Commonwealth of Australia (Royal Australian Navy) v Sims

Mistaken Payments

1. In the period between about 22 September 2009 and 26 March 2015, the Commonwealth paid amounts totalling approximately $354,729.81 to the defendant, and to third parties who the defendant had nominated to receive payment of part of his salary entitlements (the Mistaken Payments). Relevantly, the Commonwealth paid: 1. amounts totalling $147,318.61 to the defendant's personal bank accounts; 2. amounts totalling $10,263.41 to the defendant's nominated superannuation accounts; 3. amounts totalling $100,800 to Ms Natalie Dalton (who the Commonwealth alleges was the defendant's ex-wife to whom $700 per fortnight was paid at his direction); 4. amounts totalling $554.11 to Jones King Lawyers (which the defendant had nominated to receive those amounts from his salary); and 5. amounts totalling $14,100 to the company Red Anchor Tailoring (which the defendant had nominated to receive an amount of $100 of his salary each fortnight) (The Commonwealth did not seek to recover from the defendant of this payment).
2. During that period the Commonwealth also mistakenly paid to the Australian Taxation Office (ATO) PAYG income tax which was payable on the defendant's salary and other entitlements mistakenly paid. These payments were as follows: 1. amounts totalling $8,400 for the 2010 tax year (being the approximate amount paid on the defendant's behalf for the period 22 September 2009 to 30 June 2010); 2. amounts totalling $11,396 for the 2011 tax year; 3. amounts totalling $12,076 for the 2012 tax year; 4. amounts totalling $12,332 for the 2013 tax year; 5. amounts totalling $12,892 for the 2014 tax year; and 6. amounts totalling $5,761 for the 2015 tax year (which the Commonwealth has recovered from the ATO and so does not seek to recover from the defendant in this proceeding).
3. The cause of the Mistaken Payments was not entirely certain, but as a result of my conclusions in relation to the matter, I do not believe it is necessary for me to analyse the various administrative procedures within the Department of Defence personnel in an attempt to make a determination as to that matter.

The Auckland Harbour Principle

1. The Commonwealth understandably seeks recovery of the Mistaken Payments from the defendant. It primarily does so based on what it referred to as the "Auckland Harbour Principle". This was a reference to the decision of the Privy Council in Auckland Harbour Board v R [1924] A.C. 318, where Viscount Haldane, speaking for the Privy Council, said at 327: Any payment out of the consolidated fund made without Parliamentary authority is simply illegal and ultra vires, and may be recovered by the Government if it can, as here, be traced.
2. The principal was explained by Newton J in Commonwealth of Australia v Burns [1971] VR 825 at 827: The payments made to Mrs Burns were made out of Consolidated Revenue: see s. 113 of the Repatriation Act, and ss. 81 and 83 of the Commonwealth of Australia Constitution. See too the relevant provisions of the Supply and Appropriation Acts relating to the period in question. In my opinion, the authorities establish that money paid out of Consolidated Revenue without statutory or other lawful authority is recoverable by the Crown from the recipient, at all events if paid without any consideration. And, in my opinion, the position is a fortiori where, as here, the payments are the result of a mistake. I consider that the principle relating to the recovery as between subject and subject of moneys paid under a mistake of fact or for a consideration which has failed. The principle is, in my view, based on public policy. In my statement of the principle I have used the words "at all events if paid without any consideration", because special problems might arise with respect to unauthorised payments of public moneys in return for valuable consideration such as goods or services: cf. Re K.L. Tractors Ltd. (1961), 106 C.L.R. 318, especially at pp. 334, 335. In the present case Mrs Burns gave no consideration for any of the payments which were made to her.
3. Importantly, Newton J emphasised that the Auckland Harbour Principle extended beyond, and indeed did not depend on any mistake of fact, his Honour pointing out that in the Auckland Harbour case itself, there was no mistake of fact (at page 828.10).
4. In Commonwealth v Crothall Hospital Services (Aust) Ltd (1981) 36 ALR 567; 54 FLR 439, Ellicott J summarised the Auckland Harbour line of authority in the following manner (with Blackburn and Deane JJ agreeing): … where the moneys are paid out of Consolidated Revenue without authority they may be recovered in an action by the Government. This could occur if a condition on which money was appropriated by statute had not been met at the time it was paid out or if the money was paid out by mistake even though not recoverable under ordinary principles. The basis of the action is that there has been a payment out of the revenue fund without authority.
5. As the learned authors of Mason and Carter's Restitution Law in Australia make clear, the Auckland Harbour Principle has been repeatedly endorsed and applied in Australia. In that context they point to the authority of Attorney-General v Gray [1977] 1 NSWLR 406, noting that in that case the excess paid was recoverable without the need to establish that the payment was made under any form of mistake, and despite the fact that a defence by way of estoppel would have lain in relation to a mistake based claim.
6. The Commonwealth's principal position with respect to the Auckland Harbour Principle was that a recovery action brought pursuant to it was not a restitutionary claim in the strict sense, but rather was a stand-alone common law cause of action. This was important as if the Commonwealth's contention was correct then there was no applicable statute of limitations, the importance of which being that it was the defendant's case that the Commonwealth's claim was for the most part statute barred.
7. I should also add that the parties were in agreement that the payments received by the defendant were rightly to be considered to have been made without parliamentary authority, and thus, ultra vires.
8. The parties were also agreed that there was no authority which assisted in determining whether the Auckland Harbour Principle was subject to any form of limitation of action.

Consideration

1. There is, in my view, much to be said for the Commonwealth's principal position. Certainly, the claim under the Auckland Harbour Principle is not a mainstream restitutionary claim, as it does not arise from any form of unjust enrichment.
2. Further, as I have previously noted, defences such as estoppel are not available to the payee, and, as the learned authors of Restitution in Australia suggest, the defence of change of position is also not available (at [2107]). Thus, the orthodox defences to restitutionary claims are not available to defendant's in claims brought under the Auckland Harbour Principle. This appears to be the case as the Auckland Harbour principle primarily looks toward the protection of the Revenue, rather than being directed to the position of the payee. This is so, as Newton J observed in Burns, because the cause of action is based in public policy, and I would interpolate; not in restitution.
3. Mr Duggan of counsel, who appeared for the defendant, accepted that the Auckland Harbour Principle was enlivened in the circumstances of this case, but submitted nonetheless that the action to recover the monies paid out in contravention of the Auckland Harbour Principle was itself restitutionary. In other words, Mr Duggan argued that while the Auckland Harbour Principle provided a basis for repayment, the actual mechanism for achieving that repayment was through the law of restitution.
4. I do not believe that the defendant's analysis is the correct analysis, as it unnecessarily bifurcates the Auckland Harbour Principle from recovery pursuant to it. The defendant's analysis is inconsistent with authority, for as Ellicott J made clear in Commonwealth v Crothall Hospital Services, the Auckland Harbour Principle is a stand-alone common law cause of action, and not a mere precursor to a restitutionary claim. This can be seen where his Honour stated that "[t]he basis of the action is that there has been a payment out of the revenue fund without authority" (my emphasis). Thus, in my view, on Ellicott J's analysis the Auckland Harbour Principle constitutes the whole act of the cause of action, and not merely a springboard for a separate restitutionary claim.
5. To my mind, the reference in Auckland Harbour to "may be recovered by the Government", does not necessarily connote that that recovery would be by way of restitutionary proceedings. This is so as the concept of "recovery" in the law generally does not necessarily connote a restitutionary claim. The law routinely deals with circumstances requiring recovery of monies which are clearly not restitutionary. For example, it is regular legal usage to say that an innocent contracting party may recover damages for breach of contract. Similarly, it is orthodox to say that a tortfeasor may recover damages for injury suffered as a result of tortious breach. In neither case could it be suggested that the actual recovery was a restitutionary claim.
6. That the recovery of moneys pursuant to the Auckland Harbour Principle should not to not be considered to be restitutionary can also be tested by the fact that one can readily contemplate how a pleading would be drafted in order to claim recovery of money paid out contrary to the principle, without any reference to either the form or substance of the law of restitution.
7. It is appropriate, however, that I say that in Commonwealth v Davies Samuel Pty Ltd and Others (no 7) (2013) 244 FLR 1, Refshauge J cited , with evident approval, the Commonwealth submissions in that matter in terms which suggest that the Auckland Harbour Principle was a form of restitutionary cause of action (see [1731]). As I read his Honour's judgment however, the issue as to whether the Auckland Harbour Principle was in fact restitutionary in a strict sense was not argued before his Honour, and as such, in my view, his Honour's approving recitation of the Commonwealth's submissions before him does not form part of his Honour's ratio decidendi. As I read the judgment, the Commonwealth, in its submissions, merely assumed that the principle was restitutionary, or akin to restitutionary.
8. I should also note in that regard that the learned authors of Restitution Law in Australia at [2101] refer to the Auckland Harbour Principle as being "a restitutionary right peculiar to the Revenue".
9. Accordingly, in deference to the judgment of Refshauge J, I should also consider the Commonwealth's secondary position.

The Effect of the Limitation Act on an Auckland Harbour Type Claim, if it is a Restitutionary Remedy

1. The Commonwealth's secondary position was that if the Auckland Harbour Principle was a restitutionary remedy, there was nonetheless no part of the Limitation Act 1969 (NSW) (the Limitation Act) which operated to impose a time bar upon it. In that regard it was agreed by the parties that the only potentially applicable section of the Limitation Act was section 14(1)(a).
2. For the defendant it was submitted that the section should be given "ambulatory effect", by which it was explained that the expression "quasi-contract" where it appeared in s 14(1)(a) adopted by the legislature at the time of the enactment of the Limitation Act should now bear the meaning of the legal expression "restitution", as explained by the High Court in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. The submission continued that the concept of restitution now extended beyond the confines of the learning on quasi-contract, such as to ensnare the Auckland Harbour Principle within the time bar constituted by section 14(1)(a).
3. For the Commonwealth it was contended that the correct position was that "quasi-contract", where it is found in the section, could not extend to describe the Auckland Harbour Principle. Rather, it was submitted that the expression "quasi-contract" remained inapt to describe all restitutionary claims.
4. In that regard the Commonwealth relied on the decision of the Court of Appeal Coshott v Lenin [2007] NSWCA 153, where at [15]-[17] Mason P (with Spigelman CJ and Campbell JA agreeing) said: Quasi contract was the legal category of reference in 1969 for claims to remuneration litigated at common law that were not based on contract. Pleaders used the common money count for work done, known by the Latin tag of quantum meruit. In Pavey, the High Court held that the quasi-contractual right to recover on a quantum meruit did not depend on the existence of an implied contract but on a claim to restitution or one based on unjust enrichment. The Court was at pains, however, to stress that (in Deane J's words at 256-7) unjust enrichment is a "unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make a fair and just restitution for a benefit derived at the expense of a plaintiff". This explanation of the principles underpinning quantum meruit and other recognised causes of action in restitution did not mean that "quasi-contract" ceased to exist as a legal category in the context of the Limitation Act. That Act continues to speak according to its plain intent to claims, however labelled or packaged, and whatever general principles may be perceived to underpin them, which depend on the well established common law cause of action stemming from quantum meruit. Whether or not it is now passe to use the old language of quasi-contract and whether or not there now exist causes of action "in" unjust enrichment has no bearing on the matter because "a sovereign legislature is not bound to respect legal orthodoxy" (Sharpe v Goodhew (1990) 33 IR 238 at 243 per Pincus J). In a claim based on quantum meruit, time runs from when the defendant received the benefit that gave rise to the obligation to make restitution (see Stinchcombe v Thomas [1957] VR 509; [1957] ALR 1027).
5. The Commonwealth's contention, to my mind, is correct, and, for the reasons articulated by Mason J in Coshott, the Auckland Harbour Principle does not fall within the confines of section 14(1)(a) of the Limitation Act.
6. Accordingly, there is no applicable statutory limitation of the action, and thus no part of the Commonwealth's claim is statute barred.
7. I should also add that the proposition that certain species of restitution are not the subject of any form of limitation of action defence was a conclusion with which Mason P, writing extra curially, had little difficulty (see Mason and Carter, "Restitution Law in Australia", at [2714]).

Payments made to Ms Dalton

1. As I have indicated, in addition to the sums paid fortnightly to the defendant by way of salary and superannuation, the sum of $700 per fortnight was paid to Ms Natalie Dawson. The total payments made to Ms Dawson amounted to $100,800. I infer that Ms Dawson was at the material time the defendant's either estranged wife or ex-wife.
2. I am left to come to that conclusion by inference, as the defendant did not give evidence in the proceedings. Through his counsel however the defendant made submissions which, in reality, were based on his very failure to give evidence. He submitted that: 1. There was no evidence that Ms Dawson was ever his estranged or ex-wife; and 2. There was no evidence that the payments were made to Ms Dawson at his direction; and 3. There was no evidence that the payments were made to discharge any obligation which fell upon him.
3. These submissions were, in reality, to use the colloquial, an example of the party attempting to hide behind his finger. Each of the submissions above involved the absence of evidence which was peculiarly within the defendant's knowledge, which he chose, no doubt for what was considered to be good forensic reasons, to not provide the Court.
4. As early as 1774, Lord Mansfield stated: It is certainly a maxim that all evidence is to be weighed according to the proof to which it was in the power of one side to have produced, and in the power of the other to have contradicted. (Blatch v Archer (1774) 1 Cowp 63 at 65)
5. There have been many other statements of the appropriate approach to decision making in such circumstances which have been made over time. For example, Lord Diplock in British Railways Board v Herrington [1972] AC 877 at 930 said: This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if a court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold.
6. To similar effect, in Insurance Cmr v Joyce (1948) 77 CLR 39 at 49, Rich J stated that: [W]hen circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matter prefers the well of the court to the witness box a court is entitled to be bold.
7. Finally, Griffiths CJ in (Cullen v Welsbach Light Co of Australasia Ltd (1907) 4 CLR 990 at 1002) stated: …if the only party in possession of direct evidence withholds it, he cannot complain that effect is given to the circumstantial evidence.
8. The defendant further argued that what the Commonwealth was, in reality, attempting to use his failure to give evidence to "fill in the gaps" of the Commonwealth's case. He says, correctly, that Jones v Dunkel (1958) 101 CLR 298 does not require evidence to be adduced for that purpose. While the submission in relation to gap filling is correct, I do not consider that this is a proper characterisation of what the Commonwealth seeks for me to do in my decision making. It asks me to make inferences.
9. It seems to me that the most natural inference to be drawn is that the payment to Ms Dalton was made by the Department of Defence at the direction of the defendant. It also seems highly likely, on the balance of probabilities, that the marital relationship between the defendant and Ms Dalton was in difficulties at the time of the defendant's separation from the Navy, as there is evidence that sometime thereafter they had different addresses on bank records. Finally, the inference that the payments were made to discharge an obligation of one form or another from the defendant to Ms Dalton seems an irresistible one. Whether that obligation was one which had its foundation in a Family Court order, or whether it was by agreement made privately without the formalisation of the Family Court is, to my mind, irrelevant.
10. The defendant's contention is that it is Ms Dalton who has the obligation to repay the Commonwealth moneys paid to her, and not the defendant. If that submission was correct, it would, to my mind, result in an unacceptable triumph of form over substance. If the fortnightly payments had been hypothetically made by the defendant to Ms Dalton after his salary was received by him, then there could be no question other than that the Commonwealth could recover the total amount paid to him. The fact that the defendant chose to avail himself of the convenience of having the Commonwealth make the payments to Ms Dalton, on his behalf, cannot affect the obligations of the defendant to repay those moneys to the Commonwealth.

Payments made to Jones King Lawyers

1. Similar considerations apply to these payments as to the payments to Ms Dalton. I find that the payments were: 1. Made at the defendant's direction; and 2. To discharge obligations of the defendant to the payee.
2. As such, I conclude that these sums are recoverable by the Commonwealth from the defendant.

Amounts Liable to be Repaid

1. The parties were in agreement as to the amounts which the defendant was liable to repay to the Commonwealth, depending on the findings that I had made. As I have found that no part of the Commonwealth's claim against the defendant is time-barred, it became common ground that the issue as to whether the amounts which the defendant recovered from the Australian Taxation Office by way of tax refund in respect of the Navy's payments to him does not arise for determination. This issue only arose in the event of there being an applicable time bar.
2. Similarly, I did not understand there to be any dispute as to the recoverability of superannuation payments in the event that I concluded that part of the Commonwealth claim was statute barred.
3. The parties were agreed that, on my findings, the Commonwealth is entitled to judgement and verdict made up as follows: 1. the amounts totalling $147,318.61 which were paid to the defendant's personal bank accounts; 2. the amounts totalling $10,263.41 which were paid to the defendant's nominated superannuation accounts; 3. the amounts totalling $57,096 which were paid to the ATO on the defendant's behalf as PAYG income tax and which were refunded to the defendant in October 2018; 4. the amounts totalling $100,800 which were paid to Natalie Dalton; and 5. the amounts totalling $554.11 which were paid to Jones King Lawyers.

Orders

1. I make the following orders: 1. Judgment and verdict for the plaintiff in the sum of $316,032.13. 2. Interest thereon at the rates pertaining from time to time pursuant to section 100 of the Civil Procedure Act 2005 (NSW). 3. The defendant is to pay the plaintiff's costs.

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