HIGH COURT OF AUSTRALIA
Roxborough and Ors v Rothmans of Pall Mall Australia Limited
[2001] HCA 68
Gleeson CJ, Gaudron, Gummow, Kirby, Hayne and Callinan JJ
6 December 2001 - Canberra
Gleeson CJ, Gaudron and Hayne JJ. For many years, States, including New South Wales, imposed what was in substance, even if supposedly not in form, an indirect tax upon tobacco products. The burden of the tax was intended to be, and was, passed on to the consumers of those products. If the tax were a duty of excise, then it was invalid, because the power of the Commonwealth Parliament to impose such duties is exclusive (Constitution, s 90 ). The form of the tax, which it was hoped would sustain a conclusion that it was not a duty of excise, involved the imposition of periodic licence fees upon wholesalers and retailers of tobacco products, such fees being calculated by reference to the value of tobacco sold by a licensee during a period preceding the period for which a licence was issued. In calculating the value of tobacco sold by a licensed retailer, the value of tobacco purchased from a licensed wholesaler was to be disregarded if the wholesaler had paid, or was liable to pay, a licence fee in respect of that tobacco.
2 It is presently immaterial to go into the reasons why it was thought that such a tax might not be a duty of excise. In Ha v New South Wales [1] this court held that it was a duty of excise, and that the New South Wales legislation pursuant to which it was imposed was invalid.
3 Before the legislation was declared invalid, licensed retailers of tobacco (such as the appellants) and licensed wholesalers (such as the respondent) conducted their business dealings upon a basis which reflected the importance, and size, of the tax. At the relevant time, the periodic licence fee was a nominal amount plus 100 % of the value of tobacco sold during the earlier period by reference to which the licence fee was calculated. [2] Wholesalers, in a manner which will require closer examination, included the tax in their charges to retailers; and the price of tobacco products to consumers, although determined ultimately by market forces, inevitably reflected the substantial impost which entered into the costs of all retailers.
4 Licences were normally for a month. The relevant period, by reference to which licence fees were calculated, was the month commencing 2 months before the commencement of the month in which the licence expired. [3] Since sales during that period were the basis of calculation of the fees, and since it was the common expectation of wholesalers and retailers that the wholesaler would continue to maintain a licence, and would pay or become liable to pay a licence fee in respect of tobacco sold by wholesale (thereby producing the result that the value of that tobacco was disregarded in calculating the retailer ' s licence fee), prices charged by a wholesaler to a retailer involved, in practical effect, payments to the wholesaler in anticipation of licence fees to be incurred at a future time. The amounts of those payments, like other costs of the retailer, affected the prices retailers charged to consumers. On 5 August 1997, when the taxing legislation was declared invalid, amounts had been paid by the appellants, to the respondent, in respect of tobacco products supplied by the respondent since 1 July 1997, which had been identified on the respondent ' s invoices as "tobacco licence fee" . If the legislation had been held to be valid, equivalent amounts would have been paid by the respondent to the revenue authorities when the respondent ' s licence was renewed. In the events that occurred, the respondent did not have to make those payments. The appellants claimed to be entitled to repayment of those amounts. That claim failed at first instance in the Federal Court, [4] and again, by majority, in the full court of the Federal Court. [5]
5 In all probability, whoever succeeds in these proceedings will have made a windfall gain. In the absence of some legislative intervention, the appellants, if they succeed, are unlikely to be obliged to pass on the fruits of their success to the smokers who bore the financial burden of the invalid tax. For its part, the respondent has collected what was held to be a tax on goods, but it has not had to pay it over to the revenue authorities. Leaving the cards to lie where they fall is a possible approach; one which, Lord Shaw of Dunfermline once said, "works well enough among tricksters, gamblers, and thieves" . [6] It may also work well enough in cases where there is no contractual or other relationship between the parties, and no coherent legal principle to dictate any other outcome. But here we are concerned with reputable commercial people, who entered into ordinary business dealings, and whose expectations were defeated by the supervening illegality of one aspect of those dealings. They made contracts. The justice of the situation in which they now find themselves must lie in the principles of law and equity which governed their dealings. Those principles, in turn, must be related to the contracts into which they entered. The contracts, both in form and in substance, were strongly influenced by the prevailing fiscal regime.
6 The details of the legislative scheme for the imposition of the tobacco tax are set out in the reasons for judgment of Gummow J, as are the facts concerning the contractual arrangements between the parties. As they appear to us, the most significant elements are as follows.
7 Although an attempt was made to represent it as a personal tax, in the nature of a fee for a licence, the tax was a tax on goods. That was the essence of the decision in Ha. [7]
8 In its operation in relation to sales by wholesale, the tax was imposed by reference to the value of tobacco sold during a relevant period by the wholesaler. The Minister administering the legislation was empowered to determine the basis upon which such value was to be ascertained. [8] The Minister determined that such value was to be ascertained by reference to a manufacturer ' s published wholesale list price from time to time, excluding any amount included in the selling price in consideration of a licence fee. Such exclusion was necessary, for otherwise there would be a tax upon a tax. Thus, separating the value of the tobacco from the tax was important, both to the fiscal regime, and to the commercial response to that regime.
9 The respondent published wholesale price lists in which it set out in one column (the third column), the wholesale list price per 1000 cigarettes, which was the value upon which the Minister ' s determination operated, and, in another column (the fourth column), the total wholesale cost per carton "including State licence fees 100 %" . This distinction between "price" and "cost" reflected the fact that the tax was imposed by reference to the wholesale value (price) but was to be passed on to the retailer (and ultimately to the consumer), and so formed part of the retailer ' s cost.
10 In order to deal regularly with the respondent, each appellant was required to sign a form of request for a commercial trading account. The form of request referred to the respondent ' s wholesale price list as varied from time to time, and provided that any increase in (amongst other things) excise duty between date of order and date of delivery would be payable by the retailer.
11 There was a standard form of invoice issued by the respondent to the appellants. It specified, in relation to each type of product sold, the wholesale price per 1000 cigarettes, being the price specified in the third column of the price list which, after adjustment for discounts (which no doubt reflected the bargaining strength of a particular retailer), went to make up an "invoice sale subtotal" . It specified separately the amount of the "tobacco licence fee" . The combined amount of the invoice sale subtotal and the tobacco licence fee was then shown at the foot of the invoice as "net total" . The net total was the amount payable by the retailer. It may be inferred that the form of the invoices was, in turn, related to the licensing scheme. The Business Franchise Licences (Tobacco) Regulation 1995 (NSW) made under the Business Franchise Licences (Tobacco) Act 1987 (NSW) required persons who carried on the business of selling tobacco to keep certain records, including records of the value of tobacco sold. The regulations provided that the records could be in the form of invoices or copies of invoices containing the required particulars. [9]
12 The part of the net total paid to the respondent by reference to the tax was thus shown separately from the wholesale price of the products sold. The nature of the tax, and the method by which it was imposed and collected, explain why that was done. The tax was an ad valorem tax on goods. The value of the goods had to be distinct from the tax. The tax was to be passed on to the retailer, and was to form part of the cost to the retailer of the goods. But in the documents which formed part of the ordinary course of dealing between the appellants and the respondent, and by reference to which their contractual rights and liabilities are to be determined, the parties distinguished between wholesale price, tax, and net total cost to the retailer.
13 The amounts paid by the appellants to the respondent in respect of the tax represented a distinct part of the consideration for the tobacco products purchased by the appellants. They were treated by both parties to each relevant contract as separate from the wholesale price of the goods sold, that price constituting the value by reference to which the amount of the tax was determined. And the tax, being a tax on goods, was of such a nature that it was not intended to be borne ultimately by either the appellants or the respondent. The tax increased the exchange value of the tobacco products in the hands of the retailers, but the initial value by reference to which the Minister ' s determination as to the basis of the tax operated was a wholesale price exclusive of the tax component. While the wholesale price, exclusive of the tax, was arrived at by the operation of forces of supply and demand in the market for tobacco products, and reflected the negotiated agreement of the parties, the tax was imposed externally by government.
14 The appellants based their case, in part, upon the principles underlying the common indebitatus count for money had and received by the defendant to the use of the plaintiff. The notes to the 1868 edition of E Bullen and S M Leake ' s Precedents of Pleadings, giving examples of cases where such a count would lie, said: [10]
Money paid by the plaintiff for a consideration that has failed , may be thus recovered …
…
The failure of consideration must be complete in order to entitle the plaintiff to recover the money paid for it … ; but where the consideration is severable, complete failure of part may form a ground for recovering a proportionate part of the money paid for it … ; as where a quantity of goods were ordered at a certain rate of payment, and only a portion was delivered. (Emphasis in original.)
15 Mason and Carter, in Restitution Law in Australia, point out that cases decided in relation to the common indebitatus counts, although they involved an implied contract analysis which is now out of date, "form the precedents which make up the legal matrix of restitution law" . [11] Lord Mansfield, in Moses v Macferlan, [12] referred to money paid "upon a consideration which happens to fail" as an example of money which, ex aequo et bono, a defendant ought to refund and, therefore, money for the recovery of which the count for money had and received lies.
16 Failure of consideration is not limited to non - performance of a contractual obligation, although it may include that. The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds, [13] show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared. [14] Deane J, referring to "the general equitable notions which find expression in the common law count" , gave as an example "a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it" . [15] In the case of money paid pursuant to a contract, it would involve too narrow a view of those "general equitable notions" to limit failure of consideration to failure of contractual performance. In the present case, the amount of the net total wholesale cost referable to the tax was, from one point of view, part of the money sum each appellant was obliged to pay to obtain delivery of the tobacco products. But there was more to it than that. The tax was a government imposition, in the form of a fee payable under a licensing scheme. The nature of the scheme was such that the licensed wholesaler, or, if not the wholesaler, then the licensed retailer, would pay the amount referable to particular tobacco products. The respondent, anticipating liability for the fee, required the appellants, when purchasing products by wholesale, to pay an amount equal to the fee. The appellants, in turn, had an interest in the respondent paying the fee to the revenue authorities, for they were thereby relieved of a corresponding liability. There was a purpose involved in the making of the requirement that the appellants pay the amounts described as "tobacco licence fee" , and in the compliance with that requirement. To describe those amounts as nothing more than an agreed part of the price (or, to use the language of the parties, cost) of the goods, is to ignore an important aspect of the facts.
17 In a contract for the sale of goods, the total amount which the buyer is required to pay to the seller may be expressed as one indivisible sum, even though it is possible to identify components which were taken into account by the parties in arriving at a final agreed figure. The final figure itself may have been the result of negotiation, making it impossible to relate a cost component to any particular part of that figure. Or there may be other factors which prevent even a notional apportionment. But there are cases, of which the present is an example, where it is possible, both to identify that part of the final agreed sum which is attributable to a cost component, and to conclude that an alteration in circumstances, perhaps involving a failure to incur an expense, has resulted in a failure of a severable part of the consideration. Here, the buyers, the retailers, were required to bear, as a component of the total cost to them of the tobacco products, a part of the licence fees which the seller, the wholesaler, was expected to incur at a future time, and which was referable to the products being sold. It was in the common interests of the parties that the fees, when so incurred, would be paid to the revenue authorities by the seller, and it was the common intention of the parties (and the revenue authorities) that the cost of the goods would include the fees. In the events that happened, the anticipated licence fees were not incurred by the seller. The state of affairs, which was within the contemplation of the parties as the basis of their dealings, concerning tax liability, altered. And it did so in circumstances which permitted, and required, severance of part of the total amount paid for the goods.
18 The case is not unlike that considered by the Court of Appeals of New York in Wayne County Produce Co v Duffy-Mott Co. [16] A war tax of 10 % was imposed on cider. A manufacturer sold a quantity of cider by wholesale, at a certain price per gallon, less a stated discount, plus the tax. The total amount was paid to the manufacturer, and the manufacturer remitted the tax to the government. Later, it was ruled that the particular product sold was not taxable, and the manufacturer recovered the tax from the government. The purchaser claimed to recover from the manufacturer that part of the amount paid for the cider which was referable to the tax. The Court of Appeals upheld the claim. Cardozo CJ, who delivered the reasons of the court, described the issue as being whether the money refunded to the manufacturer by the government was held "to the use of the plaintiff" . [17] He went on to say: [18]
This is not a case where the item of the tax is absorbed in a total or composite price to be paid at all events … This is a case where the promise of the buyer is to pay a stated price, and to put the seller in funds for the payment of a tax besides. In such a case the failure of the tax reduces to an equivalent extent the obligation of the promise.
19 The same idea may be expressed by saying that, in the present case, the failure of the tax involved the failure of a severable part of the consideration for which the net total amounts shown on the invoices were paid.
20 Although an attempt was made by the appellants to invoke an implied agreement under which they could claim repayment of any unpaid tax, it was artificial and unconvincing. The parties made no agreement, express or implied, about what was to happen if the tax was held to be invalid. If there is here a right to enforce repayment upon the basis of a failure of consideration, it is because, in the circumstances, the law imposes upon the respondent an obligation to make just restitution for a benefit derived at the expense of the appellants. [19] If there had been a total failure of consideration, because, for example, there had been a prepayment for goods which were never delivered, the respondent ' s duty to make restitution would have been clear. But there are 2 questions. The first is whether there has been a failure of a severable part of the consideration. The second is whether, in the absence of restitution, the respondent will retain money at the expense of the appellants. The second problem arises because the appellants have passed on the burden of the tax. According to the respondent, if the respondent has been enriched, then that has been at the expense, not of the appellants, but of the customers of the appellants, and justice does not require it to make restitution to the appellants.
21 It accords with the basis of dealing, and contractual arrangements, between the appellants and the respondent to regard that part of the net total amount of each invoice referable to the "tobacco licence fees" as a severable part of the consideration, which has failed. There is no conceptual objection to this. For the reasons already given, the tax component of the net total wholesale cost was treated as a distinct and separate element by the parties. It was externally imposed. It was not agreed by negotiation. It was not like the discounts, which might differ between retailers, just as the wholesale list price would vary from time to time in accordance with market conditions. To permit recovery of the tax component would not result in confusion between rights of compensation and restitution, or between enforcing a contract and claiming a right by reason of events which have occurred in relation to a contract. [20]
22 It then becomes necessary to consider the respondent ' s objection based upon the fact that, at least in a practical sense, the burden of the tax has been passed on by the appellants to their customers. The factual basis of this objection cannot be refuted. It is in the nature of an indirect tax that it enters into the cost of the goods the subject of the tax and is borne by the consumers of the goods. The conclusion that the character of the tax was that of a tax on tobacco rather than a personal tax on wholesalers and retailers was an important part of the reasoning leading to the decision that it was a duty of excise.
23 Although the factual basis of the objection is correct, it is necessary to be clear as to its legal frame of reference. It cannot be simply an assertion that the appellants lack merit. In that respect, their position is no worse than that of the respondent. It was put on the basis that any enrichment of the respondent is not at the expense of the appellants and that, in consequence, the equitable foundation for a claim for restitution does not exist. But this, in turn, assumes that, in the circumstances of a case such as the present, it would only be unconscionable of the respondent to withhold repayment of the amounts referable to the tax if the appellants, for their part, were ultimately left impoverished to that extent. It is clear that, in a direct and immediate sense, the payments were made by the appellants, out of their own funds, to the respondent. They did not pay the amounts as agents, on behalf of third parties. The consumers of cigarettes, in an economic sense, bore the burden of the tax, but they were never legally liable as taxpayers. The appellants themselves were taxpayers under the licensing scheme, although if the respondent paid, or became liable to pay, tax in respect of particular tobacco products, the value of those products was disregarded in calculating the appellants ' licence fees. And the respondent passed the tax on to the appellants, not merely in an economic sense, but also by the express terms of the dealings between the parties. They dealt on the basis that the appellants would pay to the respondent an amount equal to that part of the respondent ' s "tobacco licence fees" referable to the products sold to the appellants.
24 There having been a failure of a distinct and severable part of the consideration for the net total payments made by the appellants to the respondent, then, as between the parties to the payments, the respondent has no right to retain the amounts in question. If the tobacco products in question remained unsold by the appellants at the time the claims for repayment arose for determination, the respondent ' s obligation to make restitution would be clear. Why does it make a difference to the conscientiousness of the respondent ' s retention of the moneys that the products were sold by the appellants at prices that had the practical effect of recouping the expense they bore in paying the "tobacco licence fees" ? The holders of licences were those upon whom the tax was imposed, but they were always intended to pass the tax on to the consumers. As between the licensees, it was the appellants who incurred the expense, in that they were charged, and paid, a severable amount for the purpose of the tax.
25 The decision of this court in Comr of State Revenue (Vic) v Royal Insurance Australia Ltd [21] strongly supports the appellants on this question. That was a case of moneys paid by an insurance company to a revenue authority by mistake, in the form of overpaid stamp duty. The revenue authority was held liable to refund the overpayments, even though the amounts had been passed on to policy holders. That conclusion was reached on general restitutionary principles.
26 Mason CJ said: [22]
Restitutionary relief, as it has developed to this point in our law, does not seek to provide compensation for loss. Instead, it operates to restore to the plaintiff what has been transferred from the plaintiff to the defendant whereby the defendant has been unjustly enriched. As in the action for money had and received, the defendant comes under an obligation to account to the plaintiff for money which the defendant has received for the use of the plaintiff. The subtraction from the plaintiff ' s wealth enables one to say that the defendant ' s unjust enrichment has been "at the expense of the plaintiff" , notwithstanding that the plaintiff may recoup the outgoing by means of transactions with third parties.
27 He also pointed out, in terms equally applicable to the present case, that, as between the parties to the litigation, the defendant having no title to retain the moneys, the plaintiff had the superior claim. [23] That, in our view, is the critical question. As between the appellants and the respondent, who has the superior claim? The answer lies in the circumstance that there has been a payment of moneys by the appellants to the respondent for a consideration which has failed, and the respondent has no title to retain the moneys.
28 Brennan J, with whom Toohey J [24] and McHugh J [25] agreed, said: [26]
The fact that Royal had passed on to its policy holders the burden of the payments made to the Commissioner does not mean that Royal did not pay its own money to the Commissioner. The passing on of the burden of the payments made does not affect the situation that, as between the Commissioner and Royal, the former was enriched at the expense of the latter. It may be that, if Royal recovers the overpayments it made, the policy holders will be entitled themselves to claim a refund from Royal … However that may be, no defence of "passing on" is available to defeat a claim for moneys paid by A acting on his own behalf to B where B has been unjustly enriched by the payment and the moneys paid had been A ' s moneys.
29 It is impossible to explain those judgments, or that decision, upon the ground that there is some constitutional reason for treating restitutionary claims against governments differently from claims against private citizens. It may be that the same principle applies with even greater force in the case of claims against governments, but Royal Insurance stands as clear authority against the respondent ' s argument on this question. We see no reason to depart from that recent decision of this court; and every reason in principle to support it.
30 The appellants were entitled to succeed in their claim for money had and received by the respondent to the use of the appellants.
31 The appeal should be allowed, and orders made as proposed by Gummow J.
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