David Securities Pty Ltd & Ors v Commonwealth Bank of Australia

The High Court of Australia considered an appeal by David Securities Pty Ltd and A & T Rahme & Sons Pty Ltd against the Commonwealth Bank of Australia. The dispute concerned payments made by the borrowers to the Bank under clause 8(b) of a loan agreement, which required them to pay an amount equivalent to 10 per cent withholding tax. The borrowers contended that these payments were made under a mistake of law, arguing that clause 8(b) was void due to section 261 of an unspecified Act.

The central legal issue before the High Court was whether the trial judge erred in his approach to the claim of mistake of law. Specifically, the court had to determine if the trial judge correctly concluded that the payments were made under a mistake of law and, consequently, whether the borrowers were entitled to recover these amounts. The trial judge had indicated that even if the issue of mistake had been properly pleaded, he would have dismissed the case because the mistake was one of law, which was covered by longstanding authority.

The High Court noted that the trial judge's reasoning indicated that the issue of section 261 did not truly arise for decision at the trial. His Honour observed that the payments were made under a mistake of law, as the borrowers believed clause 8(b) necessitated such payments. However, the trial judge found that the borrowers' case, as pleaded, did not clearly claim recovery of amounts wrongfully paid under the clause. He assumed, for the purpose of his hypothetical reasoning, that such a claim was made, but ultimately concluded that even on that assumption, the claim would fail due to the nature of the mistake as one of law. The trial judge also indicated that the question under section 261 would only arise if the Bank sought to enforce an obligation under clause 8(b) to recover the additional amount, which was not the situation before him.