J & S Holdings Pty Ltd v NRMA Insurance Ltd

[1982] FCA 85

Re: J. & S. HOLDINGS PTY. LIMITED
And: N.R.M.A. INSURANCE LIMITED
No. ACT G39 of 1981
Loan of money
6 ACLR 803

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY REGISTRY
GENERAL DIVISION
Blackburn J.
Deane J.
Ellicott J.

CATCHWORDS

Loan of money - recovery of interest paid by borrower - whether lender complied with provisions of Ordinance - whether lender need be a "moneylender" for purposes of Ordinance

Mistake of law - whether borrower entitled to recover voluntary payment of money - where payment not illegal but pursuant to a void provision of a contract - the general principle as to mistake of law and recovery of money - whether Ordinance excludes or modifies the general principle - whether set-off available on redemption of mortgage - recovery where payment of money under compulsion

Money Lenders Ordinance, 1936 (A.C.T.) ss. 4, 6, 11, 12, 13

Money Lenders Act, 1912 (W.A.)

Companies Ordinance, 1962 (A.C.T.) s.222

HEARING

CANBERRA

#DATE 20:5:1982

ORDER

1. THE appellant be given leave to make the amendments to its statement of claim for which leave to amend was sought on the hearing of the appeal.

2. THE appeal be allowed.

3. THE order of Kelly J. in the Supreme Court of the Australian Capital Territory be set aside and in lieu thereof, it is ordered that:

(i) the plaintiff, J. & S. Holdings Pty. Limited, do recover an amount of $2630.14 from the defendant, N.R.M.A. Insurance Limited; and

(ii) the defendant pay the plaintiff's costs in the Supreme Court.

4. THE respondent pay one-half of the appellant's costs of the appeal.

JUDGE1

J. & S. Holdings Pty. Limited ("J. & S. ") seeks to recover from N.R.M.A. Insurance Limited ("N.R.M.A.") part of the interest paid on moneys which it borrowed from N.R.M.A. The interest paid was in accordance with the terms agreed between the parties. J. & S. claims that it is entitled to recover the amount by which the total interest paid exceeded an amount determined by calculating interest at a rate of 12 per centum per annum. It bases that claim on the provisions of the A.C.T. Money Lenders Ordinance, 1936 ("the Ordinance").

The loan by N.R.M.A. to J. & S. was made on 18 November, 1974 and was of $300,000. It was secured by a Memorandum of Mortgage of the Crown Lease of certain land at Braddon in the Australian Capital Territory of which J. & S. was the lessee from the Commonwealth, by a Deed of Equitable Charge over all the undertaking and assets of J. & S. and by a Memorandum of Guarantee (of performance by J. & S. of its obligations under the mortgage) by John Eastham and Sheila Ann Eastham who were directors of J. & S. The agreed rate of interest was 17% reducible to 16% on prompt payment. Interest was to be computed from 15 November, 1974 and was payable "by equal quarterly payments" on the first days of each of the months of January, April, July and October during the term of the loan. The principal of the loan was to be repaid on 15 November, 1977.

During the period of the loan, eleven quarterly instalment payments of $12,000 (16% per annum) and two broken payments (January, 1975 and November, 1977) were, apparently, paid by J. & S. to N.R.M.A. on or about the due dates. The appeal has been conducted on the basis that the two broken payments (which totalled slightly more than $12,000) should be treated as if they were one quarterly payment of $12,000. This approach was apparently adopted at first instance and it is convenient to adhere to it. Default was, however, made in repayment of the principal of $300,000 which was eventually repaid on 18 January, 1978, together with interest at the rate of 17% per annum for the period from 15 November, 1977. Principal and interest were, on that day, repaid and paid by way of three bank cheques. One of those bank cheques was in the amount of $38,630.14. That cheque bore on the reverse side the words "paid under protest" over the common seal of J. & S. At the time of settlement, the solicitor acting for J. & S. informed the N.R.M.A.'s solicitor that J. & S. did not believe that it was liable to pay that $38,630.14 and that J. & S. was paying the amount "under protest because of the unequal bargaining position" that it was in.

On 27 June, 1978, J. & S. instituted proceedings in the Supreme Court of the Australian Capital Territory against N.R.M.A. seeking to recover $38,630.14. The foundation of the claim was an allegation of a failure by N.R.M.A. to comply with the requirements of s.12(1) of the Ordinance which was said to have been applicable to the loan. The action was heard by Kelly J. who found that the provisions of s.12(1) of the Ordinance were applicable to the loan and had not been complied with. The result of that failure to comply with those provisions was that J. & S. had not been liable to pay interest at a rate in excess of 12% per annum. His Honour found that the amount which represented the excess of interest paid over 12 per centum per annum was $38,630.14 made up of an excess of $3000 in each of the twelve quarterly payments of $12,000 made during the currency of the loan and an excess of $2630.14 in the payment on account of interest upon settlement. His Honour held, however, that the payment under protest of that amount of $38,630.14 on discharge of the securities had not been involuntary and that J. & S. was not entitled to recover any part of it from N.R.M.A. It was ordered that judgment be entered for N.R.M.A. with costs. The present appeal is from the judgment and order in that regard. For its part, N.R.M.A. has filed a notice of contention in which it challenges, inter alia, Kelly J's findings that the provisions of s.12 of the Ordinance were applicable to the loan and that they had not, in the event, been complied with.

As pleaded, J. & S's claim was primarily propounded as a claim to recover the particular amount of $38,630.14 which had been paid "under protest" on 18 January, 1978 and which was referred to in the statement of claim as "the said amount". As developed in argument, its case was put somewhat differently. Its overall claim, while still for a total of $38,630.14, was primarily presented as a composite one comprising 13 separate claims each relating to one of the 13 alleged over-payments of interest, namely, 12 separate claims (of $3000 each) in respect of the 12 payments during the currency of the loan and one claim (of $2630.14) in respect of the payment of interest for the period from 15 November, 1977. Alternatively, it was submitted on J. & S's behalf that, if it were not entitled to recover the particular 12 over-payments of interest which had been made during the term of the loan, it had been entitled to have the amount of those over-payments set off against principal or future interest or otherwise taken into account in determining the amount due on discharge of the securities and was entitled to recover the full amount of $38,630.14 as being an amount wrongfully extracted from it on settlement.

On the hearing of the appeal, senior counsel for J. & S. sought leave to amend the statement of claim so that it covered the claim in the form in which it was primarily propounded in argument. It is apparent that the relevant evidence is before the Court and it is plainly desirable that the matters in issue between the parties be finally determined upon the arguments which the parties wish to advance. It was, however, submitted on behalf of the N.R.M.A. that no amendment of the statement of claim could be permitted which would involve a distinct claim in respect of the amount of any over-payment of interest made before 24 March, 1976, that is to say, more than six years before the application for leave to amend the statement of claim was made, for the reason that such an amendment would raise a cause of action, not mentioned in the statement of claim, which was now statute-barred (see Renowden v. McMullin (1970) 123 C.L.R. 584).

Examination of the judgment of Kelly J. discloses that, regardless of the precise form of the statement of claim, J. & S's case in the Supreme Court was propounded and understood as encompassing the proposition that, in the words of Kelly J., the "$36,000 paid as interest in excess of 12 per centum per annum for the first 3 years was money to which the defendant was not entitled and which it ought to repay". At the time the matter was heard, a period of six years had not elapsed in respect of any of the payments of interest. In our view, the decision in Renowden v. McMullin (supra) is not applicable to a case where an application to amend a statement of claim is made on the hearing of an appeal to regularize the propounding by the plaintiff of his overall claim in a way in which it was, within the relevant limitation period, propounded in the lower court. We would give leave to J. & S. to amend its statement of claim in the manner sought and shall deal with J. & S's case on the basis upon which it was propounded in argument.

At the time of the loan, s.12(1) of the Ordinance provided:

"Where money is or has been lent at a rate of interest exceeding twelve per centum per annum, every document executed after the commencement of this Ordinance by the borrower or a surety to evidence the contract of loan or suretyship shall be or shall have been executed in duplicate and one of such duplicates shall at the time of execution be or have been delivered by the lender to the borrower or surety or there shall be or shall have been delivered to the borrower or surety a memorandum setting out particulars of all the essential parts of the transaction".

At that time and subject to a provision protecting the rights of an assignee or transferee of a contract in good faith and for value, sub-section (2) of s.12 provided:

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

Sub-section (3) of the section provided that nothing in the section should apply to negotiable instruments. The provisions of s.12 of the Ordinance were amended in 1976 and 1977. Those amendments are, however, immaterial to the questions involved in the present appeal.

Section 4 of the Ordinance contains an extended definition of the word "loan". That definition is in terms commonly found in money lending legislation and provides that the expression "lend" and "lender" are "to be construed accordingly". The section also contains a definition of "money lender". It is common ground between the parties that the loan by N.R.M.A. to J. & S. was a "loan" for the purposes of the Ordinance and that N.R.M.A. was not, at any material time, a "money lender" for those purposes. When reference is made in this judgment ot a "money lender" it is in the sense defined in the Ordinance.

The first issue between the parties is whether there was a contravention by N.R.M.A. of the provisions of s.12(1) of the Ordinance. Involved in this issue are two distinct questions. The first is whether the provisions of s.12(1) should be construed as applying only to a loan made by a money lender: if they should be so construed, they were not applicable to the loan in the present case. The second is whether, if the provisions of the section are applicable to loans made by persons who are not money lenders, there was a failure by N.R.M.A. to satisfy the obligations which s.12(1) imposes upon a lender in the case of a loan, such as the present, where the rate of interest exceeds 12 per centum per annum.

The long title of the Ordinance is an "Ordinance relating to the Business of money lending and for other purposes". Examination of the Ordinance makes clear, as the long title would indicate, that the provisions of the Ordinance are not restricted to provisions dealing with money lenders and their transactions. Thus, for example, it is plain, from its wording, subject matter and ancestry, that s.13 of the Ordinance, which avoids certain contracts for payment of a void or voidable loan to an infant, applies regardless of whether the relevant loan was made by a money lender (see The Infants Relief Act (U.K.) 1874, s.2; The Betting and Loans (Infants) Act (U.K.) 1892, s.5). Those provisions of the Ordinance which, as a matter of language, relate only to loans made by money lenders (ss. 6,7,8 and 10) contain express mention of a money lender and apply to all loans made by a money lender. The provisions of the Act which regulate loan transactions without any reference to a "money lender", are concerned either with loans containing particular terms (s.11), loans to a particular class of person (s.13) or, in the case of s.12, loans at a particular rate of interest. As has been mentioned, s.13 plainly applies regardless of whether the relevant loan was made by a money lender. In this context, there is no warrant for restricting the plain words of either ss. 11 or 12 so as to limit their application to loans made by a money lender. Those sections apply to loans of the stipulated type regardless of the character of the lender. In view of the fact that the loan in the present case was at a rate of interest in excess of 12 per centum per annum, the provisions of s.12(1) and (2) were applicable to it. It follows that N.R.M.A. was obliged to satisfy the requirements which s.12(1) imposes upon the lender in respect of such a loan.

In the present case, s.12(1) required that every document executed by J. & S. or a surety to evidence the contract of loan or suretyship be executed in duplicate. This requirement was satisfied. The sub-section further required that N.R.M.A. deliver to the borrower or surety "one of such duplicates" or a memorandum setting out particulars of all the essential parts of the transaction.

A form of Memorandum of Mortgage of Crown Lease (which incorporated the form of guarantee to be executed by Mr. and Mrs. Eastham) and a form of Deed of Equitable Charge were forwarded on 8 November, 1974 by the solicitors for N.R.M.A. to the solicitors for J. & S. The covering letter stated that the documents were submitted on the basis "that they are received without prejudice to our client (i.e. N.R.M.A.) who has not yet approved the loan to your client, nor has it approved the documents". The letter requested that executed documents be received back by N.R.M.A.'s solicitors by 3 p.m. on Tuesday 12 November, 1974. In other words, the documents were submitted to J. & S's solicitors, on a without prejudice basis, for approval, execution and return.

In the form in which they were forwarded, the documents stated that the principal of the loan was to be repaid on 1 February, 1978. The documents were altered by the solicitors for J. & S. to show that the principal was to be repaid on 15 November, 1977. After alteration, the documents were executed by the borrower and the sureties and returned to N.R.M.A.'s solicitors for execution by N.R.M.A. The Memorandum of Mortgage and Deed of Equitable Charge were executed on behalf of N.R.M.A. and dated 18 November, 1974, that being the day upon which settlement took place. Upon settlement, the solicitor for J. & S. was handed a cheque for the amount of the loan. He was also handed a letter dated 18 November, 1974 from the solicitors for N.R.M.A., a form of "Statutory Declaration Certifying Execution of Charge" and a copy of the Deed of Equitable Charge (unexecuted, undated and without the place of execution completed). The letter requested that the Statutory Declaration be completed on behalf of J. & S., that the copy of the Charge be marked as an annexure to the Declaration and that the documents be returned to the solicitors for N.R.M.A. "within the next seven days so that we may attend to their registration in the Companies Office". Apart from the above, no duplicate of the Memorandum of Mortgage or the Deed of Charge was delivered to J. & S. or any one on its behalf.

It is argued on behalf of N.R.M.A. that the forwarding of the form of Memorandum of Mortgage (including the form of guarantee) and the form of Deed of Equitable Charge constituted, for the purposes of s.12(1) of the Ordinance, a delivery of "one of such duplicates" by N.R.M.A. to J. & S. In our view, there are two plain answers to this submission. First, the forwarding of the documents for approval, execution and return did not constitute a "delivery" of the kind required by s.12(1). Second, the documents so forwarded were not, for relevant purposes, either "one of" the duplicates which had been executed nor a proper copy of the documents which were executed. We deal with these matters in a little more detail.

It is clear from a consideration of the provisions of s.12(1) of the Ordinance that the purpose of the requirement that one set of documents be delivered by the lender to the borrower is to ensure that the borrower receives a complete and accurate record of the transaction to which he may refer in order to ascertain the nature and extent of his liabilities (see, for example, Eldridge & Morris v. Taylor (1931) 2 K.B. 416 at pp. 418-9; John W. Grahame (English Financiers) Ltd. v. Ingram (1955) 2 All E.R. 320 at p. 322; Jaques v. Pacific Acceptance Corporation Ltd. (1964) 80 W.N. (N.S.W.) 1308). The words "delivered by the lender to the borrower" in s.12(1) of the Ordinance mean, in our view, handed over to the borrower to be retained by him. The requirement of such delivery is not satisfied by the submission of a form of document for approval on the basis that it is required that the document be executed and returned before the loan is made.

Even if the forwarding of the forms of Memorandum of Mortgage and Deed of Equitable Charge for execution and return had constituted a delivery of them for the purposes of s.12(1), the documents so delivered were neither duplicates nor accurate copies of the documents which were executed. As has been said, the documents so delivered stated that the principal of the loan was to be repaid on 1 February, 1978. The documents, as executed, stated that the principal was to be repaid on 15 November, 1977. The documents so delivered were undated, and indicated that the date of the making of the loan was 15 November, 1974 (the date from which interest was computed) whereas the executed documents were dated 18 November, 1974 that being the date upon which the loan was actually made. These variations and omissions were plainly of substance. They effectively preclude the forms of documents which were delivered from properly being regarded as duplicates or accurate copies of the documents which were executed.

It is unnecessary to consider a number of other arguments advanced on behalf of J. & S. to support its contention that there had been no delivery of duplicates in accordance with the requirements of the section. In particular, it is unnecessary to express any view as to whether the requirements of s.12(1) as to delivery of duplicates can be satisfied by a delivery some days before the operative documents were executed or by a delivery of other than executed documents.

It was next argued, on behalf of N.R.M.A., that if there had been no delivery of duplicates as required by s.12(1) of the Ordinance, the requirements of the sub-section were satisfied for the reason that there had been delivered to J. & S. a memorandum setting out particulars of all the essential parts of the transaction. The suggested memorandum was a composite one comprising the form of Statutory Declaration and the form of Deed of Equitable Charge which were handed to the solicitor for J. & S. at the time of settlement (see above), a form of "Statement of Particulars of Charge" which was forwarded to the solicitors for J. & S. on 2 December, 1974 for execution and return, and an Epitome of Mortgage which was forwarded to the solicitors for J. & S. on 2 December, 1974. For reasons which we have already given, we do not consider that the forwarding of the form of Statutory Declaration, the form of Statement of Particulars and the copy of the Deed of Equitable Charge on the basis that the Statutory Declaration and Statement of Particulars were to be completed and returned (with the form of Deed of Equitable Charge annexed to the Statutory Declaration) constituted a "delivery" of the type required by s.12(1) of the Ordinance. If the Epitome of Mortgage is accepted as being so delivered, it failed to indicate when the loan had been made and wrongly stated that the principal of the loan was repayable on 15 November, 1978. Moreover, it contained no reference to either the Deed of Equitable Charge provided by J. & S. or the guarantee given by Mr. and Mrs. Eastham. Even if all of the documents upon which the N.R.M.A. relies could properly be treated as constituting a composite memorandum which had been "delivered" for the purposes of s.12(1), that composite memorandum failed to contain any mention of the guarantee and, as has been mentioned, wrongly stated in the Epitome of Mortgage when the principal was repayable. On neither approach could it be said that the "memorandum" set out "particulars of all the essential parts of the transaction" (see, generally, In re a Debtor (1938) 2 All E.R. 759; Kent Trust Limited v. Cohen (1946) 1 K.B. 584 at pp. 589,590). It is unnecessary to consider whether the "delivery" of the Epitome of Mortgage was, itself, insufficient for the purposes of s.12(1) of the Ordinance by reason of the lapse of time between the making of the loan and such delivery.

The consequence of N.R.M.A.'s failure to comply with the requirements of s.12(1) of the Ordinance was, under s.12(2), that "the contract" was, to the "extent" that it was "made for the payment of a higher rate of interest than" 12 per centum per annum, "absolutely null and void". The rate of interest payable on the loan was not the agreed 17% reducible to 16% on prompt payment. It was 12% per annum.

As has been mentioned, J. & S. paid interest, during the term of the loan, at the agreed rate (for prompt payment) of 16% per annum. The evidence before the Supreme Court was to the effect that those payments were made voluntarily and without protest and in the belief, on J. & S's part, that it was legally liable to pay interest at that rate. While a mistake as to private rights or obligations may, in some circumstances, be a mistake of fact in that it is the result of an error as to, for example, the actual terms of a private document (see Cooper v. Phibbs (1867) L.R. 2 H.L. 149 at p.170 but cf. Pollock, Contracts (7th Edn.), p. 457), it is common ground that J. & S's mistake in the present case was a mistake of law and it has not been suggested, either in evidence or argument, that it consisted of other than ignorance of or inadvertence to the existence or operation of the general statutory provisions contained in s.12 of the Ordinance.

If interest had been paid at the reduced rate of 12% per annum, the amount of each quarterly payment of interest would have been $9000 instead of the $12,000 which was paid. In the result, J. & S. paid to N.R.M.A., during the term of the loan, a total of $36,000 more than it was required, under the terms of the loan contract as modified by s.12 of the Ordinance, to pay. There arises for consideration the question whether, as at 18 January, 1978 when the principal of the loan was repaid and the securities redeemed, J. & S. was entitled to recover from N.R.M.A. that $36,000 or whether it was entitled to claim either a set-off or credit of that amount in calculating the amount which N.R.M.A. was entitled to be paid upon discharge of the loan and redemption of the securities. In support of its claim that it was entitled to recover that amount, J. & S. primarily relied upon cases upholding the right of a borrower to recover interest which had been received by a lender in breach of the old statutes of usury which rendered illegal the stipulation or receipt of interest in excess of a specified rate.

In a case where the payment or receipt of money is itself illegal or where money is paid for an illegal consideration or in pursuance of an illegal contract, there is scope for the operation of two conflicting principles of public policy. The first is that a payee who has received money illegally or for an illegal consideration or in pursuance of an illegal contract should not be entitled to retain the fruits of illegality (see, Neville v. Wilkinson (1782) 1 Bro. C.C. 543 at pp. 547-548; 28 E.R. 1289 at p.1291). The second is the principle which underlies the maxim that where two persons are equally involved in illegality the position of him who is in possession (alternatively, him who is defendant) is the stronger. That underlying principle is that the courts should not ordinarily lend their aid to a participant in illegality by permitting what has been done in contravention of the law to be made the subject matter of an action (see Langton v. Hughes (1813) 1 M. & S. 593 at p. 596; 105 E.R. 222 at p. 223; Kiriri Cotton Co. Ltd. v. Dewani (1960) A.C. 192 at pp. 202-203).

Ordinarily, the principle that the courts will not aid a participant in illegality prevails to preclude the recovery of money paid in circumstances where the payment or receipt was illegal in itself or where the payment was made for an illegal consideration or pursuant to an illegal contract. Where, however, the relevant illegality is brought about by a law which was introduced to protect a class of persons of which the payer is one, the position will be different. In such a case, the parties will ordinarily not be regarded as being equally involved in the illegality and the principle that a person should not be entitled to retain the benefit of a payment which he has illegally obtained from another will apply.

Thus, it was well-established by cases under the statutes of usury that a borrower could recover from the lender the excess interest which the lender was prohibited from stipulating or receiving. In such cases, actual receipt of the excess interest was the subject of a specific statutory prohibition which was seen as being imposed "to protect weak or necessitous men from being overreached, defrauded or oppressed". It was held that both parties should not be seen as equally guilty: "the oppressor" alone should be seen as "within the pale of the law" (see, generally, Bosanquett v. Dashwood (1734) Cas. T. Talbot 38 at p. 40; 25 E.R. 648 at p. 649; Jones v. Barkley (1781) 2 Dougl. 684 at pp. 696-698; 99 E.R. 434 at pp. 441-445; Browning v. Morris (1778) 2 Cowp. 790; 98 E.R. 1364; Clarke v. Shee (1774) 1 Cowp. 197 at pp.199-200; 98 E.R. 1041 at p. 1042-1043; Comyn, Treatise on the Law of Usury (1817). The statutes of usury have, however, long been repealed. One cannot automatically transfer principles which guided the courts in dealing with claims based on them to claims for relief arising out of the provisions of modern money-lending legislation (see, Kasumu v. Baba-Egbe (1956) A.C. 539 at p. 551). Nor can one assume that the type of act which was illegal under the one should also be regarded as illegal under the other. An assessment of the nature and effect of the modern legislative provisions is necessary.

Examination of the provisions of s.12 discloses that the contract and securities in the present case were not illegal at the time when they were made or given. The requirements of s.12 could still have been satisfied by the delivery of a memorandum setting out particulars of all the essential parts of the transaction. Nor did the failure of N.R.M.A. to deliver duplicates of the relevant documents or such a memorandum in compliance with the section have the effect of rendering the contract of loan illegal either in whole or in part. The effect of that failure was, in so far as the contract and securities were concerned, that which the section stipulates, namely, that their provisions were void to the extent of the excess of interest over 12 per centum per annum. Otherwise, their validity was unaffected. In so far as payment of the excess interest was concerned, the Ordinance did not provide that the void provisions of the contract should also become illegal nor prohibit the payment or receipt of the excess interest. Under the Ordinance, that excess interest could be paid and received without illegality. We note that our conclusion in that regard corresponds with the views which had been expressed in 1931 (i.e. prior to the making of the Ordinance) in relation to the corresponding provisions of the Money Lenders Act, 1912 (W.A.) (see, Stables v. Morris (1931) XXXIV W.A.L.R. 67).

It follows that the special principles and considerations applicable to cases, such as those under the statutes of usury, where the payment or receipt of money is itself illegal or where such payment or receipt is in pursuance of an illegal contract are not operative in the present matter (see Sharp Bros. & Knight v. Chant (1917) 1 K.B. 771). It becomes necessary to consider whether there is some more general principle which J. & S. can call in aid of its claim to recover the excess interest which it paid.

In Moses v. Macferlan ((1760) 2 Burr. 1005 at p. 1012; 97 E.R. 676 at p. 680), Lord Mansfield C.J., referred to a "kind of equitable action . . . to recover back money which ought not in justice to be kept" in the following general terms:

"It lies only for money which, ex aequo et bono, the defendant ought to refund: it does not lie for money paid by the plaintiff, which is claimed of him as payable in point of honor and honesty, although it could not have been recovered from him by any course of law; as in payment of a debt barred by the Statute of Limitations, or contracted during his infancy, or to the extent of principal and legal interest upon an usurious contract, or, for money fairly lost at play: because in all these cases, the defendant may retain it with a safe conscience, though by positive law he was barred from recovering. But it lies for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition, (express, or implied;) or extortion; or oppression; or an undue advantage taken of the plaintiff's situation, contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money".

The above passage was quoted with approval by Parker J. in Lodge v. National Union Investment Co. Ltd. ((1907) 1 Ch. 300 at pp. 311-312) and has been cited with general approval in many other cases. While the actual decision in Moses v. Macferlan (supra) is commonly regarded as having been overruled (but cf. Keener, A Treatise on the Law of Quasi Contract (1893) pp.412-415), the comments themselves remain an instructive statement of the scope of the old common money count of money had and received (see, Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd. (1943) A.C. 32 at pp. 61-64). They have however, like most "large generalizations", needed and received subsequent qualification (ibid at p. 62). In particular, they must be read in the light of other authority in so far as they assert that an action lay "for money paid by mistake".

In Brisbane v. Dacres ((1813) 5 Taunt. 142 at p. 155; 128 E.R. 641 at p.646), Gibbs J., in referring to not dissimilar comments by Lord Mansfield in Bize v. Dickason ((1786) 1 T.R. 285; 99 E.R. 1097), said:

"Lord Mansfield mentioned in his judgment many cases where money paid could not be recovered back, although, if it had not been paid, it could not have been enforced; and he concludes by saying, that where money is paid under a mistake, which there was no ground to claim in conscience, it may be recovered back. Mistake may be a mistake of law or of fact; but I cannot think Lord Mansfield said 'mistake of law;' for Lord Mansfield had, six years before, in Lowry v. Bourdieu, heard it said, 'money paid in ignorance of the law could not be recovered back,' and had not dissented from the doctrine, and Buller J. sate by him, who had expressly stated the distinction six years before in Lowry v. Bourdieu, and would not have sate by and heard the contrary stated without noticing it. Lord Mansfield's dictum is, that money paid by mistake, which could not be claimed in conscience, might be recovered back".

Subsequently in his judgment (ibid, at pp. 156-157; pp.646-647) Sir Vicary Gibbs recounted:

"Among all the practitioners of the Court of King's Bench, where questions of this sort very frequently arise on insurance transactions, we were universally of this opinion, that where the money was paid with a knowledge of the facts, it could not be recovered back. One underwriter chose to pay, rather than resist, another resisted and succeeded; in all similar cases it would be very easy to say, 'I paid this without a knowledge of the law, and therefore may recover it back'. Our only question, then, in all cases was, whether the facts were known: this was the universal practice, till Bilbie v. Lumley, 2 East, 469, occurred: that case was tried at York, before Rooke J., who ruled differently: after the report was read, Lord Ellenborough asked Wood B., then of counsel for the Plaintiff, whether he could find any case which would support it; and he cited none. Lord Ellenborough said he never heard of any, except Chatfield v. Paxton, and that it was so doubtful at last upon what precise ground that case turned, that it was not reported, and the rule was made absolute for a new trial. Now this was a direct decision upon the point, certainly without argument; but the counsel, whose learning we all know, and who was never forward to give up a case which he thought he could support, abandoned it".

(See, also, Pollock, Preface to 4 Revised Reports (1892), p.VIII; 2 Smith's Leading Cases (13th Edn.) at p. 391; Keener, op. cit. pp.85-86 and note that subsequent commentators have taken delight in nominating cases which Wood B., then of counsel, may have overlooked).

It must, today, be accepted as settled that there is no general principle of the law that money paid by mistake of law is recoverable simply because idiosyncratic ideas of justice support a conclusion that, ex aequo et bono, it should be refunded (see, Home & Commercial Insurance Co. Ltd. v. London Guarantee and Accident Co. Ltd. (1928) 34 Com. Cas. 163 at p. 166; Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd., supra at p. 637). To the extent that Lord Mansfield's comments (supra), when properly understood, support the existence of such a general principle, they cannot be accepted as good law. Particular grounds, such as a complete failure of consideration, or abuse of a fiduciary relationship (e.g., undue influence), or the particular situation of the payer (trustee or personal representative) or recipient (an officer of a court), or mistake of fact, or involuntariness, or unequal responsibility for the mistake of law must be shown to exist before a recipient of money which was paid, under mistake of law, to him for his own use can be held to have received it to the use of the payer and ordered to refund it. It is true that the distinction which has been drawn between mistake of fact and mistake of law has been subjected to much learned criticism and is often difficult to apply. It is however, at least in so far as this Court is concerned, firmly entrenched. Thus, the Full High Court in South Australian Cold Stores Ltd. v. Electricity Trust of South Australia ((1957) 98 C.L.R. 65), rejected a claim of a company, which was a consumer of electricity, to set off against current electricity charges excess amounts which it had paid in the past to the plaintiff Electricity Trust under a mistake of law as to their validity. Their Honours (Dixon C.J., McTiernan, Williams, Webb and Taylor JJ.) said (ibid, at p. 75):

"On the side of the company it was simply taken for granted that somehow or another the charges might be lawfully made. This seems to fall outside the reason of the rule under which an action of money had received lies in cases of payment by mistake. Under that rule the action is available when the payee cannot justly retain the money paid to him because it would not have come to his hands if it had not been for a false supposition of fact on the part of the payer causing the latter to believe that he was compellable to make the payment or at all events that he ought to make it. It is to be noticed that Parke B. in Kelly v. Solari (1841) 9 M. & W. 54 (152 E.R. 24) defines the requisite mistake as "the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue" ((1841) 9 M. & W., at p. 58 (152 E.R., at p. 26). According to the decision of Pilcher J. in Turvey v. Dentons 1923 Ltd. ((1953) 1 Q.B. 218) it is too restrictive to say that the fact would if true have entitled the payee to the money; and perhaps the word "specific" may also be too definite. But here there was nothing but an assumption that in some way or other the increased charge might lawfully be made and a readiness to comply with the payee's demand without more, a demand which but for formal defects in the authorisation would have been enforceable.

That cannot be enough to support an action for money had and received".

(See also, as to the absence of any more extensive equitable remedy in the nature of an action for money had and received to recover moneys voluntarily paid under mistake of law: Goodman v. Sayers (1820) 2 J. & W. 249 at p. 263; 37 E.R. 622 at pp.627-628; Rogers v. Ingham (1876) 3 Ch. 351 at p. 356; Winfield, Mistake of Law (1943) L.Q.R. 327 at p. 331).

The insufficiency of mistake of law as the foundation of an action for recovery of money paid is commonly stated as a general principle or rule of law precluding any right of action in a case where the payment was voluntary. Thus, for example, Latham C.J. in Werrin v. The Commonwealth ((1937) 59 C.L.R. 150 at p. 157) said that the "general rule, as stated in Leake On Contracts, 6th Edn., (1911) p. 63, is that money paid voluntarily, that is to say, without compulsion or extortion or undue influence and with a knowledge of all the facts cannot be recovered" (see also, to the same effect, William Whiteley Limited v. The King (1969) 101 L.T. 741 at p. 745; Sawyer & Vincent v. Window Brace, Ltd. (1943) 1 K.B. 32 at p. 34). Such statements of a general rule precluding recovery require to be hedged around by categories of exceptions which while "more or less canalized or defined" need not necessarily be regarded as closed. It is preferable to frame the general rule in terms of insufficiency rather than in terms of preclusion. So stated, the general rule is that a mistake of law does not, on its own, found an action for the recovery of money paid (see, generally, Kiriri Cotton Co. Ltd. v. Dewani, supra, at pp. 204-205).

There is nothing in the circumstances of the present case which, either alone or in combination with the mistake of law, entitles J. & S., as a matter of general principle, to recover from N.R.M.A. the excess interest which it paid during the currency of the loan. There has been no suggestion of mistake or ignorance of fact. It is not suggested that the twelve payments of excess interest, during the currency of the loan, were made other than voluntarily. It is not suggested that any fiduciary relationship existed between the parties. Nor is it suggested that the payment was induced by any fraud or misrepresentation on the part of N.R.M.A. or that, in a situation where what was involved was a commercial transaction with both parties acting through solicitors, there was any over-bearing by one party of the other or that the mistake was other than mutual. The overall payment of interest (both payable (i.e. 12%) and excessive) was made in consideration of the loan of the principal and cannot be said to have been for a consideration which failed. Our conclusion that the receipt of the money by N.R.M.A. was neither, in itself, illegal nor tainted by illegality has the result that, putting to one side the reference to "money paid by mistake" which has been dealt with above, the present case does not come within any of the particular types of cases mentioned by Lord Mansfield or within any of the particular circumstances in which either the common law or equity would order repayment. Prima facie, the general rule that money paid voluntarily under mistake of law, by itself and without more, cannot be recovered is applicable. That general rule can however obviously be excluded or modified by contrary provision in the Ordinance. It is necessary to examine the overall provisions of the Ordinance to ascertain whether they have the effect of excluding or modifying the general rule by providing, either expressly or impliedly, for the recovery of the excess interest which has been paid.

Mention should be made of four distinct features of the Ordinance. First, it contains express provision (s.6) empowering a court in which proceedings might be taken for the recovery of money lent by a money lender to re-open a transaction of loan by a money lender and to order the re-payment by the money lender of any interest which he has received and which, in the opinion of the Court, is excessive. It has not been suggested in the present case that a rate of interest of 17% (reducible to 16%) per annum was other than an appropriate commercial rate in the circumstances of the loan or that the amount of interest paid was "excessive" within the meaning of s.6. Second, a borrower who could show that he had suffered loss by reason of the failure to deliver duplicates or a memorandum in accordance with s.12(1) could maintain an action against the lender for breach of the statutory duty which the lender owed him. It is not suggested that J. & S. sustained any such loss. Third, s.11 of the Ordinance, which also applies regardless of whether a loan was made by a money lender, expressly provides that if any sum is paid on account of interest "not chargeable, payable, recoverable or enforceable" by reason of the section, that sum "may be recovered back or deducted from any principal or interest payable under such contract, notwithstanding any contract to the contrary". In contrast, s.12 contains no such express provision. Finally, one looks in vain for any provision in the Ordinance which, in terms or by implication, indicates a legislative intent that interest voluntarily paid by a borrower to a lender should be recoverable to the extent that the lender was relieved of the obligation to pay it by reason of the provisions of s.12. Together, these considerations lead to the conclusion that the overall provisions of the Ordinance confirm rather than undermine the applicability, in the present case, of the general rule that a mistake of law does not, on its own, found an action for the recovery of money paid.

Senior counsel for J. & S. placed particular reliance upon the decision of the High Court in Mayfair Trading Co. Pty. Ltd. v. Dreyer ((1958) 101 C.L.R. 428) and the decision of the Privy Council in Kasumu v. Baba-Egbe (supra). In our view, neither case is in point.

In Mayfair Trading Co. Pty. Ltd. v. Dreyer (supra), the moneys which the borrower was held to be entitled to recover from the money lenders had been received by the money lenders from a receiver and manager whom they had unlawfully put into possession of the borrower's business in purported pursuance of a security which was rendered unenforceable by s.9 of the Money Lenders Act, 1912 (W.A.). The relevant moneys had not been paid voluntarily by the borrower: they had been appropriated by the receiver and manager whom the lenders had purported to appoint. In order to justify their receipt and retention of the proceeds of the borrower's business, the money lenders had to assert and rely upon a right to enforce the security which the statute had rendered unenforceable. This they could not do. Neither the decision in the case nor what was said in the judgments of the members of the Court bear upon the question whether moneys voluntarily paid by a borrower under a void but not illegal contract can be recovered.

In Kasumu v. Baba-Egbe (supra), it was held by the Privy Council that a provision that a money lender was not "entitled to enforce any claim" in respect of a transaction was not to be confined to the assertion of rights by means of or in the course of legal proceedings. The exercise of a right of sale of the property mortgaged or charged or the retention or taking possession of such property in assertion of a claim to repayment was also precluded. Again, in our view, the case has nothing to say on the question whether a borrower is entitled to recover moneys voluntarily paid under a mistake of law.

It follows that J. & S. was not entitled to recover by action against N.R.M.A. the $36,000 representing the excess interest paid by it during the period of the loan. It becomes necessary to consider whether it had the right to require that the surplus of interest which it had paid be set-off or credited in its favour in ascertaining the amount which it was liable to pay upon redemption of the mortgage and Deed of Equitable Charge which it had given to secure the repayment of principal and payment of interest.

Each payment of interest during the currency of the loan was plainly made, received and appropriated in satisfaction of N.R.M.A.'s claim in respect of that particular instalment of interest. There are cases in which a mortgagor has been held to be entitled, on accounts between mortgagor and mortgagee, to the benefit of a credit in respect of the amount of past overpayments of particular instalments of interest made voluntarily as a result of mistake as to the effect of the mortgage (see, e.g., In re the Estate of Jones (1914) 1 I.R. 188 at p.193). Such cases are, however, to be explained as involving what equity regarded as a mistake of fact (i.e. a mistake as to the actual provisions of the mortgage) rather than a mistake as to the application of any general principle of law or statutory provision (see In re the Estate of Jones, supra, at p. 193; Daniell v. Sinclair (1881) 6 App. Cas. 181 at pp. 190-191; Winfield, op. cit., p.329). They do not, upon analysis, support any general proposition that a credit or set-off should be allowed on accounts between mortgagor and mortgagee in respect of every surplus in a past payment of an instalment of interest which had been made and accepted as appropriate to satisfy the mortgagee's claim to that particular instalment of interest (see Blandy v. Kimber (No. 2) (1858) 25 Beav. 537 at p.540; 53 E.R. 742 at p. 743). On such accounts, entitlement to a set-off or credit in respect of any surplus in a past closed payment of a particular instalment of interest is only allowable if the circumstances are such that a set-off or cross claim would be sustainable at law or in equity.

It is well-established that, at common law, the right of set-off depended upon there being an actionable debt. Thus, it was held by the Queen's Bench Division (Cockburn C.J., Mellor J. and Field J.) and by the Court of Appeal (Jessel M.R., Kelly C.B., Mellish L.J., Denman J., and Pollock B.) in Rawley v. Rawley ((1876) 1 Q.B.D. 460) that there could be no set-off of a debt contracted by the plaintiff during infancy and which was non-actionable. In the course of his judgment, Jessel M.R. said (ibid, at p. 466):

"But it is to be observed that set-off is founded on statute, and the only meaning of the Act was to prevent cross actions, and it was not intended to give new rights, except to the extent of giving facilities for the enforcing of rights which were already enforceable in an action; and it has always been accordingly held, that a set-off can only be successfully pleaded when an action could have been maintained for the same debt".

To the same effect was the statement of Kelly C.B., (ibid, at p. 467):

"Now, the words of the Statutes of Set-off are, that where there are mutual debts between the plaintiff and defendant one may be set off against the other. But are these mutual debts here, when one of them is a debt for which an action cannot be brought? Clearly, in my opinion they are not".

(See, also, Skyring v. Greenwood (1825) 4 B. & C. 281 at p. 289; 107 E.R. 1064 at p.1067; "if the defendants could not have recovered it back, they ought not now to be allowed to set it off" (per Abbott C.J.)).

Nor was there any general equitable right to set-off a non-actionable debt. Where equitable jurisdiction existed, equitable set-off was available when the party seeking it could show a recognized equitable ground for being, to the relevant extent, protected from his adversary's demand. The mere existence of cross demands was not sufficient. (Rawson v. Samuel (1841) Cr. & Ph. 161 at p.178; 41 E.R. 451 at p. 458; Welton v. Harnett (1886) VII N.S.W.R. 74 at p. 76.)

In the present case, J. & S. had neither an actionable claim to recover at law the surplus of interest paid during the currency of the loan nor any recognized equitable ground for setting off the amount of surplus interest paid against either principal or future interest. That being the case, there was no common law or equitable right to a set-off in respect of the amount of that surplus. (See, also, South Australian Cold Stores Ltd. v. Electricity Trust of South Australia, supra, at p. 75; Sharp Bros & Knight v. Chant, supra.) J. & S. was not entitled either to recover the amount of the surplus or to deduct that amount from the amount of principal and interest which it was liable to pay upon redemption. Its claim, in so far as it relates to the overpayment of interest during the currency of the loan, fails. There remains to be considered its claim to recover the surplus interest ($2630.14) which it paid in respect of the period from 15 November, 1977 to 18 January, 1978.

The evidence discloses that, prior to the redemption of the securities, J. & S. made clear to N.R.M.A. that it maintained that it was entitled to a credit for the surplus interest paid during the currency of the loan and that it disputed any liability to pay interest in excess of 12% per annum for the period from 15 November, 1977 to the date of redemption. For its part, N.R.M.A. made clear that it required to be paid the full amount claimed before it would discharge the mortgage. It served a notice pursuant to s.222 of the A.C.T. Companies Ordinance, 1962 requiring payment of principal and interest at the rate of 17% per annum from 15 November, 1977 and threatened to file a petition to wind up J. & S. if the amount claimed was not paid. It rejected a request by J. & S. that it agree that the disputed amount be paid and received on the basis that J. & S. "could retain the right to sue after settlement for interest paid in excess of 12%". As has been seen, when settlement took place, $38,630.14, representing the total of the excess interest paid during the currency of the loan and the excess interest claimed by N.R.M.A. on settlement, was paid by J. & S. "under protest".

Where a person pays money which he is not bound to pay, under compulsion exercised by or on behalf of the payee, he is entitled to recover the money so paid. Compulsion, for relevant purposes, includes "every species of duress or conduct analogous to duress actual or threatened, exerted by or on behalf of the payee and applied to the person or the property or any right of the person who pays or, in some cases, of a person related to or in affinity with him" (per Long Innes J., Nixon v. Furphy (1925) S.R. (N.S.W.) 151 at p. 160, see also T.A. Sundell & Sons Pty. Limited v. Emm Yannoulatos (Overseas) Pty. Ltd. (1956) S.R. (N.S.W.) 323 at p. 328). In particular, for present purposes, compulsion includes a wrongful refusal by a mortgagee to discharge his mortgage unless he is paid a larger amount than he is entitled to demand (see, generally, Fraser v. Pendlebury (1861) 31 L.J.C.P. 1 at pp. 2, 3, and 4; Close v. Phipps (1844) 7 M. & G. 586 at p. 590: 135 E.R. 236 at p. 238; Wright v. Kelly (1884) 5 N.S.W.L.R. 297 at p. 301; G.A. Investments Pty. Limited v. Standard Insurance Co. Limited (1964) W.A.R. 264 at pp. 265-266 and p. 268). In the present case, N.R.M.A. required and obtained payment of an amount of $2630.14 more than the amount to which it was entitled under compulsion of, inter alia, a refusal to discharge the mortgage unless and until the full amount claimed was paid by J. & S. Prima facie, J. & S. is entitled to recover that $2630.14.

For N.R.M.A., it was argued that J. & S. could not recover the amount of the overpayment for the reason that it had neither unreservedly offered to pay nor separately tendered the full amount which it was liable to pay. We do not accept this submission. In the context of the s.222 notice which had been given and of N.R.M.A.'s refusal to agree to discharge the mortgage on the basis that J. & S. could pay the full amount but retain any right to sue after settlement for interest paid in excess of 12%, it appears to us that the proper inference from the evidence is that N.R.M.A. made it clear that it would not discharge the mortgage unless and until it was paid the full amount which it claimed. In these circumstances, the fact that J. & S. wrongly denied its liability in respect of the further amount of $36,000 does not alter the fact that the $2630.14 was paid involuntarily under compulsion. Nor does the fact that N.R.M.A. was entitled to require payment of the $36,000 entitle it to retain the $2630.14 which J. & S. was under no liability to pay.

It was submitted that the payment of the full amount had been obtained by the threat to file a petition to wind up J. & S. rather than by the refusal to discharge the mortgage unless the full amount were paid. It may well be that the threat of a petition to wind up was even more effective than the refusal to discharge accompanied by the possibility of enforcement of the securities. The evidence indicates, however, that the correct assessment of the position is that J. & S. succumbed to the combination of both threat of a petition and refusal to discharge. N.R.M.A's threat to present a petition to wind up J. & S. unless it was paid an amount greater than the amount to which it was entitled neither removed nor rendered less effective the compulsion of its refusal to discharge the mortgage unless and until the excessive amount was paid. It is unnecessary to consider whether the possible extra-curial effects of presentation of a petition to wind up a company (see, e.g., Clause B(i) of the Deed of Equitable Charge in the present case) are such that, unlike the threat of ordinary legal proceedings, a threat to present a winding up petition can itself constitute, for relevant purposes, the exercise of compulsion. It suffices that the amount paid was paid under compulsion of a wrongful refusal to discharge the mortgage unless and until that excessive amount was received.

It was also submitted on behalf of N.R.M.A. that the excess interest paid by J. & S. on 18 January, 1978 had been paid under threat of legal proceedings or after the commencement of legal proceedings. In these circumstances, so it was said, there was a rule of public policy that the overpayment could not be recovered. The threatened legal proceedings were the proceedings to wind up J. & S. The legal proceedings which had been commenced were proceedings brought by J. & S. in the Supreme Court of the Australian Capital Territory seeking, inter alia, a declaration that N.R.M.A. had failed to comply with the provisions of s.12, an order for an account and an interlocutory injunction restraining N.R.M.A. from exercising its power of sale. The answer to this submission is that while the threat or institution of legal proceedings will not, in itself, ordinarily constitute compulsion in the relevant sense (see, e.g., Marriot v. Hampton (1797) 7 T.R. 269; 101 E.R. 969; Hamlet v. Richardson (1833) 9 Bing 644; 131 E.R. 756; 2 Smith's Leading Cases (13th Edn.) p.390), the fact that such legal proceedings are threatened or on foot does not operate to alter the character of a payment extracted by compulsion or, in a case where the payee was under no obligation to pay all or part of the money paid, preclude the payee from recovering that to which the payee was not entitled. Were it otherwise, every calculating highwayman, bushranger and robber would take out the insurance of instituting an action against any potential victim. The position may well be different if the money paid was paid in actual settlement of legal proceedings. In the present case, however, it is plain that the money paid by J. & S. could not properly be seen as paid in settlement of the only legal proceedings which had been instituted, namely, the proceedings which it had itself commenced.

It should be mentioned that particular reliance was placed, on N.R.M.A's behalf, on a series of old cases in which it was held that excessive money paid under compulsion of distraint of goods could not be recovered (see, e.g., Glynn v. Thomas (1856) 11 Ex. 870; 156 E.R. 1085; Knibbs v. Hall (1794) 1 Esp. 84; 170 E.R. 287; Lindon v. Hooper (1776) 1 Cowp. 414; 98 E.R. 1160). It would seem that these cases should be explained by reference to the notion that goods distrained were "in the custody of the law" and to the then immediate availability of the old procedure of replevin (see, Holdsworth, A History of the Law of England, 4th Edn., Vol. 3, pp.281-287; Green v. Duckett (1883) 11 Q.B.D. 275 at p. 280). So regarded, they should be seen as lacking any general authority and as being, in any event, inapplicable to the circumstances of the present case. If they are not to be so regarded but are to be seen as purporting to lay down some general principle, they are inconsistent with preferable authority and should not be followed (see, e.g., Astley v. Reynolds (1731) 2 Strange 915; 93 E.R. 939; Hills v. Street (1828) 5 Bing. 37; 130 E.R. 973; Carter v. Carter (1829) 5 Bing. 406; 130 E.R. 1118; Fraser v. Pendlebury, supra, at p. 4; Keener op. cit., p.427; Stoljar The Law of Quasi-Contract, pp.70-74).

In the result, J. & S. was, in our view, entitled to recover from N.R.M.A. the sum of $2630.14 being the overpayment of interest for the period from 15 November, 1977 to 18 January, 1978. We would allow the appeal, set aside the order of the Supreme Court and in lieu thereof order that judgment be entered in J. & S's favour in that amount together with costs. As regards the costs of the appeal, it is relevant to note that, while N.R.M.A. has also failed on the matters raised by its notice of contention, it has succeeded on J. & S's claim to recover the additional, and larger, amount of $36,000. It appears to us that the appropriate order is that N.R.M.A. pay one-half of J. & S's costs of the appeal.