Restitution where money is paid under a mistake of law


Following from headnote to David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 109 ALR 57 (HC)


(i) The sweeping principle that money paid under a mistake of law is irrecoverable is broader and more preclusive than is necessary. Regard must be had to the voluntariness of the payment, where “voluntary” refers to a payment made in satisfaction of an honest claim, rather than a payment not made under any form of compulsion or undue influence. A narrower principle, founded firmly on the policy that the law wishes to uphold bargains and enforce compromises freely entered into, would be more accurate and equitable.


(ii) The identification and acceptance of a narrow principle is strongly supported by the difficulty and illogicality of seeking to draw a rigid distinction between cases of mistake of law and mistake of fact, and by the recognition in Australia of the unifying legal concept of unjust enrichment.


(iii) Accordingly the rule precluding recovery of moneys paid under a mistake of law does not form part of the law of Australia. “Moneys paid under a mistake of law” refers to circumstances where the plaintiff pays money to a recipient who is not legally entitled to receive it. It would not, for example, extend to a case where moneys were paid under a mistaken belief that they were legally due and owing under a particular clause of a particular contract when in fact they were due and owing to the recipient under another clause or contract.


(iv) It is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is unfair or unconscionable. Instead, recovery depended upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality. Mistake, whether of fact or of law, is a factor which can make an enrichment unjust or unjustified.


(v) There is no requirement to prove “unjustness” over and above mistake. The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognises would make an order for restitution unjust.


(vi) In the present case, the bank must prove that the appellants were not entitled to restitution because they have received consideration for the payments which they sought to recover. It did not avail the bank to argue that the appellants were provided with the loan moneys agreed. In circumstances where both parties have impliedly acknowledged that the consideration can be “broken up” or apportioned in the way it could be here, any rationale for adhering to the traditional rule requiring total failure of consideration disappeared.


(vii) If the principle was to be accepted that payments made under a mistake of law should be prima facie recoverable, in the same way as payments made under a mistake of fact, a defence of change of position is necessary to ensure that enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust.


(viii) Accordingly the case ought to be remitted to the trial judge for determination of the following issues: (a) whether the appellants should be permitted to call evidence on the issue of mistake; (b) whether the appellants paid the additional amounts because of their mistaken belief that their contractual arrangements with the bank required the payments; (c) whether the bank changed its position on the faith of receipt of the payments by the appellants.


Per Brennan J:

The proposal that payments made in satisfaction of an honest claim should be classified as “voluntary” and, on that account, irrecoverable was at once too broad and too narrow. The limiting principle on the prima facie right to restitution following payment under a mistake of law ought to be stated in terms of the state of mind of the payee at the time he learns of the receipt of the payments. It is a defence to a claim for restitution of money paid or property transferred under a mistake of law that the defendant honestly believed, when he learnt of the payment or transfer, that he was entitled to receive and retain the money or property.

See also:

Roxborough v Rothmans of Pall Mall Australia [2001] HCA 68; (2001) 208 CLR 516 [16], [104];

Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd  [2008] WASCA 119

Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 [31], [134]