State Bank of New South Wales Ltd v Commissioner of Taxation for The Commonwealth of Australia & Anor [1995] FCA 893

Catchwords C A T C H W O R D S

RESTITUTION - Interest - Moneys held in Commonwealth bank account pending resolution of dispute over liability for sales tax - Agreement by Commissioner to remit additional tax on moneys paid into account and to repay money if dispute resolved in taxpayer's favour - No agreement as to interest - Agreement was that moneys would be held in an account the interest on which was payable to Commonwealth Consolidated Revenue unless the Minister otherwise directed - Dispute resolved in taxpayer's favour - Moneys repaid, but after some delay - Claim by taxpayer for interest during the whole period that the moneys were held in the account - Whether the law of restitution is capable of application - Whether any enrichment of the Commonwealth was unjust, in the circumstances - Whether moneys held pursuant to express trust or resulting trust - Claim for interest on this basis - Whether implied term as to payment of interest - Availability of statutory provision for pre-judgment interest.

Audit Act 1901, ss.60, 62 and 62B.

Federal Court of Australia Act 1976, s.51A.

Sales Tax Assessment Act (No.1) 1930, s.29.

STATE BANK OF NEW SOUTH WALES LIMITED v COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA and COMMONWEALTH OF AUSTRALIA

NO. NG.379 of 1994

CORAM: WILCOX J

PLACE: SYDNEY

DATE: 9 NOVEMBER 1995

Orders

IN THE FEDERAL COURT OF AUSTRALIA)

) No. NG.379 of 1994

NEW SOUTH WALES DISTRICT REGISTRY)

)

GENERAL DIVISION )

BETWEEN: STATE BANK OF NEW SOUTH WALES LIMITED

Applicant

AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA

First Respondent

and

COMMONWEALTH OF AUSTRALIA

Second Respondent

CORAM: WILCOX J

PLACE: SYDNEY

DATE: 9 NOVEMBER 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. Judgment be entered in favour of the applicant, State Bank of New South Wales Limited, against the second respondent, Commonwealth of Australia, in the sum of seventy eight thousand one hundred and seventy dollars and fifty three cents ($78,170.53).

2. The second respondent pay to the applicant one-half of its costs of the proceeding.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

Reasons

IN THE FEDERAL COURT OF AUSTRALIA )

) No. NG.379 of 1994

NEW SOUTH WALES DISTRICT REGISTRY )

)

GENERAL DIVISION )

BETWEEN: STATE BANK OF NEW SOUTH WALES LIMITED

Applicant

AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA

First Respondent

and

COMMONWEALTH OF AUSTRALIA

Second Respondent

CORAM: WILCOX J

PLACE: SYDNEY

DATE: 9 NOVEMBER 1995

REASONS FOR JUDGMENT

WILCOX J: This is an action whereby State Bank of New South Wales Limited ("the applicant") seeks to recover from the Commissioner of Taxation ("the Commissioner") and/or the Commonwealth of Australia interest upon sums of money that were paid into a Commonwealth Government bank account pending determination of a dispute regarding liability for sales tax. The payments themselves have been refunded. Some of the payments were made by the applicant's predecessor, State Bank of New South Wales ("the Bank"), rather than the applicant.
But the parties agree that nothing turns on that fact and that the applicant has succeeded to whatever rights the Bank might have had in relation to interest.

The action was commenced in the High Court of Australia. It was remitted to this Court by Gaudron J on 20 June 1994 pursuant to s.44 of the Judiciary Act 1903.

The facts

There is no dispute about the relevant facts. The Bank was created by the State Bank Act 1981 (NSW). It carried on the business of banking. In 1983, apparently in response to a decision of a Taxation Board of Review in connection with the Nimrod Theatre Company (see Commissioner of Taxation v Nimrod Theatre Company Ltd (1985) 5 FCR 269), the Bank questioned whether it was obliged to pay sales tax on printed material used by it. It contended that it was not liable to do so because it was not a "manufacturer", as defined by s.3 of the Sales Tax Assessment Act (No.1) 1930. The Commissioner did not accept this contention. The Bank continued to file sales tax returns and keep records of its costs in producing printed matter pending resolution of the dispute but it discontinued payment of sales tax. The Commissioner instituted recovery action in the Supreme Court of New South Wales. The Bank prepared a Defence but, before it was filed, the solicitor acting for the Bank informally raised with the solicitor acting for the Commissioner the possibility of the amount of the sales tax being paid into an account established under Part IX of the Audit Act 1901 that was known as "Trust Fund - Other Trust Moneys Account". He said this would be done "on the basis that any interest accruing on the claimed moneys would cease to accrue". No doubt the solicitor appreciated that it would take some time for the issue to be resolved in court; in the meantime additional tax was accruing and this was not a tax deductible expense.

The informal suggestion was followed by a letter from the Bank's solicitor to the Commissioner's solicitor dated 8 April 1984 in which he stated that he had received instructions from the Bank to pay into the account the moneys claimed by the Commissioner. The money was to be paid "without prejudice to the Bank's position and pending the outcome of litigation". A few days later, the solicitor wrote to the Deputy Commissioner of Taxation putting a formal proposition. Conditions were stated. The proposition was accepted on 21 June but with some variation in the conditions. They were made to read:

"1. the Bank to remit into the Trust Fund payments on deposit of the sales tax which is the subject of the present proceedings and the sales tax which has been and will become due and payable in respect of goods manufactured after 1 September 1983;

2. the Commissioner, though not having the power to dispense with the imposition of statutory additional tax has authority by section 29 to remit the additional tax imposed. In this regard the Commissioner undertakes to remit the statutory additional tax for late payment that accrues after the date on which the equivalent of the unpaid sales tax and statutory additional tax pursuant to section 29 and section 25(2B) has been deposited;

3. Section 25(2B) additional tax was imposed in the May 1983 period because no sales tax return was lodged. Accordingly, as sales tax returns have since been lodged monthly and if they continue to be lodged regularly no additional tax under section 25(2B) will be imposed.

4. if the Bank is successful in the present proceedings, the monies paid into the Trust Fund will be remitted in full."

As may be apparent, the problem was that s.29 of the Sales Tax Assessment Act (No.1) caused additional tax to accrue, by force of the section itself, until payment of the tax. It was not necessary for the Commissioner to levy additional tax. It was payable unless remitted. The Commissioner overcame the problem by agreeing to exercise his power to remit additional tax incurred in respect of amounts that had been paid into the fund.

The Bank accepted the varied conditions. Thereafter it made numerous payments into the Trust Fund - Other Trust Moneys Account. They covered the period January 1983 to February 1988 and amounted to $420,161.86.

Pursuant to s.9(1) of the State Bank (Corporation) Act 1989 (NSW), the Bank was dissolved on 14 May 1990. It was succeeded by the present applicant. The applicant made further payments into the Trust Fund - Other Trust Moneys Account, amounting to $143,959.08 and covering the period to 30 June 1990.

The Supreme Court action commenced in 1984 did not proceed to hearing. At some stage the Bank, or its advisers, discerned an alternative defence: that the Bank was the State of New South Wales and the Act imposing tax upon it was, therefore, a law imposing tax on property belonging to a State in contravention of s.114 of the Constitution. Section 114 provides, amongst other things, that the Commonwealth shall not "impose any tax on property of any kind belonging to a State". The Bank's advisers apparently saw difficulty in raising that defence in the Supreme Court. Presumably as a result of an agreement between the parties, the Commissioner abandoned the Supreme Court action and, in 1987, instituted a proceeding in the original jurisdiction of the High Court. The Bank filed a Defence raising s.114. The Commissioner demurred to the Defence and the demurrer was heard by the Full Court. On 25 February 1992, the Full Court overruled the Commissioner's demurrer to the Bank's s.114 defence and entered judgment in the Bank's favour: see Deputy Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219.

On 13 March 1992, the applicant's solicitor sought repayment of the money paid by the Bank into the fund for the period January 1983 to February 1988, misstating the total as $406,161.86, not $420,161.86. His letter raised, for the first time, the possibility of a claim for interest but he did not formally claim interest until 27 March. The claim made on that day was based on s.9 of the Taxation (Interest on Overpayments) Act 1983. It is now common ground that this basis of claim was misconceived. That Act does not apply to the case, if only because the moneys were not paid as tax. [When originally enacted, the Taxation (Interest on Overpayments) Act 1984 did not apply to sales tax. It was extended to include sales tax by amendments effected by s.319 of the Taxation Laws Amendment Act 1984 which was assented to on 19 October 1984 and took effect in December.]

On 4 December 1992, the Deputy Commissioner of Taxation forwarded to the applicant a cheque for the full amount paid to February 1988, $420,161.86; but without interest. The applicant's solicitor pressed the interest claim and correspondence ensued.

On 6 May 1994, a writ of summons was filed in the High Court, instituting this proceeding. The only claim then made was in respect of interest. It was not until some months later, after remission of the proceeding to this Court, that the applicant realised that not all of the moneys paid into the fund had been repaid. The moneys paid in respect of the period March 1988 to June 1990 ($143,959.08) were unrepaid. After the position was pointed out, on 26 April 1995, the Commissioner repaid this sum also, leaving interest as the only point of contention.

The applicant's claims

The applicant's claims have been amended more than once. In their final form, as set out in the Second Further Amended Statement of Claim filed on 10 July 1995, they read:

"(b) A declaration that the First Respondent is liable to pay to the Applicant interest upon the sums referred to in the Schedules hereto from the date of payment respectively of each such sum in the said Schedules.

(c) An order that the First Respondent pay to the Applicant compound or, in the alternative, simple interest on the sums referred to in (a) above at such rate or rates as the Court thinks appropriate.

(d) Interest pursuant to s.51A of the Federal Court Act upon the sums referred to in Schedule B hereto.

(d1) An order that either or both the First Respondent or the Second Respondent account to the Applicant for interest earned on sums paid into the 'Trust Fund - Other Trust Money Account'.

(d2) In the alternative to (d1) above, equitable compensation.

(d3) Damages."

Counsel for the applicant accept that, for it to recover interest, their client must demonstrate that the Commissioner was under a legal obligation to repay the moneys that were paid into the Trust Fund - Other Trust Moneys Account. They say that, if this obligation is demonstrated, there are three alternative bases of the right to interest: restitution, trust and statute. Counsel for the respondents
do not dispute that their clients (or one of them, counsel say the Commonwealth rather than the Commissioner) were bound to repay the money, if only because of the agreement made in 1984. But they say there is no substance in any of the claims for interest. In order to evaluate these arguments, it is necessary to discuss separately the three bases for repayment relied on by counsel for the applicant.

Restitution

The applicant's counsel base their restitution argument primarily on the decision of the House of Lords in Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70. In that case Woolwich sought judicial review of the validity of regulations imposing a tax on dividends and interest paid to members. On 31 July 1987 Nolan J granted review, holding the regulations invalid. His decision was reversed by the Court of Appeal but ultimately upheld by the House of Lords. Prior to 31 July 1987, Woolwich had paid instalments of the tax to the Inland Revenue Commissioners, but always under protest. Shortly before Nolan J's decision, on 15 July 1987, Woolwich sued to recover the tax it had paid. After Nolan J's decision, the Inland Revenue Commissioners repaid the tax with interest from 31 July 1987; but they refused to pay interest in respect of the period before 31 July. When the recovery action that commenced on 15 July 1987 came before him, Nolan J held that Woolwich was not entitled to interest for the period before 31 July; but the Court of Appeal, by majority, held otherwise. By a 3-2 majority the House of Lords affirmed the Court of Appeal. In coming to its decision, the House of Lords reformulated the law of restitution so as to recognise a prima facie right of recovery based solely on payment of money pursuant to an ultra vires demand of a public authority. It held that it was not necessary for a claimant to demonstrate mistake of fact or compulsion. In delivering the leading majority speech, Lord Goff of Chievely at 164-166 enunciated a number of propositions. They may be summarised in this way:

(i) Money paid under a mistake of fact is generally recoverable. As a general rule, however, money paid under a mistake of law is not. This limitation has been much criticised, especially in recent years. [The general rule does not apply in Australia: see David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353.]

(ii) Money paid under compulsion may be recoverable; in particular:

(a) money paid as a result of actual or threatened duress or seizure; and

(b) money paid to a person in a public or quasi-public position to obtain the performance of a duty that the person is bound to perform for nothing or a lesser sum.

(iii) The categories of compulsion are not closed.

(iv) Money that is not due, but has not been paid under a mistake of fact or compulsion, is generally not recoverable.

At 166 Lord Goff referred to an argument developed by academic lawyers pointing to the conclusion that "money paid to a public authority pursuant to an ultra vires demand should be repayable, without the necessity of establishing compulsion, on the simple ground that there was no consideration for the payment". After examining that argument, and objections that had been made to it, he concluded at 177-178:

"I would therefore hold that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right. As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority not because the demand was ultra vires but for other reasons, for example because the authority has misconstrued a relevant statute or regulation. It is not however necessary to decide the point in the present case, and in any event cases of this kind are generally the subject of statutory regimes which legislate for the circumstances in which money so paid either must or may be repaid. Nor do I think it necessary to consider for the purposes of the present case to what extent the common law may provide the public authority with a defence to a claim for the repayment of money so paid; though for the reasons I have already given, I do not consider that the principle of recovery should be inapplicable simply because the citizen has paid the money under a mistake of law. It will be a matter for consideration whether the fact that the plaintiff has passed on the tax or levy so that the burden has fallen on another should provide a defence to his claim."

In a short speech agreeing with Lord Goff, Lord Browne-Wilkinson emphasised the implied compulsion that attached to a governmental demand for payment of a tax. Lord Slynn of Hadley adopted the same principles as Lord Goff, stating at 204 that he would:

"find it quite unacceptable in principle that the common law should have no remedy for a taxpayer who has paid large sums or any sum of money to the revenue when those sums have been demanded pursuant to an invalid regulation and retained free of interest pending a decision of the courts."

In dismissing the Inland Revenue Commissioners' appeal, the House of Lords did not need to discuss the matter of interest. The reason for this was that the Court of Appeal had dealt with the case on the basis that, if the payments themselves were recoverable, Woolwich was entitled to interest on the payments pursuant to s.35A of the Supreme Court Act 1981. Glidewell LJ quoted the relevant part of the section, and commented on its significance, at 78:

"The claim is made under section 35A of the Supreme Court Act 1981 which, so far as is relevant, provides:

'(1) ... in proceedings ... before the High Court for the recovery of a debt ... there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt ... in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and - (a) in the case of
any sum paid before judgment, the date of the payment; ...'

It follows that in order to succeed in its claim to interest Woolwich must show (i) that the revenue was under a legal obligation to repay the capital sum, and thus owed Woolwich a debt; and (ii) that Woolwich had a right to be repaid, so that its cause of action arose, at the dates on which it made the three payments ..."

It will be apparent that Woolwich involved two steps:

(a) a determination that the capital sums that had been paid by Woolwich to the Inland Revenue Commissioners were recoverable at law; so that judgment would have been entered for these moneys had they not already been repaid;

(b) the application to that determination of s.35A, which empowered the Court to include in the judgment sum "simple interest ... on all or any part of the debt ... in respect of which ... payment is made before judgment". The whole of the capital sum was outstanding when the recovery proceeding was commenced; that was "the debt". Interest could be awarded in respect of the period between the date when the cause of action arose and the date of repayment.

I see no reason why the reformulation of the law effected in Woolwich should not be adopted in Australia. It does no more than recognise the realities of the position in which taxpayers may find themselves. However, it is important to note that the reformulation involved only the first of the two steps summarised above; that is, the capital sums were made recoverable at law. In this case there is no dispute about step one. Counsel concede that the capital sums were recoverable at law, if only because of the agreement to that effect. The dispute in the present case relates to step two, a matter not in issue in Woolwich.

Nothing was said in Woolwich to suggest that the restitution principle itself, as distinct from s.35A applied to the restitution principle, conferred an entitlement to interest. Consequently, Woolwich does not assist the present applicant.

However, counsel rely on some other authorities to support their contention that, if their client is entitled to a return of the capital payments, it is also entitled to interest. In chronological order they are:

(a) Rodger v The Comptoir D'Escompte de Paris (1871) LR 3 PC 465, a case where the Judicial Committee of the Privy Council ordered the payment of interest on moneys paid pursuant to a court order that was set aside on appeal;

(b) Johnson v The King [1904] AC 817, a case where the Judicial Committee set aside an order for payment of interest on moneys overpaid by the Crown to a contractor. Their Lordships emphasised, at 822, that "money obtained by fraud and retained by fraud can be recovered with interest"; but they thought the position was different in a case where the money was obtained pursuant to a mistake of fact, even though the payee was a trader and may have profited from the use of the money between the date of the payment to him and the date of repayment.

(c) Sibley v Grosvenor (1916) 21 CLR 469, a case where the High Court of Australia upheld an order for rescission of a contract for the sale of a farm and restitution in integrum involving repayment with interest of money spent by the purchasers in respect of instalments of the purchase price and the making of improvements to the property. Rescission was granted because of fraudulent misrepresentations made by the vendor's agent;

(d) CCA v Harvey (1979) ACLC 32,296, a decision concerning the misfeasance of a company liquidator. Pursuant to s.278(2) of the Companies Act 1981 (Vic), Marks J of the Victorian Supreme Court ordered the liquidator to pay $213,994 to "make good the loss" sustained by the company. This sum included an allowance for simple interest at the rate of 8%, this being the interest that "the money disbursed was capable of earning". At 32,394 Marks J rejected resort to equitable principles, saying that he was not "exercising jurisdiction in equity but purely a jurisdiction founded on the statutory provision in sec.278(2)". He said he interpreted that jurisdiction "as conferring on me a power to order full restitution to the estates of the companies of the financial loss which they would not have suffered but for the misfeasance, neglect or omissions of the liquidator".

(e) Hungerford v Walker (1988) 171 CLR 125, a decision of the High Court of Australia concerning the assessment of damages for negligence payable by accountants to clients. The Court affirmed an assessment based on the income that the clients could have earned from moneys overpaid in tax, the amount being assessed at an annual compound rate of 20 percent;

(f) Delbridge v Low [1990] 2 Qd R 317, a decision of Derrington J of the Queensland Supreme Court allowing simple interest on $17,000 payable to purchasers after repudiation of a contract for the purchase of a house, being the difference between the sum of $30,000 paid by them as a "deposit" and 10% of the purchase price ($13,000), the amount forfeited by them by reason of their repudiation;

(g) Government Insurance Office of New South Wales v Healy (1991) 22 NSWLR 380, a case in which Kirby P of the New South Wales Court of Appeal ordered the repayment with interest of the difference between a payment made pursuant to a court order as a condition of a stay of execution pending the hearing of an appeal and the damages as assessed on appeal. At 385-386 Kirby P referred to the limited power of common law courts to award interest on damages and debts - as to which see London, Chatham and Dover Railway Company v South Eastern Railway Company [1893] AC 429, especially at 437-441 and 443-444 - and contrasted the civil law position. He referred to recent cases that suggested the "inappropriateness of applying the early common law doctrine to claims for interest in modern circumstances in Australia". However, he found it unnecessary to determine whether he should do so in the case before him; he granted interest under a statutory power.

I should mention two other cases, not cited by counsel. In Commonwealth Homes and Investment Limited v Smith (1938) 59 CLR 443 the High Court affirmed an order requiring repayment with interest of subscription moneys following a voidance of an allotment of shares. No member of the Court disclosed the basis upon which it was thought right to require payment of interest. In Lexane Pty Limited v Highfern Pty Ltd [1985] 1 Qd R 446 McPherson J of the Queensland Supreme Court ordered payment of interest on moneys payable to a defaulting purchaser following rescission by the vendor of a contract for sale of real estate. The situation was similar to that encountered by Derrington J in Delbridge.

None of the authorities to which I have referred precisely covers this case. None of them lays down a general principle capable of application by me. Nor do any of the relevant academic works. The only discussion of interest in Goff and Jones "The Law of Restitution" (4th ed. 1993), perhaps the leading text book in this field, concerns the allowance of interest pursuant to certain United Kingdom statutes of limited application. Birks "Introduction to the Law of Restitution" (1984) and Halsbury's "Laws of England" (4th ed, vol 9, paras. 630-698) are each silent as to interest. And there is nothing relevant in either of the recent essay books on the topic: see Finn (ed.) "Essays on Restitution" (1990) and Burrows (ed.) "Essays on the Law of Restitution" (1991). All the learned writings focus on the circumstances under which restitution is available, rather than the amount recoverable where it is.

Notwithstanding these circumstances, it seems to me that the decided cases suggest the existence of a general principle that, in ordering a payment of money by way of restitution, a court has power to include something by way of interest, where this is necessary to do justice between the parties. Rodger and Sibley can only be explained on that basis. CCA and Hungerford perhaps fall into a different class; in both cases the court was concerned to assess an unliquidated sum, being a loss or damages sustained, and in CCA this was being done under a special statutory provision. Johnson perhaps presents a difficulty, but it is noteworthy that the Judicial Committee rejected the argument, in support of the decree for interest, "that Johnson, who was a trader, must have made a profit by the use of the money"; not by reference to legal principle but because there was "no proof of it": see 822. The inference is that, if there had been proof, interest would have been allowed. It seems to me that the only basis upon which that could be so, given the then recent decision in London, Chatham and Dover Railway Company, is that a claim for restitution of moneys is different from a claim for debt under a contract. So it is, of course. The principle underlying the modern law of restitution is unjust enrichment; the purpose being, in the words of Halsbury at para. 630, "to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep". The emphasis is on the position of the beneficiary, not the loss sustained by the claimant. The same point was made more fully in Goff and Jones at 12:

"Most mature systems of law have found it necessary to provide, outside the fields of contract and civil wrongs, for the restoration of benefits on grounds of unjust enrichment. There are many circumstances in which a defendant may find himself in possession of a benefit which, in justice, he should restore to the plaintiff. Obvious examples are where the plaintiff has himself conferred the benefit on the defendant through mistake or compulsion. To allow the defendant to retain such a benefit would result in his being unjustly enriched at the plaintiff's expense, and this, subject to certain defined limits, the law will not allow. 'Unjust Enrichment' is simply, the name which is commonly given to the principle of justice which the law recognises and gives effect to in a wide variety of claims of this kind."

This notion is reflected in a passage in the judgment of Deane J in Pavey & Mathews Pty Ltd v Paul (1987) 162 CLR 221 at 256-257 in which he said the concept of unjust enrichment "constitutes a unifying legal concept which explains why the law recognises, 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 and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case". At a later stage of his reasons, Deane J related this conceptual approach to the determination of the quantum of compensation. He said at 263:

"What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or 'enrichment' actually or constructively accepted."

I propose to apply this approach. However, before doing so, I should deal with a submission from counsel for the respondents to the effect that the concept of restitution has no application to the present case because, unlike the situation in Woolwich, the moneys paid by the Bank and the applicant were not paid as tax; they were paid by agreement into a bank account pending resolution of the dispute about liability for tax. There being an agreement, counsel argue, there was no element of compulsion.

I am aware of one Australian case in which Woolwich was distinguished on the basis that the relevant payments were not tax payments: see Esso Australia Resources Ltd v Gas and Fuel Corporation of Victoria [1993] 2 VR 99, a decision of Gobbo J of the Victorian Supreme Court. The plaintiff had made tariff payments to the defendant at a rate that reflected an impost levied on the defendant by the Victorian Government under legislation subsequently held to be invalid. The plaintiff sued to recover the relevant portion of the payments and relied on the principle recognised in Woolwich. At 108 Gobbo J said that Woolwich did not cover the case before him "for this was not a case of an exaction or impost by the State later ruled to be invalid. The tariff in question was not a tax or impost imposed by a statute held to be invalid or unlawful. It was a tariff under essentially a commercial agreement. It is not, in my view, useful to equate a tariff which reflects a levy, later ruled to be invalid and imposed by another person, with a direct unlawful charge of the kind discussed in Woolwich's case".

I have no difficulty with the approach taken by Gobbo J. But it does not mean that the payments made in the present case fall outside the restitution principle applied in Woolwich. It is true that the payments made in the present case were not tax payments. That is a circumstance to be taken into account in considering the application of the law concerning restitution to this case. But it would be unrealistic and unfair to seize on that fact as a reason for excluding any possibility of applying that law. The only reason that payments were made to the Trust Fund - Other Trust Moneys account was that the Commissioner was demanding payment of sales tax by the Bank, a demand later held to be misconceived. Unlike the position in Esso, these were not payments made under a normal commercial agreement but payments made under a special agreement between the Commissioner and a taxpayer by way of an alternative to direct payment of the tax. It would be unrealistic to overlook the pressure placed on a commercial organisation by a demand for payment of tax and unfair to attach critical importance to the fact that, by agreement, the taxpayer made payments to a fund, rather than directly to the Commissioner.

I hold that, as a matter of general principle, subject to any special circumstances or agreement and independently of any statutory provision, interest may be awarded in a case like the present. However, both the awarding and the quantum of interest are dependent upon the circumstances of the case; so it will be necessary for me to consider the argument of the respondents arising out of the 1984 agreement in determining what interest (if any) may be awarded, on a restitution basis, in this case. I will postpone that task until I have dealt with the applicant's two other bases of claim.

Trust

The applicant contends that the Commonwealth received the payments made by the Bank and itself as a trustee. They say that the money was received without consideration, so there was a resulting trust. In this connection they refer to Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 1 WLR 938, a case where money had been paid by a bank to a council pursuant to an ultra vires transaction. The United Kingdom Court of Appeal held that the money was held by the council on a resulting trust and ordered its repayment with interest. Alternatively, counsel claim an express trust arising out of the terms of the 1984 agreement between the State Bank and the Deputy Commissioner of Taxation.

Counsel contend that interest is available in all cases where a recipient of money is a trustee who has unjustifiably retained money. They refer to Nixon v Furphy (1926) 26 SR (NSW) 409 at 416 where Long Innes J of the New South Wales Supreme Court said:

"I have not been referred to, nor have I been able to find, any authority directly in point on this question, but on principle I have formed the opinion that, in a case where the debt originated in an involuntary payment extorted by a wrongful threat amounting to duress or coercion, interest may properly be allowed by this Court when ordering a refund of the amount so extorted as ancillary to a decree made in a proper case for equitable relief."

This view was adopted by Street J, also of the New South Wales Supreme Court, in Re Dawson [1966] 2 NSWR 211 at 217. Counsel also refer to Alati v Kruger (1955) 94 CLR 216 and the cases involving repudiation of a contract for sale of real estate already mentioned.

I do not think a resulting trust arose in the present case. This is not a case of total failure of consideration. The money was paid into the Commonwealth account pursuant to an agreement between the parties that included a promise by the Commissioner of Taxation to remit whatever additional tax accrued prior to determination of State Bank's liability to pay sales tax. As to express trust, it seems to me that there was no agreement for a trust. The parties agreed that the money would be paid into the Trust Fund - Other Trust Moneys Account. Despite its title, this was not an account only for moneys held by the Commonwealth on behalf of others. Section 60 of the Audit Act requires the keeping of a "separate account, to be called the Trust Fund ... of all moneys which shall be placed to the credit of that fund under such separate heads as may be directed by the Minister". Section 62 applies to that Fund all the provisions of the Act "relating to the issue and expenditure of public moneys and the authority for such issue and expenditure". The Trust Fund itself is simply another Commonwealth account. However, s.62A(1) empowers the Minister to establish Trust Accounts and define the purposes for which they are
established. Subsection (3) provides that all moneys standing to the credit of a Trust Account "shall be deemed to be moneys standing to the credit of the Trust Fund". Subsection (5) provides:

"(5)The following moneys may be paid to the credit of the Trust Account to which they relate:

(a) All moneys appropriated by law for the purposes of any Trust Account;

(b) All moneys received from the sale to any person or Department of any articles purchased or produced, or for work paid for, with moneys standing to the credit of a Trust Account; and

Subsection (6) permits the expenditure of moneys standing to the credit of a Trust Account for the purposes of the account.

Section 62B deals with investment of the Trust Fund. It relevantly provides:

"62B.(1) Moneys standing to the credit of the Trust Fund may be invested by the Minister:

(a) in any securities of, or guaranteed by, the Government of the Commonwealth or of a State;

(aa) in any securities of a government authority;

(ab) on loan to an authorized dealer;

(b) on deposit in a bank;

(ba) in certificates of deposit issued by a bank;

(bb) in clean bills of exchange;

(d) in any other form of investment approved by the Minister for the purposes of this subsection.

(2) ...

(2A)...

(3) Interest received from the investment of any moneys standing to the credit of the Trust Fund shall be dealt with:

(a) in accordance with any Act making provision with respect to that interest; or

(b) if paragraph (a) is not applicable:

(i) in a case where the Minister has directed the manner in which that interest is to be dealt with - in accordance with that direction; or

(ii)in any other case - by payment to the Consolidated Revenue Fund.

(4) ...

(5) ...

(6) ..."

It is agreed between the parties that there is no Act falling within para. (a) of subs. (3), in relation to the payments made to the Fund by the Bank and the applicant. There is uncontested evidence that the Minister has not made any direction under para. (b)(i) of the subsection. The result is that, by force of para. (3)(b)(ii), any interest that was earned by the payments while they were held in the Trust Fund was payable to Consolidated Revenue. When they made their agreement in 1984, the parties must have had that position in contemplation, there not being any agreement between them for the Minister to make a direction under sub. (3)(b)(i).

Having regard to the fact that the parties agreed that the moneys would be paid into an account where they would commingle with the Commonwealth's own funds, and where any interest they might earn would be payable to the Commonwealth, unless the Minister chose to direct otherwise, it seems impossible to impute to the parties an intention to create a fiduciary relationship: see Walker v Corboy (1990) 19 NSWLR 382 at 395-398.

If I am wrong about that matter, and the moneys were held on trust by the Commonwealth, it would not automatically follow that the applicant is entitled to interest. The applicant would be entitled to recover only that amount of interest that was gained by the Commonwealth from its possession of the trust moneys. There is no evidence about that matter. There is no evidence as to the amount of interest earned by the funds while they were held in the Trust Fund. What evidence there is demonstrates that the ascertainment of that amount (if any) would be an extremely complex exercise; it would involve an analysis of the dealings of that Fund over a period of ten years. As there was an agreement between the parties for the money to be held in this specific fund, in relation to the period during which the money was to be held it is not open to the applicant to recover interest calculated on the basis of the return that might have been derived if the Commonwealth had held the money elsewhere. The situation is different in relation to the period after the High Court's decision. Once that decision had been given, the money should not have continued to be held at all. The agreement required it to be immediately repaid.

Statutory interest

It will be recalled that, in the Woolwich case, interest was awarded pursuant to a statutory provision, s.35A of the Supreme Court Act. The present applicant bases its third alternative claim on the counterpart of that section in the Federal Court of Australia Act 1976. This is s.51A(1), a provision that sets out the Court's powers and duty concerning pre-judgment interest, subject to the presently irrelevant qualifications in subss. (2) and (3) of s.51A.

"(1)In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

(b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest."

It will be noted that the power to award interest is confined to interest on the "money" in respect of which the proceeding is brought. In the present case, the bulk of the money ($420,161.86) was repaid before the institution of the action. The proceeding was not brought in respect of any part of that money. It follows, as counsel for the applicant accept, that s.51A(1) does not authorise the Court to award interest on that sum. However, the sum of $148,068.35 remained unpaid when the proceeding was instituted and, by an amendment to the Statement of Claim, it was claimed in this proceeding. Counsel for the applicant argue that, notwithstanding that it was paid before trial, it is correct to regard this proceeding as being, amongst other things, one for recovery of that money; accordingly, s.51A empowers the Court to award interest on that sum between the date when the cause of action arose and the date of payment.

Counsel for the respondents dispute this interpretation of s.51A(1). They say that it only authorises the Court to award interest on moneys that the Court orders to be paid; so the Court may not award interest on moneys the subject of the proceeding that are paid before judgment. They say this interpretation of s.51A(1) is compelled by the word "included" in para. (a); interest may be a component of the
judgment sum, not the judgment sum itself. In support they cite a decision of Hewson J in the Admiralty Division of the English High Court of Judicature, "The Medina Princess" [1962] 2 Lloyds List Reports 17 at 19:

"It is quite unnecessary in a claim for damages or in respect of a debt to claim for interest, but it seems to me that this Court has no power to order, and there is no discretion in the matter of ordering, interest to be paid unless it has given judgment in respect of the damages or debt. The words of the section are 'shall be included in the sum for which judgment is given'. This Court has given no judgment in respect of any sum and, so far as I can see, is not empowered to award interest upon sums which have already been paid and which have not been the subject of its judgment."

I do not think this Court should adopt that view of the significance of the word "included". It is not clear to me that it would be followed even in England today. In Woolwich the only order was for payment of interest; the capital sums had long since been repaid. Apparently, nobody saw any problem about that, notwithstanding that s.35A of the Supreme Court Act uses the same formula: "included in any sum for which judgment is given simple interest ...". In any event, whatever the position in England, s.51A(1) is a facultative provision intended to confer power on the Court to do justice between parties in relation to pre-judgment interest; a matter of some importance in these days of high interest rates and extensive delays in finalising litigation. The subsection should be interpreted as widely as its language allows. While it is true that an item "included" in another item will usually constitute only part of the latter item, this is not necessarily so. The point may be illustrated by a sporting example. Take a batsman who has the misfortune to score "ducks" in his first three innings in a season, then scores 50 runs in the fourth. If a computation was then made of the team members' aggregates, his 50 runs would be "included" in his aggregate, notwithstanding that it constituted all the runs in the aggregate. Similarly, runs scored by a batsman off the opening ball of an innings are immediately "included" in the team's innings score.

In my opinion, as a matter of interpretation, s.51A(1) is available in this case. The cause of action arose on the date of the High Court decision, 25 February 1992, that decision triggering an obligation to repay the money pursuant to the 1984 agreement made between the parties. Whether the Court should exercise that power is a matter to be considered in conjunction with the issue of restitution and in the light of the case put by the respondents.

The respondents' case - the contractual relationship

In the course of discussing the three bases of claim advanced by the applicant, I have noted some specific responses of the respondents. The respondents go further. They say the agreement made between the Bank and the Commissioner in 1984 furnishes an answer to all three bases of claim; it was intended to, and did, state exhaustively the relationship between the parties. The agreement provided for the Bank to pay moneys, not as sales tax to the Commissioner, which might be irrecoverable even if the Bank ultimately succeeded in the litigation, but into the Trust Fund - Other Trust Moneys Account. In return the Commissioner agreed to remit whatever additional tax accrued by reason of the non-payment of sales tax and that the moneys held in the account would be repaid if the Bank succeeded in the then current litigation. Counsel say the consideration for the Bank's payments was not an undertaking, or implicit obligation, to pay interest but the Commissioner's undertakings regarding remittal and repayment. In support of this understanding of the arrangement, they point out that the prevalent view in 1984 was that tax paid under an invalid demand was not recoverable: see Werrin v The Commonwealth (1938) 59 CLR 150. It was probably not until the High Court's decision in David Securities, in 1992, that it became clear that this was wrong. Counsel argue that there was no implied term for the payment of interest; this was not necessary to give business efficacy to the agreement, which was already advantageous to the Bank as it stopped additional tax and ensured repayment if it succeeded in the litigation.

I think this argument is correct. Although counsel for the applicants argued in favour of an implied term, this was clearly not necessary in order to give business efficacy to the agreement. Although the agreement would not have come into existence but for a demand for sales tax that ultimately proved misconceived, it must have seemed an attractive arrangement at the time. Moreover, it is difficult to reconcile an implied term with the Bank's willingness to allow the money to be held in an account the interest on which was payable to Consolidated Revenue, unless the Minister chose to direct otherwise. The agreement was negotiated at a senior level. The Bank's solicitor was involved. It is inconceivable that those acting on behalf of the Bank did not realise that the money had the potential to earn considerable interest before the issue as to liablity for sales tax was resolved. If it today seems strange that the Bank was content to have the money paid into an account where it would not return interest to the Bank, even if it were successful in the litigation, it must be remembered that there was at that time no statutory provision for payment of interest on overpaid sales tax. Unless the Commissioner was prepared to agree to a special arrangement for interest to be available to this taxpayer, there was no way in which the Bank could obtain interest on its money if ultimately successful. The evidence does not suggest that he was ever asked to make a special arrangement for interest. The special arrangement he was asked to make, and which he accepted, at least had the great advantage, from the Bank's viewpoint, of circumventing Werrin and ensuring the return of the payments themselves.

These considerations not only put to rest the argument for an implied term; they are, in my opinion, relevant to the applicant's restitution argument. Although I have rejected the respondents' argument that the principle applied in Woolwich is excluded by the mere fact that the money was paid to the Trust Fund rather than as sales tax, the circumstances of the payment are significant. As the law of restitution is based on the concept of unjust enrichment, it is important to take into account the fact that any benefit gained by the Commonwealth by the presence of the Bank's (and the applicant's) money in the Trust Fund was a benefit gained by it pursuant to an arrangement that was suggested by the Bank and that conferred substantial advantages on the Bank. It is true that the arrangement would never have been necessary if the Commissioner had appreciated that the Bank was not bound to pay sales tax because of s.114 of the Constitution. Perhaps the Commissioner should have appreciated this; but the Bank had not put that argument to him. Apparently, the Bank paid sales tax without demur until the Nimrod case. The objection it was taking in 1984 was ultimately rejected by the High Court in another case, Commissioner of Taxation v Totalisator Administration Board of Queensland (1990) 170 CLR 508. Apparently, the Bank did not take the s.114 point until about 1987. The Banks's change of stance resulted in the abandonment of the Supreme Court action and the commencement of a fresh action in the High Court. This must have postponed the resolution of the dispute to a date later than that contemplated in 1984. Having regard to all these matters, I do not think it can be said that there was any element of injustice in any benefit the Commonwealth derived from possession of the funds in the period up to the High Court's decision. I reject the applicant's claim, whether based on restitution or trust, insofar as it relates to the period up to 25 February 1992. I also reject the claim for s.51A interest prior to that date. Interest under s.51A may be awarded only in respect of the period after the commencement of the cause of action. In the present case the cause of action arose on 25 February 1992 when the High Court's decision gave rise to an obligation to repay.

After 25 February 1992, a different situation obtained. There was no longer any doubt about liability. The money held by the Commonwealth in the Trust Fund - Other Trust Moneys Account ought to have been promptly refunded. The parties had agreed, back in 1984, that "if the Bank is successful in the present proceedings, the monies paid into the Trust Fund will be remitted in full". Although a new proceeding had been substituted, this remained the bargain. In fact, as recounted above, it was not until 4 December 1992 that the first payment ($420,161.86) was made and 26 April 1995 that the remaining $143,959.08 was paid. It seems to me that the retention of these sums during those periods represented an unjust enrichment of the Commonwealth at the expense of the applicant.

Orders

As I have pointed out, there is no evidence of the extent of the Commonwealth's actual enrichment. But I do not think it would be unfair to award interest at the rate of 10% per annum on both sums. In relation to the first payment, the period is short. The amount involved would not justify the detailed analysis necessary to establish the exact figure. In relation to the second payment, involving a longer period, an award of interest at 10% per annum could in any case be made under s.51A(1) of the Federal Court of Australia Act.

Interest on $420,161.86 from 25 February to 4 December 1992 (283 days) at 10% per annum amounts to $32,576.93. Interest on $143,959.08 from 25 February 1992 to 26 April 1995 (three years and 61 days) at 10% amounts to $45,593.60. The sum of these amounts is $78,170.53. I propose to enter judgment in favour of the applicant against the Commonwealth in that amount.

In relation to costs, the applicant has obtained some relief. But it falls well short of that sought. If the only issues in the case had been those on which the applicant succeeded, the hearing would have concluded within a day. Considerable expense would have been avoided. These factors should be reflected in the order for costs. I think the appropriate order is that the Commonwealth pay one half of the applicant's costs.

I certify that this and the preceding thirty-four (34) pages

are a true copy of the Reasons for Judgment

of the Honourable Justice Wilcox.

Associate:

Dated: 9 November 1995

APPEARANCES

Counsel for the Applicant: R B S MacFarlan QC and I M Jackman

Solicitor for the Applicant: P W Kearns

Counsel for the Respondents: A H Slater QC, K Connor

Solicitor for the Respondents: Australian Government Solicitor

Dates of hearing: 16 - 17 August 1995

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