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

Callinan J.   176  In this appeal the issue is whether a tobacco retailer can recover part of the price paid to a wholesaler for tobacco bought and sold, when payment of that part was made under the common misapprehension that State legislation rendering both parties apparently liable to pay a tax on the tobacco sold was not invalid as a duty of excise.

Facts

  177  The appellants sold tobacco by retail in New South Wales in 1997. They held licences as retailers under the Business Franchise Licences (Tobacco) Act 1987 (NSW). The respondent held a wholesaler ' s licence under the Business Franchise Licences (Tobacco) Act 1987 (NSW) and made wholesale sales of tobacco to the appellants.

  178  Part 4 of the Business Franchise Licences (Tobacco) Act 1987 (NSW) (ss 27A to 33A ), among other things, made it an offence to carry on a business of tobacco wholesaling (s 34(a) ) or tobacco retailing (s 34(b) ) without a licence. A licence under the Business Franchise Licences (Tobacco) Act 1987 (NSW) had a currency of one month. Licences ordinarily expired at the end of the 27th day of each month (s 39 ).

  179  A person seeking a licence was required to make an application accompanied by payment of a licence fee as assessed under Pt 5 of the Business Franchise Licences (Tobacco) Act 1987 (NSW). If, however, before expiry of a licence, the licensee paid the fee assessed for a further licence, the licensee was taken to have applied for a renewal and was taken to have been granted a renewed licence from the expiration of the previous licence, unless otherwise notified (s 40(1) ). If the payment of the licence fee was made after the end of the 27th day, the Chief Commissioner for Business Franchise Licences (Tobacco) was authorised to direct that the licence be regarded as having been renewed from the date the previous licence expired (s 40(2) ).

  180  Section 41 of the Business Franchise Licences (Tobacco) Act 1987 (NSW) made provision for the calculation of licence fees. The relevant sub - sections were as follows:

   

(1) The fees to be paid for licences are as follows:

 (a)  for a wholesaler ' s licence - a fee of $100 together with an amount equal to 100 % of the value of tobacco sold by the applicant in the course of tobacco wholesaling during the relevant period, other than tobacco sold to the holder of a wholesaler ' s licence …
 (c)  for a retailer ' s licence - a fee of $100 together with an amount equal to 100 % of the value of tobacco sold by the applicant in the course of tobacco retailing during the relevant period, disregarding any such tobacco purchased from a licensee …
 (3)  For the purposes of subsection (1)(c) and (d) , the value of tobacco purchased from the holder of a wholesaler ' s licence … is to be disregarded only if the holder of the licence has paid or is liable to pay a licence fee in respect of that tobacco.

  181  The relevant period in relation to a licence referred to in s 41 was defined in s 3(1) of the Business Franchise Licences (Tobacco) Act 1987 (NSW) as "the month commencing 2 months before the commencement of the month in which the licence expires" .

  182  An applicant who had not carried on business in the whole or any part of the relevant period as so defined could request the Chief Commissioner to assess the licence fee under s 43(1) . An applicant for a licence who had carried on business in the whole of the relevant period but had difficulty in accurately assessing the quantity or value of tobacco sold during the period could likewise seek an assessment by the Chief Commissioner (s 43(2) ).

  183  On 9 June 1988, the Minister made a determination of the value of tobacco as follows:

   

1. In accordance with section 45 of the Business Franchise Licences (Tobacco) Act 1987 (NSW), the Minister has determined the value of tobacco to be the wholesale list price for tobacco as published from time to time by tobacco manufacturers and importers, excluding:

 (i)  Any amount included in the selling price in consideration of a licence fee;
 (ii)  the selling price of tobacco sold to duty free stores where the tobacco was intended for sale to travellers proceeding overseas;
 (iii)  the selling price of tobacco sold to airlines, shipping companies, providers of airlines or shipping companies and service bodies where the tobacco was intended for sale to passengers and/or crews proceeding overseas;
 (iv)  the selling price of tobacco sold to service bodies where the tobacco was intended for sale to service personnel serving overseas; and
 (v)  the selling price of tobacco sold to overseas residents.

 

2. Rebates granted by wholesalers must not be deducted from the wholesale list price of tobacco when calculating licence fees payable.

  184  The practical operation of the Business Franchise Licences (Tobacco) Act 1987 (NSW) involved these steps. A wholesaler was required to renew a licence on or before midnight on the 27th of each month by paying a licence fee of $100 plus an amount equal to 100 % of the value of the tobacco sold by the wholesaler in the month ending one month before the date the licence was required to be renewed. The licence fee for a period 28 June to 27 July was assessed by reference to the monetary value of sales that the wholesaler had made in the period 28 April to 27 May. The sales were calculated on the basis of the wholesaler ' s list price.

  185  Similarly, a retailer wishing to renew a licence in respect of the same period was required to pay a licence fee of $100 together with an amount equal to 100 % of the sales made in the period 28 April to 27 May. This amount, however, was calculated by reference to the wholesaler ' s price, rather than the actual retail price or other price received. The calculation excluded the value of tobacco sold which the retailer had purchased from a licensed wholesaler, subject to the provisions of s 41(3) .

  186  The respondent from time to time published price lists for the tobacco which it sold by wholesale. The price list at the relevant time contained 5 columns. In the first column there was a description of the brand of cigarettes. The second column showed the quantity of cigarettes of that brand contained in a carton. The third column, headed "Wholesale price per 1000" , set out the wholesale list price, being the value of tobacco upon which the licence fee was to be calculated. The fourth column was headed "Cost at wholesale including State licence fees 100 %" and showed the wholesale list price per carton to which was added the 100 % licence fee. The final column was headed "Recommended retail price per packet including State licence fees 100 %" .

  187  Each of the appellants agreed to comply with the respondent ' s trading terms and conditions as follows:

   

 1.  In these conditions of sale:
 (a)  "Company" and "Seller" means [Rothmans].
 (b)  "Purchaser" means the person, firm or company placing an order with the Seller in respect of the supply of goods …
 (c)  "Goods" means all goods and merchandise supplied by Seller pursuant to these conditions to the Purchaser or as the Purchaser may direct.
 …  
 4.  The prices charged by the Company as set out in the Company ' s applicable list may be altered without notice and any resulting increase shall be added to the purchase price. Such price or prices quoted on purchases from the Company are subject to any increase in the amount of excise duty, sales tax, freight or insurance between the date of order and the date of delivery and any such amount shall be added to the purchase price and be payable by the Purchaser to the Company.
 …  
 6.  The Purchaser shall pay for all Goods delivered within 7 days from the date of receipt of the Goods ( "Due Date" ) …
 7.  On the happening of any one or more of the following events, namely:
 (a)  the Purchaser fails to pay the Seller as and when due and payable any moneys comprised in the Purchaser ' s debt (such moneys being due and payable at the time expressly agreed between the Purchaser and the Seller herein and in default of such agreement according to the normal terms of trade of the Seller or, in respect of amounts not covered by the Seller ' s ordinary terms of trade, on demand by the Seller);
 …  
   the Seller may at its option exercise all or any of the following rights …
 (i)  demand payment of the whole of the Purchaser ' s debt then outstanding, and the Purchaser agrees to pay the same accordingly.
 …  
 10.  [U]ntil payment is made in full to the Seller for the Goods:
 (a)  property in the Goods remains with the Seller and the Purchaser agrees to hold the Goods in a fiduciary capacity as bailee for Seller … (Emphasis added.)

  188  When a retailer ordered cigarettes or tobacco the respondent issued an invoice. [1] Each invoice was divided into 8 columns. The first showed a code relevant to the particular products, the second the recommended retail price per packet of cigarettes, and the third, the number of cigarettes per carton sold and cigarettes in each packet in the carton. The fourth column contained a description of the brand. The fifth and sixth columns referred to the number of cartons which were the subject of sale and the quantity of cigarettes in total respectively. The final 2 columns were headed "Wsle/Unit" and "Value" . Under the former of these headings was shown the wholesale price per unit. This sum represented, in respect of cigarettes, the wholesale price per 1000 cigarettes (in the case of cigars the price was calculated by reference to 100 cigars) and was identical to the amount shown on the published price list. The latter column contained the total sale price charged for each particular sale of the brand in question before discounts were taken into account. The invoice then made provision for a deduction for discounts and in the last column was set out an amount referred to as "Sales sub total" and "Invoice sale sub total" which was, in each case, the same. Under this amount, there was a line which read "Tobacco Licence Fee" . This sum was 100 % of the total sales calculated at the list price before allowing discounts. The amount was then added to the final column to produce a "Net total" , this being the amount which the retailer was required to pay.

  189  In Dennis Hotels Pty Ltd v Victoria, [2] this court held that licensing provisions in the Licensing Act   1958 (Vic), other than a provision which fixed fees for certain temporary licences, did not impose a duty of excise. In Dickenson ' s Arcade Pty Ltd v Tasmania, [3] the court held that the Tobacco Act   1972 (Tas) validly imposed a scheme of licensing of sales of tobacco in which the fee payable was calculated by reference to tobacco sales in a period of 12 months ending 6 months before the commencement of the period in respect of which the licence was granted.

  190  In Philip Morris Ltd v Comr of Business Franchises (Vic), [4] the court disapproved the reasoning in Dickenson ' s Arcade. The decision in Philip Morris was open to an interpretation that a fee payable under a licensing scheme would not be a duty of excise, if the imposition of the licence fee were an element in regulatory legislation controlling the sale and distribution of the particular commodity. The licensing scheme under consideration here reflected an understanding of Dennis Hotels that, in the field of sales of alcohol and tobacco, a licence fee which might otherwise be regarded as a duty of excise would not be so treated if the fee could be characterised as a fee for carrying on a business, and if it were calculated by reference to sales made during a period other than the period of the licence.

  191  This understanding was rejected by the court in Ha v New South Wales. [5] The majority (Brennan CJ, McHugh, Gummow and Kirby JJ) referred to the legislation in question here as "a simple device in legislative drafting" . [6] The "licence fee" was held to be a duty of excise not lawfully leviable by a State. It followed that the appellants had paid, and the respondent had received, substantial sums of money on account of a tax which was not in fact lawfully leviable.

  192  The appellants brought proceedings in the Federal Court to recover such amounts paid to the respondent in respect of sales during the relevant period as were identified in the respondent ' s invoices as "Tobacco Licence Fee" .

  193  The appellants ' claim was dismissed by Emmett J at first instance and an appeal to the full court of the Federal Court (Hill and Lehane JJ; Gyles J dissenting) was also dismissed.

The appeal to this court

  194  The appellants argue in this court that the Federal Court should have allowed their claim on a number of bases: as money had and received by reason of a total failure of consideration; as money had and received because of the failure of the purpose for which the amounts were paid; as a breach of an implied term; and as money held on constructive trust for the benefit of the appellants.

  195  In his dissenting judgment in the full court, Gyles J made 5 points about the item identified in the invoice as "Tobacco Licence Fee" : [7]

   

 1.  It is an amount which is calculated by reference to the value of the particular goods included in the invoice.
 2.  It is the precise amount which will be required to pay the licence fee which will be calculated in due course by reference to those goods.
 3.  That amount of licence fee will not be payable by the respondent for some weeks.
 4.  Payment of the licence fee referable to the goods involved in the transaction evidenced by the invoice is the best means of ensuring that the retailer in question receives the benefit of s 41(3) of the Business Franchise Licences (Tobacco) Act 1987 (NSW).
 5.  It cannot be assumed that the retailer in question will have received from its customers the amount paid to the respondent on account of the licence fee at the time of payment of the invoice according to ordinary terms of trade.

 His Honour went on to say this: [8]
   

The commonsense conclusion from the evidence is that the retailer agreed to pay the identified price of the goods and also agreed to, and did, fund the amount of the licence fee to be paid in respect of them, in return for which the wholesaler supplied the goods and promised to pay that licence fee in due course, as it had in the past. As was said by Dixon and McTiernan JJ in Commonwealth Quarries (Footscray) Pty Ltd v FCT: [9]

   

In a contract under which for a single lump sum of money a party undertakes to do various things, including the transfer of property in goods, it is quite true that the entire money consideration or contract price cannot be regarded as the amount for which the goods are sold. In such a case the amount for which the goods were sold could not be ascertained from the transaction except by allocating part of the consideration to the other acts or things to be done by the seller.

 

In the present case, the amount sought and paid is expressly apportioned and identified. See also Tanu Pty Ltd v FCT. [10]

 

To use the expression of Gibbs J in Stephens v The Queen, [11] the amount identified as the "Tobacco Licence Fee" in the invoice is thereby earmarked for that purpose, rather than as payment to the respondent for value received by the appellants from it.

 

The point as to earmarking is well illustrated by an American case, the facts of which are rather like the present. The case was cited by counsel for the appellants on the constructive trust argument, but its significance is by no means limited to that. It casts light upon the analysis of the contract.

 

In 123 East Fifty-Fourth Street Inc v United States, [12] a restaurant owner had collected taxes (subsequently held not to be payable) from its patrons and paid the amount so collected to the revenue authority. The case was between the restaurant owner and the revenue authority. Learned Hand J (in dissent) said: [13]

   

… I shall assume that, when the plaintiff charged its guests with the amount of the tax for which it supposed itself liable, it added the amount as a separate item and described it as a tax which it must pay, and which it was apparently collecting from the guests in order to pay it to the Treasury. If the plaintiff wishes to dispute this, I should allow it to do so, because I regard the distinction as crucial whether it made the charge in that form, or merely included in the bills rendered the amount of the supposed tax without saying anything about it. If it said nothing, I should agree with my brothers that the guests had no legally recognizable interest in the money collected, which gave them any claim to it superior to the plaintiff ' s; and in that case some statute would be necessary to deprive the plaintiff of its right to recover. On the other hand, if the plaintiff collected the money under what the guests must have understood to be a statement that it was obliged to pay it as a tax, and that it meant to do so, the money was charged with a constructive trust certainly so long as it remained in the plaintiff ' s hands. For example, if, before the plaintiff had paid it, the Treasury had declared that the tax was not due, the plaintiff could not have successfully resisted the guests ' demand that it be turned back to them, the very purpose for which they had paid it having then become incapable of execution.

 

In Comr of State Revenue (Vic) v Royal Insurance Australia Ltd, [14] Mason CJ said:

   

I would accept so much of Learned Hand J ' s analysis in 123 East Fifty-Fourth Street as leads to the conclusion that the restaurant owner was a constructive trustee of the amount of the tax received from its patrons if the owner charged the separate amount of the tax to its patrons. The tax so received was received by the owner as a fiduciary on the footing that it would apply the money in payment of the tax. If that purpose failed or could not be effected because the tax was not payable then the owner held the moneys for the benefit of the patrons who paid the moneys. The same result would ensue if the owner recovered payments from the revenue authority made as and for tax which was not payable. And, in my view, the patrons who paid the tax to the owner would have a right of recovery, as Learned Hand J makes clear, against the revenue authority so long as it retained the payments which it was not entitled to retain.

 

This analysis of the effect of describing an item in a bill as tax by Learned Hand J, approved by Mason CJ, is most persuasive. Whatever problem there may be about the remedy of constructive trust (and I do not mean to imply that I think there is one) does not detract from this reasoning. I should mention that the majority in 123 East Fifty-Fourth Street allowed the possibility of common law recovery by the patrons against the restaurant owner in the event of non payment of the taxes. It seems to go without saying that Learned Hand J (and Mason CJ) would have allowed recovery at common law in the present circumstances. In 123 East Fifty-Fourth Street the constructive trust was required to provide a basis for the return to the restaurant owner of taxes paid to the revenue authority and subsequently found not to have been payable. That complication does not exist here.

  196  I would respectfully adopt what his Honour said in the passages I have quoted. It is consistent with what was said by Lord Porter in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd. [15] The relevant sums paid by the appellants were shown as separate items ascribed to a particular component of the total sum payable. They answered his Lordship ' s description of separate parts of money payable for or on account of a divisible part of a contract: [16]

   

Under that system money had and received to the plaintiff ' s use can undoubtedly be recovered in cases where the consideration has wholly failed, but unless the contract is divisible into separate parts it is the whole money, not part of it, which can be recovered. If a divisible part of the contract has wholly failed and part of the consideration can be attributed to that part, that portion of the money so paid can be recovered, but unless this be so there is no room for restitution under a claim in indebitatus assumpsit.

 In the same case Viscount Simon LC explained the principle in this way: [17]
   

In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act - I am excluding contracts under seal - and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi - contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.

 

If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled. [18] In this connexion the decision in Rugg v Minett [19] is instructive. There the plaintiff had bought at auction a number of casks of oil. The contents of each cask were to be made up after the auction by the seller to the prescribed quantity so that the property in a cask did not pass to the plaintiff until this had been done. The plaintiff paid in advance a sum of money on account of his purchases generally, but a fire occurred after some of the casks had been filled up, while others had not. The plaintiff ' s action was to recover the money he had paid as money received by the defendants to the use of the plaintiffs. The Court of King ' s Bench ruled that this cause of action succeeded in respect of the casks which at the time of the fire had not been filled up to the prescribed quantity.

  197  I would reject the respondent ' s submission that it is only in cases in which contracts have been frustrated, discharged for breach, or held to be unenforceable, or otherwise avoided, that a party may obtain restitution. Gyles J answered that submission, correctly, in my opinion, in this way: [20]

   

The contract [here] has been executed in all respects save for payment of the licence fee by the respondent. The licence fee is no longer payable. It cannot and will not be paid by the respondent. That is the end of the matter. Performance is no longer possible. If formal termination by the appellants is necessary, then bringing these proceedings is sufficient.

  198  This is also a case of the kind referred to by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities Pty Ltd v Commonwealth Bank of Australia: [21]

   

In cases where consideration can be apportioned or where counter - restitution is relatively simple, insistence on total failure of consideration can be misleading or confusing. In the present case, for instance, it is relatively simple to relate the additional amounts paid by the appellants to the supposed obligation under cl 8(b) of the loan agreements. The appellants were told that they were required to pay withholding tax and the payments that they made were predicated on the fact that, by doing so, they were discharging their obligation. Such an approach is no different in effect from the cases under the old statutes of usury whereby a borrower could recover from the lender the excess interest which the lender was prohibited from stipulating or receiving. (Original emphasis.)

  199  Accordingly, I am of the opinion that the appellants have made out a case for the recovery of the money paid on the basis that relevantly there has been a total failure of consideration, that is to say, a failure in respect of a discrete, clearly identified component of the consideration.

  200  There is one further matter in respect of the appellants ' entitlement to recover the money paid under the head of money had and received that I should discuss. In argument the respondent sought to makes these points: the appellants' claim was a claim in equity because the cause of action had its foundation in equity; the appellants were, therefore, not entitled to relief in equity as they had not offered to do equity by repaying or undertaking to repay to purchasers of tobacco the component of the licensing fee that was contained in the retail price.

  201  There are 2 answers to this. The licensing component of the retail price was not shown in an invoice or elsewhere, or charged or paid as a discrete part of the retail price of tobacco bought and sold.

  202  But, in any event, the money claim made here is not an equitable claim. It is true that the following comments of Lord Mansfield in Moses v Macferlan can be taken to suggest that a claim for money had and received is an equitable one: [22]

   

This kind of equitable action, to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. 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 … 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.

  203  However Lord Mansfield ' s comments may be interpreted, subsequent authority makes it clear that the claim is not an equitable one. This much is apparent from the speech of Lord Sumner in Sinclair v Brougham. [23] His Lordship there explained that the action for money had and received was a form of assumpsit; that Lord Mansfield probably had never conceived that the action was to be administered as "an equity" , as the term was understood in the Court of Chancery; and that Pollock CB had bluntly declared that the notion that the action was an equitable one had been "exploded" . [24] His Lordship ' s conclusion is worth quoting: [25]

   

[A]llusions have been made from time to time to the connection between this cause of action and equity or the aequum et bonum … but I take them all to be merely descriptive of the undoubtedly wide scope of this essentially common law action. There is now no ground left for suggesting as a recognizable "equity" the right to recover money in personam merely because it would be the right and fair thing that it should be refunded to the payer.

  204  It is not necessary for me to deal with the other arguments of the appellants, although I would be inclined to agree with the conclusion of Gyles J that it might also be appropriate to imply a term in favour of the appellants for repayment of the relevant sums. The term is that in the event that it is not necessary or possible to pay the tax, the sum represented by it would not be kept by the respondent but would be returned to the appellants. The appellants almost certainly would only have paid the sums in question upon the underlying common understanding that those sums would of legal necessity be payable by the respondent to the revenue authority. An implication of the kind that I have stated, in those circumstances, could fairly readily be made by the hypothetical officious bystander whose opinion the courts invoke in a case of this kind. That bystander is assumed to be a person who draws attention to a matter not the subject of express reference by the parties in their contract. A question, "What if you (the respondent) cannot, or are not required to, pay this amount to the revenue authority?" would likely have provoked an insistence by the appellants that money not so paid be refunded to the appellants. This is even more obviously an answer that might be given in the circumstances also imputedly known to the bystander, that the appellants here had a personal, contingent liability to pay the sums themselves. Such a term would appear necessary to give business efficacy to the contract between the parties. Efficacy means no more than power or capacity to effect an intention. Business efficacy would ordinarily require that money effectively demanded and paid in anticipation of its payment to a revenue authority would be so paid. Such an implied term, subject to one possible qualification, would be both reasonable and equitable, and it certainly contradicts no other term. [26] The only question is whether the respondent, confronted with a stipulation by the appellants of a term in the language that I have stated, might regard it as unreasonable to be bound by such a term unless the appellants undertook to refund to purchasers from them the licence fees forming part of the retail price, that amount otherwise being a windfall to the appellants. Because I would allow the appeal for the reasons earlier stated, I need not express any concluded opinion on this question.

  205  I would allow the appeal with costs and enter judgment in favour of the appellants in the amounts paid by the appellants to the respondent in respect of tobacco products sold to the appellants during the period 1 July 1997 to 5 August 1997 and identified in the respondent ' s invoices as "Tobacco Licence Fee" . I would also order that the respondent pay to each appellant interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), and that the respondent pays the appellants ' costs of the action and the appeal to the full court.

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