I. THE GENERAL REFORM

A. Criteria for Relief

5.1 As we stated in para 4.9 we consider that legislative repeal of the general rule is required. The general reform enacted in New Zealand and Western Australia and proposed in British Columbia and South Australia is that

where relief could be granted if the mistake was wholly one of fact, that relief shall not be denied by reason only that the mistake is one of law whether or not it is in any degree also one of fact.

We consider that this is the appropriate model for statutory reform.

5.2 Insofar as the rule in Bilbie v Lumley is an exception to a general principle (ie that payments made under mistake are usually recoverable) this statutory provision puts an end to such an exception. But the provision goes further. Unlike the New York model (para 4.12) the provision requires that it be shown that relief would have been granted had the mistake been wholly one of fact. It is therefore “carefully drafted to ensure the incorporation into mistake of law cases of those restitutionary principles which the common law has developed to deal with mistakes generally”.¹ Indeed, it is so drawn as to incorporate future developments in those principles.

5.3 The provision does not, however, oblige the court to ignore the character of the mistake. For example, it is conceivable that a person who discharged a debt that was statute-barred or unenforceable for some technical reason in ignorance of the right not to repay it (that is, under a mistake of law) might be refused restitution because the payee was not unjustly enriched.²

5.4 The provision does, nevertheless, achieve two aims: reversing the rule in Bilbie v Lumley, and directing courts to the law of restitution involving a mistake of fact as a source of principles to assist in resolving problems posed by payments made under a mistake of law.³

5.5 Among the existing restitutionary principles which would be carried over undisturbed into the mistake of law field by the provision are:

• the rule denying the recovery of money paid in satisfaction of a doubtful claim to compromise that claim (para 3.29);
• the principle that denies recovery where the payer might by investigation learn the true state of affairs more accurately, but chooses to pay the money regardless;⁴
• any rule that would deny recovery if there were an added element of illegality involved in the payment sought to be recovered (where no common law exception to the rule requiring illegal losses to lie where they fall is appropriate);⁵ and
• the principles which determine what is a mistake and the relationship which a mistake must have to the payment sought to be recovered.⁶

5.6 The model provision expressly applies to mistakes of mixed fact and law. This overcomes the need for the plaintiff to prove the precise nature of the mistake⁷ and precludes claims failing, as they may under the existing law,⁸ because the plaintiff cannot affirmatively establish that the mistake was one of fact and not law.

5.7 The model provision does not touch the equitable rules relating to rectification,⁹ defences to specific performance,¹⁰ and tracing¹¹ which may apply where there is a mistake of law which would preclude recovery of money at common law under the general rule in Bilbie v Lumley.¹²

B. Defences, Cross Claims, Allowances in Accounts

5.8 The model provision (see Appendix C) makes plain that relief is to be available in all forms of claims, defences and cross-claims.¹³ This is clearly appropriate.

5.9 The legislation should also be drafted expressly to permit the recovery of money allowed in account under a mistake of law. This is necessary because of earlier decisions that sums allowed in account under a mistaken view as to the plaintiff’s rights cannot be recovered,¹⁴ at least at common law.¹⁵

C. Benefits Other than Money

5.10 The New Zealand and Western Australian models deal expressly with “relief in respect of any payment that has been made under mistake”. Whilst the phrase “payment ... made” indicates clearly that the section covers payment by way of cheque or other negotiable instrument,¹⁶ these statutory models are confined to restitution of monetary payments made under mistake of law. The Law Reform Commission of British Columbia¹⁷ and the Law Reform Committee of South Australia¹⁸ have disagreed with this narrower approach and have recommended generally that relief from the consequences of a mistake should not be denied by reason only that the mistake is one of law or mixed fact and law. Those bodies propose thereby to extend the reforming legislation to all claims for relief regardless of the nature of the benefit conferred or the manner in which it was transferred.¹⁹

5.11 While a person to whom land or goods are transferred by mistake or who is the mistaken recipient of unsolicited services may be unjustly enriched, the development and application of correct restitutionary principles is not as simple in those areas as with mistaken payments of money.²⁰

5.12 Where the benefit transferred is land, restitutionary principles become intermeshed with the practical realities of conveyancing law and practice. The general rule in Australia is that unless the vendor has no title at all to the property sold, neither law nor equity will undo a sale of land after conveyance unless there has been fraud or there is such a discrepancy between what has been sold and what has been conveyed that there is a total failure of consideration, or what amounts practically to a total failure of consideration.²¹

5.13 Even the delivery of chattels may create special problems. As the Law Reform Commission of British Columbia put it:

Unlike money, which is both the measure of value and the medium of exchange, the value of a chattel (or services rendered) is not fixed. A delivery of heating oil, for example, is of little value to the homeowner whose household has been converted to natural gas. The recipient of a chattel may therefore subjectively devalue a benefit by showing that in his particular circumstances the benefit has a lower value than its apparent objective worth. He may even be able to show in, the circumstances that the benefit is worthless to him. A defendant may subjectively devalue a benefit by proving that the object is unwanted (and therefore worthless to him) , that he could have got it at a lesser price elsewhere, or that forcing him to pay for the benefit deprived him of some advantage which might accrue had he been able to exercise his freedom to contract with someone else.²²

5.14 Where services are supplied the general rule at common law is that, unless the defendant has requested the benefit or freely accepted it with knowledge that it was to be paid for, there is no obligation to compensate the person who provides it, even where the recipient is enriched.²³ The valuation of the benefit to the defendant is problematical. Services cannot simply be restored, and their value to the recipient is highly subjective. In the homely words of Pollock CB: “One cleans another’s shoes; what can the other do but put them on?”.²⁴

5.15 Whilst we are not aware of any reported cases where appropriate restitution has been refused on the ground that a benefit other than money was transferred under mistake of law, we believe that Bilbie v Lumley should be expelled from this field as well. We therefore agree with the Law Reform Commission of British Columbia and the Law Reform Committee of South Australia that statutory reform should extend to restitutionary claims relating to all forms of benefit that are transferred or conferred. As with payments made under mistake of fact, appropriately drafted legislation will leave undisturbed any other legal or policy rule relating to restitution in these cases.

5.16 Neither of the reports of those last mentioned bodies contains draft legislation. For that reason alone it would be unproductive to be unduly critical of the form of their recommendations. It does however appear that legislation which simply enacted that “relief from the consequences of a mistake shall not be denied by reason only that the. mistake is one of law or mixed fact and law”²⁵ might be construed as affecting the general law of mistake in contract. This is something which neither the Law Reform Commission of British Columbia nor the Law Reform Committee of South Australia intended to do and which we also think is best left to consideration in a different context (see para 5.18). We therefore favour following the formulation used in the New Zealand and Western Australian models, but modified to make clear that it applies in respect of any form of benefit conferred.

5.17 Summarising our recommendations thus far we propose that:

(a) legislation should be enacted which provides that, where relief in respect of any benefit that has been conferred under mistake is sought in any proceedings before a court by any party to the proceedings, and the relief could be granted if the mistake were wholly one of fact, the relief shall not be denied by reason only that the mistake is one of law whether or not it is in any degree also one of fact.

(b) in this context “benefit” means payment of money or allowance of payment in an account, the transfer of any real or personal property or of any interest in any real or personal property and the performance of any service.

D. Mistake in Contract

5.18 Should statutory reform go beyond restitutionary claims? It appears to be accepted that a contract will not, in general, be voidable for a mistake of law, although the courts have devised various “exceptions” which permit adjustment in many cases.²⁶ In the area of compromises an agreement entered into under a fundamental common mistake of law may be avoided, at least in equity, in particular circumstances.²⁷ In New Zealand there has been a comprehensive restatement of the common law and equitable rules regarding the granting of relief for mistake in any contract in the Contractual Mistakes Act 1977.²⁸ This legislation has considerable merit but the issues which it raises go far beyond the legal and policy matters we have discussed in this Report. Like the Law Reform Commission of British Columbia²⁹ and the Law Reform Committee of South Australia,³⁰ we consider that the wider issues of the effect of mistakes on contracts generally should be dealt with on another occasion. The relatively specific reform we have proposed (para 5.17) is the suitable vehicle for adjusting the problems identified earlier in this report.

II. DEFENCES

5.19 Our terms of reference require us to consider the law relating to defences to claims for the recovery of money paid under a mistake of law. The New Zealand and Western Australian models (Appendix C) upon which we have drawn contain defences relating to payments sought to be recovered following a change in the law³¹ and change of position.³² In the latter case the statutory defences extend to all forms of relief and thus include claims for the recovery of money paid under mistake of fact.

A. Change in the Law

5.20 A person who pays money to another in the belief that money is due because liability is or appears to be established by a judicial decision, not directly involving those parties, will be unable to recover that money if the decision is later overruled or reversed (see paras 3.12-3.16). The main argument advanced against recovery in these cases is the fear of opening the floodgates to many claims. As Lord Coleridge CJ put it in Henderson v Folkestone Waterworks Co:

Just see what consequences would follow - that wherever there has been a reversal of judgment all the money that has been paid under the previous notion of the law can be recovered back! Has that ever been held? Can it be that every reversal of a decision may give rise to hundreds of actions to recover back money previously paid?³³

5.21 In response to this, the New Zealand and Western Australian models expressly preclude relief under the statutory reform where the “mistake” is associated with a change in the law. Each statute³⁴ provides that:

Nothing in this section shall enable relief to be given in respect of any payment made at a time when the law requires or allows, or is commonly understood to require or allow, the payment to be made or enforced, by reason only that the law is subsequently changed or shown not to have been as it was commonly understood to be at the time of the payment.

5.22 The only judicial illumination of this provision to date is to be found in the decision of the Full Court of the Supreme Court of Western Australia in Bell Bros Pty Ltd v Shire of Serpentine-Jarrahdale.³⁵ Until a decision of the High Court in 1966³⁶ declared invalid a by-law under which the defendant Shire Council had charged licence fees, the plaintiff company had paid the fees demanded for the issue of a licence to quarry gravel and stone. The fee was calculated according to the amount of material actually quarried. After the 1966 decision of the High Court, the plaintiff demanded repayment of the fees previously paid, claiming that they had been unlawfully demanded “under colour of an office” (colore officii) and paid by the plaintiff involuntarily (cf para 3.27). Alternatively, the plaintiff claimed that the money had been paid by mistake. At f irst instance the plaintiff Is claim was dismissed. On appeal to the Full Court of the Supreme Court of Western Australia it was held that, although the demand for the licence fees was unlawful, there was no evidence of compulsion in the sense necessary to render the payments involuntary. The Full Court held that the fees were irrecoverable at common law, in accordance with the rule in Bilbie v Lumley.³⁷ It also held that, although the plaintiff established a ground of recovery under s23(1) of the Law Reform (Property, Perpetuities and Succession) Act 1962 (WA),³⁸ the defendant had made out a defence under s23(2) of that Act the terms of which are quoted in para 5.21. The Court made the following points.

• The burden of proving that the case fell within s23(2) is on the defendant, although the defendant may rely on presumptions.
• The defendant needed to prove that at tile time when each payment was made it was “commonly understood” that the fee was lawfully exigible.
• “Understood” is apt to cover everything from a positive and reasoned belief to a tacit assumption, but it must involve a state of mind, and its existence or otherwise must always raise a pure question of fact.
• It is not enough that the parties were each mistaken: the section predicates some generality of understanding beyond that of the parties to the action.
• There can be no understanding about a subject unless the mind has been in some degree directed to that subject, and the class in which the understanding must be looked for is of necessity limited to persons who for some reason or another have at least to some extent adverted to the subject. The class will be wide or narrow according to the subject in question.
• Once a defendant shows an apparently adequate class and a common understanding in that class, then if the plaintiff contends that the class is in truth more extensive, or that there was not within the defendant’s limited class the common understanding, which would otherwise be presumed, it is necessary for the plaintiff to adduce some evidence on the subject.

5.23 A statutory defence along these lines would have particular relevance if taxpayers sought generally (under our proposed general reform: para 5.17) to be permitted to recover moneys paid to the Revenue upon later discovering that the “law had changed”. But it would not be confined to those cases. it is easy to envisage situations where payments are made by one private individual to another under a mistaken belief that the law required it where a later decision revealed the error of that belief.³⁹

5.24 Although the decision in Bell Bros Pty Ltd v Shire of Serpentine-Jarrahdale (para 5.22) shows that the statutory defence has scope, it is a fairly narrow scope because, even without it, many “mistakes of law” turn out on closer examination not to be so:

Too often what is said to be a mistake of law is really a misjudgment as to the expediency of risking the outcome of a lawsuit. Payment made with this chance element in mind is in the nature of a compromise or voluntary payment, and established considerations of policy prevent relief.⁴⁰

Lord Sumner had the same idea in mind in Sinclair v Brougham when he referred to “that mistake of conduct to which all of us are prone, of doing as others do and chancing the law”.⁴¹ The statutory defence was designed to make it clear that relief cannot be claimed on the ground that, as a result of the decision of a higher court over-ruling an earlier decision, the law as it was commonly understood to be is no longer the law.⁴² Although it has been suggested that the section is probably unnecessary since in the cases to which it applies “it can hardly be said that there was any mistake in the law at the time the payment was made”, the provision “should, however, serve to avoid doubts, and in particular will prevent any argument based on the fiction that the law has always been what the latest and most authoritative decision has decided that it is it.⁴³

5.25 We believe that a statutory “change in the law” defence is appropriate. It is no longer thought that judges simply discover and declare the law and it is readily accepted that courts, particularly those of ultimate appeal, alter it from time to time.⁴⁴ Whilst the existing principles will generally deny recovery of money paid by someone who consciously chances his or her arm about the true state of the relevant facts or law, the Bell Bros case (para 5.22) shows that a statutory defence has work to do. Since the American doctrine of prospective overruling of precedents (which allows a change in the law to be declared by the court to operate prospectively only)⁴⁵ is not part of Australian law⁴⁶ there is a significant potential for havoc to be caused if a judicial change in the law were able to disturb completed transactions.⁴⁷ True, a change of position defence (below) mitigates against hardship suffered by those who can point to something in addition to merely having spent the money mistakenly paid. But a statutory defence precluding argument that persons who pay money in the belief that the existing state of the law is in truth the law, is really a way of underlining the reality that judges do alter the law from time to time.

5.26 There is a wider social interest in reinforcing this attitude to the process of development in the common law. It is illustrated by the doctrine that in civil and criminal appeals an extension of time to appeal will not be granted solely on the ground that a subsequent decision (to that now sought to be appealed from) has disclosed that the law as it was understood when the trial was conducted is no longer the law.⁴⁸ The reason for this ostensibly harsh doctrine was given by Street CJ in R v Unger:

Although in pure theory the overruling or modification by judicial decision of previous conceptions of legal principle does no more than correct a departure from the timeless perfection of the law, the plain fact is that legal principle is constantly evolving and being moulded in the light of the changing and developing social context. Recognizing this, there has always been an unwillingness to permit the re-opening of past decisions. Indeed the process of appeal, either civil or criminal, is a comparatively recent and statutory concept - it finds no basis in the common law itself. This finality of decision in each individual case leaves the courts free to permit a judicious flexibility in the development of principle in later cases, free from inhibition lest such development may set at large disputes that have previously been resolved.⁴⁹

5.27 Both the Law Reform Commission of British Columbia⁵⁰ and the Law Reform Committee of South Australia⁵¹ have however recommended against the enactment of the “change in the law” defence which appears in the New Zealand and Western Australia models.⁵² The Law Reform Commission of British Columbia said:

The New Zealand legislation gives no hint of how “common understanding” is to be defined, much less proved. The use of the word “common” implies that a certain interpretation of the relevant legal rule is prevalent among a certain class of individuals whose affairs are touched by that rule. How is that class of individuals to be defined in each case? In a dispute over the imposition of a tax, whose “common understanding” is important - the taxpayer’s or the taxing authority’s. If the former, how is it to be ascertained and proved? If the views of both taxpayer and authority are relevant, what if they differ?⁵³

As the Law Reform Committee of South Australia put it:

For a subsection which was probably unnecessary, it is capable of raising a lot of problems.⁵⁴

5.28 We believe that there is real force in these criticisms, but that they address the form of the “change in the law” statutory defence rather than the substantial policy which it embodies. A requirement that it be shown that the law be “shown not to have been as it was commonly understood” casts the inquiry into a sea of subjective fact, an investigation about what unknown persons other than the parties believed to be the legal position. This is illustrated by the propositions formulated by the Full Court of the Supreme Court of Western Australia in Bell Bros Pty Ltd v Shire of Serpentine-Jarrahdale.⁵⁵ We propose that references to common understanding should be omitted from the statutory defence. By leaving the judicial inquiry as one about whether the law actually changed subsequently to the payment the courts can resort to such objective sources as the statute book, law reports and legal textbooks without the need to investigate or presume the beliefs of an undefined class of persons about the law. Sometimes, of course, the change can be when a judicial decision holds that a consensus of opinion on a point in standard text books is erroneous.

5.29 Accordingly we recommend that relief under the general reform should not be available where the benefit was conferred at a time when the law required or allowed the benefit to be conferred or enforced, by reason only that the law is subsequently changed.

B. Change of Position⁵⁶

5.30 There is considerable debate in the academic literature as to whether the common law has yet recognised the defence of change of position as generally available to restitutionary claims such as claims in relation to money paid by mistake.⁵⁷ Professor Birks describes the defence in the following terms:

This defence is like estoppel with the requirement of a representation struck out. In other words the enriched defendant succeeds if he can show that he acted to his detriment on the faith of the receipt.⁵⁸

5.31 We have already noted (para 4.18) that the New Zealand and Western Australian models of statutory reform enact a change of position defence. These provisions (which are not identical) are set out in Appendix C. The defence is of general application and extends to relief whether under the general statutory reform, in equity or otherwise. The court is empowered to refuse repayment in full or in part.

5.32 The New Zealand provision (s94B of the Judicature Act 1908) provides that relief should be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment that in the opinion of the Court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.

5.33 Professor R J Sutton has criticised s94B on the basis that its vagueness creates a confusion “so great that the court is left merely making ex gratia payments with other people’s money”.⁵⁹ He points out that the requirement for the court to look at the equities on both sides is an entirely new doctrine of mistake, based not on strictly legal considerations arising out of the payment itself, but upon the surrounding circumstances and subsequent events. The power, which he described as “arbitrary”, is questioned as going beyond what is desirable in commercial matters.⁶⁰

5.34 Section 94B of the New Zealand Judicature Act was considered by the New Zealand Court of Appeal in Thomas v Houston Corbett & Co.⁶¹ The fact that all three members of the Court differed in their initial assessments attests to the uncertain operation of the statutory defence. In that case the plaintiffs (respondents) and the defendant (appellant) were victims of a rogue named Cook, an employee of the plaintiffs who were a firm of solicitors. The defendant gave 400 pounds to Cook to invest, but he converted the money to his own use.

When the defendant requested the return of his money Cook fraudulently induced the plaintiffs to pay 1381 pounds from the plaintiffs’ trust account into the defendant’s bank account. The defendant, relying on Cook’s representation that some 840 pounds was due to the other investors, drew a cheque in Cook’s favour for that amount. When the plaintiffs discovered the fraud an action was brought to recover the 1381 pounds as money paid to the defendant under a mistake of fact. The main issue before the Court of Appeal was whether the defendant could rely on s94B (set out in para 5.32). The court took the view that s94B gave it the power to consider which party had more opportunity to avoid the loss, and jurisdiction to apportion the loss between the parties. The three judges expressed differing views as to where the balance of responsibility lay, before concurring in an order that the defendant should repay only one-third of the 840 pounds (that being the amount of the defendant’s detrimental reliance).

5.35 Rather than being the essence of the defence, the fact that the defendant had changed his position in reliance upon the receipt of the funds was regarded only as a ground for apportioning the loss without regard to the change of position. “The court ... rejected the alternative approach that the appellant should have to repay only whatever unjust enrichment remained in his hands, treating the change of position more as a prerequisite for equitable relief than a factor which should determine its extent.”⁶² By preferring a moral assessment of who should bear the loss, the court made the application of the statutory defence an arbitrary and subjective exercise. We agree with the Law Reform Commission of British Columbia that s94B, so interpreted, clearly goes far beyond what is required to give effect to a change of position defence. While the idea of apportioning losses inflicted on innocent parties by a rogue is not itself inappropriate, such a solution goes outside the context of the issues involved in recovery of money paid under mistake.⁶³

5.36 The Western Australian legislation (s125(1)) of the Property Law Act 1969) requires recovery to be denied wholly or in part:

if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment that in the opinion of the Court, having regard to all possible implications in respect of [the parties (other than the plaintiff or claimant) to the payment and of other persons [acquiring rights and interests through them], it is inequitable to grant relief, or to grant relief in full.

The words in square brackets distinguish the Western Australia model from the New Zealand provision (para 5.32) and require the court to disregard the position of the person who paid the money by mistake or those who acquire rights or interests through that person. One commentator has suggested that it is difficult to see how the Court is to achieve equity if it is obliged to disregard the plaintiff’s position entirely,⁶⁴ although the presence of the words in square brackets invites the balancing process evidenced in Thomas’ Case (para 5.34).

5.37 We are firmly of the view that it would be unjust to compel the return of moneys paid under mistake to a payee who, on the strength of receiving a payment to which he or she bona fide believes himself or herself to be entitled, spends the funds in such a way that it would be inequitable to compel repayment. While this was one of the reasons given in Brisbane v Dacres for the general rule denying recovery of moneys paid under mistake of law (see para 4.6), the injustice is equal whatever the type of mistake. The innocent payee is in either case ignorant of the very existence of the mistake and thus quite unconcerned about its nature.

5.38 After an extensive review of the authorities,⁶⁵ the Law Reform Committee of South Australia recommended in 1984 the adoption of a statutorily defined change of position defence. It proposed that the defence should be modelled on s94B of the New Zealand Judicature Act but incorporating a requirement that the alteration in position should reasonably flow from the mistake.⁶⁶ That Committee considered that (unlike the United States situation) the English and Australian common law did not recognise a change of position defence except in the limited fields of estoppel and payments by agents.⁶⁷

5.39 On the other hand, the Law Reform Commission of British Columbia recommended against the enactment of a provision similar to s94B of the New Zealand Act, firstly on the basis that its adoption could have the undesirable effect of crystallising the defence of change of position and fettering its development at common law,⁶⁸ and secondly because the New Zealand provision as interpreted in Thomas’ Case (para 5.34) apparently goes beyond what is required to redress any problems arising out of an innocent party changing his or her position.

5.40 The interpretation of the statutory provisions is not, however, the real question to be decided. The real issue is whether a “change of position” defence in any form should be enacted. If it were, it would put the issue beyond doubt, but perhaps at the expense of the correct principles being worked out on a case by case basis.

5.41 There have been decisions in England, Canada and Australia since the second edition of Goff and Jones Law of Restitution (on which the Law Reform Committee of South Australia appears to have relied) which suggest that the common law in those countries has now accepted that it is a defence to a claim for the return of money paid under mistake of fact that the payee has changed position in good faith on the strength of the payment.⁶⁹ Recent dicta in the Court of Appeal in New South Wales⁷⁰ indicate that the court would be receptive to a change of position defence not based on estoppel, although Clarke J has more recently stated (obiter), in National Mutual Life Association of Australia Ltd v Walsh,⁷¹ that “nowithstanding my view that the defence should be available I consider that I should follow the Court of Appeal decision which has stood for 70 years⁷² and leave it to appellate courts to decide whether it was erroneous”. The fact that the availability of the defence in a proper case has been accepted by the Supreme Court of Canada, by Goff J (as he then was) in the Court of Queen’s Bench in England and by the Full Court of the Supreme Court of Victoria⁷³ makes us sufficiently confident that the defence will in due course be accepted as part of the common law in this state to refrain from seeking to encase it in what could be a statutory straitjacket. Like the Law Reform Commission of British Columbia (para 5.39) we fear that a statutory embodiment of such a defence could have the undesirable effect of fettering appropriate development of a change of position principle.

5.42 The case law in the United States⁷⁴ and Canada⁷⁵ shows how the defence has been firmly accepted in those jurisdictions and how various issues of principle are capable of being worked out in the traditional case-by-case way. Change of circumstances may be a defence or a partial defence.⁷⁶ At least in the United States, the courts will weigh equities and deny repayment flon patent equitable considerations”⁷⁷ if the defendant has changed position. The plaintiff’s negligence may be relevant when the defendant has changed position.⁷⁸ Conversely, where the defendant has been at fault, for example by misrepresenting the position to the plaintiff or failing to use reasonable diligence to ascertain facts, or if the defendant discovered the mistake before changing position, the defence will be denied.⁷⁹

5.43 Courts in those two jurisdictions have also grappled with the circumstances and nature of the defendant’s expenditure. Mere expenditure will not constitute a change of position.⁸⁰ Similarly expenditure for the defendant’s own benefit, including the purchase of an automobile,⁸¹ or of stock,⁸² or the payment of existing debts⁸³ have been held insufficient to found a defence. At least in Canada, the mere fact that a defendant is without means to pay the judgment is not sufficient to constitute the defence.⁸⁴ However, money spent solely in reliance on the payment, from which the defendant no longer retains a benefit, will constitute a good defence, for example payment of a deceased’s hospital bill in reliance on mistakenly overpaid death benefits.⁸⁵ If the defendant has lent the money to a third party that in itself is not sufficient because “until all reasonable efforts have been made by the defendant to get money back and have proved unavailing, how can it be said that it would be inequitable to permit a recovery?”.⁸⁶

5.44 We have referred to this selection of the substantial body of North American case law to illustrate the variety of situations likely to attract a change of position defence and to show that Australian courts will be able to draw on a rich jurisprudence for guidance as they work out the detailed principles relating to the defence.

5.45 We therefore recommend that it would be premature to enact a statutory form of change of position defence in relation to benefits transferred by mistake of fact or law,

since it appears that such a defence is already generally available in appropriate circumstances in Australia.

5.46 We have already referred (paras 3.18-3.19) to the rule which allows the Crown to recover moneys mistakenly disbursed by a servant of the Crown regardless of the nature of the mistake. It has, indeed, been held in Victoria that the constitutional principle against unauthorised disbursement of public funds is so strong that defences of estoppel or change of position are not available in this specific field.⁸⁷ The Law Reform Commission of British Columbia recommended repeal of this rule, arguing persuasively that:

The recognition of the legislature’s right to control the public purse need not have as a consequence a rule framed so broadly as to create the potential for unjust results. The balance between private and public right is best adjusted by permitting the recipient of improper disbursements to raise any defence available to him on the facts of the case.⁸⁸

This recommendation has been substantially implemented in British Columbia in s67 of that Province’s Financial Administration Act 1961 and the Law Reform Committee of South Australia has supported its adoption in that state.⁸⁹ We incline to the view that there is no reason why the Crown should, in this regard, be in any preferred position. However we conclude that it would be premature for us to propose statutory intervention into an area that could be affected by the clarification of the common law about the defence of change of position generally.

III. SOME MATTERS OF DETAIL

A. Repayment by Instalments

5.47 As we have already noted, the Western Australian statute (Property Law Act 1969 s125(2)) provides that:

Where the Court makes an order for the repayment of any money paid under a mistake, the Court may in that order direct that the repayment shall be by periodic payments or by instalments, and may fix the amount or rate thereof , and may from time to time vary, suspend or discharge the order for cause shown, as the Court thinks fit.

The Supreme Court,⁹⁰ the District Court⁹¹ and Local Courts⁹² of New South Wales have jurisdiction to order that a judgment debt, however obtained and for whatever type of debt, may be paid by instalments. Such orders may be varied or discharged as circumstances dictate. In our view there seems to be no reason why judgment debts resulting from a restitutionary order to repay money paid by mistake should be singled out for special attention or treatment in any statutory reform. It is clear that the money should be repaid. If the debtor’s means make immediate repayment inequitable then the court can exercise its general jurisdiction to stay execution on terms. We therefore recommend that there is no need for legislation relating to payment of money by mistake to confer express power on the court to allow judgment debts to be repaid by instalments.

B. Restitution from Public Authorities

5.48 We have mentioned already (para 3.27) the body of case law determining when moneys not due to public authorities can be recovered by those who through mistake or lack of courage to press their rights do not resist payment when demanded. Short of a statutory provision allowing recovery (see para 3.24) or an agreement between payer and payee that moneys will be repaid should it later turn out that they were not due,⁹³ restitution will be refused unless the payer can show that there was some element of coercion other than invoking the legal process added to the illegality of the impost itself.⁹⁴

5.49 This state of the law has been criticised by Professor Birks as being out of step with a public law approach to the problem, which would relate restitution directly to the administrative law doctrine of ultra vires.⁹⁵ It has been argued that the current law’s requirement of duress inadequately protects the high constitutional principle that there shall be no taxation without the consent of Parliament, for it means that in the ordinary case money levied without parliamentary consent can be kept.⁹⁶ Nevertheless the need for proof of duress in the general case is well enshrined in recent binding authority and it reflects, perhaps, a concession that payments to public authorities differ from those between private individuals in some respects. The payer in the former category may be more reasonably expected to know his or her own legal or factual position before making the payment than an otherwise disinterested bureaucracy which is largely dependent on the honesty of the taxpayer for information relevant to liability.⁹⁷ Underlying these rules is the belief that “public bodies have their own interest in the security of their receipts, and society has a wider interest in the stability of their finances”.⁹⁸ A principle allowing recovery on mere proof of the invalidity of the public authority’s demand for payment would throw the finances of the country into utter confusion. After several years questions might be raised which, on some suddenly discovered interpretation of a taxing Act, whether internal revenue or Customs, would unexpectedly require the return of enormous sums of money. and quite disorganize the public treasury.⁹⁹

5.50 In New South Wales there are statutory provisions allowing recovery of stamp duties, land tax and pay-roll tax paid and then found to be not due.¹⁰⁰ These rights are in some cases subject to stringent time limitations,¹⁰¹ or to a favourable exercise of an administrative discretion vested in the relevant Commissioner.¹⁰² In the case of death duties, it is expressly provided that no refund shall be made in respect of any property wrongly included in the dutiable estate by reason of any mistake in the construction of the Act.¹⁰³ Whether these limited statutory rights are in lieu of any common law right of recovery where the taxpayer can establish the requisite element of coercion added to the impost that was not in fact due is a question of statutory interpretation.¹⁰⁴

5.51 For many taxes or imposts, however, there is no statutory provision relating to repayment and the taxpayer’s rights of recovery are governed by the general law. Added to the comparative difficulty of threading a way past the general rule in Bilbie v Lumley there is, in New South Wales, a stringent time limitation to be found in s2 of the Limitation of Actions (Recovery of Imposts) Act 1963 which provides that “no action or proceeding shall be brought to recover from the Crown or the Government or the State of New South Wales or any Minister of the Crown, or from any corporation, officer or person or out of any fund to whom or which it was paid, the amount or any part of the amount of any tax, fee, charge or other impost paid, under the authority or purported authority of any Act... after the expiration of twelve months after the date of payment”. The bar does not apply to any action or proceeding brought pursuant to any specific provision of any Act providing for the mode of challenging the validity or for the recovery of the whole or any part of any tax, fee, charge or other impost actually paid.¹⁰⁵

5.52 If, as we propose, the general rule in Bilbie v Lumley should be repealed by statute, the question arises whether the Crown should be bound by the statute. In our view there is no reason why the position of the Revenue should, in this respect, be any different from that of private persons. A regime which allows recovery of money paid under mistake of law arguably would act as an incentive to taxpayers to pay moneys claimed due by or on behalf of a public authority.¹⁰⁶ In any event the Revenue would, in our view, be amply protected by the enactment of the “change in the law” defence which we propose (para 5.29). Taxpayers who chance their arm by making a payment with the intent of seeking recovery should others establish the invalidity of the relevant tax will also be defeated by the existing common law rules governing payments made under mistake (see para 5.24). Added to this are the very stringent general time limitations to which we have drawn attention (para 5.51) and, as a last resort, the New South Wales Revenue’s capacity to protect itself by Act of Parliament should it deem it appropriate that an invalid impost should be validated retrospectively.¹⁰⁷ Accordingly we recommend that the statutory reforms which we propose should bind the Crown.

C. Retrospectivity

5.53 Since the reforms we have proposed will correct an unjust and technical anomaly the Commission recommends that the statutory reforms which we propose should apply to a mistake whenever made. Naturally, the Limitation of Actions (Recovery of Imposts) Act 1963 and the Limitation Act 1969¹⁰⁸ will continue to apply to bar State claims.

1. Law Reform Commission of British Columbia Report on Benefits Conferred Under a Mistake of Law (1981) at 68.

2. Compare S J Stoljar Quasi-Contracts at 24-26; B Smith “Correcting Mistakes of Law in Texas” (1931) 9 Texas L Rev 309 at 330. See also National Mutual Life Association of Australasia Ltd v Walsh Supreme Court of New South Wales, Clarke J, unreported 13 March 1987).

3. Law Reform Commission of British Columbia, note 1 at 82.

4. See South Australian Cold Stores Ltd v Electricity Trust of South Australia (1957) 98 CLR 65 at 74-75.

5. See, for example, Kiriri Cotton Co Ltd v Dewani [1960] AC 192; Hydro Electric Commission of Township of Nepean v Ontario Hydro (1982) 132 DLR (3d) 193.

6. See generally Porter v Latec Finance Co (Qld) Pty Ltd (1964) III CLR 177; Commercial Bank of Australia Ltd v Younis [1979] 1 NSWLR 444. We agree with the Law Reform Commission of British Columbia that these matters are best left to continue to be worked out on a case by case basis, and that the legislation should not seek to define them: Law Reform Commission of British Columbia, note 1 at 69-70.

7. Sir Owen Dixon has said that a mistake as to the existence of a compound event consisting of law and fact is in general one of fact: Thomas v The King (1937) 59 CLR 279 at 306.

8. Holt v Markham [1923] 1 KB 504; Avon CC v Howlett [1983] 1 All ER 1073-at 1084-5.

9. As to rectification where there is a mistake of law see R P Meagher, W M C Gummow and J R F Lehane Equity Doctrines and Remedies 2nd ed (1984) para 2611.

10. Mistake will in some circumstances constitute a defence to a claim for specific performance: Id paras 2017-2018.

11. See Sinclair v Brougham [1914] AC 398.

12. See also Chapter 3 note 12.

13. For a decision at common law, denying recovery by way of set off or conterclaim of money paid under a mistake of law, see Fisher v Luke [1926] VLR 190. As to cross-claims in New South Wales, see Supreme Court Act 1970 s78, Supreme Court Rules Part 6, District Court Rules Part 20 and Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514.

14. Skyring v Greenwood (1825) 4 B & C 281 (107 ER 1064); Halsbury’s Laws ofEngland 4th ed vol 32: “Mistake” para 72.

15. See Daniell v Sinclair (1881) 6 App Cas 181 at 190.

16. B J Cameron “Payments Made Under Mistake” (1959) 35 New Zealand LJ 4 at 5.

17. Law Reform Commission of British Columbia, note 1 at 67, 82.

18. Law Reform Committee of South Australia Report Relating to the Irrecoverability of Benefits Obtained by Reason of Mistake of Law (SALRC 84) (1984) at 29, 32.

19. Law Reform Commission of British Columbia, note 1, at 82; Law Reform Committee of South Australia, note 18 at 29. This deficiency of the New Zealand provision is also criticised by R J Sutton “Mistake of Law - Lifting the Lid of Pandora’s Box” in J F Northey ed, The A G Davis Essays in Law 218 at 223-5.

20. For general discussion, see Lord Goff of Chieveley and G Jones The Law of Restitution 3rd ed (1986), chaps S and 6; Law Reform Commission of British Columbia, note 1, chap 3.

21. Svanosio v McNamara (1956) 96 CLR 186. Compare Lukacs v Wood (1978) 19 SASR 520.

22. Law Reform Commission of British Columbia, note 1 at 36-37.

23. See, for example, Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 at 238 (Bowen LJJ; Pettit v Pettit [1970] AC 777 at 818 (Lord Upjohn).

24. Taylor v Laird (1856) 25 LJ Ex 329 at 332.

25. See note 19.

26. See Svanosio v McNamara, note 21 at 196 (Dixon CJ and Fullager J); K E Lindgren, J W Carter and D J Harland Contract Law in Australia (1986) paras 1212-1213.

27. See the discussion of the various categories of compromise cases in Law Reform Commission of British Columbia, note 1 at 29-32. See also Re Roberts [1905] 1 Ch 704.

28. The Act followed the report of the New Zealand Contracts and Commercial Law Reform Committee Report on the Effect of Mistakes on Contracts (1976).

29. Law Reform Commission of British Columbia, note 1 at 72-3.

30. Law Reform Committee of South Australia, note 18 at 33-35.

31. Judicature Act 1908 (NZ) s94A(2); Property Law Act 1969 (WA) s124(2).

32. Judicature Act 1908 (NZ) s94B; Property Law Act 1969 (WA) s125(1).

33. (1885) 1 TLR 329 (arguendo).

34. Judicature Act 1908 (NZ) s94A(2); Property Law Act 1969 (WA) s124(2).

35. [1969] WAR 155. The decision was reversed on appeal, (1969) 121 CLR 137, but on different grounds.

36. Marsh v Shire of Serpentine-Jarrahdale (1966) 120 CLR 572.

37. On this point the decision was reversed by the High Court on appeal, that Court holding that the money had been exacted colore officii.

38. Now s124(1) of the Property Law Act 1969 (WA). That section is set out in Appendix C. Although the Court said that “it is common ground that at all material times both parties believed that cl 7 of the by-law was valid: this was a mistake of law common to both parties, and the case falls within the terms of” s124(1) ([1969] WAR 155 at 158), we do not read this as holding that common mistake is essential to make out a case for recovery under the statutory reform.

39. Compare Brisbane v Dacres 5 Taunt 143 (128 ER 641); Derrick v Williams [1939] 2 All ER 559. In the United States the issue arose in a critical way in a group of cases arising under the Legal Tender Acts passed during the Civil War, which made United States notes (greenbacks) legal tender for most public and private debts. In 1870 the United States Supreme Court held the legislation invalid as applied to pre-existing debts, but the following year the decision was overruled. Debtors who paid during this interval in gold or its equivalent, on the basis of the earlier decision, sought restitution of the “overpayment”. In all cases relief was denied: see Palmer The Law of Restitution vol III para 14.27 at 353-354.

40. Note 45 Harv L Rev at 340.

41. [1914] AC 398 at 452. See also note 4.

42. Cameron, note 16 at S. (Mr Cameron was a member of the New Zealand Law Revision Committee which proposed the New Zealand model upon which we have drawn.)

43. Ibid.

44. Compare R v National Insurance Commissioner; Ex parte Hudson [1972] FAC 944 at 1026 per Lord Simon.

45. The constitutional validity of the technique of making a change in decision operate prospectively only was established by the Supreme Court in Great Northern Railway v Sunburst Oil and Refining Co 287 US 358 (1932).

46. The possibility of introducing such a doctrine is discussed in R v National Insurance Commissioner; Ex parte Hudson [1972] AC 944 at 1015, 1026 and by Mason J (as he then was) in Babaniaris v Lutony Fashions Pty Ltd (High Court, unreported 5 June 1982).

47. See Note “The Effect of Overruled and Overruling Decisions on Intervening Transactions” (1934) 47 Harv L Rev 1403. See also note 39. Compare cl 14 of Australian Bill of Rights Bill 1985 (Cth).

48. Re Berkeley [1945] Ch 1; Piening v Wanless (1968) 117 CLR 498; R v Ramsden (1972) Cr L Rev 547; R v Unger [1977] 2 NSWLR 990. Compare also Eggins v Brooms Head Bowling and Recreational Club Ltd (1986) 5 NSWLR 521.

49. R v Unger, note 48 at 995-6.

50. Law Reform Commission of British Columbia, note 1 at 70-72.

51. Law Reform Committee of South Australia, note 18 at 30-31.

52. See para 5.21.

53. Law Reform Commission of British Columbia, note 1 at 70.

54. Law Reform Committee of South Australia, note 18 at 30.

55. See para 5.22.

56. Particular indebtedness is expressed to Ms Celia Caughey of Auckland who made available her unpublished BCL (Oxford) thesis “A Change of Position Defence to Recovery of Mistaken Payments in English Law” containing an extensive review of the English, Canadian, New Zealand, American and Australian law on this topic.

57. See generally Lord Goff of Chieveley and G Jones Law of Restitution 3rd ed (1986) chap 39; Peter Birks An Introduction to the Law of Restitution (1985) at 410-415. For an argument that the Englis cases provide no conclusive authority against the defence of change of position, on the ground that in no case where the defence would have been applicable was it fully argued and rejected, see Caroline A Needham “Mistaken Payments: A New Look at an Old Theme” (1978) 12 UBCLR 159 at 192-198.

The lastmentioned author also points out (at 199-200) that all of the early English authorities were decided at a time when the now outmoded view of the action for money had and received as a contractual. action was in vogue.

58. Peter Birks An Introduction to the Law of Restitution (1985) at 410.

59. R J Sutton, note 19 at 243.

60. Id at 238.

61. [1969] NZLR 151.

62. Celia Caughey, note 56 at 54.

63. Law Reform Commission of British Columbia, note 1 at 79.

64. E K Braybrooke (1963-1964) Univ of WA Law Rev at 233 note 21.

65. Law Reform Committee of South Australia, note 18 at 24-27.

66. Id at 31-33.

67. Id at 25. The leading early authorities supporting this stricter view are Bayliss v Bishop of London [1913] 1 Ch 127 and R E Jones Ltd v Waring & Gillow Ltd [1926] AC 670. see generally, Lord Goff of Chieveley and G Jones Law of Restitution 3rd ed (1986) Chapter 42. For a more recent decision containing dicta to similar effect, see National Westminster Bank Ltd v Barclays Bank International [1975] QB 654.

68. Law Reform Commission of British Columbia, note 1 at 78.

69. Rural Municipality of Storthoaks v Mobil Oil Canada Ltd (1975) 55 DLR (3d) 1; Barclays Bank Ltd v W J Simms Sons & Cooke (Southern) Ltd [1980] 1 QB 677 at 695-6 per Goff J; Bank of New South Wales v Murphett (1983) VR 489. Cf also Kleinwort, Sons & Co v Dunlop Rubber Co (1907) 97 LJ 263 at 264 per Lord Loreburn; and Kerrison v Glynn Mills Currie & Co (1912) 81 LJKB 465 at 472 per Lord Mersey for other indications of receptiveness in English law to a defence based on detrimental change of position without reference to other elements of estoppel. A recent survey of the arguments for and against the adoption of a change of position defence in English law concludes that the present uncertainty about the defence will be resolved in favour of admitting it: Peter Birks An Introduction to the Law of Restitution at 414-415.

70. In Commercial Bank of Australia Ltd v Younis [1979] 1 NSWLR 444 the Court of Appeal permitted recovery of a payment made in ignorance of the fact that a cheque had been countermanded. Hope JA said (at 450): “If the Bank cannot recover from Younis, it cannot recover from anyone the money which it mistakenly paid, and Younis will have been unjustly enriched at the Bank’s expense .... There has been no prejudice to Younis, as a result of the payment or of the negligence, which would make it unjust to require the repayment of the money.” In Westpac Banking Corporation v Australia and New Zealand Banking Group (court of Appeal, unreported 20 June 1986) the case turned on the application of the specific rule that an agent to whom money is paid by mistake has a defence to an action for its recovery if the agent has paid over that money to the principal. McHugh JA however noted that “the rule that an agent is not obliged to repay moneys which he has paid away at the direction of his principal is a particular application of the more general principle that the recipient of a mistaken payment is not obliged to repay moneys when he would suffer detriment to an extent that would make it unjust for him to have to repay the Holt v Markham [1923] 1 KB 504: Grundt v Great Boulder Gold Mines Pty Ltd (1937) 59 CLR 641 at 674-675”.

71. Supreme Court of New South Wales, unreported 13 March 1987 at 30 of transcript of judgment.

72. Bayliss v Bishop of London [1913] 1 Ch 127.

73. See first three authorities cited in note 69.

74. See generally American Law Institute Restatement of the Law of Restitution (1936) Art 142; 40 ALR 2d 997.

75. See generally G H L Fridman and J G McLeod Restitution (1982) at 605-613.

76. Sawyer v Mid-Continent Petroleum Corporation (1956) 236 F 2d 518. Compare K G Richolson “Recovery of Money Paid Under a Mistake of Fact” (1986) 60 ALJ 459 at 465-467.

77. Bank of New York v Simmons & Co (1921) 190 NYS 602.

78. Messner v County of Union (1961) 167 A 2d 897; Maricopa County v Cities and Towns of Avondale (1970) 467 P 2d 949.

79. E R Squibb & Sons v Chemical Foundations (1937) 93 F 2d 475.

80. Old Colony Trust Co v Wood (1947) 74 NE 2d 141; Rural Municipality of Storthoaks v Mobil Oil Canada Ltd (1975) 55 DLR (3d) 1; Hydro Electric Commission of Nepean v Ontario Hydro (1982) 132 DLR (3d) -1793 at 214. See also K J Davies (1976) Ltd v Bank of New South Wales (1981) NZLR 262 at 264-265 and K G Nicholson, note 72 at 464-465.

81. Picotte v Mills (1918) 203 SW 825.

82. Smith v Rubel (1932) 13 P 2d 1078.

83. Donner v Sackett (1916) 97 A 89. See also Re Diplock [1948] Ch 465 at 548-549.

84. Hydro Electric Commission of Nepean v Ontario Hydro note 69 at 216. Compare Moritz v Horsman (1943) 9 NW 2d 868.

85. Amalgamated Association v Danielson (1964) 128 NW 2d 9.

86. Phetteplace v Bucklin (1893) 18 RI 297. See also Bank of New York v Simmons & Co (1921) 190 NYS 602.

87. Commonwealth v Burns [1971] VR 825; Attorney-General v Gray [1977] 1 NSWLR 406.

88. Law Reform Commission of British Columbia Report on the Recovery of Unauthorised Disbursements of Public Funds (1980) at 14.

89. Law Reform Committee of South Australia, note 18 at 32-33.

90. Supreme Court Rules, Part 44 rule 5.

91. District Court Rules, Part 31A.

92. Local Courts (Civil Claims) Act 1970 s40.

93. Sebel Products Ltd v Commissioners of Customs & Excise [1949] Ch 409.

94. See authorities cited in para 3.28.

95. See P Birks “Restitution from Public Authorities” (1980) 33 CLP 191.

96. Id at 203-204. See also his Introduction to the Law of Restitution (1985) at 294-299.

97. Although a contrary view is that if taxing authorities expect taxpayers to make full disclosure they ought to maintain the highest standards of probity and fair dealing: see Sebel Products Ltd v Commissioners of Customs and Excise note 93 at 413-414 per Vaisey J.

98. Birks, note 95 at 204. It is very difficult to envisage circumstances where the public body would be able to rely on any change of position defence.

99. Sargood Bros v The Commonwealth (1910) 11 CLR 258 at 303 per Isaacs J. See also Antill Ranger & Co Pty Ltd v Commissioner for Motor Transport (1955) 93 CLR 83 at 100.

100. See chapter 3 note 41.

101. For example Land Tax Management Act 1956 s16(2).

102. For example Land Tax Management Act 1956 s16(1); Pay-roll Tax Act 1971 s19. See also Stamp Duties Act 1920 s124 where the administrative discretion is subject to the court’s power to extend time.

103. Stamp Duties Act 1920 s140(1). Death duties are no longer exigible in relation to the estates of persons dying on or after 31 December 1981.

104. See Ochberg v Commissioner of Stamp Duties (1943) 43 SR (NSW) 189; Kelly v The King (1902) 27 VLR 522.

105. Limitation of Actions (Recovery of Imposts) Act 1963 s2(2).

106. See Sebel Products Ltd v Commissioners of Customs and Excise [1949] 1 Ch 409 at 413-414.

107. Compare War Charges (Validity) Act 1925 (UK) which was passed to deal with the problem exposed by Attorney General v Wilts United Dairies (1922) 37 TLR 884.

108. Note s56 of the Limitation Act 1969 which provides in effect that time does not run in relation to a course of action for relief from the consequences of a mistake until the person with the cause of action discovers, or may with reasonable diligence discover, the mistake.