DAVID SECURITIES PTY LIMITED & ORS v COMMONWEALTH BANK OF AUSTRALIA

Judges: Mason CJ
Brennan J
Deane J

Dawson J
Toohey J
Gaudron J
McHugh J

Court:
Full High Court

Judgment date: Judgment handed down 7 October 1992

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Dawson J

In Pavey & Matthews Pty. Ltd. v. Paul , ^[152] (1987) 162 C.L.R. 221. I did not think it necessary to examine the true nature of quasi-contract because I did not regard my conclusion as requiring any reliance to be placed upon that branch of the law. Deane J., with whom Mason and Wilson JJ. were in agreement, took a different view and decided that a remedy in quasi-contract is not, as the name would suggest, based upon a contract implied or otherwise, but lies in restitution of which the true basis is unjust enrichment. That view was accepted in Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation . ^[153] (1987-1988) 164 C.L.R. 662. That was a case in which a claim for money had and received was made to recover an amount paid under a mistake of fact. The Court said that the action lay: ^[154] ibid., at p. 673.

``not in implied contract but in restitution or unjust enrichment... In other words, receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment...''

There is now no longer any question that there is in this country a law of restitution based upon the concept of unjust enrichment which encompasses what was previously the common law of quasi-contract. No question about that is raised in this case. What is said is that, whilst there can be an order for the restitution of money paid under a mistake of fact, the remedy does not extend to the recovery of money paid under a mistake of law.

But the recognition of restitution as the true remedy in the case of money paid under a mistake of fact makes it no longer possible to sustain in logic or in principle the denial of the same remedy in the case of money paid under a mistake of law. If the payment of money under a mistake of fact raises a prima facie case of unjust enrichment on the part of the recipient there can be no reason why the payment of money under a mistake of law should not do likewise. While the recent reappraisal of cases

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in quasi-contract has made quite apparent the absence of any relevant distinction between the two types of mistake, the distinction which has been drawn in the cases has always been unsoundly based. Not only is it often possible to classify a mistake of law as a mistake of fact and vice versa, ^[155] See, e.g., Solle v. Butcher [1950] 1 K.B. 671. but the original justification for the denial of a remedy in cases of mistake of law was that ``[e]very man must be taken to be cognizant of the law''. ^[156] See Bilbie v. Lumley (1802) 2 East 469, at p. 472 [102 E.R. 448, at p. 449]. That is a presumption which has no foundation in truth. The true principle is that ignorance of the law is no excuse, that is to say, a person cannot escape the consequences of breaking the law by pleading ignorance of it. A person seeking to recover money paid under a mistake of law is not seeking to escape from the law, but to avail himself of it. The subject is examined in the reasons for judgment of Mason C.J., Deane, Toohey, Gaudron and McHugh JJ. I agree with their conclusion that the rule precluding the recovery of moneys paid under a mistake of law should not be held to form part of the law in Australia. I agree with their reasons for reaching that conclusion and shall not attempt to repeat them. I also agree, for the reasons given by Mason C.J., Deane, Toohey, Gaudron and McHugh JJ., that a mistake of law should be treated in the same way as a mistake of fact, so that a prima facie entitlement to restitution arises when a mistake of law has caused a payment to be made. And I agree, for the reasons given by Mason C.J., Deane, Toohey, Gaudron and McHugh JJ., that s. 261 of the Income Tax Assessment Act 1936 (Cth) rendered cl. 8(b) in the relevant loan agreements void.

I wish only to add some observations. Mason C.J., Deane, Toohey, Gaudron and McHugh JJ. point out that the relevant authorities in this Court ^[157] Werrin v. The Commonwealth (1937-1938) 59 C.L.R. 150 ; South Australian Cold Stores Ltd. v. Electricity Trust of South Australia (1957) 98 C.L.R. 65 . which have denied the recovery of money paid under a mistake of law may, with the exception of a passage in the judgment of Williams J. in York Air Conditioning and Refrigeration (A/sia.) Pty. Ltd. v. The Commonwealth , ^[158] (1949) 80 C.L.R. 11, at p. 30. be explained upon the basis that the payments were made voluntarily and were not recoverable for that reason regardless of any mistake of law. At the same time these cases illustrate the difficulty of establishing that a payment was made under a mistake of law as opposed to a mistake of fact. Facts tend to be black or white but the law very often is not. Where it is not possible to be completely confident of the relevant law, a person may meet an honest claim in the belief that he is entitled to resist it and yet make the payment voluntarily. That is to say he may make the payment in the exercise of his judgment, notwithstanding his belief that the law does not require him to do so or relieves him of the obligation of doing so. A fortiori, where a person makes a payment with no belief one way or the other about the relevant law, he makes the payment voluntarily even though he is not obliged by law to do so and may not have done so had he known that he was not obliged to do so. In that respect a mistake of law is no different to a mistake of fact. As Parke B. said in Kelly v. Solari : ^[159] (1841) 9 M. & W. 54, at p. 59 [152 E.R. 24, at p. 26].

``If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact.''

Those who honour their contractual obligations may or may not do so because they believe them to be legally binding. They may do so simply because they have contracted to do so and not because they have turned their minds to any question of law. A payment made in those circumstances is made voluntarily and even if it turns out that there was no legal obligation to make the payment, it does not seem to me that it can be said that the payment was made under a mistake of law. Indeed, it cannot necessarily be said that, if the payer had turned his mind to the question of law, he would not have made the payment. Some contractual obligations are commonly performed in the knowledge that they are not binding and not every question of law can be answered so clearly or definitely as to warrant the resistance of an honest claim for payment.

Considerations such as these would seem to lie behind the modern tendency to justify the rule that there can be no recovery of money paid under a mistake of law, not upon the basis of presumed knowledge of the law (which is unsupportable), but upon the basis that payments made under a mistake of law are

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made voluntarily unless they are induced by the behaviour of the payee, for example, by compulsion, extortion or undue influence. This is reflected in the observation of the Federal Court in J. & S. Holdings Pty. Ltd. v. N.R.M.A. Insurance Ltd. : ^[160] J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 61 F.L.R. 108 , at p. 123 .

``The insufficiency of mistake of law as the foundation of an action for recovery of money paid is commonly stated as a general principle or rule of law precluding any right of action in a case where the payment was voluntary.'' ^[161] See also Goff and Jones, The Law of Restitution , 3rd ed. (1986), pp. 118-119; Birks, An Introduction to the Law of Restitution , (1989), p. 164.

It is also reflected in the view of Latham C.J. and McTiernan J. in Werrin v. The Commonwealth. In that case the plaintiff resisted the payment of sales tax upon a basis which ultimately proved to be correct. Nevertheless he paid, albeit reluctantly. There was no compulsion, extortion or undue influence or anything of that kind. Latham C.J. and McTiernan J. held that the payment was made voluntarily, albeit under a mistake of law. Latham C.J. said 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''. <sup>[162]</sup> (1937) 59 C.L.R., at p. 159. And in South Australian Cold Stores Ltd. v. Electricity Trust of South Australia , the plaintiff was held to have voluntarily paid the higher rates at which electricity was supplied to it by the defendant notwithstanding that it is a fair inference that, had it known that they were not validly imposed, it would not have paid them. There was ``nothing but an assumption that in some way or other the increased charge might lawfully be made and a readiness to comply with the payee's demand without more, a demand which but for formal defects in the authorisation would have been enforceable''. ^[163] (1957) 98 C.L.R., at p. 75.

But a payment made under a mistake of law is not necessarily voluntary when it is made in the absence of some compulsion or inducement by the payee. Voluntariness may afford a convenient explanation for the rule that money paid under a mistake of law cannot be recovered, but it is not an explanation in every case. Perhaps in the nature of things the cases may be relatively few, but it is obvious that a person may be caused by a mistake of law on his part to make a payment which he would not otherwise have made. The payment would not, in those circumstances, be voluntary.

In the present case, the Full Court below expressed the view that ``there is sufficient evidence from which one can infer that the appellants 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''. ^[164] David Securities Pty. Ltd. and Others v. Commonwealth Bank of Australia and Others (1990) 93 A.L.R. 271 , at p. 303 . Whether that is the appropriate inference to draw is another thing. It seems to me that the first question should be whether the appellants turned their minds to the question of their legal obligation at the time they made the relevant payments or whether they made those payments merely because the contract provided they should do so, that is to say, voluntarily and not because of any mistaken belief in the law. If the latter, then it is immaterial that they later formed the view, by reference to s. 261 of the Income Tax Assessment Act , that they were not legally obliged to make the payments at the time they made them.

In Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. Goff J. extracted from the authorities the following principles: ^[165] [1980] Q.B. 677, at p. 695.

``(1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. (2) His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or (c) the payee has changed his position in good faith, or is deemed in law to have done so.''

In Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation this Court recognized that the prima facie liability to restore money paid under a mistake may be displaced, but only in ``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

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recognizes would make an order for restitution unjust''. ^[166] (1987-1988) 164 C.L.R., at p. 673. No doubt the Court regarded money paid voluntarily as money not paid under a mistake and hence as not giving rise to any prima facie liability to repay (cf. Goff J.'s category 2(a)). The onus of proving the circumstances which displace prima facie liability must, of course, lie upon the recipient. The tentative acceptance of change of position as a defence to a claim for restitution may now I think be stated more positively in the light of the decision of the House of Lords in Lipkin Gorman v. Karpnale Ltd. ^[167] (1991) 2 A.C. 548. As Lord Goff of Chieveley observed in that case, it is basic to the concept of unjust enrichment that: ^[168] ibid., at p. 579.

``where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to pay outweighs the injustice of denying the plaintiff restitution.''

Whilst unjust enrichment does not of itself constitute a cause of action, it provides a ``unifying legal concept'' and serves to mark out the defences to claims in restitution. ^[169] See Pavey & Matthews Pty. Ltd. v. Paul (1987) 162 C.L.R. 221 , at pp. 256-257 .

The circumstances in which the existence of good consideration for the payment of money made under a mistake will make it unjust to order restitution of the money must necessarily be limited. Goff J. in Barclays Bank Ltd. v. W. J. Simms Son & Cooke (Southern) Ltd. says that the defence is founded upon the decision in Aiken v. Short ^[170] (1856) 1 H. & N. 210 [156 E.R. 1180]. and upon dicta in Kerrison v. Glyn, Mills, Currie & Co. ^[171] Kerrison v Glyn, Mills, Currie & Co (1911) 81 L.J.K.B. 465 . In Aiken v. Short money was paid to discharge a debt owed by a third party to the payee. A man named Carter mortgaged to the plaintiff bank an inheritance supposedly due to him. The supposed inheritance was already subject to an equitable charge to secure a debt due from Carter to the defendant. The plaintiff paid the amount of the debt, apparently as Carter's agent, to discharge Carter from his liability to the defendant and to clear the equitable charge. It turned out that there was no inheritance. But the defendant, the payee, had provided good consideration for the payment, namely, discharging the debt. The plaintiff's mistake was really as to the value of its security and, although that mistake caused it to make the payment to the defendant, it would have been unjust, as between the plaintiff and the defendant, to require the defendant to return the payment, the defendant having done that for which the payment was made, namely, discharging Carter's debt. Goff and Jones ^[172] op. cit., pp. 108-110. treat Aiken v. Short as an illustration of the defence of bona fide purchase. The underlying purpose of the defence of bona fide purchase is to determine where the loss should lie as between two innocent parties. If the payee has not been unjustly enriched then he should not be required to make restitution. ^[173] See also Porter v. Latec Finance (Qld.) Pty. Ltd. (1964) 111 C.L.R. 177 .

The situation in the present case is not analogous to that in Aiken v. Short. If the appellants were caused by mistake to make the payments under cl. 8(b) of the loan agreements, it was not a situation in which a court was called upon to determine, as between two innocent parties, who should bear the loss. Either the respondent shared the appellants' mistake in exacting and receiving the payments or it was aware of the appellants' mistake and received the payments nevertheless. It was not a situation in which, because the respondent provided consideration in the form of the money lent, it could be said that it would be unjust to require the respondent to restore the payments made by the appellants under cl. 8(b) if they were made by mistake.

I agree with the order proposed by Mason C.J., Deane, Toohey, Gaudron and McHugh JJ.