Roxborough & Ors v Rothmans of Pall Mall

[2000] HCATrans 337

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S232 of 1999

B e t w e e n -

ALEXANDER GARNET ROXBOROUGH and GWENETH JOYCE ROXBOROUGH (trading as SANDYS TOBACCONIST)

First Applicant

BRUCE ALLDIS (Formerly trading as SMOKE KING)

Second Applicant

ARISTOTLE BALATSIAS (trading as CHIGARRO TOBACCONIST)

Third Applicant

EYEARN PTY LIMITED (trading as DEEPWATER PLAZA TOBACCONIST)

Fourth Applicant

RODNEY WHITE & SUSAN WHITE (trading as GUNSMOKE TOBACCONIST)

Fifth Applicant

GRAHAME COOK (trading as TAMWORTH PLAZA TOBACCONIST)

Sixth Applicant

PETER HEFFERNAN & CHRISTINE HEFFERNAN (trading as P     ETER & CHRISTINE’S TOBACCONIST)

Seventh Applicant

and

ROTHMANS OF PALL MALL AUSTRALIA LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 AUGUST 2000, AT 2.05 PM

Copyright in the High Court of Australia

___________________

MR S.J. GAGELER:   If the Court pleases, I appear in this matter with MR R.A. DICK, for the applicants.  (instructed by Glasheen & Quilty)

MR B.W. WALKER, SC:   May it please your Honours, I appear with MR I.M. JACKMAN, for the respondent.  (instructed by Clayton Utz)

GLEESON CJ:   Yes, Mr Gageler.

MR GAGELER:   Your Honours, there is a contract for the sale of goods, a buyer and a seller.  There is an invoiced amount that is made up of two components.  One component is calculated by reference to the listed selling price of the goods less discounts.  The other component, separately identified in the invoice, is described as a tax.  That tax, if payable, is payable by reference to the transaction, is payable by the seller and is to be remitted in the future.  The buyer pays the total invoiced amount to the seller and receives delivery of the goods.  It is later found that the tax identified in the invoice is not payable on that transaction.  Can the buyer recover from the seller the amount separately identified in the invoice?

GAUDRON J:   Do you put the weight of your entitlement to recover on false and misleading conduct?

MR GAGELER:   No, your Honour, because it was apparent, objectively, and to the buyer at the time of entering into the contract, that there was a question, there was a doubt as to whether or not this particular transaction was exigible, but those simple facts and that simple question give rise to profound legal difficulties.  Now, the closest one can find to an analogy in the decided cases is in the judgment of Judge Learned Hand in 123 East Fifty‑Fourth Street which was accepted by Chief Justice Mason in Royal Insurance.  It was a case where a tax, like a GST, was added to a restaurant bill.  It was later found that restaurateur was not liable to pay the tax and the conclusion of Judge Learned Hand, accepted by Chief Justice Mason, was that the restaurateur would have held the amount taken from the customer on a constructive trust.

GLEESON CJ:   The tax in the present case was all passed onto the consumers, presumably?

MR GAGELER:   There is no evidence of that.

GLEESON CJ:   It was intended to be, was it not?

MR GAGELER:   Pardon, your Honour?

GLEESON CJ:   The tax was intended to be an indirect tax, was it not?

MR GAGELER:   It was intended to be an indirect tax.  I was taking your Honours to the ‑ ‑ ‑

GLEESON CJ:   It does not detract from the force of your argument.

MR GAGELER:   No.

GLEESON CJ:   It simply means that as far as this case is concerned it is a bit like what somebody said about the Order of the Garter, “there is no damn merit about it”.

MR GAGELER:   It has been described, I think, by the judge at first instance and by the majority on the appeal in the Full Court as a fight about who is to get a windfall gain.  I accept that.  I also point out that his Honour Justice Gyles in dissent said that is a particularly unhelpful way of looking at the case, and, indeed, so far as somebody is out of pocket, it is my clients who, in our submission, have paid more than they ought to have paid.  The money has gone out of their pockets into another pocket.  But I wanted to go to the discussion of 123 East Fifty‑Fourth Street.  Your Honours will find in the majority judgment beginning at the bottom of page 67 ‑ ‑ ‑

GAUDRON J:   What is meant by “constructive trust” in that context, that it is unconscionable to retain it?

MR GAGELER:   That is the basis for imposing a constructive trust and then there is an issue as to whether it is a constructive trust that is necessarily and only of a proprietary nature or whether it might be a constructive trust which can operate simply as a personal equitable obligation of the sort that your Honours discussed in Giumelli v Giumelli, the relevant extract of which appears at the top of page 67.  But after setting out that quote from Giumelli v Giumelli there is a reference at the bottom of the page to 123 East Fifty‑Fourth Street.  Relevant quotes are then set out at page 68.  There is a discussion, again, at 69 culminating in this being said at page 69, line 44, picking up the sentence part way through:

literal acceptance of the proposition stated by Judge Learned Hand or the qualified proposition stated by Mason CJ would, we should think, lead to the conclusion that Rothmans was subject to a constructive trust, or should have a trust imposed on it, in favour of the Retailers.

Now, having accepted that their Honours go on over the next page in a chain of reasoning which goes something like this:  this so‑called constructive trust, they say, is very much like a Quistclose trust but a Quistclose trust is an express trust.  This cannot be an express trust because it was not specifically contemplated that the seller would keep the moneys separate, therefore, it cannot be a constructive trust.

GAUDRON J:   Why can it not be an ordinary resulting trust?

MR GAGELER:   Your Honours could put various labels on it.  It may well be an ordinary resulting trust.  It is based on this notion that your Honours will see correctly identified in the judgment of the majority, page 70, line 36 where their Honours say:

The trust of which both Judge Learned Hand and Mason CJ speak is one which arises where a payment is made with the intention (or “on the footing”) that it is to be applied for a particular purpose: that is what gives rise to the trust.

Now, we do not have any difficulty with the label of “resulting trust”, that it is a trust which arises by virtue of that circumstance, but the way in which the majority then dismiss that reasoning your Honours will see at line 72:

It would, in our view, be somewhat anomalous if in circumstances where there was an intention which, but for the lack of some other essential element, would give rise to a Quistclose trust, the Court would nevertheless give effect to the same intention by recognising or imposing a constructive trust ‑

So because no express trust, their Honours say no constructive trust or resulting trust, as the case may be.  Now, that is, in effect, in substance, a rejection of the view taken by Learned Hand and the view taken by Chief Justice Mason.  That, in itself, in our submission, is sufficient to warrant for this Court to examine those principles.  The approach of the majority, in our submission, ignores that a constructive trust, even if proprietary, or necessarily proprietary, is one that is both a remedy and an institution and it also ignores that a constructive trust may well impose no more, in some circumstances, than a personal equitable obligation.  Now, their Honours dealt with that second point that I have just made on the next page, page 71, at the bottom of the page by saying that:

The submission lacks any direct support in authority –

They also say that it is discouraged by:

recent authority in the House of Lords –

It is, we would have thought, encouraged by more recent authority in this Court in Giumelli v Giumelli, the relevant passage in which I have already drawn your Honours’ attention to at page 67, lines 15 to 20.  But, whether or not equity would impose a trust and whether or not it is properly seen as a constructive trust or a resulting trust, the reasoning of Chief Justice Mason and the reasoning of Learned Hand, in our submission, supports the existence of an underlying right to recover at common law on a common law money count.  Now, if A pays money to B for a particular purpose, that purpose fails, A should, in justice, be able to recover the money back from B.

GLEESON CJ:   Let us hear what Mr Walker has got to say about this, Mr Gageler.  Yes, Mr Walker.

MR WALKER:   Your Honours, this is not, in our submission, a trust case when that which is uncontroversial about trust cases is taken into account and that is that no amount of presumptions and no amount of talk of so‑called purpose will avail in light of the actual evidence of the actual people who claim to be the beneficiaries of that trust or of that equity in the nature of a constructive trust.  Your Honours find in the application book starting at page 23 what these would‑be beneficiaries actually said about the money they actually paid for the tobacco which they were later actually able to sell at a profit.  That last finding, by the way, is recorded at 29, in answers to interrogatories.  They sold at a margin.  There was evidence, tendered interrogatories, to the effect that there was no loss, the tax was passed on and there is no merit.

At page 23, his Honour, at first instance, paraphrases what can be said about the effect on the conscience of my client of the dealings between it and these retailers who bought from them.  Mr Roxborough, for example, knew that what he had to pay was “the bottom line” and that was what he had to pay to get his cigarettes in order to commercialise them.  He knew that:

there were doubts about the constitutional validity of the system and that the challenge might succeed.

Mr Alldis, who had never read the invoices which had been the foundation of a now abandoned section 52 claim, misleading and deceptive conduct claim.  Mr Alldis had never read them to work out what message was being sent:

In any event, he paid the amount shown in the invoices in order to obtain a supply of tobacco.

Which the evidence showed he then sold at a profit.  Mr Balatsias also:

understood that it was the “the bottom line figure” ‑

that is the one that included the amount on account of tax, which had to paid so he could get his tobacco to sell:

He considered that what Rothmans did with the money it received from him was a matter for Rothmans and the legal obligations which it owed to various people including governments.

Mr Wilkie also thought:

that how Rothmans dealt with its money, which it had got from him or from any other source, was a matter for Rothmans to decide according to its business decisions and its legal obligations.  He believed that how Rothmans was in a position to pay its licence fee was no more his business than how it was in a position to pay its electricity bill.

These, of course, are all from answers in cross-examination:

Mrs White, had heard of the constitutional challenge…..did not know what would happen in the High Court.

That did not make her exceptional.  Then said that she:

expected Rothmans would pay for its wholesale licence in the same way as it paid for all of its expenses of doing business, namely, from its own money.  Mrs White understood that in order to get supplies of tobacco –

she being a retailer, of course:

she had to pay the bottom line price at the foot of the invoice.

She did not regard a licence fee as being paid “on her behalf”.  She did not regard herself, that is, from her money, “as paying Rothmans’ licence fee”.

GAUDRON J:   There was another basis, though, on which they could obtain cigarettes, was there not?

MR WALKER:   By having their own licence, your Honour?

GAUDRON J:   Yes.

MR WALKER:   No, not in the contractual dealing between these parties.  They would be volunteering money to the State of New South Wales were they to have paid for their own licence ad valorem.  It was because there was a licence held by my client that they were spared needing to get a licence themselves.  Real value was given.

GAUDRON J:   This is why I asked why there was an abandonment of the false and misleading conduct.

MR WALKER:   Because of the evidence, your Honour.  None of these people was misled.

GAUDRON J:   It seems as though they were misled into thinking that the only way they could get their cigarettes and tobacco products was by paying the licence fee up‑front to Rothmans.

MR WALKER:   No, the only way that they could get it in this transaction.

GAUDRON J:   Yes, certainly in this transaction, but ‑ ‑ ‑

MR WALKER:   Yes.  That is how your Honour should understand these references to “only way”.  If they wanted to obtain tobacco otherwise, they could deal with other people.  We had a wholesale licence.

GAUDRON J:   And so you could not obtain tobacco products from Rothmans free of tax by taking out your own licence and paying that tax.

MR WALKER:   Rothmans had to have a licence, in any event, your Honour, so that the same money would be charged.

GAUDRON J:   Yes, but were there not there anti‑double taxation provisions in the scheme?

MR WALKER:   The anti‑double tax is effectively provided, in the circumstances of all of these applicants, by sparing them ad valorem tax if they purchased from somebody with a wholesale licence.  Rothmans had a wholesale licence.

GAUDRON J:   Yes, but ‑ ‑ ‑

MR WALKER:   If they were to deal with Rothmans, they were to deal with a wholesaler who was required, as a matter of commercial self interest, to charge enough money to pay for its fee.

GAUDRON J:   But did Rothmans have to pay the tax if it was selling to a licensed dealer?

MR WALKER:   Yes.

GAUDRON J:   So that there would then be double taxation.

MR WALKER:   The ad valorem portion is not payable by the retailer ‑ I stress “by the retailer” – if the retailer purchased from a wholesaler.  That is how the scheme worked.  The retailers were spared – there is an obvious governmental interest there.  It reduces the numbers of taxpayers you have to deal with.  The retailer was spared if they bought from a licensed wholesaler.  There was never a case that there had been some misrepresentation about the requirement to pay a price, a wholesale price, which included an amount to defray the wholesaler’s licence fee.  There was never a case that that was misleading because even if the scheme be valid there were other ways for them to buy it.

The misleading and deceptive conduct case failed because after the applicants had been cross‑examined not a single one of them could show that they had been misled by any of the representations which had been pleaded.  Most of them did not recognise any of those representations as having been made to them in any event.  Just completing what the evidence showed, Mr Heffernan:

also believed that the licence that Rothmans held was paid for by it for its own benefit just as it paid for its other business expenses.

He did not see any of the invoices which told him:

that the law required him to pay Rothmans’ licence fee or that the law required him to pay money to Rothmans that Rothmans had to pay by way of licence fee.

Mr Cook knew that if he wanted to “get and own” the cigarettes, which he was going to sell at a mark‑up, he had to pay “the bottom line”.  He did not think he was buying a licence for Rothmans.  He:

thought the real taxpayer was the consumer.

He was the person who really understood the indirect tax system, obviously.  That is what happened in this case.  What happened in this case was very plainly the charging of a price which the law commanded to be divided into two because the law said that in order to ascertain that which had to be paid as to an extra 100 per cent by way of the tax there had to be a promulgated wholesale price list which distinguished, obviously, between the composite which was charged, which included the tax, and that upon which the 100 per cent was calculated.  That is how one finds and why one finds on the invoice, in accordance with the statutorily promulgated wholesale price lists, a price which is half the total, then a total and then a tax and then a net total, as your Honours have seen on the form of invoice.

In our submission, to talk of trust in that connection is to confuse concepts and their Honours at first instance and in the majority in the Full Court were, with respect, correct to regard any enticing parallel with the cabaret tax that Mr Justice Learned Hand dissented on in the United States was quite beside the point.  The first thing to be observed is that if, indeed, the cabaret tax that Judge Learned Hand dealt with, if it is indeed like the GST, it is difficult to see how my learned friend avoids the proposition that there are trusts involved when one pays a restaurant bill nowadays in Sydney, which has a GST down the bottom.

In our submission, quite apart from propositions to the effect that there is no need for equity to impose a trust for a taxpayer to remit tax, a trust imposed by dint of a private transaction in which that tax is passed on, one has here in the evidence of these parties the actual subjective declaration of intention and lack of dedicated purpose which not only excluded the Quistclose trust ‑ must, on principle, exclude the Quistclose trust, and that was abandoned – but also would exclude anything in the nature of a so‑called constructive trust.

Now, my learned friend’s main point on that aspect is to say that Giumelli has somehow changed things.  In our submission, your Honours were not in Giumelli doing anything which represented a revolution or, indeed, any departure of a material kind from well established and long established equitable principle and when in Giumelli the expression is used of a “constructive trust” in the sense, for example, referred to in the quotations on page 67 of the application book, one has to bear in mind that the one example given is the familiar Barnes v Addy imposition of an equitable obligation by what we would submit could be called a simile, that is, it is not a constructive trust in the strict sense but only in the extended or special sense that a liability to pay money, not to transfer property to its beneficial owner, but a liability to pay money, is imposed as if the defendant had been a constructive trustee.  That is why the language is appropriate to cases where there had never been an express trust at all, such as in breach of fiduciary duty.

But what is said then in Giumelli does not render irrelevant the question, when any constructive trust is raised, “Over what property?”  Here was a case where on the facts, or on the concession about the unavailability of a Quistclose trust, there was no possibility of the money, or one half of it, paid upon these invoices being impressed with a trust subject to the calculations and performance a month or two, perhaps two months later, of obligations of the wholesaler to the New South Wales State Treasury.  There was no prospect ‑ and that is why the Quistclose trust was abandoned ‑ of it being said that there was anything in the nature of a trust obligation, for example, as to separate accounting or against mingling.

When one considered that the commercial end of the transaction was to obtain not only delivery of tobacco but ownership, there being a Romalpa clause, which required payment of the full price and when one considered that the commercial end of the transaction was to obtain ownership so that in turn there could be a resale at a margin, then the notion that there needed to be a constructive trust of any kind escapes.  There was no joint venture.  There was no household endeavour by which resources and money were

pooled of a kind that one can contemplate in Giumelli or in Baumgartner or in Muschinski v Dodds.  This is as remote from those cases as could be imagined.

This was an arms length fully mercantile transaction, wholly performed from the point of view of its intended commercial benefit, namely, the obtaining of ownership of tobacco at a price which enabled the tobacconist to achieve the desired mark‑up to achieve the desired profitability.  All that was accomplished.  In our respectful submission, the notion that there is a constructive trust imposed in favour of people who intended to be paying their money so that it would become our money for us to do with it as we will, acknowledging that we did have legal obligations to pay a licence fee, in our submission, is pushing the principle further than it has ever been pushed before.  No point, however, of general importance arises simply because of the novelty of the case unless it can be seen that there is something ‑ ‑ ‑

GAUDRON J:   In many respects the case is not novel at all, is it?

MR WALKER:   In our submission, your Honour, it is an extremely straightforward case of contract where the contract excludes any possibility of money had and received and where the contract and its commercial setting excludes any possibility of either a fiduciary, quasi‑fiduciary or any other source of trust obligation being imposed and it is for those reasons, in our submission, that far from a general issue arising, it is a particularly straightforward instance of people having paid money knowing of a risk that part of what they were paying would not need to be devoted to the assumed purpose on both sides of the transaction, accepting that risk because they got the whole of the intended commercial benefit by the delivery of the tobacco which, of course, was delivered and which, according to the top of page 29 of the application book, was resold at a profit.

For those reasons, notwithstanding the novelty of the way my learned friend puts it, it is not a case which raises any general point which is deserving of special leave from this Court.

GLEESON CJ:   In this case there will be a grant of special leave to appeal.

MR WALKER:   May it please the Court.

MR GAGELER:   If the Court pleases.

AT 2.30 PM THE MATTER WAS CONCLUDED