DAVID SECURITIES PTY LIMITED & ORS v COMMONWEALTH BANK OF AUSTRALIA

Members: Mason CJ

Brennan J
Deane J
Dawson J
Toohey J
Gaudron J
McHugh J

Tribunal:
Full High Court

Decision date: Judgment handed down 7 October 1992

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Brennan J

Gratefully adopting the statement of facts and issues in the majority judgment, I respectfully agree with their Honours that:

(1) Section 261 of the Income Tax Assessment Act 1936 (Cth) operates to render void cl. 8(b) of the loan agreements between the respective borrowers and the Bank.

(2) This Court cannot be satisfied that the evidence in the case supports the ``finding'' by the Full Court of the Federal Court that the borrowers -

``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.''

I also agree that the order to be made on the appeal depends on the resolution of the third issue, namely, if the moneys supposedly due under cl. 8(b) (which I shall call the ``tax equivalent'') were paid to the Bank by the respective borrowers under the mistake that cl. 8(b) legally obliged them to make the payment, are the respective borrowers entitled to restitution?

In order to address this issue, I would add some observations to their Honours' reasons for holding that cl. 8(b) of the loan agreements contains an ``obligation'' and thus attracts the operation of s. 261 of the Income Tax Assessment Act. The loan agreements provided that, although the facility was to continue for the ``availability period'' (defined in cl. 1), the Bank's obligation to renew the loan at the end of each ``interest period'' (also defined in cl. 1) falling within the availability period was contingent on the respective borrowers' payment of the tax equivalent under cl. 8(b): cl. 8(c)(ii). The sanction for non-payment of the tax equivalent was not liability in damages for breach of contract (cl. 8(c)(i)) but the loss of the contractual right to renew the advance for the ensuing interest period. The Bank was empowered to abbreviate the ``availability period'' but it did not do so. Perhaps the power to do so was not at large. At all events, cl. 2(d) continued to impose on the Bank an obligation to renew contingent on the respective borrowers' due payment of the tax equivalent. The sanction of the loss of the contractual right to renew is sufficient to stamp the character of an obligation on cl. 8(b). If that be accepted, however, two further questions arise: first, when s. 261 of the Income Tax Assessment Act avoids the obligation in cl. 8(b), what effect does the avoidance have on the Bank's obligation to renew that is contingent on the respective borrowers' performance of cl. 8(b); and, second, if the respective borrowers are now to have restitution of the tax equivalent, is the Bank entitled to counter-restitution? ^[104] Birks, An Introduction to the Law of Restitution , (1989), pp. 423-424.

The effect of s. 261 is not the same as the effect of a statute which makes the performance of a contractual obligation illegal: it does not invalidate obligations which are dependent upon performance of the illegal obligation. The purpose of s. 261 is confined to the relief of mortgagors; it is not intended to relieve mortgagors of a liability and thereby to expose them to another, perhaps more onerous, liability. The section avoids the mortgagor's obligation to pay tax or the equivalent of tax, but it is not intended to trigger the clauses of a mortgage that provide a sanction for a mortgagor's failure to discharge the obligation to pay tax or the equivalent of tax. Section 261 relieves mortgagors without penalty: it does not accelerate, or enliven a mortgagee's right to accelerate, the repayment of a mortgage debt. It follows that, when cl. 8(b) is made void by operation of s. 261 of the Income Tax Assessment Act , it does not bring down cl. 2(d). Clause 8(b) and (c)(ii) are both nullified, but the Bank remained under a contractual obligation to renew advances until the availability period expired.

The tax equivalent may have been paid by the respective borrowers under a mistake of law, but it cannot be recovered as a payment made for a consideration that has totally failed. A consideration in this context is ``the benefit bargained for under the contract or purported

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contract''. ^[105] Rover International Ltd. v. Cannon Film Ltd. [1989] 1 W.L.R. 912 , at p. 923 . The benefit for which the respective borrowers bargained by promising to pay the tax equivalent was the right to renew advances during the availability period and they have had the benefit of that right to the full. Section 261 did not nullify cl. 2(d) and the performance of that obligation by the Bank was therefore good consideration. ^[106] Cf. Lipkin Gorman v. Karpnale Ltd. [1991] 2 A.C. 548 , at p. 575 , where performance of a gaming contract was held to be not good consideration. The only consequence of the respective borrowers having had the benefit of renewal is to focus attention on the category of restitution into which this case must fall if the respective borrowers are entitled to any relief. Payments made under a mistake and payments made for a consideration that has totally failed are distinct categories but both are subsumed under the heading of unjust enrichment as Lord Wright pointed out in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. ^[107] [1943] A.C. 32, at p. 61. although his Lordship was there speaking only of mistakes of fact:

``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. 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. The root idea was stated by three Lords of Appeal, Lord Shaw, Lord Sumner and Lord Carson, in R. E. Jones, Ld. v. Waring & Gillow, Ld. , ^[108] R E Jones, Ld v Waring & Gillow, Ld [1926] A.C. 670 , at p. 696 . which dealt with a particular species of the category, namely, money paid under a mistake of fact. Lord Sumner referring to Kelly v. Solari , ^[109] (1841) 9 M. & W. 54 [152 E.R. 24]. 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, said: `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 the law. Another class is where, as in this case, there is prepayment on account of money to be paid as consideration for the performance of a contract which in the event becomes abortive and is not performed, so that the money never becomes due. There was in such circumstances no intention to enrich the payee.''

(Emphasis added.)

In Pavey & Matthews Pty. Ltd. v. Paul ^[110] (1987) 162 C.L.R. 221, at pp. 256-257. Deane J. described the concept of unjust enrichment as ``a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff''. If, under a mistake, money is paid to and unjustly enriches a payee, the payer's right to recover the amount paid accrues at the moment when the payee received the money. By contrast, a payment made for a consideration that totally fails is not affected by any operative mistake: it is made in order to obtain the consideration bargained for. The payer acquires no right to recover when the payment is received, but only when the consideration totally fails. The very hypothesis which makes it unjust for the payee to retain the payment when the consideration fails is that the payer has received no part of the contractual benefit for which the payment was made. There are cases which appear to fall into both categories - for example, where money is paid as the price of goods sold in ignorance of the fact that the goods have perished - but, on analysis, cases of that kind will reveal one mistake affecting the formation of the contract under which the payment is purportedly made and a mistake as to the existence of the contract pursuant to which the payment is made. <sup>[111]</sup> Birks, op. cit., pp. 151-152. If a case should occur where a payment is recoverable as having been made both under a mistake and for a consideration that has totally failed, the facts would reveal both a receipt which unjustly enriches the payee and a failure by the payer to acquire the contractual benefit for which the payment was made. The point of distinguishing the two categories of unjust enrichment is this: ``consideration'', when given for a payment made under a mistake, is a benefit given at or prior to the receipt by the payee: at that moment it can be determined whether and to what extent the payee has been unjustly enriched. On the other hand, ``consideration which has totally failed'' refers to a benefit under a contract or purported contract that the payee has totally failed to give during the period available for contractual performance. It is therefore a fallacy to conflate the two categories and to find a total failure of consideration to be an element common to both.

Assuming for the purpose of considering the third issue that the respective borrowers paid the Bank the tax equivalent because, as the Full

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Court found, ``they regarded themselves as legally obliged to make [the payment] pursuant to their contractual and security arrangements with the Bank'', the proposed category of restitution to be considered is not payment for a consideration that has totally failed. The consideration bargained for was renewal of the advances when an interest period expired during the currency of the availability period. As it turned out, the respective borrowers were not obliged in law to pay for that consideration: s. 261 so operated. But that is not to the point. The point is that the respective borrowers got precisely what they bargained for but they were not obliged to pay for it. The payment of the tax equivalent was not for a consideration that totally failed; it was paid under the mistake that it was due and payable. The mistake, if mistake there was, arose from ignorance of the operation of s. 261 of the Income Tax Assessment Act. The category of restitution proposed for consideration in this case is payment under a mistake of law. To determine whether it is right to admit a remedy in restitution for payments made under a mistake of law, it is relevant to consider the conception of unjust enrichment which is present in all cases in which the common law action for moneys had and received lies to recover money paid by a plaintiff to a defendant.

Unjust enrichment in cases of payment under a mistake

In South Australian Cold Stores Ltd. v. Electricity Trust of South Australia ^[112] (1957) 98 C.L.R. 65, at p. 75. this Court, in reference to the rule under which an action for money had and received lies in cases of payment by mistake, said:

``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.''

The notion that unjust enrichment is the essential requirement of an action to recover money paid under a mistake appears more recently in the judgment of this Court in Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation : ^[113] (1987-1988) 164 C.L.R. 662, at p. 673.

``The basis of the common law action of money had and received for recovery of an amount paid under fundamental mistake of fact should now be recognized as lying not in implied contract but in restitution or unjust enrichment: see, generally, Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. ; <sup>[114]</sup> [1943] A.C., at pp. 61-64. Goff & Jones; <sup>[115]</sup> The Law of Restitution , 3rd ed. (1986), p. 5ff. Birks. <sup>[116]</sup> ``English and Roman Learning in Moses v. Macferlan '', Current Legal Problems , vol. 37 (1984), p. 1. ... It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in the hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution. Before that prima facie liability will be displaced, there must be circumstances (e.g., that the payment was made for good consideration such as the discharge of an existing debt or, arguably, that there has been some adverse change of position by the recipient in good faith and in reliance on the payment) which the law recognizes would make an order for restitution unjust.''

This citation omits, inter alia, a sentence speaking of ``compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment''. That sentence raises a question as to the availability of restitution as a remedy in cases where the plaintiff is not seeking a return of money or property with which the plaintiff has parted. That is not the present case and the problems which arise in those cases can be left for another day. A plaintiff's right to restitution of a payment made under a mistake may be lost, even if the defendant has been unjustly enriched by receipt of the money, where supervening circumstances give rise to an overriding defence, e.g., estoppel. The passage cited from Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation contemplates a possible change of position defence. That defence has now been accepted in England. ^[117] Lipkin Gorman v. Karpnale Ltd. Leaving aside defences that arise from supervening circumstances, the essential condition for an order for restitution of money paid by mistake is that the receipt of the payment by the defendant has unjustly enriched the defendant at the expense of the plaintiff. What is meant by unjust enrichment?

In essence, to say that a defendant has been unjustly enriched by the receipt of a payment is to say that the defendant has no right to receive it. Palmer ^[118] The Law of Restitution , (1978), vol. III, p. 144, par. 14.1, fn. 4. translates the judgment in an

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ancient case ^[119] Bonnel v. Foulke (1657) 2 Sid. 4 [ 82 E.R. 1224 ]. as holding ``if I pay money in satisfaction of a duty, and he to whom it is paid has no title to receive it, and so the duty is not satisfied, he to whom the money is paid is thereby indebted to me''. If a defendant has a right to receive a payment, whether under a statute, in discharge of a liability owing to him or pursuant to a contract, ^[120] The position of a defendant authorized to receive a payment on behalf of a third person need not now be addressed, but see Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation . a mistake by the plaintiff in making the payment does not convert the receipt into an unjust enrichment. ^[121] See Aiken v. Short (1856) 1 H. & N. 210 , per Pollock C.B. and Platt B. at pp. 214-215 [ 156 E.R. 1180 , at pp. 1181-1182 ]. To the extent that a payment satisfies a defendant's right to receive it, the defendant gives good consideration and is not unjustly enriched. If the defendant receives more than his due, he may be unjustly enriched to the extent of the excess and restitution may be ordered pro tanto. ^[122] e.g., Devaux v. Conolly (1849) 8 C.B. 640 [ 137 E.R. 658 ]; Anglo-Scottish Beet Sugar Corpn Ltd v. Spalding U.D.C. [1937] 2 K.B. 607 ; York Air Conditioning and Refrigeration (A/sia) Pty. Ltd. v. The Commonwealth (1949) 80 C.L.R. 11 . Apart from cases where a payment is made by mistake to satisfy a defendant's supposed right to receive it, a plaintiff may mistakenly make a payment by way of gift, not intending to acquire a benefit or discharge a liability. If the payer would not have paid the money had the payer known all the relevant circumstances, both legal and factual, the defendant is unjustly enriched by the receipt. In principle, there seems to be no reason - though there are cases to the contrary ^[123] per Bramwell B. in Aiken v. Short (1856) 1 H. & N., at p. 215 [156 E.R., at p. 1182] ; cf. South Australian Cold Stores Ltd. v. Electricity Trust of South Australia (1957) 98 C.L.R. at p. 75 . - why the donor should not be entitled to restitution in such a case. It is not necessary to decide that question now. Again, when a plaintiff has paid money for a consideration that has totally failed, the defendant's unjust enrichment consists in his retaining money which, when the consideration fails, he no longer has any right to retain. ^[124] Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C., at p. 65 . Enrichment is unjust because the defendant has no right to receive or, as the case may be, to retain the money or property which the plaintiff has paid or transferred to him. ^[125] Restitution lies when property has passed: Barclays Bank Ltd v. W. J. Simms Son & Cooke (Southern) Ltd. [1980] Q.B. 677 , at p. 689 . If mistake affects the passing of the property, the plaintiff may be entitled to proprietary remedies.

When a defendant receives a payment which he has no right to receive and which the plaintiff has paid to him by mistake, the injustice of the defendant's enrichment does not depend on the nature of the mistake that caused the payment to be made. Whether the plaintiff made a mistake of law or a mistake of fact, the defendant, having no right to receive the payment, is unjustly enriched by its receipt. Then should the distinction between the two categories of mistake make any difference to a finding of unjust enrichment? In Hydro Electric Commission of Nepean v. Ontario Hydro ^[126] (1982) 132 D.L.R. (3d) 193, at p. 209. Laskin C.J.C. concurred in the judgment and it commanded the assent of Lamer, Wilson, La Forest and L'Heureux-Dub é JJ. in Air Canada v. British Columbia (1989) 59 D.L.R. (4th) 161 , at pp. 168, 191 . Dickson J., in a notable dissenting judgment, said:

``Once a doctrine of restitution or unjust enrichment is recognized, the distinction as to mistake of law and mistake of fact becomes simply meaningless.''

The statement may be too broad but I respectfully agree with the reasons of their Honours in the majority in the present case for rejecting the distinction between a mistake of fact and a mistake of law as critical to the question whether the defendant has been unjustly enriched. But that is not to say that the distinction is immaterial to the question whether there has been a mistake of the kind which entitles the plaintiff to restitution. The distinction between mistakes of fact and mistakes of law is material to the question whether a payment is ``voluntary'' and, on that account, is irrecoverable.

Voluntary payments and mistakes of law

In Woolwich Equitable Building Society v. IRC ^[127] [1992] 3 W.L.R. 366, at pp. 384-385. Lord Goff of Chieveley said:

``Where a sum has been paid which is not due, but it has not been paid under a mistake of fact or under compulsion... it is generally not recoverable. Such a payment has often been called a voluntary payment. In particular, a payment is regarded as a voluntary payment and so as irrecoverable in the following circumstances:

• (a) The money has been paid under a mistake of law... See e.g., Slater v. Burnley Corporation , ^[128] Slater v Burnley Corporation (1888) 59 L.T. 636 . and National Pari-Mutuel Association Ltd. v. The King .'' ^[129] National Pari-Mutuel Association Ltd v R (1930) 47 T.L.R. 110 .

His Lordship added other paragraphs descriptive of classes of voluntary payments. The dichotomy between voluntary payments which are irrecoverable and payments made under a mistake or under compulsion which are recoverable can be found as far back as Cartwright v. Rowley . ^[130] (1799) 2 Esp. 723, at p. 723 [170 E.R. 509, at p. 510]. It is not surprising that payments made under a mistake of law have been treated as a class of voluntary payments. That has been a convenient legal mechanism for holding such payments to be irrecoverable. To admit mistake of law as a ground for restitution in any case in which a mistake of fact would ground such a remedy would render many payments insecure even in cases where both parties expected the payment to be final: the uncertainty of the law and the overruling of decisions by later cases or on appeal would infect many payments with a provisional quality

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incompatible with orderly commerce. Moreover, while mistakes of fact are specific to particular relationships, the revealing of a mistake of law in one case could throw into uncertainty the finality of payments made in a great variety of cases. Although payments made under a mistake of law should not be excluded entirely from the categories of cases in which restitution may be ordered, something more than a mere mistake of law is required before the remedy is available. As Lord Denning said in Kiriri Cotton Co. Ltd. v. Dewani : ^[131] [1960] A.C. 192, at p. 204.

``The true proposition is that money paid under a mistake of law, by itself and without more, cannot be recovered back.''

The problem, of course, is to articulate the elements additional to a mere mistake of law that entitle a plaintiff to restitution or preclude recovery of the money paid under a mere mistake of law. That problem, it should be said immediately, does not affect payments made in compromise of contested claims. When a claim is settled by accord and satisfaction, a payment made in satisfaction is made in discharge of an obligation created by the accord: it is unaffected by any mistake as to the validity of the claim compromised.

Cases of compromise apart, a number of factors have been proposed to limit the cases in which mistake of law will ground recovery. Their Honours in the majority judgment consider and discard two suggested criteria: first, that the mistake should be as to the legal liability of the plaintiff to make the payment; and, second, that the mistake be fundamental. I respectfully agree. The judgments in Porter v. Latec Finance (Qld.) Pty. Ltd. establish that a mistake as to legal liability is not essential and, although those judgments describe the requisite mistake as ``fundamental'', ^[132] (1964) 111 C.L.R. 177, at pp. 187, 190, 204. the case did not turn on the fundamental character of the respondent's mistake but on whether that mistake in truth caused the payment to the appellant to be made. In Australia and New Zealand Banking Group Ltd v. Westpac Banking Corporation ^[133] (1987-1988) 164 C.L.R., at pp. 671-672. the Court said:

``we can see no reason to doubt the correctness of the view expressed or implicit in the judgments in the courts below to the effect that the notion of `fundamental mistake' does not require either that the payer's mistake be shared by the payee or that the mistake be as to the existence of a fact which, if it had existed, would have resulted in the payee being under a legal obligation to make the payment: see Commercial Bank of Australia Ltd. v. Younis ; ^[134] [1979] 1 N.S.W.L.R. 444, at pp. 447-450. Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. ; ^[135] [1980] Q.B., at pp. 686-694. Bank of New South Wales v. Murphett . ^[136] [1983] 1 V.R. 489, at pp. 491-492, 494-495. That having been said, it is preferable to leave for another day consideration of the question whether the requirement that the mistake be fundamental involves any more than that it appears that, without the mistake on the part of the payer, the payment would not have been made: cf., e.g., Porter ^[137] Porter v. Latec Finance (Qld.) Pty. Ltd. (1964) 111 C.L.R., at pp. 186-187, 204. and Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. '' ^[138] [1980] Q.B., at pp. 694-696.

The term ``fundamental'' lacks sufficient specificity to be invoked as a working criterion of mistakes that ground recovery. ^[139] Goff & Jones, op. cit., p. 88. What is essential to a claim in restitution is that the mistake be a cause of the payment to be recovered. If the payer would have made the payment even if the mistaken fact or mistaken operation of law had been known, the money paid is not recoverable on the ground of that mistake.

Regretfully, I am unable to accept the proposal in the majority judgment that payments made in satisfaction of an honest claim should be classified as ``voluntary'' and, on that account, be held to be irrecoverable. Such a definition of irrecoverable payments is at once too broad and too narrow. It is too broad because it is capable of including payments under compulsion or duress and, in cases of mistake of fact, it precludes recovery in cases where it is undoubted that restitution lies. All that the definition requires is that the payee should make a claim honestly and the payment be made in satisfaction of the claim. If the case stated in Porter v. Latec Finance (Qld.) Pty. Ltd. had been understood as Kitto J. understood it (that is, Latec on its own behalf paid Porter the amount required to secure a discharge of the purported mortgage held by Porter and to obtain possession of a clear certificate of title), the payment by Latec to Porter would have been made in satisfaction of Porter's honest claim but Latec would nevertheless have been entitled to recover the money paid under the mistake that Porter held a valid mortgage. ``Voluntary'' is a term descriptive of the state of mind of the payer. It is essential to retain the state of mind of the payer as the criterion of voluntariness in order to distinguish voluntary payments from

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payments made, for example, under compulsion, duress or undue influence. It is inappropriate to define the term by reference to the state of mind of the payee. That is not to say that payments made under a mistake of law in satisfaction of an honest claim should not be protected. To the contrary, they should be protected but, in my respectful opinion, not by characterizing such payments as voluntary.

So long as mistake of law was excluded as a ground for recovery of a payment, it was appropriate to use the term ``voluntary'' to indicate the state of mind of a payer who, having full knowledge of the material facts, is consciously unaware of the relevant law but chooses to pay a demand honestly made. <sup>[140]</sup> See Kelly v. Solari . In that event, as P.A. Butler points out: <sup>[141]</sup> ``Mistaken Payments, Change of Position and Restitution'', in Essays on Restitution , ed. Professor P.D. Finn (1990), p. 95.

``there is simply no operative mistake forming part of the facts founding recovery; that is, the money is irrecoverable as being paid in the settlement of an honest claim. The principle embodied here may be called the `voluntary settlement' principle.''

When such a voluntary settlement is made, the payer consciously abandons any right to impeach the finality of the payment. But, once a mere mistake of law is admitted as a prima facie ground for recovery of a payment, the payer has, so to speak, reserved a right to impeach the finality of the payment if it should turn out that the payee had no right to receive it. Of course, if a plaintiff consciously waives any right to impeach a payment if the law should turn out to be different from what the payee assumes it to be and intends to satisfy the payee's honest demand in any event, any mistake of law that emerges is not causative and it is right to describe such a payment as voluntary. But such a case would be exceptional. The ordinary case of payment under a mistake of law arises when the payer and the payee make an erroneous assumption as to the existence of an obligation and the error of law is subsequently revealed to both. It would lead to great uncertainty if the payer should be entitled to recover the money paid in every case of that kind. Gibbs J. sought to avoid this result in Brisbane v. Dacres ^[142] (1813) 5 Taunt. 143, at p. 152 [128 E.R. 641, at p. 645]. by bundling all payments under a mistake of law into the class of voluntary submissions to claims:

``We must take this payment to have been made under a demand of right, and I think that where a man demands money of another as a matter of right, and that other, with a full knowledge of the facts upon which the demand is founded, has paid a sum, he never can recover back the sum he has so voluntarily paid. It may be, that upon a further view he may form a different opinion of the law, and it may be, his subsequent opinion may be the correct one. If we were to hold otherwise, I think many inconveniences may arise; there are many doubtful questions of law; when they arise, the Defendant has an option, either to litigate the question, or to submit to the demand, and pay the money. I think, that by submitting to the demand, he that pays the money gives it to the person to whom he pays it, and makes it his, and closes the transaction between them.''

Latham C.J. in Werrin v. The Commonwealth ^[143] (1938) 59 C.L.R. 150, at p. 159. See also per McTiernan J. at p. 168. stated the principle in similar terms:

``The principle appears to me to be quite clear that if a person, instead of contesting a claim, elects to pay money in order to discharge it, he cannot thereafter, because he finds out that he might have successfully contested the claim, recover the money which he so paid merely on the ground that he made a mistake of law.''

The fallacy in this approach is that many payments, without conscious adversion to the relevant law, would not have been made had the payer known the true legal position. Such payments are no more voluntary than payments made under a mistake of fact when the payer does not have full knowledge of the facts when the payment is made. Many cases of payments that turn out to have been made under a mistake of law are made simply by an omission to consider the law: they cannot realistically be treated as payments made in submission to a claim. Professor Birks reminds us that ^[144] (1989), op. cit., p. 166. -

``Not only are there many doubtful questions of law, there are also many decent people and institutions whose habit is to meet their liabilities without waiting to be hounded, and necessarily they meet the liabilities they think they see. Mistakes only come out later. Since the law is often misunderstood and even changes under foot, recipients have a special need for security whether they actively claim... or passively receive.''

If it be desirable to introduce a principle to protect the finality of payments made under a mistake of law in satisfaction of what, to the

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mind of the payee, is an honest claim of right, it is not satisfactory to press into service the concept of voluntary payments. The principle should be dressed in modern attire rather than in an older garb that will not fit.

The reason for introducing any limitation on restitution of payments made under a mistake of law should be identified: it is to achieve a degree of certainty in past transactions. ^[145] See per Estey J. in Hydro Electric Commission of Nepean v. Ontario Hydro (1982) 132 D.L.R. 193 , at p. 243 . Unless some limiting principle is introduced, the finality of any payment would be as uncertain as the governing law. How should the limiting principle be stated? The Restatement of the Law of Restitution ^[146] American Law Institute (1937), p. 186. proposes a rule of ``honest claim'' in these terms:

``It is not essential to retention that the transferee demand performance; he is entitled to retain what he has received if, because of a mistake of law, he does not know when he learns of the transfer and for what it was given, that he was not entitled to it. On the other hand, if he has no substantial doubt as to the law and believes that the transfer is made because of the other's ignorance of the law, his non-disclosure is fraudulent and he is not entitled to retain what is given.''

Whether the principle be stated positively (``an honest claim'') or negatively (``does not know that he was not entitled''), it is right in my opinion to state it in terms of the state of mind of the payee at the time when he learns of the receipt of the payment. Then (or, at the latest, shortly thereafter) the payee acquires title to the money paid or property transferred and becomes enriched by the receipt.

The limiting principle will be applicable only in cases where the plaintiff has made a payment under a mistake of law and the defendant has no right to receive it. The principle will therefore be invoked to rebut a prima facie right to restitution. Stated in terms of the defendant's state of mind, the onus of establishing the applicability of the principle must rest on the defendant. If the principle be seen as a defence to a claim in restitution for a payment made under a mistake of law, it is unnecessary to consider whether the payer has made the payment in submission to the payee's demand or not. Such a defence, focusing on the payee's state of mind, is best formulated in accordance with what Lord Mansfield said in Bize v. Dickason : ^[147] Bize v Dickason (1786) 1 Term Rep 285 , at p. 287 [ 99 E.R. 1097 , at p. 1098 ].

``where money is paid under a mistake, which there was no ground to claim in conscience, the party may recover it back again by this kind of action.''

The protection which the principle should give to a payee who, on a true understanding of the governing law, has been unjustly enriched by the payment, should impose on the payee the onus of proving that, when he learnt of the payment, he had a ``ground to claim in conscience''. I would therefore state the principle thus:

It is a defence to a claim for restitution of money paid or property transferred under a mistake of law that the defendant honestly believed, when he learnt of the payment or transfer, that he was entitled to receive and retain the money or property.

Three observations should be made about this formulation. First, it restores the distinction between mistake of fact and mistake of law which is no longer determinative of the question of unjust enrichment. Unless restitution for mistake of fact is to be curtailed, or restitution for mistake of law is to unsettle commercial transactions to an unacceptable extent, I see no formula which would eliminate the distinction entirely, however unsatisfactory the distinction may be. ^[148] Cf. Goff & Jones, op. cit., p. 119, who suggest that ``the principle in Bilbie v. Lumley [(1802) 2 East, 469 [102 E.R. 448]] should only preclude recovery of money which was paid in settlement of an honest claim''. The suggestion thus relates solely to payments made under a mistake of law. Secondly, the defence applies pro tanto; it does not apply to any part of the money or property which the defendant did not honestly believe himself to be entitled to receive and retain. Thirdly, if money paid under a mistake of law is not received in satisfaction of an honest claim of right, it may not be possible to raise a defence of change of position, assuming that that defence is available, in claims for restitution of money paid under a mistake of law. ^[149] See the Restatement on Restitution , supra p. 13. This is a question which cannot be resolved in advance of a case in which the facts call for a resolution.

The defence of receipt in satisfaction of an honest claim of right is necessarily subject to the operation of any relevant statute. Where the mistake under which the payment is made consists in the payer's ignorance of a statute which, in protection of a class of which the payer is a member, absolves the payer of the obligation to pay, the mistake of the payee who receives the payment honestly claiming it to be his due does not entitle the payee to retain it. If it were otherwise, an honest but mistaken claim by the payee would frustrate the operation of the statute. In the present case, s. 261 does not

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prohibit the payment of the tax equivalent and it is therefore beside the point to enquire whether the parties are in pari delicto. Section 261, which is clearly a provision in protection of mortgagors, simply avoids an obligation on mortgagors to pay the tax equivalent. If, as Kitto J. held in South Australian Cold Stores Ltd. v. Electricity Trust of South Australia , ^[150] (1965) 115 C.L.R., at pp. 257-258 — a case where the statute created an offence. the payer is a member of a class protected by the statute, the payer is entitled to succeed in an action to recover the money paid under a supposed obligation nullified by the statute. ^[151] Cf. Kiriri Cotton Co. Ltd. v. Dewani [1960] A.C. 192 , at pp. 204-205 . It follows that, if the tax equivalent was paid by the respective borrowers under the mistake that they were obliged to do so by the applicable loan agreement, they are entitled now to recover the money so paid.

No question of counter-restitution arises in this case. By operation of s. 261 of the Income Tax Assessment Act , the Bank was contractually bound without payment of the tax equivalent to renew the advances during successive interest periods throughout the availability period. If the respective borrowers are now entitled to restitution in the amount of the tax equivalent, the Bank has not been prejudiced: it simply performed its contractual obligation. What the Bank might have done had it not received payment of the tax equivalent in accordance with cl. 8(b) is irrelevant to any issue. Equally irrelevant is any expectation entertained by the respective borrowers dehors the loan agreements as to what they might or would receive for paying the tax equivalent. The only consideration they received was performance by the Bank of the loan agreements and, by operation of s. 261, they were entitled to that without payment of the tax equivalent.

In the present case, there remains for determination by a trial judge only this issue:

Did the respective borrowers pay the tax equivalent to the Bank under the mistake that they were obliged to do so by the loan agreements?

If the answer is in the affirmative, judgment should be for the respective borrowers; if in the negative, for the Bank. Had the Bank received the tax equivalent in satisfaction of its honest claim to receive it and had the mistake under which the payment was made been a mistake of law that arose otherwise than by operation of a statute enacted for the protection of a class including the payers, there would have been a second issue to be found:

Was payment received by the payee in satisfaction of an honest claim of right?

I would join in making the orders proposed by their Honours in the majority judgment, but I would limit the questions to be remitted to those identified in the proposed order as (a) and (b).