#6790 - Roxborough V. Rothmans Of Pall Mall Australia - Restitution of Unjust Enrichment BCL

Roxborough v. Rothmans of Pall Mall Australia

Facts

Retailers bought tobacco products from licensed wholesalers under a series of contracts on terms that the invoiced “cost” comprised the wholesale price of the products and a further amount, representing a licence fee imposed by State law. After the decision of the High Court in Ha v New South Wales (1997) 189 CLR 465 that the licence fee was a duty of excise within s 90 of the Commonwealth Constitution, and hence was invalid, retailers sued a wholesaler to recover the amount paid for the licence fee and which the wholesaler had not remitted to the taxing authority by the date of the Court's decision.

On 5 August 1997, when the taxing legislation was declared invalid, amounts had been paid by the appellants, to the respondent, in respect of tobacco products supplied by the respondent since 1 July 1997, which had been identified on the respondent's invoices as “tobacco licence fee”.

The part of the net total paid to the respondent by reference to the tax was thus shown separately from the wholesale price of the products sold. The nature of the tax, and the method by which it was imposed and collected, explain why that was done. The tax was an ad valorem tax on goods. The value of the goods had to be distinct from the tax. The tax was to be passed on to the retailer, and was to form part of the cost to the retailer of the goods.

Holding

Gleeson CJ

Meaning of Consideration

Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that. The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds, show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared. Deane J, referring to “the general equitable notions which find expression in the common law count”, gave as an example “a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it”. In the case of money paid pursuant to a contract, it would involve too narrow a view of those “general equitable notions” to limit failure of consideration to failure of contractual performance. In the present case, the amount of the net total wholesale cost referable to the tax was, from one point of view, part of the money sum each appellant was obliged to pay to obtain delivery of the tobacco products. But there was more to it than that. The tax was a government imposition, in the form of a fee payable under a licensing scheme. The nature of the scheme was such that the licensed wholesaler, or, if not the wholesaler, then the licensed retailer, would pay the amount referable to particular tobacco products. The respondent, anticipating liability for the fee, required the appellants, when purchasing products by wholesale, to pay an amount equal to the fee. The appellants, in turn, had an interest in the respondent paying the fee to the revenue authorities, for they were thereby relieved of a corresponding liability. There was a purpose involved in the making of the requirement that the appellants pay the amounts described as “tobacco licence fee”, and in the compliance with that requirement. To describe those amounts as nothing more than an agreed part of the price (or, to use the language of the parties, cost) of the goods, is to ignore an important aspect of the facts.

Severability of the License Payments

But there are cases, of which the present is an example, where it is possible, both to identify that part of the final agreed sum which is attributable to a cost component, and to conclude that an alteration in circumstances, perhaps involving a failure to incur an expense, has resulted in a failure of a severable part of the consideration. Here, the buyers, the retailers, were required to bear, as a component of the total cost to them of the tobacco products, a part of the licence fees which the seller, the wholesaler, was expected to incur at a future time, and which was referable to the products being sold. It was in the common interests of the parties that the fees, when so incurred, would be paid to the revenue authorities by the seller, and it was the common intention of the parties (and the revenue authorities) that the cost of the goods would include the fees. In the events that happened, the anticipated licence fees were not incurred by the seller. The state of affairs, which was within the contemplation of the parties as the basis of their dealings, concerning tax liability, altered. And it did so in circumstances which permitted, and required, severance of part of the total amount paid for the goods.

The same idea may be expressed by saying that, in the present case, the failure of the tax involved the failure of a severable part of the consideration for which the net total amounts shown on the invoices were paid.

It accords with the basis of dealing, and contractual arrangements, between the appellants and the respondent to regard that part of the net total amount of each invoice referable to the “tobacco licence fees” as a severable part of the consideration, which has failed. There is no conceptual objection to this. For the reasons already given, the tax component of the net total wholesale cost was treated as a distinct and separate element by the parties. It was externally imposed. It was not agreed by negotiation.

Passing on – Rejected

It then becomes necessary to consider the respondent's objection based upon the fact that, at least in a practical sense, the burden of the tax has been passed on by the appellants to their customers. The factual basis of this objection cannot be refuted.

Although the factual basis of the objection is correct, it is necessary to be clear as to its legal frame of reference. It cannot be simply an assertion that the appellants lack merit. In that respect, their position is no worse than that of the respondent. It was put on the basis that any enrichment of the respondent is not at the expense of the appellants and that, in consequence, the equitable foundation for a claim for restitution does not exist.

It is clear that, in a direct and immediate sense, the payments were made by the appellants, out of their own funds, to the respondent. They did not pay the amounts as agents, on behalf of third parties. The consumers of cigarettes, in an economic sense, bore the burden of the tax, but they were never legally liable as taxpayers. The appellants themselves were taxpayers under the licensing scheme, although if the respondent paid, or became liable to pay, tax in respect of particular tobacco products, the value of those products was disregarded in calculating the appellants' licence fees. And the respondent passed the tax on to the appellants, not merely in an economic sense, but also by the express terms of the dealings between the parties. They dealt on the basis that the appellants would pay to the respondent an amount equal to that part of the respondent's “tobacco licence fees” referable to the products sold to the appellants.

There having been a failure of a distinct and severable part of the consideration for the net total payments made by the appellants to the respondent, then, as between the parties to the payments, the respondent has no right to retain the amounts in question. If the tobacco products in question remained unsold by the appellants at the time the claims for repayment arose for determination, the respondent's obligation to make restitution would be clear. Why does it make a difference to the conscientiousness of the respondent's retention of the moneys that the products were sold by the appellants at prices that had the practical effect of recouping the expense they bore in paying the “tobacco licence fees”? The holders of licences were those upon whom the tax was imposed, but they were always intended to pass the tax on to the consumers. As between the licensees, it was the appellants who incurred the expense, in that they were charged, and paid, a severable amount for the purpose of the tax.

Gummow J.

Meaning of Consideration

Citing Stoljer: “But, thirdly, failure of consideration has also a much older and specialised sense, one that describes a specific remedy when, upon the collapse of a bargain, the promisee seeks to recover money had and received by the promisor. Thus failure of consideration specifies not only a claim, but also the particular basis for that claim. (Footnotes omitted.)”

It is the third meaning with which this litigation is concerned. But what is meant here by the term “consideration”? It is important to appreciate that, although this often is the case, the “bargain” referred to in describing failure of consideration need not be contractual in nature. For example, in Martin v Andrews, the Court of Queen's Bench upheld a declaration for money had and received to recover conduct money tendered with a subpoena ad test where the case was settled before trial. Lord Campbell CJ said (186):

“The consideration has failed. The money is paid for the purpose of defraying the expences [sic] of the witness's journey: if there is no journey there is no expence [sic],...