COMMISSIONER OF STATE REVENUE (VIC) v ROYAL INSURANCE AUSTRALIA LIMITED

Judges:
Mason CJ
Brennan J
Dawson J
Toohey J
McHugh J

Court:
Full High Court

Judgment date: Judgment handed down 7 December 1994

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Mason CJ

This appeal arises out of proceedings brought by the respondent (``Royal'') to secure a refund of $1,907,908.10 representing the amount of stamp duty overpaid by Royal to the appellant Commissioner. Royal commenced proceedings by way of originating motion in the Supreme Court of Victoria seeking:

• 1. an order that the Commissioner refund to Royal in accordance with s. 111 of the Stamps Act 1958 (Vic.) (``the Act'') the amount mentioned; or
• 2. alternatively, an order that the Commissioner refund such sum as may be found to have been overpaid by Royal to the Commissioner in respect of premiums for workers' compensation insurance received after 30 June 1985 in respect of liabilities incurred before 1 October 1985; or
• 3. alternatively, a declaration that Royal has, since 1 July 1985, overpaid the amount mentioned in respect of such premiums received after 30 June 1985 and is entitled to a refund of that amount.

At first instance, Beach J. dismissed the summons with costs, holding that the Commissioner was entitled as a matter of discretion under s. 111 of the Act to refuse to make a refund. It was and is common ground between the parties that there was an overpayment in the amount claimed by Royal. On appeal, the Appeal Division of the Supreme Court (Brooking, Marks and Hedigan JJ.) came to a different conclusion, allowing the appeal and making an order by way of mandamus directing the Commissioner to refund the amount.

Background facts and statutory provisions

Throughout the 1980s Royal carried on assurance and insurance business, including workers' compensation insurance. Royal was registered as a company carrying on such a business, pursuant to s. 96 of the Act. Being registered as such a company, Royal was required by the provisions of Subdiv. 11 of Div. 3 of Pt II of the Act (ss. 95-111) to lodge monthly returns of premiums, including workers' compensation premiums, received in the preceding calendar month and to pay stamp duty on the return in an amount equal to 7 per cent of the amount of all premiums chargeable with stamp duty, ^[1] s. 97(2). except in the case of workers' compensation premiums in respect of which duty was subsequently reduced to 3.5 per cent.

Prior to 1985, private insurers, of whom Royal was one, had conducted workers' compensation business as approved insurers under the Workers Compensation Act 1958 (Vic.). As approved insurers, private insurers had insured employers against their liability to workers' compensation under that Act and in respect of employers' liability for common law claims for damages arising from breach of duty to employees. The imposition of stamp duty on the returns of insurers registered under the Act was a consequence of the regime of approved private insurers.

This regime was replaced by a different regime, called WorkCare, which came into operation on 1 September 1985. The Accident Compensation Act 1985 (Vic.) introduced and implemented the new scheme. By that Act, the Accident Compensation Commission was constituted as the sole insurer in respect of workers' compensation liabilities. Because the Commission, a statutory authority, was the sole insurer, it was decided to discontinue the imposition of stamp duty on workers' compensation insurance.

With a view to giving effect to this policy, s. 99 of the Act was amended by s. 276 of the Accident Compensation Act . A number of sub- sections were added to s. 99, including sub-s. (3), which was in these terms:

``For the purposes of section 97, premiums for workers compensation insurance in respect of the issue, renewal or taking out of policies that take effect at or after four o'clock in the afternoon on 30 June 1985 or the extension of which takes effect from that time are not chargeable with stamp duty.''

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At the same time the definition of ``Workers compensation insurance'' in s. 95 was replaced by a new definition so that s. 99(3), when read with the new definition, would exempt workers' compensation insurance business from the operation of Subdiv. 11 of Div. 3 of Pt II of the Act.

Section 99(4) provided for the payment of stamp duty on a pro rata basis where a premium was payable after 4 o'clock in the afternoon on 30 June 1985 for workers' compensation insurance in respect of the issue, renewal, taking out or extension of a policy for a period commencing before and expiring after that date. Sub-section (5) provided for the making of an application for a refund in such a case where the insurer had paid stamp duty at the full rate previously chargeable. Sub-section (7) went on to provide that, when an application for a refund was duly made, ``the [ Commissioner]... shall make a refund to the applicant accordingly''.

Sub-sections (5), (6) and (7) of s. 99 were replaced when s. 11 of the Stamps and Business Franchises (Tobacco) (Amendment) Act 1985 (Vic.) came into operation. Section 11 introduced a new sub-s. (5) and a new sub-s. (7). The new sub-s. (5) replaced the old sub-ss. (5) and (6). The new sub-s. (5) took account of the fact that stamp duty may have been paid at the rate of 7 per cent or 3.5 per cent of the premium and provided for a rebate or refund of duty accordingly, whereas the old sub-s. (5) did not take account of the fact that stamp duty may have been paid at the higher rate. The new sub- s. (7) provided:

``Where an application is made in accordance with sub-section (5) -

• (a) if the application is for a rebate, the amount of the rebate shall be deducted from the amount payable as stamp duty on a return lodged... under section 97(2) or, if the amount of the rebate exceeds that amount of stamp duty, from the amount so payable on two or more returns; and
• (b) if the application is for a refund, the [ Commissioner of State Revenue] shall make a refund to the applicant accordingly.''

In 1987, it was realized for the first time that the exemption granted in 1985 did not extend to the liability to pay stamp duty on a particular class of premium income, namely, premiums received by insurers after 30 June 1985 when the WorkCare scheme came into operation in respect of ``cost-plus'' policies. Under a cost- plus policy, the annual premium was recalculated after the close of the relevant period of insurance so that the insurer was reimbursed for the whole of the costs of the claims made and paid during the antecedent period, those costs including the costs of handling the claims. This class of policy was to be distinguished from the ordinary policy in respect of which a premium was calculated on the basis of the employer's estimate of wages to be paid during the ensuing year with an adjustment made at the end of the year by reference to the amount of wages actually paid during the year. That latter form of policy was sanctioned by the Workers Compensation Act and Regulations; the form of it was prescribed in a schedule to that Act.

In order to extend the exemption to cover the cost-plus policies, s. 8 of the Taxation Acts Amendment Act 1987 (Vic.) (``the 1987 Act'') was enacted. That section amended s. 99(3) of the Act by inserting after the words ``from that time'' the words ``or received after that time in respect of liabilities incurred before 1 October 1985''. Section 2(4) of the 1987 Act provided that s. 8 should be deemed to have come into force on 30 June 1985, thereby making the operation of s. 8 retrospective to that date.

Strange as it may seem, Royal remained unaware of the 1985 amendments for some years and of the 1987 amendments for about two years. It continued to include in its monthly returns the amounts of premiums which it received in respect of workers' compensation insurance policies issued or received after 30 June 1985 and paid stamp duty on that part of the premiums included in the returns. It seems that, as a result of advice from the Commissioner in 1989, Royal ceased to pay stamp duty on exempted premium income.

On 19 September 1990, Royal made a demand for repayment of the amount of stamp duty overpaid. The Commissioner did not make a refund with the result that, on 17 October 1990, Royal commenced the proceedings by way of originating motion. The proceedings related to s. 111(1) of the Act. That sub-section provided:

``Where the [ Commissioner] finds in any case that duty has been overpaid, whether

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before or after the commencement of the Stamps Act 1978 he may refund to the company, person or firm of persons which or who paid the duty the amount of duty found to be overpaid.''

It is common ground that Royal's demand for a refund is governed by s. 111(1), not by s. 99(7).

The Commissioner's decision

On 19 October 1990, two days after the proceedings were commenced, the Commissioner found that duty had been overpaid in the amounts mentioned below and decided not to make a refund of any part of the amounts under s. 111. The Commissioner did not give reasons for her decision; nor did Royal seek reasons.

The categories of overpayment

According to a document prepared by the Commissioner, the overpaid duty falls into three categories. First, an amount of $1,674,301.94 which is divisible into two further categories, (a) and (b). The amount was paid as duty on premiums received by Royal after 4.00 p.m. on 30 June 1985 in respect of liabilities incurred before 1 October 1985. The amount comprised duty on premiums received by the Commissioner for the cost-plus policies. Category (a), amounting to $1,370,000 approximately, consists of duty on premiums received by Royal during the period from 30 June 1985 to 12 November 1987 being the commencement date of the 1987 Act. Category (b), amounting to $300,000 approximately, consists of duty on premiums received by Royal from 12 November 1987 to 21 August 1989 in ignorance of the exemption from duty on premiums in respect of cost-plus policies.

The second main category is an amount of $95,426.95 overpaid by Royal by reason of its own over-estimates of premium income (from cost-plus policies) received by it before 1 July 1985 in respect of liabilities incurred before 1 October 1985. The third category is an amount of $138,179.21, being duty paid on premiums received by Royal for extensions after 4.00 p.m. on 30 June 1985 of policies (other than cost- plus policies) taken out before that date.

The scope and purpose of the discretion conferred by s. 111

The Commissioner contends that the presence of the word ``may'' in s. 111(1) attracts a prima facie presumption that the word is to be understood in its natural and ordinary sense, that sense being permissive or facultative only. That submission is in accord with the principle as expressed by the judgment of this Court in Ward v. Williams . <sup>[2]</sup> (1954-1955) 92 CLR 496 at 505. What is more, the legislative history supports the Commissioner's submission. Section 111, before it was amended in 1978, provided that, if the Commissioner was satisfied that overpayment of duty had been made, on application made within twelve months after such payment, the Treasurer ``shall without further or other authority than this Act refund the amount'' to the person by whom the overpayment was made. The change from the mandatory ``shall... refund'' to the facultative ``may refund'' disposes of any suggestions that s. 111 as amended was mandatory and not facultative. But, as the Court went on to point out in Ward v. Williams , the question whether a public officer, to whom a power is given by facultative words, is bound to exercise that power upon any particular occasion, or in any particular manner, is to be solved from the context, from the particular provisions, or from the general scope and objects of the enactment conferring the power. ^[3] ibid.

The Commissioner argues that there is nothing in the context or the scope and objects of the Act which requires or indicates that the discretion to make a refund must be exercised on any particular occasion. Indeed, the Commissioner points to the use of the word ``may'' again in s. 111(2) and (3) and the contrasting use of the word ``shall'' in s. 111(4). ^[4] ``The duty paid on a return ... shall be denoted on the return by a cash register receipt imprint.'' But these provisions do no more than support the presumption that in s. 111(1) the words ``may refund'' are facultative. They do not establish that the discretion is in any sense absolute or unfettered. Nor do they bear upon the question whether the discretion must be exercised in a particular way or upon a particular occasion.

In approaching that question, the first and foremost consideration is that the Act is a taxing Act and that in terms it confers no authority upon the Commissioner to levy, demand or retain any moneys otherwise than in payment of duties and charges imposed by or pursuant to the Act. In that context, there is no persuasive reason why the grant of a positive discretionary power to make a refund, once an overpayment of duty has been found by the Commissioner to have taken place, should be treated as a source of authority in the Commissioner to retain the overpayment in the

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absence of circumstances disentitling the payer from recovery. Nothing short of very clear words is sufficient to achieve such a remarkable result. The Court should be extremely reluctant to adopt any construction of s. 111 which would enable the Commissioner by an exercise of discretionary power to defeat a taxpayer's entitlement to recover an overpayment of duty. No reason emerges for thinking that the purpose of the provisions was other than to confer legal authority upon the Commissioner to refund an overpayment found by her to have taken place.

In R v. Tower Hamlets London Borough Council, Ex parte Chetnik Developments Ltd. , ^[5] [ 1988] AC 858. the House of Lords dealt with a discretionary power to refund in particular circumstances rates paid when not payable and not recoverable otherwise than by means of an exercise of the discretionary power. Lord Bridge of Harwich expressed the principle invoked by the House of Lords in these terms: ^[6] ibid. at 877.

``Parliament must have intended rating authorities to act in the same high principled way expected by the court of its own officers and not to retain rates paid under a mistake of law... unless there were, as Parliament must have contemplated there might be in some cases, special circumstances in which a particular overpayment was made such as to justify retention of the whole or part of the amount overpaid.''

Much the same comment may be made about s. 111.

At the same time, I cannot accept the proposition that, once overpayment has been found to have been made, the discretion must be exercised by making a refund. Assume the State has in good faith changed its position for the worse acting in reliance on the fact that the payment was made and received for duty apparently due and payable under the Act, the regime of monthly returns and payments being one of self-assessment, it could scarcely be suggested that a refusal to make a refund in such a situation could be an erroneous exercise of discretion. In David Securities Pty. Ltd. & Ors v. Commonwealth Bank of Australia , ^[7] 92 ATC 4658 at 4672-4673; (1991-1992) 175 CLR 353 at 384-386. it was recognized that, according to the principles of the law of restitution, such a change of position would constitute a good ``defence'' to an action for recovery of money paid under a mistake of fact or law. It would be surprising, to say the least of it, if the conferral of a discretion to make a refund was intended to exclude power to refuse a refund when in the circumstances the taxpayer was not entitled to recover under the general law. An action which is time barred is another illustration of circumstances in which refusal to make a refund would be justified.

Royal sought to answer this difficulty by submitting that under s. 111 the Commissioner was under a duty to investigate whether there had been an overpayment and that, in the context of a duty to investigate, there was a duty to refund once overpayment was found to have taken place. On the assumption that the section creates a duty to investigate, I do not consider that the existence of such a duty leads to the existence of an obligation to refund once overpayment is established. No doubt there will be circumstances in which it will be a proper response, indeed the only proper response, to refund the overpayment but that will not always be the case.

The primary judge's finding that a refund might result in a windfall to Royal

In argument, much attention was directed to the question whether the Commissioner could properly refuse to make a refund on the ground that Royal had charged the duty to its insured and that, as a consequence, the duty had been paid by the insured so that recovery by Royal would result in a windfall to Royal. Here, it seems that Royal charged the duty to its insured, believing it to be payable. Whether the duty formed the subject of a separate charge in addition to the premium does not appear from the materials. Generally, insurers charge duty separately to the insured in premium notices. The insured paid to Royal the duty as well as the premium. Royal then paid the duty to the Commissioner.

According to the Commissioner's counsel, one of the reasons why the Commissioner refused to make a refund was that, if the duty was refunded to Royal, in all probability it would be a windfall because difficulties Royal would face in seeking to refund the duty to its policy holders would be so great as to make it unlikely that it would seek to take that course. The primary judge did not make a finding that these difficulties existed or that it was unlikely that Royal would seek to take that course. Instead, his Honour regarded the possibility that such a situation could arise as a reason for rejecting the proposition that there was an

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obligation to make a refund whenever an overpayment took place or was found by the Commissioner to have taken place. According to his Honour, the discretion could be exercised adversely to Royal by reference to the possible existence of that situation. I should mention that at no stage of the proceedings did counsel for Royal suggest that Royal was suing for the benefit of the insured who bore the burden of the tax or that it would seek to pass on a refund, if obtained, to them.

Recovery according to restitutionary principles

As I have already indicated, the grant of the discretionary power to refund an overpayment should not be regarded as authority to refuse a refund which a taxpayer is entitled to recover according to the principles of the general law. It is necessary then to ascertain how Royal's claim to recover stands under the law of restitution. We begin with the proposition, accepted in David Securities , that mistake of law is no bar to recovery, and in this case there is no question but that Royal made the relevant payments in the mistaken belief that in law it was bound to do so. In one respect, Royal's belief at the time of payment was not mistaken: in the case of the cost-plus policies, payments were made when there was a legal liability to pay them. Only subsequently and retrospectively was an exemption granted. But the retrospective operation of s. 2(4) of the 1987 Act enables one to say that, in the light of the law as it was enacted with retrospective effect in 1987, the payments of duty were made under a mistake as to the legal liability to pay them. In David Securities it was accepted that: ^[8] ibid. at ATC 4669; CLR 378.

``the payer will be entitled prima facie to recover moneys paid under a mistake if it appears that the moneys were paid by the payer in the mistaken belief that he or she was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys. Such a mistake would be causative of the payment.''

And, prima facie, that is all that is required where, as here, the recipient has no legal entitlement to receive or retain the moneys. The recipient has been unjustly enriched. Indeed, it is perhaps possible that the absence of any legitimate basis for retention of the money by the Commissioner might itself ground a claim for unjust enrichment without the need to show any causative mistake on the part of Royal. ^[9] Air Canada v. British Columbia (1989) 59 DLR (4th) 161 at 169-170 per Wilson J. (dissenting). But there is no occasion to pursue this aspect of the case further.

The belated recognition in David Securities that moneys paid away as a result of a causative mistake of law are recoverable enables us to discard some of the complications associated with the old law governing the recovery of moneys paid as and for taxes which were not due and payable because causative mistake of law was not thought to be a sufficient basis of recovery. Recovery was permitted only in cases in which money was exacted under an unlawful demand by a public authority where the payment was made under a mistake of fact or under compulsion of some kind. The relevant principles have been examined by this Court in Sargood Brothers v. The Commonwealth & Anor ^[10] (1910) 11 CLR 258. and Mason & Anor v. The State of New South Wales , ^[11] (1958-1959) 102 CLR 108. and, very recently, by the House of Lords in Woolwich Building Society v. I.R.C. ^[12] [ 1993] AC 70. In Woolwich , the House of Lords, though unwilling to acknowledge that causative mistake of law is a basis for recovery, reformulated the principles so as to recognize a prima facie right of recovery based solely on payment of money pursuant to an ultra vires demand by a public authority. With that development in the law of restitution in England we are not presently concerned because, as I have explained, Royal made the relevant payments as a result of a causative mistake of law. In conformity with David Securities , payment in these circumstances opens the gateway to recovery where the payment results in the enrichment of the defendant at the expense of the plaintiff.

Disruption of public finances as a possible defence to a restitutionary claim

The Commissioner did not argue that an exception from recovery should be acknowledged in order to protect public finances from disruption and the necessity of re-imposing taxes invalidly imposed. That proposition was accepted by La Forest J. in Air Canada v. British Columbia ^[13] (1989) 59 DLR (4th) at 197. but it was repudiated by Wilson J., ^[14] ibid. at 169. in her dissenting judgment, for reasons which, to my mind, are compelling. ^[15] In Woolwich [ 1993] AC at 176 , Lord Goff of Chieveley found Wilson J.'s reasons on this point ``most attractive''. Those reasons centre upon the unfairness of requiring the innocent individual taxpayer, as opposed to taxpayers as a whole, to bear the burden of the government's mistake. <sup>[16]</sup> (1989) 59 DLR (4th) at 169. Wilson J.'s exposition gives emphasis to the ``innocence'' of the taxpayer and the ``mistake'' of the government, factors which

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were present in Air Canada . These elements are not essential to the making out of a restitutionary claim for the recovery of money paid as and for tax as a result of a causative mistake and I do not see why the absence of these elements should justify the recognition of a vague and amorphous defence based on the notion of avoiding disruption of public finances. The remedy for any disruption of public finances occasioned by the recovery of money in conformity with the law of restitution lies in the hands of the legislature. It can determine who is to bear the burden of making up any shortfall in public funds.

That only brings us to what is a crucial question in this case: was the Commissioner unjustly enriched at the expense of Royal ? ^[17] Birks, ``The English Recognition of Unjust Enrichment'', (1991) Lloyds Maritime and Commercial Law Quarterly 473 at 507. That the Commissioner was unjustly enriched there can be no doubt. The Commissioner received payments to which the State revenue was not entitled under the Act. The question remains whether the enrichment was at the expense of Royal. And here the fact that Royal charged the duty to its insured again becomes significant. The suggestion is that the enrichment of the Commissioner has taken place not at the expense of Royal but at the expense of its policy holders. They are the persons who have suffered a detriment; Royal has suffered no detriment and, if it recovers, it will make a windfall gain. <sup>[18]</sup> See Burrows, ``Public Authorities, Ultra Vires and Restitution'', in Burrows (ed.), Essays on the Law of Restitution , (1991) at 59-60. Indeed, it might be said that, if Royal recovers, it will be unjustly enriched. But such an enrichment, if it be unjust, would be at the expense of the policy holders, not at the expense of the Commissioner. The source of any windfall, if windfall there be, was in the excessive charges made by Royal to its policy holders, and the payments which they made to Royal.

Is passing on a good defence to a restitutionary claim?

Whether a passing on ``defence'' should be recognized must be considered at two levels: the levels of public law and restitutionary law. There is the fundamental principle of public law that no tax can be levied by the executive government without parliamentary authority, a principle which traces back to the Bill of Rights. <sup>[19]</sup> (1688) 1 Will. and Mar., Sess. 2, c. 2, (``That levying Money for or to the Use of the Crowne by pretence of Prerogative without Grant of Parlyament for longer time or in other manner than the same is or shall be granted is Illegal.''). In accordance with that principle, the Crown cannot assert an entitlement to retain money paid by way of causative mistake as and for tax that is not payable in the absence of circumstances which disentitle the payer from recovery. It would be subversive of an important constitutional value if this Court were to endorse a principle of law which, in the absence of such circumstances, authorized the retention by the executive of payments which it lacked authority to receive and which were paid as a result of causative mistake.

From the perspective of the law of restitution, there is some support for the view that, if the payer has passed on the burden of a tax which is found not to be payable, the payer will not be entitled to recover payments made to the public authority as and for tax. The suggestion is that, in these circumstances, the defendant's enrichment is not at the expense of the plaintiff. In Air Canada , the plaintiff airlines had passed on an unconstitutional gasoline tax in the form of fares charged to their passengers. Four justices considered the question whether the airlines could recover the payments which they had made as and for the tax. La Forest J. (with whom Lamer and L'Heureux-Dub é JJ. concurred) decided that question against the airlines. La Forest J. cited ^[20] (1989) 59 DLR (4th) at 193. the comments of Professor Palmer in his work The Law of Restitution : ^[21] 1986 Supplement at 255.

``There is no doubt that if the tax authority retains a payment to which it was not entitled it has been unjustly enriched. It has not been enriched at the taxpayer's expense, however, if he has shifted the economic burden of the tax to others. Unless restitution for their benefit can be worked out, it seems preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the purpose of shifting the same enrichment to the taxpayer.''

La Forest J. expressed his agreement with the comment and went on to say: ^[22] (1989) 59 DLR (4th) at 193-194.

``The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss. Its function is to ensure that where a plaintiff has been deprived of wealth that is either in his possession or would have accrued for his benefit, it is restored to him. The measure of restitutionary recovery is the gain the province made at the airlines' expense.''

Wilson J. did not agree, concluding that to deny recovery in such a situation would be tantamount to allowing the legislature to impose illegal burdens and would be inconsistent with restitutionary principles. ^[23] ibid. at 169-170. The levying of an unconstitutional tax is an imposition of an

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illegal burden, but there was no such imposition in the present case.

The approach taken by La Forest J. in Air Canada accords with that adopted in the United States in Shannon v. Hughes & Co. ^[24] (1937) 109 SW (2d) 1174. There, the plaintiff failed to recover payments of an unconstitutional tax on its ice cream operations because it had passed on the tax to its customers and had shifted to them the burden of the imposition. The Court invoked Lord Mansfield's proposition in Moses v. Macferlan ^[25] (1760) 2 Burr 1005 at 1010 [ 97 ER 676 at 679]. that, in the common law action for money had and received, the defendant ``may defend himself by every thing which shews that the plaintiff, ex aequo et bono , is not intitled to the whole of his demand, or to any part of it''. In Shannon v. Hughes & Co. , ^[26] (1937) 109 SW (2d) at 1175-1176. the Court concluded that to hold otherwise would result in unjust enrichment of the plaintiff, despite the fact that the imposition of the tax and its passing on to customers caused the plaintiff's ice cream sales to drop sharply and the plaintiff's profits to collapse. By denying relief on the ground that the plaintiff would unjustly be enriched by a windfall, the Court left the plaintiff without a remedy even though it had suffered significant loss and damage.

The argument that a plaintiff who passes on a tax or charge will receive a windfall or will unjustly be enriched if recovery from a public authority is permitted rests at bottom upon the economic view that the plaintiff should not recover if the burden of the imposition of the tax or charge has been shifted to third parties. In the context of the law of restitution, this economic view encounters major difficulties. The first is that to deny recovery when the plaintiff shifts the burden of the imposition of the tax or charge to third parties will often leave a plaintiff who suffers loss or damage without a remedy. That consequence suggests that, if the economic argument is to be converted into a legal proposition, the proposition must be that the plaintiff's recovery should be limited to compensation for loss or damage sustained. The third is that an inquiry into and a determination of the loss or damage sustained by a plaintiff who passes on a tax or charge is a very complex undertaking. And, finally, it has long been thought that, despite Lord Mansfield's statement in Moses v. Macferlan , the basis of restitutionary relief is not compensation for loss or damage sustained but restoration to the plaintiff of what has been taken or received from the plaintiff without justification. ^[27] Mason & Anor v. The State of New South Wales (1958-1959) 102 CLR at 146 per Windeyer J.

Shannon v. Hughes & Co. illustrates the first problem. Because passing on the tax or charge increases the price or cost of the goods or service to the customer or consumer it may have an adverse economic impact upon demand and, accordingly, upon the profitability of the plaintiff's activities. That means that passing on should not be accepted as a universal defence to a restitutionary claim unless it is related and limited to denying recovery except for loss or damage sustained. And that requires a consideration of practical and legal objections inherent in the third and fourth objections mentioned above.

In the United States, the Supreme Court has rejected the passing on defence in the context of treble-damages claims under anti-trust laws by plaintiffs who have passed on overpayments to their customers. ^[28] Hanover Shoe Inc. v. United Shoe Machinery Corp. (1968) 392 US 481 ; Illinois Brick Co. v. Illinois (1977) 431 US 720 ; see also McKesson Corporation v. Division of Alcoholic Beverages and Tobacco (1990) 110 L Ed 2d 17 at 42-43 . Though the context is different, the reasons given for that rejection are relevant to the present case. They include the difficulty of determining the economic impact upon the plaintiff's business of passing on the overpayment, ^[29] (1968) 392 US at 492-493. the practical problems which availability of the defence would generate involving ``massive evidence and complicated theories'' ^[30] ibid. at 493. to demonstrate the occurrence or non-occurrence of passing on. Further, the defence would probably apply all the way down the chain of distribution to the ultimate consumer who would have little interest to sue. ^[31] ibid. at 494. In Illinois Brick Co. v. Illinois , the Supreme Court confirmed these grounds of objection and pointed to the problems of multiple litigation if both direct and indirect purchasers could sue for anti-trust damages. The Court also noted that economic theories rely upon assumptions that do not operate in the real world, thereby making the proof of passing on extremely difficult. ^[32] (1977) 431 US at 741-742.

A similar approach was taken in the opinion of Advocate-General Mancini in Amministrazione delle Finanze dello Stato v. San Giorgio SpA . ^[33] [ 1985] 2 CMLR 658. San Giorgio was required to pay health inspection charges under an Italian decree and regulations. They were held to be invalid. An Italian court ordered repayment to San Giorgio, notwithstanding another law which denied recovery when the charge is presumed to have been passed on. The Advocate-General considered that the nature of a free market is such that one cannot isolate any

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portion of the price and link it causally to a particular cost. ^[34] ibid. at 673. However, the European Court concluded: ^[35] ibid. at 688-689.

``Community law does not prevent a national legal system from disallowing the repayment of charges which have been unduly levied where to do so would entail unjust enrichment of the recipients. There is nothing in Community law therefore to prevent courts from taking account, under their national law, of the fact that the unduly levied charges have been incorporated in the price of the goods and thus passed on to the purchasers.''

The Court has also decided that it is inconsistent with Community law for a State to impose on a taxpayer the burden of establishing that unduly paid charges have not been passed on. ^[36] Les Fils de Jules Bianco SA v. Directeur G é n é ral des Douanes [ 1989] 3 CMLR 36 . Thus, in European law it is accepted that the defence of passing on, though difficult to establish, does not infringe Community law when made available by the statute of a member State.

The United States and European decisions demonstrate that any acceptance of the defence of passing on is fraught with both practical and theoretical difficulties. ^[37] See also Rudden and Bishop, ``Gritz and Quellmehl: Pass it on'', (1981) 6 European Law Review 243 esp. at 253-256. Indeed, the difficulties are so great that, in my view, the defence should not succeed unless it is established that the defendant's enrichment is not at the expense of the plaintiff but at the expense of some other person or persons. <sup>[38]</sup> There is limited support from the textwriters for the view that passing on is not a defence: see Birks, Restitution — The Future , (1992) at 75, fn. 55; Burrows, The Law of Restitution , (1993) at 475-476 (though he favours a mitigation of loss defence in some cases where it is established that the charge has been passed on); but others consider it is a defence: see Jones, Restitution in Public and Private Law , (1991) at 46; Palmer, The Law of Restitution , 1986 Supplement at 255; see also Goff and Jones, The Law of Restitution , 4th ed. (1993) at 553 where it is suggested that ``[t]he burden should, in principle, be on the defendant to show that the plaintiff has suffered no loss.'' In Woolwich , Lord Goff of Chieveley commented: `` [ T]he point is not without its difficulties; and the availability of the defence may depend upon the nature of the tax'': [1993] AC at 178. In that event, the plaintiff fails, not because it has passed on the tax or charge, but because the defendant has been enriched by receiving moneys which belonged to or proceeded from someone other than the plaintiff. Take, for example, the case where there is an overpayment of a tax levied on someone other than the plaintiff who collects the tax and pays it to the public authority. In such a case, the plaintiff should not recover unless it is established that the plaintiff will distribute the proceeds to the true taxpayers.

Historically, as I have already noted, the basis of restitutionary relief in English law was not compensation for loss or damage but restoration of what had been taken or received. The requirement that the defendant be unjustly enriched ``at the expense of'' the plaintiff can mean that the enrichment is ``by doing wrong to'' or ``by subtraction from'' the plaintiff. ^[39] Birks, An Introduction to the Law of Restitution , (1985) at 23-24. Hence, a plaintiff can succeed by showing that he or she was the victim of a wrong which enriched the defendant - this is not such a case - or that the defendant was enriched by receiving the plaintiff's money or property.

When the plaintiff succeeds in a restitutionary claim, the court awards the plaintiff the monetary equivalent of what the defendant has taken or received, except in those cases in which the plaintiff is entitled to specific proprietary relief. Because the object of restitutionary relief is to divest the defendant of what the defendant is not entitled to retain, the court does not assess the amount of its award by reference to the actual loss which the plaintiff has sustained. That is what Windeyer J. was saying in Mason & Anor v. The State of New South Wales ^[40] (1958-1959) 102 CLR at 146. when he rejected the notion that impoverishment of the plaintiff is a correlative of the defendant's unjust enrichment. ^[41] But cf. Air Canada v. British Columbia (1989) 59 DLR (4th) at 193-194 per La Forest J. (with whom Lamer and L'Heureux-Dub é JJ. concurred); Wilson J. contra. See also Beatson, ``Restitution of Taxes, Levies and Other Imposts: Defining the extent of the Woolwich Principle'', (1993) 109 Law Quarterly Review 401 at 427-428; The Law Commission, Restitution of Payments Made Under a Mistake of Law , (1991) Consultation Paper No.120, pars 3.83-3.85.

Windeyer J. did not regard the fact that the plaintiffs had ``passed on'' to their customers the amounts unlawfully charged for permits as a reason for denying recovery. His Honour said: ^[42] (1958-1959) 102 CLR at 146; see also at 136 per Menzies J.

``If the defendant be improperly enriched on what legal principle can it claim to retain its ill-gotten gains merely because the plaintiffs have not, it is said, been correspondingly impoverished? The concept of impoverishment as a correlative of enrichment may have some place in some fields of continental law. It is foreign to our law. Even if there were any equity in favour of third parties attaching to the fruits of any judgment the plaintiffs might recover... this circumstance would be quite irrelevant to the present proceedings. Certainly it would not enable the defendant to refuse to return moneys which it was not in law entitled to collect and which ex hypothesi it got by extortion.''

Windeyer J. was directing his remarks to a case in which, as in Air Canada , the State was asserting its entitlement to payment of the charge. In the present case, there never was a demand or claim by the State or the Commissioner that tax was payable in respect of premiums received under the relevant policies. Here overpayment occurred simply because Royal made a mistake in the process of self-assessment. But I do not consider that this difference touches the question whether passing on the tax or duty is relevant to restitutionary recovery. Once it is accepted that causative mistake of law is a basis for recovery, the making of an unlawful demand for payment,

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though material to the making of a causative mistake, is no longer of critical importance.

Restitutionary relief, as it has developed to this point in our law, does not seek to provide compensation for loss. Instead, it operates to restore to the plaintiff what has been transferred from the plaintiff to the defendant whereby the defendant has been unjustly enriched. As in the action for money had and received, the defendant comes under an obligation to account to the plaintiff for money which the defendant has received for the use of the plaintiff. The subtraction from the plaintiff's wealth enables one to say that the defendant's unjust enrichment has been ``at the expense of the plaintiff'', ^[43] Birks, (1985), op.cit. at 23-24. notwithstanding that the plaintiff may recoup the outgoing by means of transactions with third parties.

On this approach, it would not matter that the plaintiff is or will be over-compensated because he or she has passed on the tax or charge to someone else. And it seems that there is no recorded instance of a court engaging in the daunting exercise of working out the actual loss sustained by the plaintiff and restricting the amount of an award to that measure.

Nonetheless, in the United States, relief has been denied, on equitable amongst other grounds, to a plaintiff who has passed on the tax or charge, reference being made to coming to court with unclean hands. ^[44] Standard Oil Co. v. Bollinger (1929) 169 NE 236 ; see also Richardson Lubricating Co. v. Kinney (1929) 168 NE 886 . Why, as between the plaintiff and the defendant, the passing on of the tax to customers of the plaintiff results in conduct which should disentitle the plaintiff in equity from recovery is difficult to understand. The better view is that, if passing on of the tax disentitles the plaintiff, it is because, in the particular circumstances, the defendant's enrichment has not been at the expense of the plaintiff.

That was the way in which the problem was approached by Learned Hand J. in his dissenting opinion in 123 East Fifty-Fourth Street v. United States . ^[45] (1946) 157 F Rep (2d) 68. There the Court rejected the defence of passing on in circumstances where a restaurant owner, in accordance with advice received from revenue authorities that it was liable to cabaret tax, paid amounts as and for that tax. The Court held that the tax was not payable because the restaurant was not a cabaret. The restaurant owner had charged the tax to its patrons so that items on the patrons' bills were actually part of the price paid by them and the money became that of the restaurant owner. The majority considered that this was no bar to recovery by the restaurant owner because the money, when paid to the government, belonged to and was the property of the restaurant owner. However, Learned Hand J. was prepared to infer that the owner had added the tax as a separate item to the bills and described it as a tax which it must pay and was collecting it from patrons in order to pay it to the Treasury. His Honour regarded as crucial the distinction between passing on the tax in this form and merely including in the bills the amount of the tax without saying anything about it.

Learned Hand J. went on to say: ^[46] ibid. at 70; see also Wayne County Produce Co. v. Duffy-Mott Co. (1927) 155 NE 669 at 669 per Cardozo C.J. (where Duffy-Mott recovered the tax that it had paid to the federal government but, having charged the tax specifically to its customers in addition to the price of the goods sold, was held liable to account to them for the tax recovered).

``If it said nothing, I should agree... that the guests had no legally recognizable interest in the money collected, which gave them any claim to it superior to the plaintiff's... On the other hand, if the plaintiff collected the money under what the guests must have understood to be a statement that it was obliged to pay it as a tax, and that it meant to do so, the money was charged with a constructive trust certainly so long as it remained in the plaintiffs hands.''

According to his Honour, the constructive trust attached to the claim for recovery of the money so that if the plaintiff recovered the payments it would hold as trustee for the patrons. That would be no answer to the claim if the plaintiff could and would distribute the recovery to the patrons. But that did not appear to be the case so that in the result, the equities being equal, the legal title should prevail.

In Decorative Carpets Inc. v. State Board of Equalization , ^[47] (1962) 373 P 2d 637. the Supreme Court of California followed the dissenting opinion of Learned Hand J. In that case, the plaintiff had overpaid sales tax with respect to transactions combining sales and installation. The plaintiff had collected for each transaction giving rise to a liability to pay sales tax a separately stated amount to cover the tax imposed on it, and had charged to its customers the amounts computed to be payable as sales tax on those transactions. The Court held that the plaintiff's mistake of law gave rise to an involuntary trust in favour of the customers and that the plaintiff could recover only if it submitted proof that the refund would be returned to the customers from whom the payments were erroneously collected. Traynor J., with whom Gibson C.J., Peters and White JJ. concurred, said: ^[48] ibid. at 638.

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``To allow the plaintiff a refund without requiring it to repay its customers the amounts erroneously collected from them would sanction a misuse of the sales tax by a retailer for his private gain.''

The Court considered that, although the defendant would ordinarily, like the plaintiff, become a constructive trustee of the moneys for the plaintiff's customers, adherence to statutory procedures precluded the imposition on the defendant of an obligation to make refunds to the customers. The Court did not discuss the question whether the defendant would be unjustly enriched if the plaintiff were unable to offer proof that it could and would refund the sums to its customers.

On the other hand, in Javor v. State Board of Equalization , ^[49] (1974) 527 P 2d 1153. car purchasers sought to recover amounts of sales tax which had been passed on to them by retailers. The amount paid was excessive because of the repeal, with retrospective effect, of a federal manufacturers' excise tax which had been included in the sales tax base. The overpaid tax was in excess of $10,000,000; however, each customer was owed only a very small amount. ^[50] For example, the plaintiff, who had purchased a Rolls Royce, was owed $65.72. Only a retailer could apply for a refund, which was required to be paid over to the customer. Accordingly, a retailer had no particular incentive to request the refund. Sullivan J., with whom Wright C.J., Tobriner, Mosk and Burke JJ. concurred, considered that: ^[51] (1974) 527 P 2d at 1160-1161.

``the Board is very likely to become enriched at the expense of the customer to whom the amount of the excessive tax actually belongs.

... The integrity of the sales tax requires not only that retailers not be unjustly enriched, but also that the state not be similarly unjustly enriched.''

The Court found that the customers could compel the retailers to make refund applications, and require the refunded sales tax to be paid into court.

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

But does all this require the further conclusion that in the circumstances predicated by Learned Hand J. - the addition of the tax as a separate item to the bills - the restaurant owner could not recover? I would answer the question in the negative on the footing that the restaurant owner had a legal title to the money immediately before it was paid to the revenue authority. In that respect, the money belonged to the plaintiff even though, if it recovered the money, it would hold as trustee for the patrons. But, in such a case, the plaintiff should be required to satisfy the court, by the giving of an undertaking or other means, that it will distribute the moneys to the patrons from whom they were collected, thereby recognizing their beneficial ownership of those moneys.

If, however, the plaintiff did not become the constructive trustee of the moneys by separately charging them as tax to the patrons, I do not see why the plaintiff's claim should be defeated simply because the plaintiff has recouped the outgoing from others. As between the plaintiff and the defendant, the plaintiff having paid away its money by mistake in circumstances in which the defendant has no title to retain the moneys, the plaintiff has the superior claim. The plaintiff's inability to distribute the proceeds to those who recoup the plaintiff was, in my view, an immaterial consideration, as Windeyer J. suggested it was in Mason v. New South Wales . There was in that case the additional element of an unlawful demand but the absence of that element does not mean that, in the situation under consideration, unjust enrichment was otherwise than at the plaintiff's expense.

In the present case, that reasoning leads me to the conclusion that the Commissioner would have no defence to a restitutionary claim by Royal to recover the mistaken payments of duty. Even if it had been established that Royal

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charged the tax as a separate item to its policy holders so that it was a constructive trustee of the moneys representing that separate charge when it made the payments to the Commissioner, it would have been entitled to recover from the Commissioner, provided that it satisfied the court that it will account to its policy holders. The courts below, unlike Learned Hand J. in 123 East Fifty-Fourth Street , did not draw an inference that the tax was charged as a separate item to the policy holders. And, in any event, it has not been suggested that the Court should draw such an inference.

It then follows, in the light of my earlier conclusion that the discretion under s. 111 is to be exercised in accordance with the principles of the law of restitution, that the discretion was exercised erroneously. On the basis on which the case was fought in the courts below, subject to consideration of the two issues still outstanding, Royal was entitled to recover the overpayments in conformity with the law of restitution.

Limitation of Actions Act 1958 (Vic.), s. 20A

Section 20A provided as follows: ^[52] A new s. 20A was substituted by the Limitation of Actions (Amendment) Act 1993 (Vic.).

``Actions to recover moneys paid as taxes etc.

(1) No action shall be brought to recover, from the Crown or the State of Victoria 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.

(2) Sub-section (1) of this section shall 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.''

As the last payment of duty sought to be recovered was paid on 21 August 1989, if s. 20A(1) applied, the time within which any action might be brought to recover duty expired no later than 21 August 1990, which was prior to the commencement of the proceedings for recovery of the duty paid.

The Appeal Division was of the view that s. 20A had no application for three reasons. First, their Honours thought, from the speeches of the Attorney-General and others as reported in Hansard , that the section was introduced to protect the State from the obligation to repay moneys that might become payable as a consequence of successful challenges to the constitutional validity of State fiscal laws. In those speeches reference was made to Dennis Hotels Pty. Ltd. v. State of Victoria & Anor ^[53] (1961) 104 CLR 621. and the ``windfall'' that the hotel industry would have gained had its challenge to the licensing fees been successful. While apprehension of the prospect of a liability to refund imposts as a result of successful challenges to the constitutional validity of fiscal laws was the occasion and the mainspring for the introduction of s. 20A, the terms of sub-s. (1) are much wider. It prohibits the bringing of an action to recover the amount of any impost ``paid under the authority or purported authority of any Act'' (emphasis added).

The second reason was that the 1987 amendment which retrospectively declared that duty was not exigible back to 30 June 1985, covering a period of 2 ½ years, would not have been necessary if s. 20A had the effect contended for by the Commissioner. The Appeal Division therefore concluded that the 1987 amendment at least modified the operation of s. 20A in relation to payments of duty properly made at the time but deemed retrospectively not to be payable. However, this reasoning overlooks the possibility that the duty to which the 1987 amendment related may have been paid within one year of the enactment of the amendment.

The third reason was that the imposts sought to be recovered were not ``paid under the authority or purported authority of any Act''. In my view, the Appeal Division was correct in so holding. The effect of the 1987 amendment was to abrogate any requirement to make a payment after 30 June 1985 of duty on premiums received on ``cost-plus'' policies. Hence, the payment of duty mentioned in the first category in the document prepared by the Commissioner was not ``under the authority or purported authority of any Act''. Likewise, the other payments of duty sought to be recovered were not made under such authority or purported authority for the simple reason that the duty was not payable; instead of imposing duty on the

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relevant categories of premium the Act abrogated the liability to pay duty. It is not possible to read the words ``under the authority or purported authority'' as denoting ``under a mistaken belief as to authority''.

It follows that s. 20A has no application.

Relief

The Appeal Division granted relief in the nature of mandamus by directing the Commissioner to refund the amount claimed. The Commissioner submitted that mandamus would not result in an order for payment of that money.

Although the argument was not elaborated, it is to be understood as invoking the principle that mandamus requires the exercise of the relevant statutory discretion rather than its exercise in a particular way. ^[54] Randall v. Northcote Corporation (1910) 11 CLR 100 at 105 . But that principle means no more than that the administrator to whom mandamus is directed will be required to perform the legal duty to the public which is imposed by the statute and ordinarily that duty is limited to exercising the statutory discretion according to law, there being no obligation to exercise the discretion in a particular way. However, if the administrator is required by the statute to act in a particular way and in certain circumstances, or if the exercise of a statutory discretion according to law in fact requires the administrator to decide in a particular way, so that in neither case does the administrator in fact have any discretion to exercise, then mandamus will also issue to command the administrator to act accordingly. ^[55] R. v. Anderson ; Ex parte Ipec-Air Pty. Ltd. (1965) 113 CLR 177 at 188 per Kitto J. (dissenting but not on this point), 203, 206 per Windeyer J.; Minister for Immigration and Ethnic Affairs v. Conyngham & Ors (1986) 68 ALR 441 at 448-451 . Moreover, it has long been recognized that mandamus will issue as a remedy for certain forms of abuse of discretion upon the principle that ``the improper or capricious exercise of discretion is a failure to exercise the discretion which the law has required to be exercised''. ^[56] R. v. I.R.C. ; Ex parte Fed. of Self-Employed [ 1982] AC 617 at 650 per Lord Scarman; see R. v. Askew (1768) 4 Burr 2186 at 2188-2189 per Lord Mansfield C.J. [98 ER 139 at 141]; Padfield v. Minister of Agriculture, Fisheries and Food [1968] AC 997 .

At one time it seems to have been thought that mandamus would not be granted to enforce payment of money by the Crown. ^[57] See, for example, R. v. Lords Commissioners of the Treasury (1872) LR 7 QB 387 . However, in principle there can be no objection to the grant of relief by mandamus directed to a statutory officer requiring that officer to pay money if there be a public legal duty to so act. ^[58] See R. v. Commissioners for Special Purposes of the Income Tax (1888) 21 QBD 313 at 322 per Lindley L.J. In the present case, the duty to exercise the discretion was a public duty ^[59] R. v. I.R.C.; Ex parte Fed. of Self-Employed [ 1982] AC at 651-652 per Lord Scarman. and it was a discretion which, in the circumstances of this case, could be exercised only in one way. Consequently, mandamus will issue not only to compel exercise of the discretion according to law but also to compel it to be exercised in the way in which it must be exercised.

The appeal must be dismissed.