TORRENS ALOHA PTY LTD v CITIBANK NA

Judges:
Hill J

Court:
Federal Court

Judgment date: 1 March 1996

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Hill J

Before the Court are two motions, one filed by the applicant and the other by the respondent. The motion filed by the applicant seeks orders for substituted service, or alternatively service out of the jurisdiction upon the respondent because it is a corporation residing out of the jurisdiction, having, so it would seem, no office in the jurisdiction. The respondent is incorporated in the United States of America and carries on a banking business

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ATC 4216

there and elsewhere including, relevantly to the present proceedings, Singapore.

The application has been served upon Citibank Limited, a subsidiary of the respondent, which is in the jurisdiction. As a result the respondent filed with the Court a conditional appearance. Without submitting to the jurisdiction of the Court the respondent moves the Court to strike out the application and statement of claim, or the service of it, relying upon O 9 r 7, O 11 r 16 and O 20 r 2. Counsel for the respondent conceded that if his motion was unsuccessful there would be no need for the applicant's motion to proceed because the respondent would then accept that its appearance was unconditional. Accordingly I proceeded to hear the respondent's motion.

Before turning to the arguments it is necessary to set out some background facts as alleged in the statement of claim, as supplemented by correspondence and oral evidence and in respect of which there is, at least at this stage of the proceedings, no dispute. It goes without saying that in so doing I am not actually finding facts.

By a ``Multi-Currency Credit Agreement'' (``the credit agreement'') purporting to have been dated ``as of 19 June 1984'', but probably executed on or about 29 May of that year, the respondent agreed on the terms therein set out to make advances to the applicant, as trustee of a trust known as ``The Tovey Trust'', not to exceed A$16,000,000. The credit agreement was signed by both parties under power of Attorney in anticipation of it being executed in Singapore. It may safely be inferred that it was. Under the credit agreement the proper law was made that of the State of New York, in the United States of America.

Clause 1.05 of the credit agreement provides relevantly as follows:

``The Borrower shall pay interest on the unpaid principal amount of each Advance in the currency of such Advance... at an interest rate per annum equal at all time during each Interest Period for such Advance to 1.0% per annum above, but on any overdue principal amount of such Advance 3.0% per annum above, the rate of interest per annum at which deposits in the currency of such Advance during such Interest Period are offered by the principal office of the Bank in Singapore to prime banks in the Singapore Inter-Bank Market at 11.00 a.m. (Singapore time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period....''

Clause 1.08(b) of the credit agreement then provides:

``Any and all payments made by the Borrower hereunder or under any instrument delivered hereunder shall be made free and clear of and without deduction for any present or future taxes... or withholdings... If the Borrower shall be required by law to make any such deduction from any payment hereunder,

• (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Bank receives an amount equal to the sum it would have received had no such deductions been made,...''

Paragraph (d) of the same clause contains an indemnity by the applicant of the respondent in respect of any taxes imposed by any jurisdiction on amounts payable under cl 1 of the credit agreement.

The repayment of amounts owing under the credit agreement was guaranteed by Citicorp Australia Limited. By an indemnity agreement bearing the date 29 May 1984, the applicant and various companies and individuals indemnified Citicorp Australia Limited against all liabilities it might incur under the guarantee it had given. As security for this indemnity the applicant executed a bill of encumbrance over various parcels of real estate to secure what the bill of encumbrance refers to as ``the moneys hereby secured''. That expression is defined in such a way as to include the money payable under the indemnity agreement as well as all moneys which ``the Citicorp Group'' might advance or which the applicant might become liable to pay to either Citibank Australia Limited or the Citicorp Group. The expression ``Citicorp Group'' is defined to include specifically the respondent.

Moneys were made available under the facility. As at 6 September it would seem that the principal outstanding was SF32,169,739.20. By 6 February 1986 the principal had fallen to SF24,876,132.75. At some stage the principal was converted to Australian dollars. Thus as at

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ATC 4217

10 June 1987 the principal due was approximately AUD14,505,000. Each month interest became payable. The applicant was notified of the amount of that interest. On at least some occasions (and indeed it would seem likely that this occurred each month at least while the loan was in Swiss Francs and payable abroad), as illustrated by correspondence tendered in evidence, that notification consisted of a letter from the respondent emanating from an address in Australia where the respondent then had a representative office, setting out the principal, rate of interest, a calculation of the monetary amount of that interest and the words ``less 10% IWT'', together with a calculation of withholding tax as 10% of the interest shown to be payable. The notification also included the following:

``When making your remittance we would be grateful if you would:

• (1) Forward the amount due by telegraphic transfer.
• (2) Ensure that the remittance is made in sufficient time to reach its destination by the due date.
• (3) Send your remittance to: [an address in Switzerland]
• (4) Kindly send us a photocopy of the telegraphic transfer receipt or advise that payment has been remitted.

Please ensure that you deduct interest withholding tax (I.W.T.) from the interest payable, and that the amount deducted is forwarded to the Australian taxation office within 21 days of the close of the month in which I.W.T. is a liability imposed on the lender we would appreciate you forwarding the original I.W.T. receipt to the above Citibank address.''

The letters of notification tendered had not previously been seen by Mr Balog, a director of the applicant, although he did not dispute that they had been sent or that they had been received by the applicant. It was the normal practice for letters of that kind to be sent to the applicant's accountant who would then request Mr Balog to sign a cheque for the interest and withholding tax respectively. In signing those cheques Mr Balog relied upon the accountant.

The applicant claims that it paid a total of AUD2,325,531 in interest in the period between 1 September 1984 and 31 May 1986 and that it paid to the Australian Taxation Office 10% of that amount, ie AUD232,553.15. Although it is not possible to completely reconcile the figure said to have been paid with the amounts notified by the respondent to the applicant (what is missing is the exchange rate between the Swiss franc and the Australian dollar at relevant times), it would seem that this pleading has to be understood in the sense that interest of the figure stated became payable and was paid by the applicant deducting 10% of the stated interest and paying that to the Australian Taxation Office and then paying the balance to the respondent.

It is in these circumstances that the applicant claims to be entitled to recover from the respondent the amount of interest withholding tax paid on the basis, as stated in the statement of claim:

``... of a mistake of law on the Applicant's part regarding its obligation under the terms of the Loan Agreement in that the Applicant through its directors and management wrongly believed, at all times, that interest withholding tax was a liability of the Applicant and not the Respondent.''

During the course of the hearing of the motion counsel for the applicant sought leave, which was opposed, to amend the statement of claim to delete the words ``of the Applicant and not the'' in that part of the pleading reproduced above and substituting the words:

``which the Respondent was legitimately entitled to and did in fact impose on the Applicant pursuant to the term of the loan agreement.''

The pleading then claims that the respondent has been unjustly enriched at the expense of the applicant and that the respondent is liable to make restitution to the applicant in the amount of the interest withholding tax said to have been ``... paid by the Applicant on behalf of the Respondent''. The statement of claim asserts that the loan agreement, to the extent that it imposed an obligation to pay the interest withholding tax upon the Applicant, was void or unenforceable pursuant to s 261 of the Income Tax Assessment Act 1936 (Cth) (``the Act'').

Section 261 relevantly provides as follows:

``(1) A covenant or stipulation in a mortgage, which has or purports to have the purpose or effect of imposing on the mortgagor the obligation of paying income

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ATC 4218

tax on the interest to be paid under the mortgage:

• (b)... shall be absolutely void.

(2) A covenant or stipulation in a mortgage, whether entered into before or after the commencement of this subsection, which has or purports to have the purpose or effect of including in or adding to the interest payable, in any specified circumstances, by the mortgagor, any amount in respect of income tax payable by the mortgagee upon the interest to be paid under the mortgage, shall be void to the extent only to which it has or purports to have that purpose or effect.

...

(5) For the purposes of this section, ``mortgage'' includes any charge, lien or encumbrance to secure the repayment of money, and any collateral or supplementary agreement, whether in writing or otherwise, and whether or not it be one whereby the terms of any mortgage are varied or supplemented, or the due date for the payment of money secured by mortgage is altered, or an extension of time for payment is granted.''

It is common ground that the provisions in the credit agreement relating to the grossing up of interest withholding tax would, if contained in a ``mortgage'', be void as contravening s 261.

It seems that by 1987 the parties were in dispute, a not uncommon occurrence at that time as between borrowers and lenders where the loans were made in foreign currency. The precise nature of the dispute was not before me. Suffice it to say that on 8 September 1987 Citibank Australia offered to provide a letter of credit facility of AUD12,454,000 for a term of two years to repay the facility with the respondent. It was a special condition of that offer that:

``Torrens Aloha Pty. Ltd. and guarantors... enter into a deed of agreement with Citibank N.A. (Singapore), Citibank Australia Limited and Citibank Limited wherein all parties will waive their rights to litigate on the matter of foreign exchange issues arising out of the conduct of the existing loan facility.''

That offer was presumably accepted and there was executed between the parties a ``Deed of Waiver'' on 8 October 1987 (``the release''). The release recited, inter alia, the credit agreement, the guarantee, the deed of indemnity and the provision of the foreign exchange facility. It recited also that disputes had arisen and the parties had agreed to settle their differences. The operative clause then provided:

``The Company and each of the Guarantors hereby release each of Citicorp, Citibank, C.L. and C.F.S. and each of their respective servants and agents from all sums of money, actions, suits, causes of action, proceedings, claims, accounts, damages, demands, costs and expenses whatsoever which any of them now has in any way arising out of or incidental to:

• (a) The Multi Currency Credit Agreement;
• (b) The Bill Acceptance Facility Agreement;
• (c) The Guarantee;
• (d) The Indemnity Agreement;
• (e)...

or any matter or thing referred to therein or the exercise or purported exercise of any rights, powers or remedies or discretions thereunder.''

There the matter rested for some years. One can assume that the outstanding indebtedness under the new Australian dollar facility was in due course discharged. Then, in 1992, the High Court gave judgment in the case of
David Securities Pty Ltd & Ors v Commonwealth Bank of Australia 92 ATC 4658; (1991-1992) 175 CLR 353. The Court held that the rule, theretofore thought to be applicable in Australia and applied by this Court in the case under appeal, namely that moneys paid under a mistake of law were not recoverable, should not form part of the law in Australia. It held that the appellants in that case, so long as they could show that they had paid amounts under a clause in a mortgage made void by s 261 of the Act because of their mistaken belief that their contractual arrangements with the Bank required the payments, could recover a part of the amount paid by them to the bank under that clause, being in effect the withholding tax amount paid by the bank to the Commissioner of Taxation.

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That case did not come to Mr Balog's attention, so he says, until September 1994 when he received advice from his solicitors to the effect that the provision of the credit agreement which transferred the liability of the respondent to pay withholding tax to the applicant was void and that recovery of the tax from the respondent was thus possible. It was in these circumstances that the present proceedings were commenced.

In many ways O 9 r 7 and O 20 r 2 provide alternative mechanisms for setting aside proceedings, inter alia, where the proceedings have been commenced without jurisdiction:
F Sharkey & Co Pty Ltd v Fisher (1980) 33 ALR 173. This is not to say that in some cases there may not be a distinction between the two procedures. However in many cases, and I think the present is one such case, considerations relevant under the one rule will be relevant under the other: cf
Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (Lindgren J, 20 April 1995, unreported).

While the present application under O 9 r 7 is for the setting aside of the originating process, it would seem clear that the Court can consider whether the applicant had a prima facie claim for the relief which it sought, that being a matter which the applicant would have to establish in circumstances where leave would be given for the process to be served outside the Commonwealth under O 8 r 2.

The power under O 11 r 16 to strike out a pleading and the power under O 20 r 2 to stay or dismiss a proceeding or any claim, either because no reasonable cause of action is disclosed or because the proceeding is frivolous or vexatious, likewise involve similar considerations. In either case the power is one to be exercised sparingly. It will be for the respondent to show that the action must fail and thus that it should not be permitted to go to trial. The principle to be applied is that enunciated by Dixon J in
Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and see too
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. If the applicant has no prima facie case so that leave would not have been given to serve the application out of the jurisdiction, then clearly the matter would likewise be one where the Court would strike out the proceedings, or at least the statement of claim as pleaded.

The grounds advanced by the respondent for the relief claimed may be summarised as follows:

• • The applicant has no cause of action for the recovery of the moneys paid in that the moneys were paid to the Commissioner of Taxation and not to the respondent. The case is thus distinguishable from David Securities where the moneys claimed to have been paid by mistake were paid to the lender.
• • There could not have been any mistake in making payment to the Commissioner as the applicant was obliged by s 221YL to deduct the withholding tax and make payment to the Commissioner.
• • Section 261 of the Act could have no application because the covenant in question was not in a ``mortgage'' but in the credit agreement. In so far as the encumbrance could be taken as being a relevant mortgage, the interest did not become payable under the encumbrance so that again s 261 had no application.
• • In any event any cause of action of the applicant was by now long statute barred by reason of s 14 of the Limitation Act 1969.
• • If contrary to all these submissions the applicant had a cause of action existing in 1987 it had been released by the release of 8 October 1987.
• • Service out of the jurisdiction would not have been allowed because the case was one which did not fall within any of the paragraphs in O 8 r 1. In particular, the credit agreement had no connection with Australia and the cause of action did not arise in the Commonwealth.
• • Finally, in so far as the applicant's claim is based on subrogation, it is misconceived.

Payment to the Commissioner meant no mistake

It is true that the facts of the present case are distinguishable from those in David Securities. In that case the mortgage required the borrower to pay to the lender interest without deduction of withholding tax and where withholding tax was payable provided for the payment of an additional grossed up amount. The borrower thus paid the amount of the contractual interest, 10% of which was paid to the Commissioner and an additional amount representing a further 11.1% of what the lender was due to receive after the withholding tax had been deducted. On the facts of the present case it is clear that there

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ATC 4220

was a direct payment to the Commissioner of withholding tax. In David Securities the payment to the Commissioner was made by the lender bank as agent for the borrower. Nothing I think turns upon that distinction. I have no doubt that if what occurred in the present case was that in addition to paying to the Commissioner the withholding tax the applicant also paid an additional grossed-up amount as the terms of the credit agreement provided, the terms of s 261 operated and if the applicant was able to show a relevant mistake the applicant would have been entitled, subject to defences to which reference will later be made, to recover the moneys paid by mistake. Perhaps the way the matter was pleaded in the statement of claim created ambiguity. I am not sure that the ambiguity is resolved by the suggested amended pleading. If the question were merely one of pleading I would have granted the applicant leave to amend the pleading. The case would not have been one where the appropriate order was to strike out the proceeding. However, there are greater difficulties in the way of the applicant than deficiencies of pleading.

The applicant's obligation to deduct under s 221YL

Likewise, the submission that there could be no mistake because in any event the applicant was obliged to deduct withholding tax can not be sustained. The scheme of the Act with regard to interest payable to non-residents and the withholding of tax thereon is quite simple. Section 128B(5) provides that the recipient of interest to which s 128B applies will be liable to pay income tax upon that interest at the rate declared by Parliament, namely 10%. The obligation is not applicable to cases to which s 128B(3) applies. It is not suggested here that the case falls within those exceptions. However, there is imposed by s 221YL(2A) of the Act upon the payer of interest in a case where the borrower is, inter alia, to pay that interest at a place outside Australia, an obligation to withhold 10% of the amount of interest paid. It is an offence not to withhold the tax.

A person required to withhold the tax must forward the amount withheld to the Commissioner: s 221YN(1), or face a penalty by way of fine or infringement under s 221YN(2) or penalties under s 221YQ of the Act. The tax withheld and accounted for to the Commissioner then forms a credit available to the non-resident against the tax payable by that non-resident under s 128B(5).

The relevant mistake, if there were a mistake, which could entitle the applicant to recover in the present circumstances was not in relation to the payment which was made to the Commissioner. Prima facie, the obligation to pay to the Commissioner 10% of the interest payable was an obligation imposed upon the applicant by the Act. The mistake, if there were one, would largely lie in paying to the respondent a grossed up amount under the clause in the credit agreement which was void. I say largely because a minor consequence of a grossed up amount being paid would be that 10% of the additional grossed up amount would have been paid to the Commissioner. Since the grossed up amount payable under a void clause would not properly have been interest, it can be seen that a relatively small amount of withholding tax would also have been paid by mistake. However, this would be recoverable not from the respondent but, if at all, from the Commissioner of Taxation who is not a party. It may safely be disregarded.

The submission is again more one of pleading than of substance. It would not justify dismissing the proceedings.

Was there a covenant in a mortgage: s 261?

The credit agreement itself is not in the ordinary sense of the word a ``mortgage''. Nor is it a charge, lien or encumbrance to secure the repayment of money. Thus if s 261 is to apply to the covenant contained in the credit agreement it will be because the agreement falls within the extended definition of ``mortgage'' in s 261(5) as being a ``collateral or supplementary agreement''.

The meaning of the word ``collateral'' in the present context was considered by the High Court in David Securities. The Court in that case rejected an argument that the word ``collateral'' suggested that there was an obligation which had primacy (in the sense of a primary obligation). Thus, where there was a loan agreement containing the clause sought to be impugned under s 261 and there was a mortgage in the ordinary sense of the word also securing the same money but containing the same clause, the loan agreement was a ``collateral security'' and thus a ``mortgage'' as defined. The majority of the Court, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, said (at ATC 4662; CLR 365):

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``Collateral contracts are so called not because they are subordinate or of lesser importance (although they may well be, depending on the facts of the case), but because they impinge upon and are related to another contract.... Once the notion of primacy is jettisoned, `collateral' must be understood in the sense of `related to' or even `in addition to'. So understood, the word covers the present case.''

I think that the better view is that the credit agreement is a collateral contract to the mortgage in the sense that it is ``related to'' the mortgage. The case is one removed from that in David Securities because the encumbrance does not directly secure to the respondent (who is not a party to it) payment of the amounts payable under the credit agreement, but rather secures the indemnity given to Citibank Australia Limited for that company guaranteeing the obligation of the applicant to the respondent. However, I think that notwithstanding the less direct relationship it is still correct to say that the credit agreement is related to the encumbrance. I would not, for this reason, strike out the application. It is unnecessary to consider whether the encumbrance itself could be taken to be the relevant ``mortgage''.

Is the action statute barred?

The respondent claimed that the applicant's cause of action was barred having regard to s 14 of the Limitation Act 1969 (NSW). In support of this proposition reference was made to the decision of Davies J in
International Currency Trading Corporation Pty Ltd v Deutsche Bank AG 94 ATC 4475 at 4483 where his Honour noted that s 14 applied ``by virtue of s 79 of the Judiciary Act 1901 [sic] (Cth)''. It is not clear to me that his Honour in fact so held, or whether the comment merely reflected the submission put to him by counsel. Clear it is, however, that his Honour did not need to decide the matter because the claim was not on the facts statute barred. In any event, whether the relevant statute was that of New South Wales would ultimately turn upon the facts and those before Davies J were quite different from the present case.

Section 79 of the Judiciary Act 1903 (Cth) requires this Court to apply the law of the State in which the Court is exercising jurisdiction, in the present case New South Wales, whether that law is procedural or substantive. Thus it may be accepted that in an appropriate case s 70 would import the relevant provisions of a limitations statute: cf
John Robertson & Co Ltd (in liq) v Ferguson Transformers Pty Ltd (1973) 129 CLR 65 per Menzies and Mason JJ. However, to say that New South Wales law applies is not the end of the enquiry for the application of New South Wales law will include the application of the conflict of laws rules applicable in that State. Under those rules the courts of the forum in adjudicating upon a contractual dispute will apply the procedural laws of the forum and, if different, the substantive law, that is the proper law, of the contract:
Wolfe v Wilson 11 SR (NSW) 51 at 54.

Limitation statutes of the traditional kind, which bar the right but not the remedy, are of their nature procedural. Where both the right and the remedy are barred it is usual to categorise the statute as substantive. See the discussion of the distinction between procedural and substantive provisions in the judgment of Windeyer J in
Australian Iron & Steel Ltd v Hoogland (1962) 108 CLR 471 and also
Harris v Western Australian Exim Corporation (1994) 56 FCR 1 at 8. If New South Wales law directs recourse to the proper law of the contract, in the present case that is the law of the State of New York. There is no evidence of that law. Thus, this gives rise to the presumption that the law of the State of New York is the same as the law of New South Wales.

It is not necessary, however, to delve too deeply into this question. Whether or not the relevant provision is to be found in s 14 of the Limitation Act 1969, or in inherited law as existing before that statute was passed, the limitation period will run from the time the cause of action (for mistake) ``first accrues''. This raises a most difficult question.

The traditional jurisprudential fiction was that the law was always there waiting to be enunciated by the judge. The judge thus did not make the law, but merely searched for and found it. But this was always a fiction and was never more exposed as such as when it was recognised that the ultimate appellate common law courts, such as the High Court or the House of Lords, were not bound by their own decisions. See, for example, the discussion of Brennan J in
O'Toole v Charles David Pty Ltd (1990) 171 CLR 232 at 267. The truth is, and it is laid open in David Securities, that in 1994 the High Court changed the common law of

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Australia so that for the first time an action would lie for recovery of money paid under a mistake of law. The question thus arises how this reality should be reflected in the context of determining the point of time at which a cause of action accrued. In my view, and certainly in the context of a Statute of Limitations, a cause of action created by the High Court changing the common law of Australia should be taken to accrue at the date the decision of that Court is handed down and not before that date, in a case where the necessary ingredients for that cause of action have all occurred prior to that decision.

Some assistance may be obtained from the decision of the High Court in
Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319. There the question concerned the interpretation of a provision of the Companies (New South Wales) Code which compelled production of books unless without reasonable cause. At the time the section was passed the decision of the High Court in
O'Reilly & Ors v The Commissioners of the State Bank of Victoria & Ors 82 ATC 4671; (1982-1983) 153 CLR 1 made it clear that a claim of legal professional privilege had no application to administrative proceedings. Subsequently,
Baker v Campbell 83 ATC 4606; (1983) 153 CLR 52 was decided which overruled O'Reilly and held the privilege to apply as well to administrative as judicial proceedings. It was held that the Code should be construed in the light of the law as it was when the Code was enacted, thus recognising that the law had been altered by Court decision, not retrospectively but prospectively. The decision recognises that the notion that Court merely expounds the law is a fiction. It is true it does so in the context of the settled rule of construction that in determining the meaning of an enactment it is permissible to take into account the state of the existing law at the time when the enactment was passed, however, it is but a small step to extend the approach there adopted to the determination of the time a cause of action first accrues. I would accordingly reject the respondent's submission to the contrary.

The effect of the deed of release

The respondent submits that the actions sought to be brought against it have been released by the deed of release. The applicant says that that deed should be construed so as to release only those matters which at the time it was executed were in controversy. Alternatively, it is submitted that the cause of action in mistake only arose in 1994 with the decision of the High Court in David Securities and was thus not the subject of the release.

The arguments between the parties ultimately turn on the proper construction of the release. Although the context of the deed is the resolution of an existing dispute between the parties to that deed, I do not think that it should be construed as limited to releasing only those claims or actions which the parties had agitated prior to the execution of the release. The release is in broad terms and encompasses all actions, suits, causes of action or proceedings which any of the parties to the release then had in any way arising out of or incidental to the agreements referred to. The only limitation is that the action, suit, etc be one in existence at the time of the release. Clearly the parties did not contemplate the release of actions which might arise in the future out of other transactions.

The question is whether the language of the agreement should be construed so as not to bar a cause of action created by a decision of the High Court after the execution of the release, albeit one that arose out of or was incidental to one of the listed agreements. The task of construing a contract is to give effect to the intention of the parties as reflected in the language used by them:
The Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 77, quoting Cotton LJ in
Preston v Luck (1884) 27 Ch D 497 at 506. Here the language of the parties makes it clear that all claims existing as at the date of the release were to be extinguished provided they arose out of or were incidental to the listed agreement. In my view the language leads to the conclusion that the parties acted to release a cause of action created by judicial decision subsequent to the execution of the deed, provided that the claim raised was one that a party had at the time of execution of the release. In my view the effect of the release is thus to extinguish the applicant's claim.

Order 8 Rule 1

The respondent submits that the applicant has not brought the case within any of the categories in O 8 r 1. It is said that the credit agreement was not executed in Australia, the proper law was the law of the State of New York and that the cause of action in mistake is not one which arose in the Commonwealth in that the fact giving rise to the alleged cause of

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ATC 4223

action did not occur in the Commonwealth. Reference is made to the decision in
Distillers Co. Biochemicals Ltd v Thompson [1971] AC 458 at 468 where it is said that ``The right approach is... to... ask... where in substance did this cause of action arise?''

In
In re Jogia [1988] 1 WLR 484 it was suggested that an action to recover money had and received in breach of an English statute by a person who at the time was outside the United Kingdom did not fall within the comparable rule in England. An action for recovery of money paid by way of mistake, tied up as it is with the concept of unjust enrichment, clearly differs from the simple common money count with which Jogia was concerned, even if the suggestion made in that case was correct. The ingredients of the action to recover money paid on a mistake of law, as appearing from the judgment of the High Court in David Securities, are the payment of the money and the mistake of the payer, being a mistake which is causative of the payment. These two circumstances give rise to a prima facie right to repayment. It is not an ingredient of the cause of action that the respondent be unjustly enriched. However, there can be no restitution if the circumstances are such that recovery would be unjust (David Securities at ATC 4670; CLR 379). Thus, the injustice of the recovery is a defence rather than an ingredient of the action. The mistake, if there were one, occurred in Australia. The relevant payment was the payment to the respondent. That payment was made in Switzerland, at least while the loan was in Swiss francs. Hence I do not think the cause of action was one which arose in Australia.

If unjust enrichment were an ingredient of the cause of action then I would be of the view that that enrichment also occurred outside Australia, since the enrichment did not come about (if it came about at all) by the payment of the withholding tax to the Australian Taxation Office, but by the payment of a grossed up amount as interest to the respondent outside Australia. Only when that payment was received could it be said that the respondent had been enriched.

The claim for subrogation

Little need be said of this claim. The statement of claim suggests that the facts give rise to an entitlement in the applicant to be subrogated to the Crown in right of the Commonwealth or the Deputy Commissioner of Taxation in respect of the indebtedness of the respondent for withholding tax in respect of interest derived by the respondent under the loan agreement. While it is true that under the Act the Commissioner of Taxation can recover from the payer of interest if that withholding tax is not deducted and paid to the Commissioner, and while payment of the amount to the Commissioner extinguished the obligation of the payer to pay interest to that extent, it is hard to see how a claim to contribution can be made out. The respondent has a liability to tax. The applicant had a liability to withhold and pay withholding tax to the Commissioner. That payment operated as a credit against the tax payable by the respondent. Each of the applicant and the respondent had separate liabilities which could be enforced by the Commissioner, subject to the extinguishment of the respondent's liability by the credit which the Act confers. The case was not one of joint liability for the same amount (as for example joint guarantees) where the party making payment would be entitled to contribution as against the other joint debtors.

Conclusion

I would accordingly set aside the proceedings and direct the applicant to pay the respondent's costs of them.

THE COURT ORDERS THAT:

(1) The applicant's motion for substituted service be dismissed.

(2) Application dismissed.

(3) Applicant to pay the respondent's costs.