this has really to do with mistake of

law. Where P pays and D receives money under
an authoritative court decision (Case 1),
neither party is mistaken as to the outcome
that case indicates. Admittedly the judges in
Case 1 may be mistaken in arriving at the
decision they did, at least so might think the
judges in Case 2 reversing Case 1; but then
the judges in Case 2 may, in turn, be found in
a later case (Case 3) to be mistaken ..... This
alone is reason enough for seeing each case as
producing a sort of "punctuated equilibrium",
a state of law entirely valid while it lasts,
making its subsequent reversal as having no
more than "prospective" as distinct from
"retrospective" force.

McHUGH J: But does not that passage indicate that the

solution to the difficulty lies rather in the
doctrine of unjust enrichment rather than some
blanket rejection of the proposition that money
paid under mistake of law is not recoverable?

MR SPENDER: Indeed, Your Honour. At the outset, I said

that one of the reasons for it was or the reverse
that we were seeking, is that the existence of the
doctrine is not consistent with the doctrine of

unjust enrichment. Now, we have put it upon two
bases: that is, the law was bad, and should be
declared to be bad, for reasons which we have put
to this Court, and on the basis that the law - as
well, it is entirely out of keeping with notions of

unjust enrichment. So that you cannot, we would
say, have unjust enrichment cases confined to cases
where the mistake is one of fact, but in equally
compelling cases where the mistake is one of law,
no enrichment is allowed to be recovered back,
notwithstanding that there has been considerable
enrichment which the Court would otherwise regard

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as unjust and, were it a factual case, would say,
yes ,it should be paid back.

GAUDRON J:

Can I come back to where I was, Mr Spender, because it seems to me that there are three

possibilities: one, that you say the money is

recoverable because it was paid under mistake of

law, whether or not the recipient was thereby
enriched justly or unjustly. That is the first

possibility.

The second is that money paid under

mistake of fact is recoverable if the recipient was thereby unjustly enriched. And the third is, it is

repayable unless the recipient shows that she was

not unjustly enriched.

Those seem to be the three

possibilities. Which do you say governs this case,

or should govern generally?

MR SPENDER:

What we have put to Your Honours is,

effectively, both, because what Your Honour has
outlined is two situations, that is - and with a

third which is the defence, so to speak. Now, if I
pay money to somebody under a mistake of fact but,
for the kind of reasons that have been considered
by courts, it becomes unjust that I should recover
that money back because it has been dealt with in a
certain way, and dealt with properly, then I may
not be able to recover that back. That applies to

fact cases. To answer specifically, we would say
that, one, if it is paid under a mistake of law, if
the Court upholds the principle submission, it is

recoverable. Two: if it is paid under a mistake of
law, then it should be recoverable, subject to
defences, and that is for the other party to assert
and to establish.

GAUDRON J: Yes, but are those defences related to unjust

enrichment? I mean, it is very difficult to say,
"Tear this away, subject to defences", where the
defences are undefined in any respect, or
unidentified in any respect.

MR SPENDER: Well, the defences, Your Honour, would always

relate, in our submission, to the factual
situation, just as in the case of money paid under
a mistake of fact. Let us take the estoppel
situation: money paid under a mistake of fact may,
for certain reasons, not be recoverable because of
the existence of an estoppel, and whether or not
the money is recoverable falls to be determined,
one, by reference to the application of the general
legal principle, and two, by reference to the
existence of any defences, but those defences are
always dependent upon a state of fact, such as in
the recent case in the House of Lords, of Lipkin,
where the question as to how much money could be
recovered from a gaming club, the gaming club
having received bets from a thieving employer of a

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solicitor's firm, depended somewhat upon what had
been paid out by the gaming club, and what had been
received by it, and that is on the state of facts
as they existed.
So we would say that in all cases, if you look

to the general proposition you must, once you have
established the general proposition, look to what
defences should be created. If I could just in
respect of that, there is one passage in that case
that may assist because what Lord Goff said - what
was said, in effect, was that these things would
have to be worked out on a case-by-case basis.
What was said in that case, relevantly, and if I
can just simply refer to the headnote. It is
reported in (1991) 3 WLR, and the relevant part of
the headnote appears at page 12. Here the headnote
was dealing with a question of change of position
as a defence against restitution claims, and this
was said:
It is right for English law to recognise

that the defence of change of position in good
faith is available against restitution claims,
based on the unjust enrichment of the
defendant, but nothing should be said at this
stage to define its scope so as to inhibit its
development on a case by case basis in the
usual way.

MASON CJ: That seems to banish legal reasoning from the

stage altogether.

MR SPENDER: Well, I think, Your Honour, what the court is

saying is, "Well, this is a defence which we are
going to accept in principle perhaps but we do not
want to define it in advance of the situations
which give rise to it". So, to get back to what
Justice Gaudron said, we say that here you define
the principle: what is the correct principle in
terms of money paid over? Then you define the

defences to that principle.

GAUDRON J: Well, can you define the first principle?

MR SPENDER: Yes, the principle is that money paid over

under a mistake of law shall be recoverable on the same basis that money paid over under a mistake of
fact. That is to say - - -

MASON CJ:

Mr Spender, having read what appears on page 34

in the last sentence of that central paragraph, I
think I will withdraw the remark that I made to you
earlier.

MR SPENDER:

Very well, Your Honour, I will take that - - -

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MASON CJ: It is legal reasoning at its highest peak.

MR SPENDER:

I do not have it in front of me any more; I am

not quite sure what happened to it. Yes, we would
say that that is a proper approach to working out
what is a difficult area of law where the court
adopts the principle and then has to ask itself,
"How is that principle going to be developed".
If I may, Your Honours, return to the notes of

argument and take Your Honours briefly through the
remainder of them and take Your Honours to, but
without perhaps reading, under paragraph 4, the
application of the rule by the court, and this is
before Anglo-Australian law had recognized clearly
a general doctrine of restitution based on unjust
enrichment subject, of course, to what was said by
Lord Wright in Fibrosa Spolka - the actual passage
has been read to the Court - in (1920) 43 AC 32
where at page 61 he spoke of a need for any
civilized system of justice to develop remedies for
unjust situations. That was quoted in Denning.
There was one passage that I wish to refer to

in the decision of Mr Justice Dickson which I
omitted, and could I refer Your Honours to that now
and that is - with reference to the present case,
it appears at page 204 at the bottom of the page:
In the case of contracts entered into under

mistake of law: "Rather than trying to escape
the consequences of a rule of law, the
plaintiff is seeking to escape consequences
that would not have occurred had the law been
known and observed. In a general sense it can
be said that he seeks to bring the situation
into conformity with the rule of law, by
asserting rights based upon it".

Your Honours, in paragraph 5 we refer to what the
Court has said here about unjust enrichment in Pavey & Matthews Pty Limited v Paul, and - - -

TOOHEY J:

Mr Spender, if I could just interrupt you for a

moment? If we were to approach this case on the
basis of unjust enrichment, do we have the facts

which would enable us to do so? I mean, do we know
what the position of the parties is vis-a-vis each
other and vis-a-vis the Commissioner of Taxation
and what the present location of this money is and
what its ultimate destination might be?

MR SPENDER: Certainly not, Your Honour, so far as those

latter matters are concerned. But if I can put the
situation as we would see it, and that is this:
under the Act there was an obligation to pay
withholding tax which was imposed upon the Bank.

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The Bank, by the contractual obligations structured
by it, required the payment of that withholding tax

by the borrower contrary to the section 261. We

would say it does not matter what has happened. It
does not matter whether or not the Bank has paid

withholding tax. It has, after all, an obligation under law to pay that tax, but that does not - - -

TOOHEY J:

Do your clients not have an obligation to pay

withholding tax?

MR SPENDER: If they do, Your Honour, they get a deduction,

but in this case the obligation here was on the
Bank to pay the withholding tax. It is
contemplated the Bank would pay the withholding
tax. And it was contemplated and required that we
would fund the Bank for the purpose of making that
payment.

DEANE J: Why was the bank under an obligation to pay

withholding tax on a payment to itself?

MR SPENDER: That, Your Honour, was, I thought - I may be

incorrect but I had thought that that was explained
by my learned friend by reason of the - - -

DEANE J: Well, he explained the theory that the Bank had

brought it within the clause, that is, that the
Bank somehow appointed itself your agent to make a
payment to itself, talking about its Singapore
branch, whatever that means, and on that basis,
apparently it is suggested that it became liable to
pay withholding tax. There may be a section of the
Act that says, "If an Australian bank receives
money for its overseas branch it has to pay
withholding tax", but I was not aware of it, but
that does not mean anything because I do not
understand the sections, I must confess.

MR SPENDER:

Your Honour, I think that a 128B(5), in answer

to what Your Honour has said, may be the

appropriate section which says this - of the Income
Tax Assessment Act.

DEANE J:

The Chief Justice suggests that it might be

postponed until after lunch.

MR SPENDER: Yes, well I will come back to that if I may,

Your Honour, after lunch.
Your Honours, I do not wish to take you to any

of the cases which are referred to in paragraph 4. Paragraph 5: the cases there refer to - lay down

the doctrine of unjust enrichment. The Court is
acquainted with those cases, the last one being ANZ
Banking Group Ltd v Westpac Banking Corporation,

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and I do not think that there is any need to say
anything about those cases.
The Court clearly recognized, and explicitly

recognized, that in place of old notions of implied
debt the Court would go back effectively to the
principles which had been applied, or had been
enunciated, by Lord Mansfield and that the whole
old notion of there being an implication giving
rise to a debt was to be discarded as fictitious,
as indeed it was.
If we can go then to paragraph 6 and without dwelling at length upon what is said there, because
much of it has already been covered, we say that it
is not just for a recipient to retain money paid
under a mistake, whatever the characterization of
that mistake. Unless he is entitled to rely on a
specific defence, such as change of position,
should that be adopted by this Court, estoppel or
the compromise of an honest claim, and that kind of
situation is referred to in the Law Reform
Commission Report at paragraph 4.2, where it is
said, under the heading of criticism, that:
the rule contradicts the rationale underlying recovery of moneys paid under mistake of fact
and creates an irrational and artificial
distinction between payments made under a
mistake of law and those made under a mistake
of fact. This means that the rule prevents
equal justice in like cases.

I have already put that to the Court.
Next, we put to the Court that the rule cannot

be supported on policy grounds. The basic
proposition of public policy said to the support

the rule is clearly wrong. I have taken
Your Honours to what has been said about that by
Lord Wright; I have taken Your Honours to

criticisms that have been made of the notion that
every man must be taken to be cognizant of the law;
and I have taken Your Honours to what was said by His Honour Lord Denning in Kiriri Cotton, on that
subject.
I would now go to Iannella v French, (1968)

119 CLR 84 at page 113, which is a criticism or
exposition of the rule made by His Honour

Mr Justice Windeyer. And he commences, at the
bottom of page 112, by reference to what was said
in Plowden's report of Brett v Rigden and what was
said by Hale and Blackstone that :
"every person of the age of discretion is

bound to know the law, and presumed so to do -

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and then the Latin for that expression, and what
Blackstone had to say about that, that it was:
"a mistake in point of law, which every person of discretion not only may, but is
bound and presumed to know, is in criminal
cases no sort of defence".

And that is the reason for it.
The statement that everyone is presumed

to know the law is now strongly
discountenanced -

and he refers to the judgment of the Privy
Council -
on the ground that it is obviously untrue that

everyone does know all the law. But I doubt
whether this was really put forward as a
presumption of fact, rather it was an
irrebuttable presumption of law, praesumptio
iuris et de iure. It meant no more really
than is involved in the rule itself, that no
one is to be excused for wrongdoing on the
ground that he is ignorant of the law.
As was put in an earlier case - a very early

case to which I can give Your Honours the reference
immediately after lunch, it was put there so that
no one could be excused from his own delinquency as
a result of not knowing the law.
Next, the same criticism is to be found or

criticism to the same effect is to be found in
paragraphs 4.3 to 4.6 of the Law Reform Commission
Report, where it is said, under the heading:
The General Rule Cannot be Supported on Policy
Grounds

4.3 The reasons advanced to support the rule
in Bilbie v Lumley are untenable .....

4.4 Two separate but related reasons are
advanced in this terse statement of the

policies underlying the general rule. The
first, namely that everyone is deemed to know
the law, is however obviously spurious.

As it must be.
It is at most a presumption of law -

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and then the authors continue in their criticism,
at the bottom of page 34 of clause 4.4, and say
this:
In the area of recovery of money it is
difficult to see any reason for a legal policy
that should compel the law to treat the
plaintiff as if he or she did actually know
the law.

And, in a further criticism of Lord Ellenborough,
over the page in paragraph 4.5:
Secondly, Lord Ellenborough suggested that the
general rule was necessary because otherwise
there would be a floodgate of litigation.
However, as the Law Reform Commission of
British Columbia has pointed out, to say that
mistake of law would be "urged in every case"
is unsatisfactory in that it confuses the
right to plead a cause of action with the

right to succeed. The paucity of cases coming
before courts in New Zealand, Western
Australia and those jurisdictions in the
United States where the general rule has been
abolished suggests that Lord Ellenborough's
fears are unfounded.

The next point that we put to Your Honours is that the rule lacks a rational basis. That has
been covered by what has been said so far to this
Court and, in particular, the elaborate collection
of cluster of artificial distinction and exceptions
to the general rule and the readiness to label some
mistakes of law as mistakes of fact attest to the
extent of judicial unease about the rule.
Lord Goff in his work on Restitution in the

third edition, identified a number of exceptions to
the rule and these are to be found at pages 123
onwards, and if I could simply list some, in

addition - or shall I put it, in addition to some
already listed by the Law Reform Commission. There
is, of course - and this is apart from what
Lord Goff has said - unequal responsibility where
the primary responsibility lies with one party, as
was pointed out by Lord Denning in Kiriri's case.
Next, where the payment is:
induced by the payee's fraud, oppression,
undue influence or breach of fiduciary -

duty. Lord Goff refers to that at page 124. Where
the payment is made under an illegal contract and
the parties are not in pari delicto, again, at

page 124. Where personal representatives are made
over payments under a mistake of law, they may

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deduct them from other funds due to the legatee in
the future. Again, an attempt to rectify otherwise

the strict application of the rule. Payments made
by an officer of the court, I have already referred
to by reference to what was said by the Law Reform
Commission. Payment of public money without legal
authority: that is referred to by Lord Goff at

page 133. And claims by a next of kin against the
recipient of money paid under a mistake of law,
once again, another exception, and that is referred
to by Lord Goff at page 129 and also at page 573.
This brings me to the next of the reasons why we would advance the proposition that the Court
should now reform this area of law and that is at
paragraph 6.5. Other common law jurisdictions such
as New Zealand, Western Australia and many States
of America have already abolished the rule
statutorily or judicially. Canada now appears to
have abolished it judicially and we have the
proposals of the Law Reform Commission of South
Australia, New South Wales and British Columbia,
and there is, in fact, in Western Australia at
least one case has already been decided under the
Western Australian provision.

MASON CJ:

We will adjourn and resume at 2.15, Mr Spender.

MR SPENDER: If Your Honour pleases.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.18 PM:

MASON CJ: Yes, Mr Spender.

MR SPENDER: If Your Honours please, may I commence by

seeking to come to grips with the Income Tax
Assessment Act as it applies to withholding tax,
and to some questions posed by His Honour
Mr Justice Deane, and in doing so to try and put the scheme relating to withholding tax as briefly
as may be. The provisions at which one commences
is section 128A of the Income Tax Assessment Act,
and the effect of 128A is to include the Bank,
amongst persons who are at all within the
provisions concerning withholding tax -

TOOHEY J:

How did that come in through 128A, Mr Spender?

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MR SPENDER: It comes in the definition, Your Honour.

128A(l) in the definition of:
"enterprise" means a business .....
"entity" means -
(a) the Commonwealth -

et cetera -
(b) a natural person;
(c) a company;
(d) the partners -

and it is on that basis that it comes within, and
also 128B, Your Honour, where it says - - -

TOOHEY J:	Yes, I understand how it comes in there.
MR SPENDER:

A person to whom this section applies ..... the
Commonwealth, a State, an authority ..... or a
person.

Then if one looks to 128A(4), we see that:

In sections -

et cetera, et cetera, et cetera -
and 265, but, unless the contrary intention
appears, not in any other section of this Act,
"income tax" or "tax" includes withholding
tax.

Then if one goes to the operation of
section 128B(2A) and B(2A)(b)(i), the effect of
those provisions is to make income, which is
received by the Bank at its overseas establishment,
from a person who derives income in Australia,
income to which this section applies. Then, by

128B(5): A person who derives income to which this
section applies ..... is ..... liable to pay
income tax ..... at the rate declared by the
Parliament in respect of income -
and that is the Bank. Then, Your Honours, if one
goes to the collection of withholding tax - here we
deal with the imposition - that is dealt with, to begin with, in section 221YJ, under Division 4 of Part VI of the Act, which says, in 221YJ:
The object of this Division is to facilitate
the collection of withholding tax, and this

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Division shall be construed and administered accordingly.
In section 221YK(l) there was definition of

"interest". Then one goes to section 221YL and to
the combined operation of subsections (2D), (2E)

and (2F). The combined operation of those
provisions, we submit, requires the lender - that
is the Bank - to notify the borrower - the
appellants. That is, section 221YL(2E) applies to

the transaction. Where the borrower so notified,
the borrower will make an appropriate deduction.
Then, in respect of payment, section 221YN

requires a deduction to be forwarded to the
Commissioner:
within 21 days after the end of the month in
which the deduction was made -

and notification of the deduction to be made to the
Commissioner. Then, Your Honour, section 221YQ
provides:
(1) Where a person has refused or failed to
make a deduction ..... in accordance with
section 221YL ..... that person is liable to pay
to the Commissioner -
(a) an amount equal to any unpaid withholding
tax -

Secondly, if unpaid withholding tax under (l)(a) is
paid to the Commissioner:
that person may recover an amount equal to
that amount from the person liable to pay -

and there is provision made there for a credit.
Lastly, section 221YR, which provides that unpaid withholding tax:

under the Division by a person is a debt due
to the Commonwealth and payable to the
Commissioner -

and also section 221YS:

A person whose income includes -

income -
from which a deduction has been made ..... is
entitled to a credit -

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Then, in 221YT, that credit is a debt due to the Commonwealth and the Commonwealth can apply it
in:
discharge of any liability to the
Commonwealth -

under the Act.
In the present case, if one looks to what took

place, and to summarize there is an imposition, and
there is a collection procedure, and the
collections are sometimes not envisaged to take
place - under the collection procedure, frequently
it will be the case that the person who pays the
interest is the person who makes the payment
because that is the person who withholds.

TOOHEY J: Well that would be the ordinary situation, would

it not?

MR SPENDER:	Yes, one would think so, Your Honour.
TOOHEY J:	But in this case, if your clients had borrowed

money from an overseas company, it would have been
their obligation to withhold withholding tax and
account for it to the Commissioner.

MR SPENDER:	Yes, Your Honour.
TOOHEY J:	But you say that is not the situation here.

MR SPENDER:

What has happened here - let us assume, Your Honour, that there was no clause 8(b).

What

we would have in simple terms would be that the
borrower would pay an amount equal to 10 per cent
of the interest to the Commissioner and would remit
90 per cent to the Bank and there would be a credit
in respect of the Bank for the 10 per cent which
was payable by the Bank itself which can then be
set off.

Under clause 8(b), as we would understand the
operation, it works in this way. Notionally, the
Bank discharged the obligations of the borrower to
withhold. The borrower was obliged to gross up and
so the result was that the Bank got a reimbursement
of a full 100 per cent, so that instead of being in the situation where the Bank gets 90 per cent, as a result of the grossing up provisions, it gets
100 per cent and that, we say, is contrary to the

clear intent of section 261. The provision was
void and it amounts, we say, to unjust enrichment
and the details of the payment, Your Honours, are
to be found in - - -

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TOOHEY J: Could I just ask you this, Mr Spender. Who was

the non-resident in this case?

MR SPENDER:

The only person who could be regarded as a

non-resident was the branch of the Bank itself.

TOOHEY J:

What sort of entity was that?

MR SPENDER: It is a branch, Your Honour.

TOOHEY J:

But if you look at the document, it is a

transaction between David Securities and the
Commonwealth Bank of Australia, whose address is identified as Raffles Place in Singapore.

MR SPENDER:

I do not think, Your Honour, that the non-

resident branch position is directly relevant. I
may be -

McHUGH J:

You do not have to have a non-resident, do you,

because of the definition in 128B(2A)(b)(i)?

MR SPENDER:

The problem perhaps arises in 128B(2A),

Your Honour.

McHUGH J: Subparagraph (b)(i) seems to cover it. I thought

it was:
where income -
(b) consists of interest that -
(i) is or has been paid to the person by
another person to whom this section
applies

MR SPENDER:

And then it goes on to say:

this section also applies to that income or to
the part of that income so derived, as the
case may be.

But so far as the operation of - - -

McHUGH J: You have got to come within paragraph (a).

has to be:
by a person carrying on business in a country
outside Australia at or through a permanent
establishment of the person in that country;
and
(b) consists of interest - - -

MR SPENDER:

Permanent establishment of that person in that

country, yes. The overall result, therefore, is in
simple terms, instead of retaining 10 per cent and

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paying 90 per cent, we paid effectively 110 or
111 per cent so that, contrary to the intent of
section 261, the Bank was to receive the whole of
the interest payable to it, less any deduction. So
by that means the obligation of the Bank was funded
at greater cost to the borrower.

GAUDRON J:

Mr Spender, is what you assert to be your right

to recover this money affected in any way by
whether or not the Bank was liable for this
interest?

MR SPENDER:	No, Your Honour.
GAUDRON J:	On your argument it is wholly irrelevant?

MR SPENDER:

It does not matter one way or the other.

The

Bank is, of course, liable. The withholding tax is
a mechanism for collection. The imposition is on

the Bank. As a matter of convenience the
withholding tax is usually, ordinarily, payable by
the person who makes the payment, because that is
the way to make sure that the money is in fact paid

to the revenue. But it does not matter to us one
way or the other.

GAUDRON J: Yes.

They are unjustly enriched because they

have got money which they should not have got,
whether or not they were liable to pay it to the
Commissioner.

MR SPENDER:

Precisely, Your Honour. And they can hardly

say that a liability to pay money to the
Commissioner and the discharge of that liability
assists them in any way at all, we say.
Now, the details of the payment of withholding

tax are in fact included in the documents in the
appeal book, and I should have referred

Your Honours very briefly to them. They are to be
found at page 138. That is in the first volume.

Just by way of example, take the first of the
details on page 138 - and there are a number of
pages - you start off on the left-hand side, one
sees the date, obviously the date of the loan; the
term; the next maturity date; then we have the
details of the transaction:
Drawdown AUD 850,000.00 in Swiss Francs -

then the currency amount in Swiss francs; then the
actual exchange rate; the interest rate; then the
interest due; then the interest payment date; then
again the actual exchange rate and the Australian
dollar equivalent of the Swiss francs interest
amount due; and on top of that one has withholding
tax; and you will see there is a rough

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correspondence of 10 per cent, although it is
probably closer to 11, when you look at the
Australian dollar equivalent of interest due of
$35,640 and the withholding tax of $3960.

McHUGH J: These drawdowns were on the Singapore branch,

were they, which then put the Australian branch in

funds?

MR SPENDER:	I can only say, Your Honour, that I presume so.
DEANE J:	What did the Singapore branch have to do with you?
I mean, they put a Singapore address in, but these

arrangements were all made in Australia. So far as
you were concerned all the payments were made in
Australia. Nothing was derived by the Commonwealth
Bank in Singapore. It was all derived here.

MR SPENDER:

One would think not, Your Honour.

One would

think not, but I can offer no answer to that. It
was not a matter which was examined so far as I am
aware in the course of the hearing as to the
reasons why it was set up in that fashion.

DEANE J:

The furthest we can get would seem to be

Mr Emmett's suggestion that somehow in a
contractual arrangement between two parties one
party acts as agent for the other in dealing with
itself.

MR SPENDER:

Yes, Your Honour, that is so.

DEANE J: It is all very strange, is it not?

MR SPENDER: It is a little odd, Your Honour, yes.

Your Honours, could I now refer, going back to
where I was and just before I pick up the balance
of the argument which I believe will not be long,
to two authorities that I said that I would: first
of all, an old authority on delinquency, which was
what was said in the case of Brisbane v Dacres, 128

ER 641, by Justice Chambre, where he said at
page 647 - and the facts of the case, I think, are
necessary to refer to:
I never heard of the several parts of that case -

referring to Chatfield v Paxton -
till now, but I think there are sufficient
authorities to say this person has paid this
money in his own wrong, and that it may be
recovered back. In the case of Bilbie v
Lumley there was a letter said to have been
concealed, that ought to have been disclosed:
this letter was shewn to the underwriters, and

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they after reading it, thought fit to pay the
money. Now there the maxim volenti non fit
injuria applies: in that case all argument
was prevented by a question put by the Court
to the counsel -

and that is a reference to the question which was
put by Lord Ellenborough to Mr Park, as he then
was.
I am not aware of any particular danger in
extending the law in cases of this sort, for
they are for the furtherance of justice;
neither do I see the application of the maxim
used by Buller Jin the case of Lowry v
Bourdieu ... .. ignorantia juris -

et cetera -
it applies only to cases of delinquency, where
an excuse is to be made.

And that, we submit, is, of course, the true
rationale for the rule and one other brief
reference, Your Honours, to the decision of the
Supreme Court of Canada in Hydro Electric
Commission v Ontario, and there is just one very
short passage that I wish to read to Your Honours,
and I think I omitted to do that. It is to be
found at page 208 point 10, and it is directly
after a reference to that most unfortunate
doctrine, as Judge Learned Hand called it. After a
quotation from what the Chief Justice
Lord Mansfield had said in Bize v Dickason,
Mr Justice Dickson said this:
This principle of Lord Mansfield seems to

have been transformed into the proposition
enunciated by Craig Jin this case that "money
paid voluntarily (and not paid under protest)

under a mutual mistake of law is not

recoverable". Such a proposition is simply

untenable. Money paid under a mistake of law
(or fact for that matter) would rarely be paid
under protest; the parties under a mutual
mistake of law assume that the money is, in
law, due and owing.

And we say that our case fits squarely into - - -

GAUDRON J:

Does that not suggest an aspect that goes to the

defences which you say may be relevant? If the
parties assume it is due and owing, then the
recipient assumes that it is hers to do with what
she will.

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MR SPENDER: That could be so, Your Honour, depending upon

the circumstances of the case.

GAUDRON J: Well, it may then be very relevant to whether

there is an onus, in terms of your argument, on the
claimant to establish that it resulted in unjust
enrichment or was not disposed of, perhaps, on an
assumption that otherwise would not have been made.

MR SPENDER: Well, Your Honour, the plain purpose of

clause 8(b) was to fund the payment of withholding
tax and to make sure that the Bank got 100 per cent
rather than the 90 per cent which the legislation
intends. Now, there could be cases where one, on
examination of the facts, might conclude that a
defence has been raised by reason of the kind of

matter that Your Honour has referred to. But that
could never apply when the only purpose of the
exercise was to put the Bank in funds for making a
payment to the Commissioner of Taxation to
discharge a liability imposed on the Bank by the
Income Tax Assessment Act.

GAUDRON J:

But if you put it like that, the proposition for

which you are contending seems not to be a tearing
down of the pillar but a proposition that where it
results in unjust enrichment it is recoverable.

MR SPENDER:

We put it both ways, Your Honour.

We would put

it on the basis that it is recoverable if the
pillar is torn down. Alternatively, we would put
it on the basis that anyway you look at it it
amounts to unjust enrichment given what happened
and given the intent of the legislature as
against - in section 261.

BRENNAN J: Well now, that is two bases which you have last

put: given what happened and given the intention
of the legislature.

MR SPENDER:

Yes, Your Honour.

BRENNAN J: Is there anything to be extracted from those two

which can give content to this notion of unjust
enrichment?

MR SPENDER:

In our submission, there is, Your Honour. When I say "given what happened'' given what took place

pursuant to the supposed contractual relationship

provided by clause 8(b) and, as I put to

Your Honours, I think, on a number of occasions,

the effect was that instead of getting 90 per cent,
as the legislature intended, the Bank got 100 per

cent, as the legislature not only did not intend

but said that any such agreement was void.

We say

that consequently the Bank was unjustly enriched

and that the argument in support of that is

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buttressed by the fact that if one looks to the
legislative intention, the legislative intention is
that this should not happen. And when one looks to
the yardsticks by which you may make a judgment
about whether unjust enrichment has taken place,
one of the yardsticks, we would submit, is surely
the intention of the legislature in so far as that
has been expressed in an Act of Parliament.

BRENNAN J: Well, perhaps I should confess to having some

difficulty with giving content to the notion of
unjust enrichment. You see, I suffer from that
disadvantage and if one says that there is - leave
aside defences: estoppel or change of position or
whatever, they are familiar across the board, but
looking at the cause of action of unjust
enrichment, if that is not a too archaic term, what
is it that makes an enrichment unjust on your
submission? Is it the receipt of money which is
simply not legally payable?

MR SPENDER:

Yes, Your Honour.

BRENNAN J: Is there anything else?

MR SPENDER:

One, the receipt of money which is not legally

payable and there could be many cases where that
could be so, and two, the receipt of money which is
not legally payable contrary to a legislative
intent that the money should not be received and we
would, therefore, advance both those propositions,
Your Honour, in support of the main proposition
that we have advanced. If I may now, Your Honours,
go to -

DEANE J: But it is not legally payable, is it? Is it not

the receipt of money by mistake. If it is a
mistake of fact, it is settled law that the prima
facie position is it is received to the use of a
payer and has to be refunded?

MR SPENDER:	Yes, Your Honour.
DEANE J:	The query is, when the mistake of fact is about

what is the legal position such as a mistake to the
effect that no section 241 exists, whether that is
for relevant purposes and because of authority, a
different situation.

MR SPENDER: Authority, Your Honour, seems to compel one to

say -

DEANE J: Yes, I was not suggesting that you go back to the

cases, but I mean the cases do establish that there
has been seen at common law a distinction and for
one reason or another, if it were a mistake of law,
even though you can regard a mistake of law as a

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mistake of fact, that was not good enough. The
query is whether that should remain the law.

MR SPENDER: That is so, Your Honour.

McHUGH J:

At the luncheon adjournment, my brother Deane

referred me to South Australian Cold Stores Ltd v Electricity Trust, 98 CLR, the facts of which are
almost identical with an illustration I put to you
this morning about rates, but they are electricity
rates, and there this Court held that they were
not recoverable because the Court said 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 law and it was held that it was
unenforceable, that it was irrecoverable, the
money could not be recovered.

MR SPENDER: Yes. Well, in that case I think I briefly

referred to it, certainly, I believe, on the list

of authorities in our submissions. As Your Honour
said, it was held that the consumer was prepared to
make the payments. It sought to recoup without
investigation, and what I put to Your Honours is,
whilst it is not necessary for the purposes of
succeeding in the instant argument because of the
factual and legal context of the instant argument,
it does seem to us, and we would put to this Court,
that those kind of cases are inconsistent with the
approach that the Court has taken in recent times,
in Pavey v Matthew and the like, to the notion of
unjust enrichment because there you have a consumer
who in reliance upon government authority says,
"I'll pay", which is the position of almost every
consumer. People do not go round and get taxation
advice or legal advice because they have received a
bill, even if it is a large bill. They usually
say, "Well, there you are. It comes from a

government authority. I presume that the
government authority is acting properly, I'll pay

it".
We would put to Your Honours that it might be

understandable, perhaps, in simpler times and it
might be understandable before the doctrine of the
Court was changed, the Court's understanding and
approach to the basis for recovery of money paid
was changed, but it is surely, we would submit,
inconsistent with what the Court has been saying
about unjust enrichment. After all, the government
can be enriched unjustly. A local authority can be
enriched unjustly, just as can a business, a
company, or a private citizen.
There was one passage, Your Honours, that I

should have referred to in Lord Wright's judgment

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in the Fibrosa Spolka Akcyjna case, (1943) AC 32,
and the judgment of Lord Wright commences at
page 61, and this is a judgment which has been
referred to in many jurisdictions, in Canada; here,
of course; where he starts off, after the first few
sentences and says that:
It is clear that any civilized system of law
is bound to provide remedies for cases of what
has been called unjust enrichment, or unjust
benefit, that is to prevent a man from
retaining the money of or some benefit derived
from another which it is against conscience
that he should keep.

And he says that:
Such remedies in English law are generically
different from remedies in contract or in
tort, and are now recognized to fall within a
third category of the common law which has
been called quasi-contract or restitution.

And he refers then to the "root idea" as being
developed by the Lords of Appeal, and to what
Lord Sumner said, referring to Kelly v Solari:
where money had been paid by an insurance
company under the mistaken impression that it
was due to an executrix under a policy which
had in fact been cancelled ... "There was no
real intention on "the company's part to
enrich her." Payment under a mistake of fact
is only one head of this category of law -

And we would say that where there is a payment made
under a mistake of law, be it common or unilateral,
then that payment is a payment which is not
intended in the sense that there is no intention to
enrich, in this case, the Bank.

Your Honours, may I now return to the balance

of the written submissions, and to go to
paragraph 6.6, and I think before lunch I had
reached the end of 6.5, and say this, that we would
say that it was plain that abolition of the rule
would not upset precedents, that people do not
arrange their affairs upon a misapprehension of the
law; people do not arrange their affairs on the
supposition of windfall profits from others due to a mistake of the law and, indeed, if they did, and if they so organized their affairs, they should not
benefit from it.

GAUDRON J: But they might organize their affairs on the

basis of a belief that they have received what they
are entitled to, which seems to be the rationale

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behind the distinction between mistake of fact and
mutual mistake of law.

MR SPENDER:

I would answer that, Your Honour, by saying

that the rationale between a mistake of fact, be it
mutual or unilateral, of course the mistake may be
on the side of the payer only, or it may be on the
side of the payer and the payee, and of payments
where the mistake is unilaterally or mutually that
of the payer and the payee as to the law. Really

it amounts to two sides of the same coin. Had
Lord Ellenborough not intervened in the way in
which he did in Bilbie v Lumley, and given the way
in which the law had generally been understood
before that, what had been said by De Grey, for
example, and the other justices only a few years
before that, then one would apprehend that the law
would have developed in a way which was quite
different to the way in which the law did develop.

GAUDRON J: But, for example, in this case, Mr Spender, why

should we assume that the interest rate would have
been precisely as specified in the contract if the
Bank had for one moment thought that it was
ultimately going to be the one liable for the
10 per cent withholding tax, without right of

recoupment? You see, we make a very big assumption
about this, I think.

MR SPENDER:

As to that, I would say, Your Honour, that one does not need to make any assumption one way or the

other.

One, for example, looks at the case of

Lord Denning's, the case in 1960, which is in that

sense on all fours in terms of an example, because
the complaint was made - Kiriri Cotton v Dewani,

(1960) AC 192, the complaint was there made by the

appellant that here was an action brought by

someone who was seeking to get back key money, and
that person was in possession and was maintaining

possession of the premises, and the policy that
underlies it, we would put, is that it is not open

to you, in those circumstances, to say, "Well,

look, you've got to assume that we would rewrite
the contract" .

On the contrary, I would put it to Your Honour

that the assumption or inference to be drawn is
that if one goes to the Bank and says, "Look, we've
had a look at section 261. This is what it says.
What you're doing is contrary to section 261.
You've struck the rate by reference to international rates, whatever they are, and you

should abide by it". The Court should not infer
that the Bank would say, "Well, that's wrong, and
because we have to abide by the law we're going to
increase your interest rates". Of course, that matter did not arise, but we would put that the

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Court should not infer that. And it would be
contrary to the approach taken in Kiriri Cotton and
would, in many ways, undermine the whole rationale,
because councils could say, "Well, look, had we
known that this rate was in excess of our powers,
then we would have done something else", and we
would put to Your Honour that - - -

GAUDRON J: That is always difficult of proof.

MR SPENDER:	Of course it is, Your Honour.
GAUDRON J:	What you are doing is converting what might be a

difficult area of law into an equally difficult
problem of evidence.

MR SPENDER: It would, in the end, Your Honour, come down to

a question of one, is there a defence based upon
proper considerations of estoppel and the like,
possibly changing your position bona fide as a
result of this; and two, proving those matters.
And whilst there are difficulties, they would be
difficulties, no doubt, in many cases, that is
something which happens, I would put to
Your Honour, every day of the week in cases, be
they cases for return of money based upon mistake
of fact, negligence cases, or anything else, and
that the Court should not be concerned about such
notions as evidentiary difficulties, nor the
floodgates proposition which is always relied upon
when a change of the law is sought. It is rather
like the Latin maxim that the heavens are going to
fall if things change. Well, the heavens almost
never do fall, in our submission.
Could Your Honours then go next to what we say

in 6.7, and that is perfectly - I have really said
it before and I would not add anything to it,
except to give Your Honours the reference to a case
in Western Australia of Inn Leisure v Mccloy, which

I believe is on our list of references, which is a
decision of Mr Justice French reported in (1991)

28 FCR 151. The only reason I refer the Court to
it is, apart from some examination of the rule that
is presently under consideration, it contains the
Western Australian provision which has been enacted
and which, as has been said earlier in one of the
works to which I referred Your Honour, there has
not been - it was the Law Reform Commission of New
South Wales - there has yet to be a floodgate of
litigation opening up as a result of statutory

changes. And we would put to the Court that it
would be a very much better thing if the law was
changed by this Court to apply throughout the
nation rather than piecemeal and slowly by
different law reform commissions and different
governments moving at different paces.

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I think, Your Honours, that what has been said in paragraph 7 I have already covered and I will
pass up to Your Honours copies of the draft bill of
the Law Reform Commission of New South Wales which

is very short. I will not take Your Honours to it,
but it may be thought to be of some use when the
Law Reform Commission's Report is examined. Next, if I can, Your Honours, I will go to the
secondary submission which, to an extent, has
already been covered by what I have said on the
evidentiary matters, and also in relation to Kiriri
Cotton, and that is that if the rule is to be
upheld then, in our submission, we fall within in
the kind of exception referred to in Kiriri Cotton,
to which I have already taken Your Honours, where
amongst other things, at 204 of that judgment, for
the following reasons: first of all if the
provisions of section 261 are protective of

borrowers and we put it to Your Honours that that
is perfectly plain and that appears in the reasons
given by the Full Court at appeal book page 344,
line 18. Secondly, that the operation of the
relevant provisions of the Act and its application
are highly complex matters, which depend on facts
relating to the Bank's internal arrangements as
appears from the documents in evidence and in
particular the internal memorandum relating to the
arrangements concerning withholding tax which were
not, and could not have been, known to the
appellants.
The Bank, of course, structured the agreement,

structured every word of it, including the
provision of clause 8(c), which provided that a
breach of clause 8(b) was not to be considered a
breach of the agreement, which might make one infer
that the Bank was well apprised of the
possibilities of some problems in respect of
section 261. We put to Your Honours that the Bank
would certainly have had the benefit of expert tax

that when the representatives of the appellants advice and it was part of the evidence, of course,
went to the Bank at the first instance they were
advised by the Bank to take accountancy advice and
in fact the bank manager nominated a person that
they should visit and they did in fact visit that
person and take some advice from that person.

I have already taken Your Honours to exhibit 65 and I have already taken Your Honours to
the fact that the Bank informed them, not just
pursuant to clause 8(b), but on a number of
occasions in the evidence that they were obliged to
pay withholding tax, and Your Honours will recall
one letter which in fact nominates the amount which

was payable by them. We put, therefore, that when

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one looks at the whole of the evidence it is not a
question of simple unthinking acceptance but it
resulted from repeated and positive assertions by
the Bank that this money was payable by them and by
an organization which well understood and would
have to understand by the nature of its business
the ramifications and procedures and liabilities in
respect of withholding tax.
Accordingly, we say that as between the Bank

and the appellants the Bank is primarily
responsible for the mistaken payment. If
Your Honours are against the major proposition that
we have put, then the amounts paid, together with
interest, appropriately should be refunded to the
appellants.
Those are the submissions, Your Honours, which

we wish to put.

GAUDRON J:	Mr Spender, can I just go back to your relief that the amount should be refunded. Perhaps I am wrong but I had understood you to say that there
might be defences which, true it is, have not been pleaded or, presumably, have not been pleaded
because of a view of the law. Is it really the right result for this Court to order a refund of the money rather than set aside the decision so far as it would preclude a ventilation of the issues?
MR SPENDER:	As to that, Your Honour, there could well be

cases, as I have said, where there would be
defences and I have instanced estoppel. But, on
the facts of this case, I would ask the question
rhetorically, if I may, that is - I appreciate it
is almost always dangerous to ask such a question -
what further evidence could be put in amelioration

of the Bank's position? The answer to that is that
all it could say is that it paid its income tax
obligations which, as I put to the Court, is no

answer at all.

GAUDRON J: But they might say, as I. have said, "but for

that the rate of interest would have been
different".

MR SPENDER:

As to that, Your Honour, I would answer it by

saying that, one -

GAUDRON J:

But it is not a question of how you answer it;

it is a question, should they be denied the

opportunity of saying it? I mean, ultimately, that
must be a question of fact whether or not they did
do that and the question is, "Can there never be
some such defence to that effect?"

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MR SPENDER: Well, Your Honour, given that the Parliament

has said that the provision should be void, from
that we would ask the Court to infer that had that
been squarely put to the Bank and said, "Well, now,
look, this provision is contrary to section 261 and
we have already struck a deal upon the interest
rates, you must concede that if we do what we are
required under the law to do, that is to withhold
and thereby satisfy the obligation, all that you
should get is your 90 per cent".

GAUDRON J:

But they may say, again, for example, "Had it

been brought to our attention we would not have

rolled over the loan". I mean, even if they could
not make good a proposition that they would have
charged a different interest rate, it might easily
be made good that they would not have rolled it
over.

MR SPENDER:

Your Honour, as to that, it is a question, I

suppose, of how the evidence lies and the
inferences to be drawn.

GAUDRON J: There is no evidence because the case was

conducted - at least until this Court - on the
basis of clearly established legal principle.

MR SPENDER:

The question of mistake of law or it being a

primary responsibility argument was, of course,

advanced in front of the Full Court. I should say
immediately that I have not referred to the
judgment of the Full Court; not out of any
disrespect for the judgment which, in the instant
matter, we support entirely subject to the one
qualification about the primary responsibility
argument but, of course, I assume that the Court
would have read that. Unless there is any part of
the judgment on this issue that is of particular
interest, I would not intend to go to it.

As to the question put by Your Honour, in

effect, as to whether it should go back for
argument upon that point, I do not think that I
could say much more save for the fact that they
took their chances on the situation which faced

them that they had security. We are aware of that.

GAUDRON J:

One could understand your saying that in a case

where what is involved is not the overturning of
settled principle. It does seem to me a little odd
to say you can - I mean, there may be all sorts of
reasons why a settled principle should be
overturned, but it does seem to me to be a little
odd that if one is about to overturn it that one is
not at least obliged to give the people who fought
the case on the basis of settled principle to fight
it on the basis of new principle.

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MR SPENDER:

Could I answer that only by saying this,

Your Honour - I think I have already put it, and so
I doubt that it is going to be improved by putting
it again - but here we have a very respectable
organization, a very large one, carrying on
business in this country, owned at that time wholly

by the Commonwealth Government. Now, I put it to
Your Honour that it would be a very curious
situation, and that the Court should not infer that
that organization, when being confronted with its
obligation to abide by the law as a wholly owned
government body would then say, "No, we are not

going to abide by the law. We are going to get it

from you another way. We are going to jack your
interest rates up, call it something else, but
effectively what we are going to do is extract just
the same amount of money out of you, but do it
under colour of a different obligation." And I put
it to Your Honour that that would not be an
inference that the Court would draw.
There is nothing further that I can add on

that, and for those reasons we would ask that the
appeal should be upheld.

MASON CJ: Thank you, Mr Spender. Yes, Mr Emmett.

MR EMMETT:

I fear that there are two issues less heady than

the ones we have been addressing hitherto that have
to be dealt with before we deal with what might be

seen as the more interesting issue. They are the
two matters raised in the notice of contention, but
which logically have to be decided in favour of the
appellant in order to get to the question of
whether or not there is a basis for changing
settled principle as to mistake of law.
The first question, Your Honours, is whether

or not section 261 applies to the arrangements
between these parties in the first place, and our

will develop in a moment. Second, we say if submission is that it does not for reasons that I
section 261 does apply, then there must be, in

order to succeed on the mistake of fact basis, some evidence of a mistake. There was no finding by the
trial judge of a mistake for reasons which we will

explain. The Full Court inferred a mistake in
circumstances which, in our submission, constituted
an error of principle - - -

MASON CJ:

Mr Emmett, do you have an outline of submissions?

MR EMMETT:

I do, Your Honour.

I was hoping Your Honours

would not be distracted from what I was saying by

reading it, but I will hand it up. I was just
endeavouring to indicate the propositions that we
are endeavouring to develop.

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If I might just continue on with what I was

saying. The second proposition is that in
circumstances where the very witnesses who might
have been able to give evidence about a mistake was
silent in the witness box, no inference should be
drawn in their favour as to a mistake. In other
words, extending the Jones v Dunkel principle, not
only to where a witness is not called but where a
witness is called but fails to give evidence on the
relevant subject.
There is some authority at lower levels in support of that proposition but it does not seem to
be a proposition upon which this Court has
expressed any view. There are American
authorities, however, that we would take
Your Honours to.
One then gets to the third question, that is,

mistake of law, mistake of fact dichotomy, and we
say in relation to that, first of all, that
dichotomy is well established and Your Honours
should not interfere with it. In other
jurisdictions it has been thought desirable to do
so only by a means of legislation. If,
notwithstanding that, Your Honours think that the
principle is a bad one, then Your Honours cannot

simply knock it down. Your Honours must put
something in its place, and if Your Honours are
disposed to interfere with the principle, what goes
in its place must be related in some way to a
notion of unjust enrichment. There will be no
unjust enrichment where the payment has been made
for good consideration, that is, the consideration
has been accepted by the payer and it is impossible
to give restitution. In those circumstances, the
payer must be taken to have made the payment
voluntarily and he is not entitled to recover.
Alternatively - and this may be just a

subcategory of that notion - in these circumstances
the Bank has changed its position relevantly, or
even, it might be said, in this circumstance where
there is a mistake of law rather than a mistake of
fact, it may be put on the basis that the Bank is
presumed to have acted to its detriment, or
presumed to have changed its position upon receipt

of the moneys. So that, in effect, there are three
issues and within the third issue raised by the
appeal there are some subissues.
Can I start with the first question, that is,

section 261. In order to put section 261 in
context, can I take Your Honours to the agreement,
a relevant specimen of which appears at page 82 in

the appeal books. My learned friend has taken
Your Honours to some paragraphs. There are some

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other paragraphs which, in our submission, need to be considered in order to determine whether or not
section 261 strikes on this instrument.
First of all, there is a definition on page 82

of the word "advance":
each amount drawn under this Agreement ..... and
each drawing subsequently renewed -

so an advance is a drawing or a renewal of a
drawing. Availability period may be relevant. It
is:
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.

Interest period is defined on page 84:
means subject as provided herein a period of
three or six months as selected or deemed to
have been selected by the Borrower in
accordance with Clause 2(a) and (d) of this
Agreement or such other period as may from time to time be requested by the Borrower and
approved by the Bank.

So, the borrower, it is, who chooses the period for any advance. There is a proviso at the end of that
definition to the effect that:
no such Interest Period shall extend beyond
the Availability Period.
Clause 2(a), page 58:
The Borrower may from time to time during the

Availability Period apply to drawdown Advances
and it will by notice -

passing over two lines -
nominate the amount in Australian Dollars and
the currency of the Advance, the date of the
Advance, the duration of the Interest Period -

so the borrower is given the option of giving
notice that he wishes to drawdown and he is
required to indicate his election as to the period
of the particular advance. Paragraph (d) on
page 86:
Subject to -

a proviso which is not relevant -

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an Advance may be renewed at the end of each

interest Period. The Borrower by notice -

leaving out two lines -
may nominate the duration of the next
following Interest Period -

in the last sentence -
If the borrower fails to give such notice -

then he is -
deemed to have selected the same duration.

So, again the borrower is given the option of
choosing the duration of each advance.
Clause 3(a):
The Borrower will pay interest on each Advance
at the end of each Interest Period in respect
of that Advance.

So interest is paid in arrears, at the end of the period chosen by the borrower. Ultimately
repayment is to be effected under clause 4(a):
at the end of the Availability Period.

Bearing in mind that the availability period may be such earlier date as the Bank, in its absolute
discretion, may determine.

BRENNAN J:	What is the currency of repayment?
MR EMMETT:	The currency of repayment is the currency of the

advance, and that is dealt with in clause 6, which

I am just about to come to. The scheme is the
first drawdown is in the currency nominated by the

borrower, at his election; it can be any of the
currencies that are approved currencies, and at the
end of each interest period, clause 6 operates and
the borrower either renews the loan in the same
currency or he chooses to switch into another

currency. I am sorry I have passed over it - and
now for the specific question Your Honour put to
me: the advance is repaid in the same currency as
it is provided in clause 4(b) on page 87:
Each Advance, all interest and any other
moneys ..... shall be repaid or paid in the
currency in which such Advance is denominated.

Then going to clause 6 which deals with the question of renewal. Clause 6(c) deals with the option of renewal in a different currency:

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If an Advance is to be renewed as from any
Interest Date ..... in a different currency -

then certain steps are to be taken, involving what
is referred to in the judgments and the evidence as
the parity adjustment. If there has been an
adverse movement in the rate of exchange, between
Australian currency and the currency of drawdown beyond five per cent, then there was a requirement
of, what was referred to as, a parity adjustment,
by the borrower, so that the Bank's security would
not be eroded by reason of its security being in
Australia and designated in Australian currency,
whereas the liability in foreign currency would, in effect, increase by reason of that adverse movement in the exchange rate.

McHUGH J: It did not work the other way.

MR EMMETT:

No. Although there was a debate about all of

that, Your Honour, which does not have any bearing
on the position now before Your Honours.
Clause 6(d) on page 90 deals with the same

procedure if there is to be a renewal in the same
currency. Then one comes to clause 8 and,
relevantly, 8(b) and 8(c), and the respondent does
not endeavour to avoid the proposition that these
provisions are included with section 261 of the
Income Tax Assessment Act in mind.
All interest payments hereunder shall be paid by the Borrower to the Bank without deduction
..... should the Borrower at any time be
compelled by law to deduct any such taxes -

and, for the reasons that my learned friend
indicated to Your Honours after lunch, there was in
fact a compulsion on the borrower to deduct taxes
because it was a payment being made to the Bank in

its Singapore capacity. That is, the Bank was
carrying on a business outside Australia and, for
the purposes of certain provisions of the Income
Tax Assessment Act, an Australian resident who
carries on business outside Australia is deemed, in
effect, to be a different taxpayer. That is the

effect of the provisions. So there was a
compulsion, and in which case:
The Borrower will pay such additional amounts
as may be necessarsy in order that the net
amount received shall equal the full amount
the Bank would have received had a deduction
not been made.
The second limb then deals with the tax on

that amount, the net result of which, by a

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mathematical formula, means that in order for the
Bank to be in the position it would have been in if there was no compulsion to deduct the tax, is that
you add on 11.1 per cent.
Paragraph (c) is very significant, in our

submission, because it provides that a failure to
comply with the provisions of clause 8(b) does not
constitute a breach of the agreement or an event of

default. However, if the borrower fails to do what
clause 8(b) contemplates, then notwithstanding that
the failure does not constitute a breach, and
notwithstanding that the failure does not
constitute an event of default, the Bank is not
obliged to renew any advance - leaving out the
bills option.
So that, effectively, at the end of each six

monthly period or whatever period the borrower
chose, he could have said to the Bank, "I don't
want to pay the withholding tax". The Bank was

entitled to say, "Well, that's very well. We can't

compel you to do that. However, we're not going to

renew the advance". And, of course. the borrower
wanted to have its advance in Swiss francs, the
rate of interest in respect of which was very
favourable compared with Australian interest rates.
I will come to that question when I come to deal
with - - -

McHUGH J:

But if you are wrong about this construction

point, then the way this clause is drafted, and
your admission that clause 8 was drafted with 261
in mind, makes it very difficult to equate this

case with the ordinary mistake of law case. I
mean, you really knew what you were about and you
were doing everything that you could to avoid the
operation of section 261.

MR EMMETT:

Your Honour, I do not think we can avoid that

conclusion. This was not put in by accident, it

was designed to achieve that result. We contend that we were in successful doing that. If we are
wrong, what flows from it is a different matter,
but that does involve some of the subsequent

questions. But I agree with what Your Honour has
put to me.

Your Honours, that then is the structure of

the agreement which one must consider in the light
of section 261. Section 261 only applies to what

is a mortgage within the meaning of section 261.
It is patently clear from looking at the instrument
which appears at page 82 and following that that is
not a mortgage, it is simply a loan agreement, a
facility agreement.

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DEANE J: There is no relevant definition.

MR EMMETT:

There is a definition, Your Honour, and that is

what - - -

McHUGH J: Subsection (5).

MR EMMETT: Subsection (5) of section 261, that is really

the issue. That is the basis upon which the Full
Court concluded that this document was deemed to be
a mortgage by the operation of subsection (5).
That is the first question that we complain about.
There are some sub-questions within this construction of questions in relation to
section 261. Subsection (5), as Your Honour
Mr Justice McHugh observes, may catch instruments which would not, according to ordinary precepts, be regarded as mortgages:
"mortgage" includes any charge, lien or
encumbrance to secure the repayment of money -

This instrument does not fall within any of those expressions, but it also includes:
any collateral or supplementary agreement.
The Full Court held that it was a collateral

agreement, collateral to a mortgage. The mortgages
are not in the appeal books. There was some
discussion amongst the parties to see if legible
copies of them could be found; fairly illegible
copies were in the appeal books before the the parties will make available to Your Honours

forms of the mortgage. I think I am fair in saying
it would be common ground that the mortgage simply
secures all indebtedness owing by the mortgagor to
the mortgagee. There is no mention in the mortgage
of this instrument as such. Indeed, one of the

mortgages was granted before any of these loan
agreements came into existence and what we say,
primarily, Your Honours, is that whereas the
mortgages may, in certain circumstances, be
regarded as collateral agreements in that they
secure the primary obligation created by this loan
agreement, this loan facility agreement is not in
any sense collateral to the mortgages nor is it
supplementary to the mortgages.

DAWSON J:	What does collateral mean?
MR EMMETT:	The Full Court relied upon something said by the

Supreme Court of Victoria, that says collateral
means side by side. That was said in the context

of liability under the Victorian Stamps Act. We
say collateral can mean several things, and that in

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the context of this statute it means one of the
definitions which are ordinarily available. Do

Your Honours have the Shorter Oxford Dictionary? I
am told that it is on the list that Your Honours
have a copy of - relevant pages containing the
definition. First I will take Your Honours to the
dictionary definition: collateral is defined in
the third column, on page 366 of the Shorter

Oxford. The first definition is:
Situated or running side by side, parallel.

That is rather the definition which the
Supreme Court of Victoria considered was - - -

DAWSON J:	But it cannot be, can it? Just because you put the two documents side by side on the table does
not mean that they are collateral, does it? There
must be some dimension.
MR EMMETT:	No, not at all, but that seems to be the

definition which was adopted by the Supreme Court
of Victoria. There is a reference to it in the Full Court's judgment at page 346 of the appeal

books and I will just read the passage. The
Full Court said:
Nevertheless, as was pointed out in Stardawn Investments Pty Ltd, a thing is collateral to another if it exists side by side with the other, and there is no necessary notion of the
primacy of one over the other.
Now, that might be one of the definitions of

"collateral" but, in our submission, it is not the
definition that was contemplated by the legislature
in section 261.

McHUGH J: But when you look at your offer which is set out

in the Full Court's judgment at pages 299 and 300 -

particularly at page 300 - where, at line 21: The facility will be evidenced by an agreement between the borrower and the lender and in
addition the Bank will need to achieve an
acceptable security position which is to
include: -
then certain securities and guarantees were set
out.

MR EMMETT:

"In addition" is very significant, Your Honour,

in our submission. But "collateral" means
something that is secondary or subordinate to the
main thing. That is the third definition contained
in the Oxford dictionary:

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Lying aside from the main subject, action,
issue etc.; side; subordinate, indirect.

But what we say is the primary obligation created

by this arrangement was the loan agreement. In
addition there was a collateral arrangement - if
one wishes to use that word - namely the giving of
the mortgages. Indeed, in the Oxford Dictionary definition there is reference to legal jargon in
relation to collateral. Reference is made to a
collateral assurance:
assurance made over and above the principal
deed; c. security -

collateral security -
any property or right of action, given as
additional to the obligation of a contract or
the like -
Now, those definitions, in our submission, are

clearly more appropriate for the relationship
between these instruments - these documents - than the first definition of documents standing side by
side.

GAUDRON J: If one thing is collateral to another is the

other automatically collateral to it?

MR EMMETT:

No, that is a - according to the Supreme Court

of Victoria, yes, and in the context of the stamp duties legislation that the court was construing,
that may be perfectly correct.

GAUDRON J:

As a matter of ordinary language?

MR EMMETT: Ordinary language in a legal context,

Your Honour, no. A collateral one is subsidiary
to.

is the collateral or subsidiary obligation. One, there is the primary obligation and there

GAUDRON J:

You would not have any difficulty in this case,

would you, in identifying the mortgages as
collateral to the loan agreement?

MR EMMETT:

That is correct. We would not dispute that but

that is not what this section contemplates.

GAUDRON J:

What does "co" import if not together?

MR EMMETT: Well, that is the first definition.

"Collateral" means "side by side".

GAUDRON J: Well, I do not know that it means side by side.

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MR EMMETT:

But collateral has come to mean, in a legal context - in a conveyancing context - something

additional to the primary obligation.

One finds

that in some of the cases, for example, in Hoyts v

Spencer and Maybury v Atlantic Union Oil.

The

notion of a collateral contract is something which

is secondary to the main obligation. We have given

Your Honours a reference to those cases. Similarly

in Heilbut Symons, the House of Lords recognizes

the distinction between a primary and collateral

agreement.

The second reading speech, if one looks

at it, makes it clear - - -

DAWSON J:

You gain something from the wording of the

definition of "mortgage" -

MR EMMETT: That is what my learned junior is trying to

point out to me.

DAWSON J:	- - - because the mortgage is an agreement to secure the repayment of money and, therefore, a
collateral agreement must be an agreement to a like kind.

MR EMMETT: This agreement is not for the securing of the

payment. It simply sets out the obligation.

DAWSON J: Yes.

TOOHEY J: Is there any indication as to why the Parliament

chose a mortgage as the document which was to be
susceptible to the operation of section 261?

MR EMMETT:

We have given Your Honours, I think, the second

reading speeches. The forerunner of section 261
was introduced in 1915 and it is fairly clear that
what the legislature had in mind there was the

protection of the home-owner mortgagor. The
mortgage contemplated in those circumstances was
somebody who was buying his home and usurious

moneylenders were not allowed to pass on income tax
which they otherwise might have to pay to the
mortgagor.
Now, what one gets out of that it is hard to

tell, but that is the context in which the
legislation was introduced. It was subsequently
amended in the early 1930's because in its fairly
unsophisticated form, that is, just subsection (1),
industrious conveyancers had no difficulty in
getting around subsection (1) as appears from the
authority which we have given Your Honours a
reference to, and I will take Your Honours to some
passages of that directly.
The High Court in Brett v Barr Smith held that

where you adopt what was the fairly common

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conveyancing device to avoid a penalty the same

result flowed in relation to subsection (1). In
other words, if you impose one rate as the
obligation but provide that if a certain amount
less than that is paid within a fixed time, then

the mortgagee would accept that lesser rate; and
the lesser rate was an amount calculated by
reference to income tax.
Now, although the High Court, in effect, made

section 261 a dead letter it was some time before
the legislature intervened again in the 1930's when
it appears from second reading speeches in relation
to the introduction of that legislation that there
was some super tax or property tax introduced, and
there was a concern that again moneylenders would
pass on that super tax to mortgagors, and
accordingly subsection (2), I think, was inserted,
and then a year later further subsections were

inserted. I can take Your Honours to the
historical development of it, but it is not

strictly relevant to what we are putting. I made
those observations in response to Your Honour
Mr Justice Toohey's comment as to what the section
is about.
It does seem to produce an anomaly in that if

these arrangements had not been secured - in other
words had there been no security given by these
borrowers section 261 could have had no application
whatsoever, and it is hard to see what the present
rationale is for section 261 biting just because an
obligation happens to be by way of mortgage unless
one looks at it in that historical context,
although we find it difficult to see how the
historical context really assists in a meaningful
construction of section 261 in the present time.

DAWSON J:

What do you say a collateral or supplementary agreement is for the purposes of -

MR EMMETT:

We say it is something which is entered into in

contemplation of the mortgage. You find a mortgage
granted, and then you find some further instrument
which refers to the mortgage and might vary it,
although it does not necessarily have to vary it,
but it must be something which impinges upon the relationship between mortgagor and mortgagee qua
mortgagor and mortgagee.

GAUDRON J: But does this not do that in the sense that it

determines the amount that is secured?

MR EMMETT:

It does not determine the amount which is

secured because the mortgages secure all
indebtedness. This determines some part of the
indebtedness which would be secured, but if these

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borrowers also had an overdraft, then that would
also be secured by the mortgage and that, of
course, is the explanation for at least one of the
mortgages being in existence prior to the loan
agreement coming into existence.

GAUDRON J: Well it does impinge in some way.

MR EMMETT:

One cannot determine how much is secured by the

mortgage without looking at this document, but this
document of itself does not determine what is
secured by the mortgage.

GAUDRON J: Well, it determines part of it.

MR EMMETT:

It has to be considered in order to determine

what is owing, but that of itself cannot determine
all amounts owing on whatever account, whatever.

McHUGH J:

But it must make it a supplementary agreement, so

far as the mortgage, is concerned, it it not? It
supplements it.

MR EMMETT:

With respect, Your Honour, it does not.

The

mortgage supplements this: the primary obligation,
as between these parties, is to borrow money and to
pay interest on it and to repay the money, and the
security is simply given in order to ensure
performance of those primary obligations. The
security is only ever a secondary or ancillary
obligation. It is always something that is given,
and means nothing, unless there is a primary

obligation. The draftsman seems to have assumed
that in any mortgage there would be the covenant to
pay specific sums of money, but that was not the
way in which these parties entered into their
arrangement. Again, it rather suggests that the
very narrow context in which this section was
intended to operate was irrelevant to commercial
transactions between parties who were borrowing for

commercial purposes rather than for domestic

purposes. However, we cannot find in the language
that intimation, but it is a reason, perhaps, why
one ought to give the section a fairly literal
interpretation.
Your Honours, that is the first proposition

that we put in relation to section 261, that this
agreement is not collateral to any mortgage nor is
it supplementary to any mortgage, ergo, section 261
has no application.
Alternatively, if we are wrong about that,

then we put a subsidiary proposition that even if
it is a mortgage, when one looks at clause 8(c) and its operation, the consequence is that one does not
find any covenant or stipulation. There are

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several requirements of section 261. The first is
that there must be something in a mortgage, but
secondly, there must be a covenant or a

stipulation. The effect of clause 8(c) is that
clause 8(b) really creates no legal obligation at
all.

McHUGH J: That might answer the argument about covenant,

but why does not 8(b), standing alone, constitute
a stipulation?

MR EMMETT:

Your Honour, the distinction, in our submission,

is between an instrument under seal and a simple

contract. A covenant is a promise and a deed. A
stipulation is a promise in an instrument other
than a deed, and that is the only distinction
intended to be drawn, in our submission. The
clause is intended only to operate where there is a
legal obligation created by the promise, whether it
is in a deed or a simple contract, and that is
certainly what the High Court says in Brett v Barr

Smith. In relation to the original wording of
section 261, the Court said that the clause of the
nature that I described - that is the traditional
penalty avoiding clause - did not create any

obligation to pay. The only obligation was to pay
the higher rate and the borrower could always elect
not to if he chose to. In this case, the borrower
could always say, "I don't want to pay the
withholding tax". That might have some further
consequences in that the Bank is no longer bound to
renew an advance at the end of the period, but
because of 8(c), clause 8(b) simply creates no
legal obligation.

TOOHEY J:

I do not follow that, Mr Emmett.

I understand

that 8(c) withholds from the lender certain
remedies that might otherwise be available, but are
you suggesting that the Bank could not sue on

subclause (b)?

MR EMMETT:

Yes, that is precisely what subparagraph (c)

says, in our submission. Subparagraph (c) says
that,"notwithstanding 8(b) it is not a breach of

this contract". You cannot sue for breach of
contract for something that is not a breach of
contract, and that is the only basis upon which the
Bank could sue.

DAWSON J: But you can impose an obligation which has

limited consequences, or a failure to preserve,
which has limited consequences.

MR EMMETT: But, one asks, what is the content of the

obligation? The Bank has no sanction at all

DAWSON J: That is a different thing.

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MR EMMETT: Well, that is our submission, though, that it is

not an obligation. That is what the Court said, in
Brett v Barr-Smith.

BRENNAN J: If payment is made conformably to paragraph (b),

does it discharge the debt?

MR EMMETT:	No, there is no debt.
BRENNAN J:	Then it is payment for a consideration that has

totally failed.

MR EMMETT:

Oh, no.

I wii not be led into that,

Your Honour, but we will come back to that later.

It is anything but that. The consideration is that
the Bank renews the loan.

BRENNAN J: Oh, no. Surely not.

MR EMMETT:	Oh, yes.
BRENNAN J:	But the Bank is bound because paragraph (c) does

not apply.

MR EMMETT:

The Bank is bound by the early provisions to pay

- to renew - - -

BRENNAN J:

But paragraph (b) relates to a thing past and

closed. It is the previous period.

MR EMMETT:

I beg Your Honour's pardon?

BRENNAN J: Paragraph (b) relates to the interest period

that is past.

MR EMMETT:

Yes.

BRENNAN J:

Now, if it pays his interest in accordance with paragraph (b), he paid his interest for the past

period.

MR EMMETT:

But the Bank then renews the advance for the

next period.

BRENNAN J: If the borrower elects to have it.

MR EMMETT:

Yes, if the borrower elects, which he did in

this case.

BRENNAN J: But if he does not?

MR EMMETT:

If he does not, then that is the end of the matter, so far as the first payment is concerned.

BRENNAN J: What is the state of the payment? Did it

discharge a debt or did it not?

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MR EMMETT: It did not discharge a debt, no.

DAWSON J:

But it discharged an obligation.

You have got:

All interest payments hereunder shall be paid.

If you had said, "may be paid", that would be a
different thing.

MR EMMETT:

Your Honour, that promise is part of the

consideration given by the borrower for all of the
other promises which the Bank gives.

DAWSON J: That is right, and assume he does not pay and he

does not wish to renew, then you could recover
under (b), if it were valid.

MR EMMETT: Well, not by reason of the operation of 8(c).

DAWSON J:

No, by reason of the operation of (b), by itself.

MR EMMETT: Well, except that the borrower -

DAWSON J: Subparagraph (b) imposes an obligation to do

something.

MR EMMETT:

The borrower is entitled to say, "It's not a

breach of contract".

McHUGH J: That does not matter, does it? If there is a

stipulation which requires somebody to do
something, and it has consequences for that person
if he does not do it, surely that is an obligation.
And here, the Bank was under an obligation, at
least implied under clause 2(d), to renew each
advance. Clause 8(c) took away that obligation to
renew.

MR EMMETT:

Yes, 8(c) took away the obligation to renew, if

there were no payment.

McHUGH J:

I know, under 8(b).

But the combined operation

of 8(b) and 8(c) is to take away an obligation on
the Bank to renew the advance.

MR EMMETT:

Yes.

McHUGH J: Well, surely, if you have got 8(b) directing

something to be done, money to be paid, and the
borrower can only fail to comply with it on pain of
a change in the contractual obligations between the
parties, that is an obligation, is it not, imposed
on the borrower?

MR EMMETT:

On one view, no, Your Honour, and I have to

confess, when I get to later in the argument, I

would want to adopt that position, but if we do not

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get past the section 261 position, I do not need to

say anything further. But our submission,
Your Honour, is that it creates no obligation and

therefore is not a covenant or a stipulation. Now,
if we are wrong about that, then that may have

consequences later on for reasons which I will develop when we come to get to the question of whether or not there was a total failure of
consideration or otherwise.
Perhaps I should refer Your Honours to what

the High Court said in Brett v Barr Smith,
26 CLR 87, and at pages 96 and 97 - section 54 was
the predecessor of section 261 and at page 96
Sir Isaac Isaacs sets out the device that was

adopted. Mr Justice Higgins, at page 97, deals
with the question of obligation:
The only section on which the appellants rely is sec. 54; and they are not entitled to succeed unless they show that in the mortgage there is something imposing on the mortgagors
an "obligation" to pay the mortgagee's income
tax on the interest to be paid under the

mortgage. Where is there any such obligation?
"Obligation" is a technical term of law, with
a clear definite meaning -

I should say, by the way, this is not in relation to the question of covenant or stipulation, but to the word "obligation" itself, which appears in subsection (1), but which does not appear in subsection (2) -
"Obligation" is a technical term of law, with
a clear definite meaning; and Statutes which
make law must prima facie be treated as using
technical words in their technical sense -

that is perhaps a reason why we say collateral
agreement has a technical meaning, in the sense

that we rely on from Oxford.
There is no ground here for treating
"obligation" as meaning moral obligation, or
social obligation, or business
obligation ..... or anything but legal

obligation. The test is: Is there any legal
sanction - would an action lie ..... against the
mortgagors for failure to pay the income tax?
"Obligation" involves binding; and there is
nothing here to bind the mortgagors to pay the
amount of tax. There is merely an obligation
on the part of the mortgagors to pay 5 and
three-quarter per cent. interest on the
9,000 pounds, unless they pay punctually - not
even 4 and a half per cent. plus the income

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tax in addition, but such a rate as will,
after deduction of an amount equivalent to
income tax and other taxes ..... yield a net
4 and a half per cent. to the mortgagee.

Now, the comfort we get from that, Your Honours, is
that, at least in relation to obligation, the Court
held that where that device was adopted there was
none, and we would extend that in relation to
covenant or stipulation. If we are wrong about
that - - -

BRENNAN J:

Payment there was not characterized as a payment

of withholding tax, was it?

MR EMMETT:

No, it was not.

Our submission is that this was

not within subsection (1), because it was not a
payment of withholding tax, it was the payment of
an additional amount, because the borrower, of
Income Tax Assessment which it did through the mechanism of the Bank's
course, was obliged by the
Sydney office - or rather, its Dee Why office, I
think.
If we are wrong about those two propositions

and section 261 is applicable, we then come to the
second ground relied upon in the notice of
contention, and that is that the Full Court erred
in making the findings which it did.
Can I take Your Honours to the Full Court's

findings - - -

GAUDRON J: Before you take us there, can I be quite clear.

Do you accept that if you fail on those two
matters, clause 8(b) does oblige the payment of
tax, the obligation to pay tax?

MR EMMETT: It does not oblige the payment of tax. It

obliges the payment of an additonal amount which
is, almost certainly, within subsection (2).

GAUDRON J: Yes. You concede that?

MR EMMETT:

Yes.

I cannot think of anything in opposition

to it, Your Honour.

GAUDRON J: Yes, thank you.

MR EMMETT:

I was taking Your Honours to the appeal book

where the Full Court deals with the question of the mistake. It will be necessary in dealing with this question to take Your Honours to the history of the
litigation below to show, amongst other things,
some factors which highlight the error which was
made by the Full Court.

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If I can first of all take Your Honours to

what was said. The question is first dealt with at
page 343 of the appeal books under the heading
"Withholding Tax - Mistaken Payments".
Their Honours, at pages 343 and 344, set out

clause 8(b). They then set out section 261, and at

page 346, conclude that section 261 applies. At
page 347 at line 8:
But s.261 did not forbid the making of the
payments that the borrower in fact made, nor
did it prescribe any penalty for doing so.

That will be a significant factor when we come
later on to dealing with the consequences of making
a payment under mistake if that is the finding that
ought to be made:
this is not a case where what is asserted is a
right of recovery of payments made pursuant to
an illegal contract -

and we will take Your Honours later to what the
Full Court said in J & S Holdings v NRMA, which
Your Honour Mr Justice Deane may recall. Then, at
the bottom of page 347, Their Honours make the
point that:
Counsel for the Bank submitted that the appellants had offered no direct evidence to the effect that without the mistake being made
on their part, by regarding sub-clause 8(b) as
valid rather than void, they would not have
made payments pursuant to that sub-clause.

Then, without reference to the evidence, they
simply draw an inference:
in the circumstances of this case, there is
sufficient evidence from which one can infer

that the appellants would have made no payment
but that which they regarded themselves as
legally obliged to make pursuant to their
contractual and security arrangements with the
Bank.

What we say, Your Honours, is first of all, there
was no justification for drawing that inference
having regard to various matters that it is
necessary to take Your Honours to. Rather, in
fact, although we do not have to put it as high as
this, it was appropriate to draw a positive
inference that the reason why these payments were
made was in order to secure the benefit of roll
over which the Bank would otherwise not have been
bound to provide.

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The finding which they make is at the bottom

of page 349, at line 20:
In the present case, the mistake related

to the subsistence of the liability itself,
and not made simply because of what was or was
not stated in the loan agreement or because of
the existence of some related circumstance,
such as the date on which a payment fell due.
The mistake was as to the existence of s. 261
and its operation to render void the purported
contractual obligation in sub-clause 8 (b).

As I have said, the only basis advanced by the Full Court was what appears at the top of page 348,
namely the inference that people do not pay money
that they do not owe.
The proposition of law that we primarily put

to Your Honours is this: that in circumstances
where witnesses are called by the plaintiffs or the
applicants, as they are called in the
Federal Court, who are themselves parties and whose
own subjective minds are relevant to the question
of mistake, in circumstances where those witnesses
are not asked questions by their counsel as to the
making of a mistake then the Jones v Dunkel
principle, in effect, ought to apply, such that an
inference should not be drawn in their favour but
rather a contrary inference should be drawn if
there is otherwise evidence available to support
that contrary inference. That, I am afraid, does
involve looking at some of the more detailed
background of the hearing.
We have produced a further document which

outlines the material in the appeal book and some
additional material which was before the Full Court
but which was not included in the appeal book
before Your Honours. Might I hand up some copies

of that document.

DEANE J:

Mr Emmett, is this argument predicated upon an

assumption that 8(c) can stand even though 8(b) is
absolutely null and void?

MR EMMETT:

Not necessarily.

It does not depend upon that.

We would submit that it does, that 8(c) does stand.

DEANE J: It was the way you put it a minute ago

MR EMMETT:	Yes.
DEANE J:	- - - that the proper inference from the evidence

was that they paid the amounts because they did not
want to lose the right of renewing the loan

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facility. Now, if 8(c) falls with 8(b), that would
have been equally a mistake of law.

MR EMMETT: Well, except that there is no contention that

the provision whereby the Bank may bring forward
the expiry date could be struck down by
section 261.

DEANE J:

Why not?

MR EMMETT: Well, we have not heard of any such contention.

DEANE J: But surely it is obvious, is it not, that if 8(b)

is completely null and void there cannot be a
failure to comply with the provisions of
clause 8 ( b) .

MR EMMETT:

Indeed. That might have an effect on

section 8(c). All I am saying is that there are
other provisions of the agreement to which I took
Your Honours which may then be material.

DEANE J:

And which would enable the Bank at any time to

stop it. I follow that.

MR EMMETT: That is the significance of the definition of "availability period", which is the period up to and including "June 1989 or such earlier date as the Bank in its absolute discretion may determine".

And then clause 4(a) says:
The Borrower will repay the Overseas Loan at
the end of the Availability Period.

So that even if 8(c) falls with 8(b) under
section 261, the Bank was in a position where it
could have called this loan up, and one would say
that the inference would be drawn that these
borrowers were still prepared to pay the
withholding tax in order not to have the loan

called up.

DEANE J: Except, if the Bank has produced that situation

where, by commercial pressure, it can effectively
obtain the 8(b) payment, must that not be relevant
to questions of unjust enrichment?

MR EMMETT:

It may be a relevant consideration to be taken

into account. The way in which this case was
conducted, though, for various reasons, make it
difficult to know what the position was because the
appellants chose to give no evidence on the
subject. There is simply no direct evidence at all
of anybody making any mistake and, for all we know, they may have known perfectly well the existence of
section 261 and its operation in relation to these
clauses but still elected to make the payment. We

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will propose to take Your Honours to material which
would support that as a possible inference and that
inference is then the more easily drawn in
circumstances where the witnesses choose to say
nothing about a mistake.

DEANE J:	Thank you.
MR EMMETT:	If I can take Your Honours then to the document

that I have just handed up. I do not want to read
it and we did put it in more detail, perhaps, than
one would have with an outline of a submission so

as perhaps to save some time. But there are a

number of factors that are significant. The first
is the one that I have already mentioned: the
appellants gave no evidence about this matter at
all. Secondly, they were, at all times, advised by
an accountant and the finding made below was that
Mr Morgan, their accountant, was retained because
the Bank told them it was necessary to have an
accountant in order to get advice about foreign
currency loans and specifically said, "You must
have an accountant to advise you about withholding
tax". That appears from the letter of
3 December 1984, most of which is set out in the
appeal book but I think my learned friend handed up
a copy of the letter in the folder which he gave
Your Honours this morning. It is the first
document.

McHUGH J: It is part of exhibit 95.

MR EMMETT:

Yes, Your Honour. At page 196, which is the

page number, I think, in the Full Court appeal
book, under the heading "Withholding Tax":
Withholding Tax of 10% on interest
payments ..... must be met by you at the end of
each rollover period.

Then, going down to the last paragraph: We now enclose two copies of the Loan
Agreement covering the terms and conditions of
the foreign currency option ..... The original
copy of the agreement -
should -
be signed ..... You should familiarise yourself
with the contents of the agreement and in
particular we draw attention to -

then going over to page 197, line M:
Clause 8 which stipulates that all interest
and principal payments to our Dee Why NSW

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branch must be made free and clear of any
taxes, including Australian withholding tax.
In this regard, we again remind you of the
need to produce to the Bank a Section 128
Exemption Certificate.

The evidence was that that was no longer available.
As previously mentioned, changes in tax laws
may make you ineligible for this exemption,
however we assume you have discussed this
matter with your accountant.

The evidence was, and we have given references to
it in this document, that the question of
withholding tax was, in fact, discussed by the

appellants with their accountant. We do not know
precisely what advice there was, but there is a
finding by Mr Justice Hill that the accountant went
through this letter item by item. There is every
reason, therefore, to assume that they went to the
question of withholding tax and that a tax
consultant would know of the existence of
section 261.
Mr Morgan gave evidence - again, he was not asked any questions by the applicants as to whether
or not he was aware of the existence of section 261 or whether he was mistaken as to its operation. So it is impossible, therefore, for the appellants now
to say that he was mistaken as to section 261.
Most significantly is the question of mistake

in relation to the pleadings. There is no hint in
the pleadings of any mistake on the part of the
applicants. Withholding tax, however, is mentioned
in the rather passing fashion to which my learned
friend referred, and I need to take Your Honours back to that in the appeal book at page 18, 30A:

In purported reliance on the terms of
Securities and Rahme & Sons to reimburse the
Bank for interest withholding tax deducted by the Bank from interest paid by it on moneys
borrowed overseas.
Clause 8 ..... the Bank has required David

No better particulars can be given. Then much the
same assertion is repeated at page 63 in
paragraph 66:
The Bank has claimed reimbursement of interest
withholding tax deducted from interest paid by
the bank on moneys borrowed overseas.

The language is not quite correct in the light of
the proper analysis of the Act, but I do not think

David(2)

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anything turns on that. Then the only relief
sought is at page 64:
by reason of the matters pleaded ..... an
accounting for and a refund of all moneys
claimed by and paid to the Bank in
reimbursement of interest withholding tax -

is one of the prayers for relief. Now, in the
course of opening - and the opening was taken down as included in the Full Court appeal book, counsel
then appearing for the appellants, and it was not
my learned friend, or his junior, we have
reproduced this part of the appeal book in some
papers which have been given to Your Honours - it
may not be immediately identifiable - I understand
there are some loose pages which we made available
to Your Honours during the luncheon adjournment -
the relevant part of the transcript has page 376 at
the top right-hand corner. There are some other
pieces of paper which we made available during the
luncheon adjournment from the Full Court appeal

book. It might be desirable to keep them in one
bundle, because they are all relevant to this
question that we are now addressing on the
propriety of the finding that was made. At line T
on page 376, Mr Hodgekiss, then appearing for the
present appellant, said:
"the letter provided for the first time, a
matter which strike cords with your Honour -

His Honour being Mr Justice Hill -
a requirement that all payments were to be
effected in the currency in which the loan was
denominated are to be made free and clear of

all taxes, including withholding tax. We made
our claim in relation - - -

HIS HONOUR: I saw something about that in the
statement of claim.

MR HODGEKISS: I shuddered at the thought of
having to explain withholding tax to

your Honour. I am spared that.
The matter was then left until page 30 of the

transcript, or 397 in the appeal book, at the top
of the page:
Also as respondents Mr Morgan and his partners
were joined to seek relief against them
derived principally because of their
professional role that they had occupied for

us. Now, we have asserted that the bank has a
responsibility to us of a considerable

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complexion and we have particularized damage in this regard and we have a number of heads of damage. There is one that I have not

mentioned up until this point of time. We
would say that technically we are entitled to
have repaid to us this withholding tax wrongly
paid to the bank; wrongly paid in terms of the
Income Tax Assessment Act.

Now, there it was left. The matter was not dealt
with thereafter.

McHUGH J: Is that what is involved in this appeal?

MR EMMETT:	I beg Your Honour's pardon?
McHUGH J:	How much is involved in this appeal?

MR EMMETT: In this appeal, Your Honour, only some $30,000.

The questions, though, are of considerable
importance. All of the questions are of
considerable importance in relation to many other similar pieces of litigation. That is the reason
why the Bank did not oppose leave when it was
sought. Questions may arise as to whether this is
the ideal vehicle, but - - -

McHUGH J: Well, that is the thought that has been going

through my mind. It has got all these outstanding
questions of fact.

MR EMMETT:

Yes. Well, we are here at the moment and we

will continue to address until Your Honours tell us
not to.
Now, the course of the proceedings was this:

His Honour the trial judge, by consent of all
parties, first of all decided not to deal with the
question of damages, but decided to determine the

question of liability. He then embarked on a
hearing which lasted for several weeks.

had also filed a cross claim seeking recovery of The Bank
moneys actually owing, which had not been repaid

under this facility agreement. The cross claim was
not dealt with at the first part of the trial, and
that appears from the end of Mr Justice Hill's
judgment. His reasons for judgment begin at
page 150 and, at page 242, having dismissed the
application as against the Bank, and having
dismissed the application against the accountants,
at page 242, says:
There remains the question of the cross

claim made by the Bank against the applicants
for judgment in respect of the amount

outstanding under the Bank's securities. That

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2/10/91

matter has been deferred for further argument
on 24 May next.

So that at that point His Honour had considered the applicant's claims under the statement of claim,
including in so far as it referred to it, any claim
in respect of withholding tax, but dismissed that
withholding tax during the course of the trial.
claim. Although the matter was opened by

On 24 May the cross claim was heard. The Bank

relied upon certificates which it tendered in
reliance on Dobbs v National Bank type of
principles, and the question then arose of the
defences raised by the defence to the cross claim.
They appear at page 79 and following in the appeal
book. Again, there is no mention of mistake, not
even any mention of withholding tax in the defence.
Paragraph 6 says:
In answer to the whole of the cross claim the
first cross respondent says that the amounts
claimed by the cross claimant are not
presently due and payable by the first cross
respondent ..... by reason of the matters facts
and circumstances pleaded in the statement of
claim.

Then, that is repeated by the second cross

defendant in paragraph 9. So that, in effect, it
appears was taken as picking up the reference to
withholding tax, but again, no mention of mistake.
There is no record of the proceedings on

24 May. By way of interest, I tell Your Honour we
endeavoured to get His Honour's notebook but we
were unable to do so. All Your Honours can do is to draw inferences from what His Honour says then
in his subsequent judgment which appears at

of argument, as appears from this judgment, on the pages 244 and following. It was during the course cross claim that the question of withholding tax
recovery or allowance was first advanced in any
meaningful way by the present appellants.
His Honour dealt with the matter, in a sense,

on a hypothetical basis. At page 250 His Honour
sets out the issues. I see, Your Honours, it is
4.15, is that a convenient time or do Your Honours
wish me to continue.

MASON CJ:

No, we will adjourn now and resume at 9.45 am

tomorrow.

AT 4.16 PM THE MATTER WAS ADJOURNED SINE DIE

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at page 70 of the appeal book. Also at page 64 in	is a contravention of section 261 and that appears
paragraph 67(h) of the applicants' statement of
claim it was said that:

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. Should the Borrower at any
time be compelled by law to deduct any such
taxes, duties or imposts from any payment to
be made by the Borrower 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
had a deduction not been made or had payment
not been made subject to such tax duty or
imposts together with -

Bank was liable to pay.	It was understood by the
parties - - -

the primary obligation is	on, in these
circumstances, the payee.	That again is the basis
upon which the matter has	been approached.

by section 261.	The loan agreement, as
Your Honours will perceive, was expressed to be

Commonwealth Bank in Australia.	The Commonwealth
Bank would then have paid the amount, after

Commissioner in respect of the withholding tax.	So
that the Bank, in effect, acting as agent of the
borrower, in its guise as the Australian branch,
paid the amount to the Commissioner on behalf of the taxpayer - the borrower, I am sorry.

Lord Ellenborough overlooked that proposition.	We
have quoted what he said in Perrott v Perrott.	I

but emphasizing certain particular passages.	He
commences by saying this:

and then he refers to what took place at the
beginning of the 19th century.	And in the next
paragraph:

of money paid under a mistake of law.	At the
root of this confusion lies

Ellis & Clark Ltd (1)).	The plaintiff was at
liberty to refuse the demand.	But he gave up
his right to refuse to pay.

identified in the Law Reform Commission report.	If
I can just perhaps touch upon them briefly. They appear at paragraphs 3.16 to 3.31 where they are,
as it were, listed. It is said at the outset, in
paragraph 3.16:

paid under a mistake of law it is recoverable.	One
looks to the justice of the situation:	why should

later case not involving the same sides.	Such
a payment has of course been taken to be

by the borrower contrary to the section 261.	We
would say it does not matter what has happened.	It
does not matter whether or not the Bank has paid
withholding tax. It has, after all, an obligation under law to pay that tax, but that does not - - -

128B(5):	A person who derives income to which this
section applies ..... is ..... liable to pay
income tax ..... at the rate declared by the Parliament in respect of income -

Bank is, of course, liable.	The withholding tax is
a mechanism for collection.	The imposition is on
the Bank.	As a matter of convenience the

to the revenue.	But it does not matter to us one
way or the other.

mistake of fact, that was not good enough.	The
query is whether that should remain the law.

going to abide by the law.	We are going to get it
from you another way.	We are going to jack your

entitled to say, "Well, that's very well.	We can't
compel you to do that.	However, we're not going to
renew the advance".	And, of course. the borrower

Your Honours have the Shorter Oxford Dictionary?	I
am told that it is on the list that Your Honours
have a copy of - relevant pages containing the
definition. First I will take Your Honours to the dictionary definition: collateral is defined in
the third column, on page 366 of the Shorter
Oxford.	The first definition is:

particularly at page 300 - where, at line 21: The facility will be evidenced by an agreement	between the borrower and the lender and in
addition the Bank will need to achieve an
acceptable security position which is to
include: -

result flowed in relation to subsection (1).	In
other words, if you impose one rate as the
obligation but provide that if a certain amount

the mortgagee would accept that lesser rate;	and
the lesser rate was an amount calculated by
reference to income tax.

commercial purposes rather than for domestic
purposes.	However, we cannot find in the language

It is anything but that.	The consideration is that
the Bank renews the loan.

therefore is not a covenant or a stipulation.	Now,
if we are wrong about that, then that may have
consequences later on for reasons which I will develop when we come to get to the question of whether or not there was a total failure of
consideration or otherwise.

clause 8(b).	They then set out section 261, and at
page 346, conclude that section 261 applies.	At
page 347 at line 8: