Roxborough & Ors v Rothmans of Pall Mall Australia Limited S199/2000 [2001] HCATrans 168 (2 May 2001)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S199 of 2000

B e t w e e n -

ALEXANDER GARNET ROXBOROUGH and GWENETH JOYCE ROXBOROUGH (t/as SANDYS TOBACCONIST)

First Appellant

BRUCE ALLDIS (Formerly t/as SMOKE KING)

Second Appellant

ARISTOTLE BALATSIAS (t/as CHIGARRO TOBACCONIST)

Third Appellant

EYEARN PTY LIMITED (t/as DEEPWATER PLAZA TOBACCONIST)

Fourth Appellant

RODNEY WHITE & SUSAN WHITE (t/as GUNSMOKE TOBACCONIST)

Fifth Appellant

GRAHAME COOK (t/as TAMWORTH PLAZA TOBACCONIST)

Sixth Appellant

PETER HEFFERNAN & CHRISTINE HEFFERNAN (t/as PETER & CHRISTINE'S TOBACCONIST)

Seventh Appellant

and

ROTHMANS OF PALL MALL AUSTRALIA LIMITED

Respondent

GLEESON CJ

GAUDRON J

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 2 MAY 2001, AT 11.26 AM

Copyright in the High Court of Australia

__________________

MR S.J. GAGELER, SC: If the Court pleases, I appear for the appellants with, MR R.A. DICK. (instructed by Glasheen & Quilty)

MR B.W. WALKER, SC: May it please your Honours, I appear with my learned friend, MR I.M. JACKMAN, for the respondent. (instructed by Clayton Utz)

GLEESON CJ: Yes, Mr Gageler.

MR GAGELER: Your Honours, the facts in this case are very simple and the resolution of the case, in our submission - - -

GUMMOW J: The facts might be, but the statute is not.

MR GAGELER: No, the statute is not and I will address that, your Honour, but the facts are. The facts in essence are these, that there is a contract for the sale of goods, there - - -

GAUDRON J: That is not necessarily a statement of fact. That involves a question of law which I would have thought is one of the things to be determined, in particular whether there is a contract or more than one contract.

MR GAGELER: Indeed, your Honour, but there is no doubt that there is - - -

GAUDRON J: There was an arrangement, I think, might be on safer ground at this point.

MR GAGELER: If your Honour pleases. I will - - -

GUMMOW J: Do not be destabilised, Mr Gageler.

MR GAGELER: Your Honour, I am not at all destabilised.

HAYNE J: We want you to develop your argument.

MR GAGELER: Your Honour, I am not at all destabilised. I thought that the argument would benefit from an introduction, your Honour, which I thought would be uncontroversial. Let me deliver it anyway and we will move on to the detail which I will come to, your Honour. I am not shirking either the Act or the precise contractual arrangements.

Your Honours, there is either one or two contracts, and one of those contracts is a contract for the sale of goods. There is an invoiced amount which has two components. One component is the price of the goods, the other component is designated as being for a tax. The buyer pays the full invoiced amount, the tax turns out not to be payable, and the question raised by this case is can the buyer recover? In our submission, the answer is yes. The buyer can recover at common law in an action for money had and received, the buyer can recover in equity on a constructive trust, and the buyer can recover in contract for breach of an implied term that in such a case there should be a refund.

GAUDRON J: Is that all you say?

MR GAGELER: Yes, your Honour.

GAUDRON J: Because let us assume there are two contracts, for the moment. Might there not also be the possibility, in respect of one contract, that there is a total failure of consideration? At a certain point.

MR GAGELER: Your Honour, in referring to the common law action for money had and received - - -

GAUDRON J: You put it in that.

MR GAGELER: - - - I am there referring to a total failure of consideration.

GAUDRON J: Thank you.

MR GAGELER: And indeed, your Honour, I do not need to go to the point of saying that there must two contracts to have a total failure of consideration; it is sufficient that there be severable consideration. But I will come to that in some detail. I propose to take the Court in due course to the grounds of recovery in that order. First, can I say something about the precise terms of the statute, and I will also say something about the precise terms of the contracts, that is, the express terms of the contracts between the parties.

KIRBY J: Does this mean that you are waiving your complaint about the lack of the notice of contention going to directly to what one might call the merits of this case?

MR GAGELER: No, I am not. No, I am not. Your Honour, let me state the effect of the statute in terms consistent with the reasoning adopted unanimously in the Full Court of the Federal Court. The notice of contention seeks to challenge one aspect of that reasoning, and, in my submission, it should not be entertained.

GUMMOW J: It all comes down to section 41(3).

MR GAGELER: Well, part of it, does, your Honour. Part of it does.

GUMMOW J: We have to understand it.

MR GAGELER: Indeed, and the meaning of section - - -

GUMMOW J: My understanding of it is not going to entangled with notice of contention and all the rest of it. I am just going to try to work it out.

MR GAGELER: Well, your Honour, it is a question of construction. There is a question of construction. The construction adopted in the Full Court of the Federal Court which I will justify in my submission is in respect of a statute - - -

GUMMOW J: They differ from Justice Emmett, do they?

MR GAGELER: Indeed, yes. I will address the merits, your Honour. The tax was that levied under the Business Franchise Licences (Tobacco) Act 1996 of 1987. That was in its relevant sections held to be invalid in Ha and Hammond, and it was subsequently repealed. The essential features of the tax for - - -

KIRBY J: There was some talk at the time of the decision in Ha about some so-called remedial legislation. Can you fill me in on what happened about that?

MR GAGELER: Yes. The Commonwealth introduced legislation that, in effect, replaced the tax as from the date of the decision in Ha and Hammond, prospectively, which really left in the hands of the tobacco wholesalers the money that had been collected in the month leading up to the decision in Ha which did not then need to be paid to the State and was not picked up by the Commonwealth excise legislation.

GLEESON CJ: The price of cigarettes never went down.

MR GAGELER: No, it did not.

KIRBY J: You kept a month and the respondent kept whatever had not been paid over as tax to the authorities, is that what happened? The poor old consumer who had paid effectively for it got nothing, nothing back.

MR GAGELER: The consumer got nothing back.

KIRBY J: And you plan nothing back to the consumer? You come here offering, and you came to the courts offering no payment back to consumers?

MR GAGELER: That is correct.

KIRBY J: That hardly seems to stand with your claim for a constructive trust. Anyway, you can deal with in due course when you come to it.

MR GAGELER: I will deal with that.

KIRBY J: I do not see why you should walk away with. If you are asking for a trust to be imposed by the Court, it would seem hardly just and equitable that you should walk away with it and the consumers who have paid for it should get nothing.

MR GAGELER: Well, your Honour, there is a difference between the contract between the retailer and the wholesaler which specifically identifies a component for tax and the contract between the retailer and the consumer which does not have that specific identification and the cases that have dealt with constructive trust have said that that is the critical distinguishing factor for a constructive trust to be imposed.

GUMMOW J: Would a consumer have any money claim against the retailer to recover?

MR GAGELER: A consumer would have a money claim against the retailer only, again, in circumstances where the contract between the consumer and the retailer specifically identified the amount of tax.

KIRBY J: I remain to be convinced that equity would not impose some obligations upon you if you get the money into your hands on the basis of equity that you would not have to do equity. However, you can come to that when you come to it.

MR GAGELER: I will take that on notice, your Honour.

KIRBY J: The position in respect of the other counts may be different.

MR GAGELER: Yes. Your Honours, the form of the tax imposed by the Business Franchise Licences (Tobacco) Act relevantly, for present purposes, had three characteristics. The first is that it was a tax on goods in the sense of being a tax on the sale of goods. The second is that it was payable in the first instance and in the normal course by the wholesaler on or before the 27th day of the month after the wholesale sale of goods to a retailer and the third, and controversially, is that in default of that occurring the tax in the same amount was payable by the retailer on or before the 27th day of the month following any subsequent retail sale of the goods.

That third and controversial proposition turns on the construction of section 41(1)(c) of the Act read with section 41(3) of the Act and is consistent with the construction of those provisions adopted in the Full Court but contrary to that adopted by Justice Emmett at first instance.

May I take your Honours to the Act and it is sufficient for present purposes that your Honours look at it as reprinted in July 1996. Your Honours will recall that the structure of the Act was that there was, in sections 28 to 30, prohibition on the sale of tobacco without a licence. There was, in section 34, provision for two sorts of licences - a wholesaler's licence and a retailer's licence. By section 39, licences remained in force until the 27th day of each month and under section 40 licences were renewed automatically on the payment of the licence fee on or before the date of expiration.

One then goes to section 41 to see the amount of the licence fee and your Honours will see in section 41(1)(a) that "for a wholesaler's licence" the fee was, and the reprint there says "$10". It was increased to $100 by Act No 119 of 1996 but otherwise the section was not amended. It was:

a fee of $100 together with an amount equal to 100 per cent of the value of tobacco sold by the applicant in the course of tobacco wholesaling during the relevant period -

The relevant period was defined in an extremely complex way in section 3 of the Act in effect to mean the calendar month before the commencement of the licence. The other expression there used, "value of tobacco sold", takes one to section 45 and your Honours will see there that the valuation of tobacco was a matter of ministerial determination. The relevant determination is in volume 2 of the appeal books at page 313 and this was a determination which had been in force since 9 June 1998 during the period in which the rate of the licence fee was increased significantly. Paragraph 1 at about line 19 states that:

In accordance with section 45 of the Act, the Minister has determined the value of tobacco to be the wholesale list price for tobacco as published from time to time by tobacco manufacturers and importers, excluding:

(i) Any amount included in the selling price in consideration of a licence fee -

No doubt my learned friend will submit that the exclusion, at least as so expressed, involves a mangling of legal concepts, but, in our submission, there is no reason in principle why an amount payable by a buyer to a seller under a contract of sale may not include something in consideration of something other than the conveyance of the property and goods. I will come to that, though, in due course.

One then, with those two defined expressions, looks at the operation of section 41(1)(a) and what was involved was a legislative contemplation, in our submission, that the fee of 100 per cent of the wholesale selling price would be added onto the bill to a retailer and would in due course be paid over by the wholesaler to the State on or before the 27th day of the month following the wholesale sale.

KIRBY J: What is the order of the amount involved here roughly?

MR GAGELER: The amount involved for my clients is in the order of 150,000. I can give your Honour the precise amount later. The amount involved for the respondent on the evidence is around $75 million. By that I mean my clients are not the only persons - - -

KIRBY J: No, I realise that. Have cases been begun which are just awaiting the outcome of this?

MR GAGELER: I do not know - not by me. One then goes to section 41(1)(c) which provides that:

for a retailer's licence - a fee of $100 together with an amount equal to 100 per cent of the value of tobacco sold by the applicant in the course of tobacco retailing during the relevant period -

then importantly -

disregarding any such tobacco purchased from a licensee -

If the matter were left there, it would be sufficient for a retailer, to avoid having to pay any licence fee, that the retailer purchased tobacco from a licensed wholesaler, but the matter is not left there. There is then section 41(3) which adds a qualification. It provides that:

For the purposes of subsection (1) (c) and (d), the value of tobacco purchased from the holder of a wholesaler's licence . . . is to be disregarded only if the holder of the licence has paid or is liable to pay a licence fee in respect of that tobacco.

In our submission, the only way in which the holder of a wholesaler's licence can come to pay or be liable to pay a licence fee in respect of that tobacco, being the particular tobacco which makes its way into the hands of a retailer, is if after the sale of the tobacco from the licensed wholesaler to the retailer the licensed wholesaler subsequently renews its licence.

GUMMOW J: What do you say then about the alternative submission on construction in paragraph 8 of Mr Walker's and Mr Jackman's written submissions?

MR GAGELER: Two things about it - - -

GUMMOW J: Namely, that it covers the situation where the licence fee has been underpaid.

MR GAGELER: Two things about it, your Honour: it does not then add anything to section 41(1)(c) which would cover that situation in any event, and secondly - - -

GUMMOW J: Sorry. I am not quite following that.

MR GAGELER: Your Honour, if the tobacco is purchased from a wholesaler who is a licensee, then, in those circumstances, that wholesaler will be liable for any adjustment of fee that might be made under section 46. That is - - -

GUMMOW J: Are there sections turning into debts these fee liabilities?

MR GAGELER: No, your Honour.

GUMMOW J: There are not, are they?

MR GAGELER: Save for - - -

GUMMOW J: In other words, you do not get - - -

MR GAGELER: Save for section 46(3), your Honour. That is, if there is a licensee who is reassessed, then the amount of the reassessment becomes payable.

GUMMOW J: Yes, I see.

MR GAGELER: But if there were a reassessment, your Honour, in respect of the period of the licence within which the sale occurs, the reassessment would relate to tobacco sold during the previous month. It would not relate to the tobacco sold within the month of the sale. It would therefore not, on an ordinary reading, relate to that tobacco, as referred to in section 41(3). So, your Honour, there are really three things we would say about the respondent's construction. One is that it adds nothing to section 41(1)(c); secondly, it is consistent with a plain reading of section 41(3); and thirdly, it is inconsistent with the clear legislative purpose lying behind section 41(3), which was to make sure that there was no gap in the legislative scheme and that a wholesaler, by some cosy arrangement with the retailer, could not simply sell to a retailer while licensed and then go out of business. Now, there are other provisions subsequently introduced into the Act that deal with that scenario, but they were adding the braces to the belt.

Your Honours, what I have submitted is entirely consistent with what the Full Court in the majority judgment said at pages 530, 533, at volume 3 of the appeal book, and I do not propose to take your Honours through that in detail. That construction, then, was the starting point for the approach to the construction of the contract taken by Justice Gyles. The conclusions, also, your Honours, are consistent with what was said in Ha and Hammond [1997] HCA 34; (1997) 189 CLR 465. Can I point out this, your Honour, that in Mr Jackson's argument in that case, page 470, point 6, it was submitted that:

Section 41(1)(a) and (c) ensure that the tax is payable only once in the chain of distribution. Thus, tobacco bought from a licensee is not taken into account in calculating the fee. Section 41(3), introduced by amendment in 1992, refers to a licence fee paid "in respect of that tobacco". This makes it clear that the licence fee relates to the goods and that the provision falls outside any exception created by the Dennis Hotels Case.

That submission was not in terms addressed in the majority judgment, however, your Honours will note at page 504 in the formal answers to questions, the first question was: "Whether, on the facts referred to above, the provisions" of, amongst others, sections 41(1) and 41(3) "are invalid as imposing a duty or duties of excise". And the answer was yes.

In reasoning to that conclusion, I draw your Honours' attention to page 501 where the judgments in Philip Morris are referred to at about point 5. Then at about point 7, that the majority says:

Both Brennan J and McHugh J pointed to the proximity of the relevant period to the licence period, the shortness of the licence period, the size of the tax imposed ad valorem and the fact that it is to be borne only once in the course of distribution as indicia that were inconsistent with the tax being merely a licence fee -

Then the majority goes on at the bottom of the page:

Those factors are present and relevant to the character of the licence fees -

and so on. Then at page 502 at about point 3, it is said categorically:

The licence fee is manifestly a revenue-raising tax imposed on the sale of tobacco during the relevant period. The licensing system is but "an adjunct to a revenue statute".

In similar terms, page 503, point 3:

The imposts which the Act purports to levy are manifestly duties of excise on the tobacco sold during the relevant period.

The minority, of course, did not need to address the Act in quite the same way but what is said at page 516 at about point 9 is:

For our purposes it is unnecessary to determine whether the taxes were taxes upon goods, but it is obvious that the judgments in Philip Morris and Coastace provide only a shaky foundation for the view that they were not.

Your Honours, before moving on from the construction point, may I point out one error in our submissions in reply on page 7, paragraph 9, in the first dot point. It is said that the hypothetical wholesaler began carrying on business only after 1 January 1995 when the tobacco licence fee was already 100 per cent. That is incorrect. The tobacco licence fee at that time was 75 per cent. It was increased to 100 per cent from 28 May 1995 by Act No 17 of 1995. It does not change the substance of the submission, your Honours. Can I then go to the precise form of the arrangement?

HAYNE J: Just before you do, can I just understand where you have come to so far in your submission? It is, is it, that if the wholesaler does not later pay an amount for a licence fee which included an amount referable to the tobacco the subject of the sale to the retailer, the retailer would be bound to do so?

MR GAGELER: Yes, that is correct, although the mechanism for that to occur would be when the retailer subsequently sold the tobacco to a consumer, but, your Honour, reducing it to - - -

HAYNE J: And would pay it at the rate - there is no question of different rate in truth?

MR GAGELER: Not at all, no. Yes. So, your Honour, it really reduces to the very simple proposition that the tax was payable, in the first instance, by the wholesaler, but in default of payment by the wholesaler it was payable by the retailer.

HAYNE J: When the retailer sold it.

MR GAGELER: On renewing the retailer's licence in the month after the retailer sold by retail sale, yes.

I come then to the form of the contracts between the wholesaler and the retailer. There were three relevant documents, all of them were in a standard form and all of them emanated from the respondent. The documents were the printed trading terms, the price list and the standard form invoice.

GUMMOW J: Now, they gave rise to a plurality of contracts every time the retailer purchased some cigarettes from the wholesaler, is that right?

MR GAGELER: There was a new contract - - -

GUMMOW J: But there was a number of sale - - -

MR GAGELER: There was a new contract or contracts each time there was a purchase, yes, and the question is, what were the terms of those contracts?

GUMMOW J: The question is - and I am looking at Baltic Shipping v Dillon 176 CLR 350, in Chief Justice Mason's judgment at the top of 350, he is alert to the sort of matter we have been raising with you:

An entire contact or, perhaps more accurately, an entire obligation is one in which the consideration . . . is entire and indivisible.

That is the question.

MR GAGELER: Yes, that is the question.

GUMMOW J: But there may be a series of entire obligations. One has to work it out.

MR GAGELER: Yes, well, your Honour - - -

GUMMOW J: People tend to talk about contracts and they are talking about some written instrument, I am afraid. In fact, a contract is an exchange of promises, surely, a simply contract, putting aside deeds.

MR GAGELER: Yes. Your Honour, I approached the case on the basis that each time there was a delivery of tobacco and with it the delivery of an invoice, there was a transaction.

GUMMOW J: Yes, there was a transaction all right, but what was the exchanges of promises going on? Who was promising whom to do what? What was the exchange of promises?

MR GAGELER: Your Honour, yes, yes, I was proposing to deal with that precisely when I deal with the - - -

GUMMOW J: That is the sort of analysis you have to look at.

MR GAGELER: Absolutely, and I am not seeking to avoid it, but there was an exchange of promises and I will deal with it in detail, your Honour. But can I first deal with the written contractual documents and take your Honour first to the printed trading terms which are annexed to our submissions in reply in a legible form. There are three relevant clauses - - -

GUMMOW J: Were these transactions or producing these contracts such that the contracts were partly in writing?

MR GAGELER: Yes, not fully reduced to writing, your Honour, yes. The clause - - -

GUMMOW J: You would have an invoice in each case, would you not?

MR GAGELER: Your Honour, there are the three documents. This is the first of three, I was going to come to the invoice.

GUMMOW J: Yes.

MR GAGELER: Your Honours will see that clause 4 refers to the prices charged by the company being as set out in the company's applicable price list and as being able to be altered without notice. Clause 6 then says that "The purchaser shall pay for all Goods delivered within 7 days from the date of receipt of the Goods"; and clause 10 is a retention of title clause.

HAYNE J: I wonder who drafted this with three percent above indicator rate as the interest?

MR GAGELER: Your Honour can easily guess. Clause 10 provides, consistently with the decision of this Court in Associated Alloys, that "until payment is made in full to the Seller for the Goods", the buyer holds the goods, under paragraph (a), and any proceeds of sale, under paragraph (e), in a fiduciary capacity for the seller. My only reason for pointing that out is that it illustrates that in respect of these contracts, there can be the flexible interplay of law and equity that your Honours have already acknowledged.

One then goes to the price list in volume 2 of the appeal books, at page 315 - - -

GUMMOW J: Just stopping at the conditions, they are drafted as if this legislation did not intrude, are they not?

MR GAGELER: Exactly, yes. One sees not one hint of the existence of the 100 per cent tax on top of the selling price, your Honour.

GAUDRON J: I do not know if it is material or not - how did your clients come by the standard conditions?

MR GAGELER: They each applied for credit with the respondent and annexed to each credit application were the standard terms and conditions.

GUMMOW J: Is there a finding about that?

MR GAGELER: Yes, there is. I will turn it up.

CALLINAN J: Page 522, paragraph 18, I think, in the Full Federal Court.

MR GAGELER: Thank you, your Honour, yes. Your Honours then were asked to turn to page 315 of volume 2 of the appeal books, which is the price list applicable at the relevant time. Your Honours will see two relevant columns. The second column from the left is headed "WHOLESALE PRICE PER 1000" and is unambiguously just that, a statement of the wholesale price. One then sees the next column across:

CARTON COST AT WHOLESALE INCLUDING STATE LICENCE FEES 100%

That, in our submission, is perhaps a statement of the obvious but it is an express recognition that the wholesale cost to the retailer will be different from the wholesale price and that the reason for that difference is that it will include a State licence fee of 100 per cent on top of the wholesale price. One then goes to the invoice, which your Honours will find in a representative form in volume 3 of the appeal books at page 562 annexed to the judgment of Justice Gyles.

Although there was no specific finding, the evidence collected in our submissions in reply at paragraph 12 shows that the way in which business was done was that the respondent, through its sales representative, would call on the retailers periodically, either once a week or slightly more frequently. An order for specific goods would then be placed by the retailer. The sales representative would then go to his truck and return with the goods and at the same time as handing over the goods, the tobacco products, the sales representative would hand over an invoice in this form.

What the invoice shows, as your Honours will see, is the details of the goods purchased, against each quantity a wholesale unit value which was the wholesale unit price as drawn from the price list, and then a value, and then there were certain discounts. That all led to a figure for "SALES SUB TOTAL", which was always the same as the figure for "INVOICE SALE SUB TOTAL". What the "INVOICE SALE SUB TOTAL" was was the sum of the listed selling prices, less the discounts.

There was then always following "TOBACCO LICENCE FEE", which was shown as being calculated at the rate of 100 per cent of the listed selling price, that is, excluding the discounts, then that led to a net total at the bottom of the page. The practice was that the retailer paid the net total.

GUMMOW J: Did your clients deal with tobacco wholesalers other than Rothmans?

MR GAGELER: Yes.

GUMMOW J: So that the retailer's licence they had would have been at large, as it were?

MR GAGELER: Yes.

GUMMOW J: It is all retail sales, no matter what their supplier?

MR GAGELER: That is right, but the fee that they had to pay on the renewal of the licence each month turned on where they bought their tobacco. If they always bought it from a licensed wholesaler who always paid or became liable to pay in respect of that tobacco sold to them, then they did not need to worry about any ad valorem component of their licence.

Your Honours, in our submission, on the face of the invoice and in the light of the statutory scheme, it is tolerably clear that the amount identified as tobacco licence fee was not simply able to be characterised as a component of a lump sum price paid for the transfer of the property in the goods. It was a specific amount expressly acknowledged by the parties as being for the payment of tax and, to use the language of Justice Gyles, contractually earmarked for that purpose.

HAYNE J: Can I just take you back to this document you have been showing us at 562? Is this the second of two pages of a document?

MR GAGELER: I am sorry, your Honour, it is. The first page will be simply a listing of further tobacco sales in the same form as the first six lines.

HAYNE J: But hence the - - -

MR GAGELER: Hence the page 2, yes.

HAYNE J: And hence the final values?

MR GAGELER: Yes. Your Honours, if authority is needed for the proposition that an amount payable by a buyer to a seller under a contract of sale may well include an amount referable to a consideration other than the transfer of property in goods, one finds it in Commonwealth Quarries v Federal Commissioner of Taxation.

GUMMOW J: What is the issue to which that rather adenine proposition would be directed?

MR GAGELER: The severability of the consideration, your Honour.

GUMMOW J: No, no, but in that case.

MR GAGELER: In that case? Well, I will take your Honours to it. It is [1938] HCA 13; 59 CLR 111.

GUMMOW J: All I am saying is the Sale of Goods Act applied to contracts for sale of goods, and also for warranties and so on you had to satisfy that classification of sale of goods. But where else does it matter?

MR GAGELER: It will matter in this case, your Honour, and it mattered in the context of the Sales Tax Assessment Act (No 1). At page 115 your Honours will see that section 18(1)(a) imposed tax on the amount for which goods were sold, relevantly here by wholesale, and the question was in circumstances where a seller sold for a price that included delivery, what was the amount for which the goods were sold. That was the issue in this case. The relevant discussion appears at page 121 in the judgment of Justices Dixon and McTiernan at about point 4, referring to section 18(1)(a), their Honours said:

The material part of that provision simply says that, where the goods are sold by wholesale, the sale value shall be the amount for which those goods are sold. To us these words appear necessarily to mean the contract price. In a contract under which for a single lump sum of money a party undertakes to do various things, including the transfer of property in goods, it is quite true that the entire money consideration or contract price cannot be regarded as the amount for which the goods are sold. In such a case the amount for which the goods were sold could not be ascertained from the transaction except by allocating part of the consideration to the other acts or things to be done by the seller.

Their Honours then go on to say but when you are talking about a contract for the sale of goods, delivery is so essential to the performance of such a contract, that that should not ordinarily occur, but what their Honours say in the last four lines is:

No doubt the parties to a sale of goods may by their contract distinguish between the price payable for the goods the property in which will pass on appropriation to the contract and the charges to be made by the seller for carrying the goods to some other place for delivery to or at the direction of the buyer.

What this shows is that an amount which might well otherwise be regarded as a single lump sum price paid for the conveyance of property in goods may, by the express terms of a contractual arrangement between a buyer and a seller, be split into two or more distinct components.

GUMMOW J: Now, can I take you to 534 of the appeal book, paragraph 50 of the joint judgment in the Federal Court because I think it is important?

MR GAGELER: Yes.

GUMMOW J: The third sentence says:

Assuming that the Act remained in force -

do you see that?

MR GAGELER: I am sorry, your Honour. I might be looking at the wrong - - -

GUMMOW J: Page 534 of the appeal book, paragraph 50 of the judgment, the third sentence. Do you see that?

MR GAGELER: Yes.

GUMMOW J: Now, their Honours are directing themselves to the question of implied term, but that is not what I want to ask you about. What they do say, though, is:

Assuming that the Act remained in force, Rothmans, if it wished to remain in business -

et cetera. Do you accept that? I would have thought you did.

MR GAGELER: Yes, I do.

GUMMOW J: Now, if you then go to 493, Justice Emmett's judgment - this point was troubling him too, obviously. At 493, paragraph 52, his Honour says:

It may be correct to say, as the Applicants did, that there was a benefit . . . That would have the effect -

but he says:

However, without more, that would not be sufficient to give rise to the implication that there were severable promises . . . Properly construed -

Now, what I am wondering is whether what his Honour says there at 52 on 493 is answered indirectly, but effectively, by what is said at 50 on 534. That is why I asked you the questions I did at the beginning and why I took you to Baltic Shipping v Dillon, because it is in that context you then have to ask this question about total failure of consideration.

MR GAGELER: Yes.

GAUDRON J: Could I add to that? Why is there to be an implication?

GUMMOW J: Yes, that is right.

GAUDRON J: It really is a fact-finding exercise. There may be inferences you would or would not draw but you are not looking for an implied term, it seems to me.

GUMMOW J: That is right, and that led to the majority of the Full Court, perhaps, not to focus the way I have been focusing.

MR GAGELER: Absolutely, and the way your Honour has been focusing, I might respectfully say, is the way we understand Justice Gyles to have focused in his judgment and, indeed, consistently with your Honour Justice Gaudron's observation, Justice Gyles said, "This is not a matter of implication, this is a matter of construction". There are words in capital letters on the invoice, "What do those words mean?".

GAUDRON J: Well, I am not too sure that it is even a matter of construction. I think it might be a question of what one should infer were the precise promises exchanged from the documentation, but I do not think it is necessarily a question of construction.

MR GAGELER: Yes. Your Honours, can I come to that immediately? It really brings me to the common law claim for money had and received which is put in two ways. Both of the ways in which the claim is put start with the proposition that the amount identified as tobacco licence fee on the invoices was contractually earmarked as being paid by the retailer to the wholesaler for a purpose and then the claim is put in two ways. The first way is that the fulfilment of that purpose, that is the wholesaler paying or becoming liable to pay that amount as tobacco licence fee under the Act, was a matter of promise on the part of the wholesaler.

GAUDRON J: And that is promise being?

MR GAGELER: The promise being to pay or become liable to pay that amount in due course as tobacco licence fee under the Act. In effect, to renew the licence.

GAUDRON J: It seems to me that there may be two aspects to that promise. The promise is to retain its status as a licensed wholesaler and to that end, perhaps, apply that amount of money in payment of tax.

MR GAGELER: Your Honour, why I used the language that I did was that it reflects the language of section 41(3) and the way in which this promise arises, in our submission, is that it is of critical importance to the retailer to be told and to be assured that the amount that it is paying over to the wholesaler in respect of that particular tobacco is going to be paid or payable in due course under the Act. Upon being so assured, the retailer can know that when the retailer subsequently sells the tobacco and subsequently renews its own licence, that it does not have to worry about the tobacco licence fees.

HAYNE J: It is an unusual form of promise for a commercial entity to say, "I promise you I will be in business in a month's time".

MR GAGELER: Your Honour, it arises perhaps only because of the extremely artificial way in which this particular tax was collected. If one leaves aside the artificial device of needing to obtain a licence, what one gets to is a transaction upon which there is a tax. The tax, by the terms of the legislation, is payable by the seller, but in default of the seller paying or becoming liable to pay, then it is payable by the buyer. The buyer says, "Yes, I will pay the additional amount in respect of that tax to the seller and I am confident that in so doing" - sorry, the seller promises to pay the amount of licence fee under the Act, thereby discharging the taxation liability of both.

HAYNE J: Am I right to characterise that promise as a promise, "I will stay in business next month"?

MR GAGELER: Your Honour, that is what it amounts to, but the promise in the terms is a promise in terms of section 41(3), because it is a promise in terms of section 41(3) that - - -

HAYNE J: "I will pay tax in the future".

MR GAGELER: Yes. In respect of that tobacco.

HAYNE J: Yes.

GLEESON CJ: Suppose the Act had never been held to be invalid, but it had turned out that the respondent had pocketed the amount in respect of the tax and never paid it to the revenue authorities. What would have been the cause of action that your client would have had against the respondent?

MR GAGELER: Can I say what the scenario would have been in those circumstances? My clients would have found themselves, when they subsequently sold the tobacco, having to themselves pay the same amount again to the State revenue. In those circumstances, and even absent those circumstances, we would have had a cause of action for total failure of consideration.

GLEESON CJ: Yes, I do not doubt you would have had a cause of action, it was the nature of the cause of action - - -

GUMMOW J: Would it be a cause of action for breach of contract, as well? What is the relation between that and the common money count? Are they concurrent or - - -

MR GAGELER: Yes, they are - - -

GUMMOW J: There is a debate about this, is there not?

MR GAGELER: There is, and a lot of the debate arises because the word "restitution" is just used too broadly, but when one focuses - - -

GUMMOW J: The Baltic would say you cannot have both.

MR GAGELER: No, that is not the way we read Baltic. What Baltic would say is you cannot recover both.

GUMMOW J: Yes, that is what I mean.

MR GAGELER: You cannot recover both, but you could certainly sue for both.

GUMMOW J: Yes.

MR GAGELER: And, your Honour, we are not seeking here to recover both. The obvious action would be an action for money had and received, which is the primary way that we put this case and would in the scenario mentioned by your Honour the Chief Justice.

GLEESON CJ: Suppose there is a CIF sale of goods. No damage is suffered by the goods, but the buyer finds that the seller never insured the goods. Is there a remedy?

MR GAGELER: Is your Honour contemplating that the goods have ceased to exist, have been destroyed in some way?

GLEESON CJ: No, the buyer has simply found out that the goods were never insured.

GAUDRON J: Well, it would depend on what you call contractual earmarking, in a sense.

MR GAGELER: Yes. Frankly, your Honour, I do not know the answer to that question. I do not think that it affects the outcome of this case. One would need to examine the terms of the cif contract which I do not frankly have in my mind at the moment. Your Honours, that is the first way in which we put the case - I will develop it slightly more in a moment - but it involves the proposition that the payment by the wholesaler to the State, in due course, as a matter of promise and that there has been a total failure of consideration because the promise was not performed and cannot be performed.

KIRBY J: Could I just ask before you leave that, what was bound up in Justice Emmett's expression "properly construed"? It is something that is often used by judges but what was his Honour meaning to imply were the features that in his mind required him to look at the matter as a whole transaction and not as severable? That passage is at 493 that Justice Gummow referred to.

MR GAGELER: Yes. Can I invoke there the analysis - - -

KIRBY J: Because, to some extent, what is involved is a matter of judgment or a matter of evaluation, a matter of impression and that is what I take his Honour to be saying, "Well, when I look at it, this is my judgment, evaluation, impression".

MR GAGELER: Yes. Well, your Honour, can I invoke Justice Gyles' analysis of what his Honour Justice Emmett was doing at the bottom of page 551 in paragraph 94, and his Honour Justice Gyles' answer which we also invoke is at the top of the next page.

HAYNE J: Including this notion of promise to pay licence fees.

MR GAGELER: Yes.

KIRBY J: In a sense, Justice Gyles might be thought to be taking what he, himself, describes as the "commonsense" approach and the majority, and Justice Emmett are taking what they might have thought was the more technical or properly construed approach.

MR GAGELER: Well, obviously, what they thought to be the proper construction, but, your Honour, when one is concerned with the construction of contract has not been reduced to a complete written form, which are, in effect, contracts of adhesion and which here take effect against the background of the operation of the Act, one gives them a robust construction of the sort that Justice Gyles did. While we are looking at the judgment of Justice Gyles - - -

GAUDRON J: There is another way of looking at it, as distinct from robust construction, is there not? I mean, the view that it is an entire and inseverable promise simply for the sale of goods, that is what it has to be on, the view contrary to you, that it is simply a contract for the sale of goods.

MR GAGELER: Yes, that is right.

GAUDRON J: The contract is performed when the goods are handed over to you. Now, this would leave you entirely without remedy, would it not, if the respondent had simply pocketed the money?

MR GAGELER: The answer has to be yes.

GAUDRON J: So you can ask whether that is likely to have been the intention of the parties, because really I think what you are talking about is the intention of the parties in what promises they would exchange, what the promises were and what they were for, as it were.

MR GAGELER: Using the word "intention" objectively, of course.

GAUDRON J: Yes, and you think that is hardly likely to have been a sensible commercial arrangement and you look - - -

MR GAGELER: Yes.

KIRBY J: Except that if, as you say, you read it as against the background to the Act, then that is so integrated to this particular transaction in this particular industry that it is all of a whole, and that is, I assume, what Justice Emmett sought.

MR GAGELER: Yes, I fully embrace the proposition that one can only understand the contracts against the background of the Act. It is what - - -

GUMMOW J: But the Act helps you, does it not?

MR GAGELER: The Act helps me, that is the point, yes.

GAUDRON J: And the invoice helps you.

MR GAGELER: And the invoice helps me, yes. The invoice is only explicable by reference to the Act. Your Honours, I was coming back to an answer to one of your Honour Justice Hayne's questions and perhaps also to address the substance of the transaction in the judgment of Justice Gyles, page 551, paragraph 93. The first sentence really encapsulates what was going on with the invoices:

In substance, therefore, the retailer funds the payment by the wholesaler of the licence fee (or tax, as it can now be called) in advance, the payment of which, when it is made, effectively acquits the taxation obligations of both the wholesaler and the retailer.

HAYNE J: Now, leaving aside the case of fraudulent pocketing of the amount paid, in the event of commercial failure of a wholesaler, on your approach to the case, your client would be entitled to prove, of course, whatever the relevant fiscal authority is properly called could not.

MR GAGELER: That is correct.

HAYNE J: But you would be entitled to prove for the whole amount paid and you would of course suffer the consequences on retail sale later?

MR GAGELER: Yes, that is entirely right.

GAUDRON J: But to take up from that, if it was one indivisible contract for the sale of goods, there would be no possibility of fraudulent pocketing. It would be, would it not, Rothmans' money to do with what it liked?

MR GAGELER: That is the consequence of the respondent's argument, yes.

HAYNE J: And on failure, there could be no proof by anyone?

MR GAGELER: That is correct, yes. Your Honours, I said I was putting the total failure of consideration case, the case for money had and received, in two ways. That is the first way which involves spelling out by reference to the background of section 41(3) a promise on the part - - -

GUMMOW J: You read us that sentence from 551 where Justice Gyles talks about "In substance", funding the payment, et cetera. What do you say about your opponent's treatment of that in paragraphs 30 in their outline, and following? It would help us get to grips with it. They get quite agitated about that.

MR GAGELER: They do.

GUMMOW J: How do you ease their agitation?

MR GAGELER: Your Honour, it is plainly inconsistent with what - - -

GUMMOW J: They refer to the fact that it is not inevitable that the licences will renew.

MR GAGELER: Hence the relevance of there being a promise. Can I say, your Honour, we have dealt with this at some length in our submissions in reply and I do not want to go through the detail of that, but in substance - - -

GUMMOW J: Why? I am not sure the detail did answer it, actually. That is why I asked you.

MR GAGELER: Well, your Honour, that takes the artificial device of the Act and elevates it to a point of substance and it is contrary to the construction and operation of the Act as found by the majority in Ha and Hammond where, in the two passages that I have already read to your Honours, it was said that the substance of this legislation is a tax imposed on the sale of goods during the relevant period. That is the answer, in a nutshell.

KIRBY J: What paragraph was that again?

MR GAGELER: In Ha and Hammond [1997] HCA 34; 189 CLR 465 at 502 point 3 and 503 point 3. Your Honours, the second way, if it be necessary, in which we put the claim for money had and received, is that even in the absence of a promise, the fulfilment of the purpose designated by the words "tobacco licence fee", was the reason, and the only reason, for which the payment was made, in the sense that the amount cannot be treated as having been paid absolutely, but provisionally, contingently, conditionally, on the fulfilment of that purpose, that is, the payment of the amount over in due course as licence fee under the Act, and that there has been a total failure of consideration because the relevant purpose has not been fulfilled and cannot be fulfilled. Putting it in another way, the reason for the payment, the contractually designated reason for the payment, has fallen away.

GUMMOW J: A couple of problems about that. The notion of purpose we are talking about here of the common money count, it is enough, is it not, that the purpose is less than a purpose that you would need to constitute a trust?

MR GAGELER: Yes.

GUMMOW J: But do you not then run into the question of total failure of David Securities' problem and the - - -

MR GAGELER: I do not see David Securities as a problem because the question is one of - - -

GUMMOW J: Namely as to severance.

MR GAGELER: It is an exercise in severance. Your Honour, can I take your Honour to David Securities?

GUMMOW J: In substance, I do not see that this is any different from the first way in which you put it.

MR GAGELER: It is different in substance, your Honour, because the first way involved spelling out a promise - - -

GUMMOW J: Well, in the first way you have an actual breach of contract as well.

MR GAGELER: Yes, and the consideration that has failed is a promise to consideration. In the second way in which I put it, I do not need the promise on the part of the wholesaler to pay it over. I only need the mutual contemplation of the parties, objectively by the terms of their contact, that that amount is paid by the buyer to the seller for the purpose of putting the seller in funds to subsequently pay the tax.

Your Honours, I was about to go to David Securities 175 CLR 553. Total failure of consideration arose somewhat indirectly in this case because the case concerned a claim based on mistake and your Honours will see how the discussion commences at page 580 at about point 6 where the joint judgment notes the possibility of a broad basis of recovery being:

that "the true basal principle which enables recovery of money paid under a mistake, whether of fact or law, is `failure of consideration'".

I am here reading from page 380, at about point 5, and what is said is that:

It is unnecessary in the present context to assess the merits of this argument because, as we have stated, the more traditional approach, exemplified by the judgment of Goff J . . . specifically provides for the "defence" of valuable consideration.

It was in that context that "valuable consideration" was then discussed. Can I simply refer your Honours to a couple of short passages in that discussion at page 382 and 383. At page 382, point 2, it is said:

In this context, consideration means the matter considered in forming the decision to do the act, "the state of affairs contemplated as the basis or reason for the payment".

There is a footnote then to Professor Birks, and I wish to take your Honours, in due course, to what Professor Birks said.

GUMMOW J: Well, is that not better by looking at what some judge has said? There is a useful discussion there by Lord Justice Robert Walker in Guinness Mahon. Is that on your list?

MR GAGELER: No, it is not, your Honour.

GUMMOW J: Well, perhaps it should be. It is [1999] QB 215 at 236 between letters D and F about what we are talking about, consideration, here. Guinness Mahon v Kensington and Chelsea Royal London Borough Council.

MR GAGELER: Thank you, your Honour. What is said then at about point 6 is that:

The law has traditionally not allowed recovery of money if the person who made the payment has received any part of the "benefit" provided for in the contract. However, as the passage already quoted from Robert International Ltd demonstrates, the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact.

Then at page 383, about point 4:

In cases where consideration can be apportioned or where counter-restitution is relatively simply, insistence on total failure of consideration can be misleading or confusing.

At the bottom of that page, the last full paragraph:

In this case, the Bank must prove that the appellants are not entitled to restitution because they have received consideration for the payments which they seek to recover.

And a little further down at the end of that paragraph, the last sentence:

In circumstances where both parties have impliedly acknowledged that the consideration can be "broken up" or apportioned in this way, any rationale for adhering to the traditional rule requiring total failure of consideration disappears.

GUMMOW J: Is not this passage approved by the Privy Council in Goss v Chilcott? Should we not look at that, too?

MR GAGELER: Your Honours, we have referred to Goss v Chilcott in our submissions, yes, and do rely upon the Privy Council's analysis. That deals with the total failure of consideration point, that is, the severability point. Your Honours, can I also point out that the notion of severability of consideration was also referred to in the Fibrosa Case, and perhaps simply give your Honours some relevant references: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1943] AC 32.

At page 48, in the judgment of Viscount Simon, where his Lordship referred to Rugg v Minett - the case referred to at some length in the judgment of Justice Gyles - but a case that was for the sale of a number casks of oil, some of which were destroyed and some of which were not. And it was held that an action for total failure of consideration lay in respect of the price paid in advance for those of the casks that had been destroyed and were therefore not able to be delivered. That is at page 48.

Similarly, in the judgment of Lord Atkin at pages 52 and 53 his Lordship referred to Rugg v Minett in the second-last line of page 52 and then similar cases at page 53 and referred to the nature of the action for total failure of consideration and at about point 7 of the page referred to his understanding of what was meant by the word "consideration" in that context and his Lordship said:

I understand by the phrase that the promise to deliver goods totally failed because no goods were or could be delivered, and that therefore a cause of action accrued to the appellants.

GUMMOW J: The reference in Goss v Chilcott is (1996) AC 788 at 797 to 798 where there is repetition both of Fibrosa and approval and adoption of David Securities.

MR GAGELER: Yes, and, your Honour, that is noted in footnote 22 of our submissions. Then, again in giving your Honours the references in Fibrosa to Lord Wright's judgment at page 61 over to page 62, may I draw your Honours' attention in particular to the quotation from Chief Justice Holt in Holmes v Hall at the bottom of the page, then at pages 64 to 65, the last paragraph on 64 and over to the top of 65 and particularly at the top of 65 where there is reference to severable consideration and the consideration failing as to a severable part and, again, Rugg v Minett is cited.

Without taking your Honours to the passage, can I simply refer to the analysis of Professor Birks, which is in our list of authorities, where by reference to the early usage of the expression "in particular", Professor Birks states that consideration in the context of total failure of consideration is not confined to promissory consideration but extends to encompass the reason for the payment being made.

What Professor Birks said at page 223 was picked up in the passage in David Securities at page 382 to which I have already referred and it was also picked up and quoted by Justice McHugh with approval in Baltic Shipping Co v Dillon [1993] HCA 4; 176 CLR 344 at page 389.

GUMMOW J: Also a more recent and useful discussion in "Enrichment and Restitution" by Grantham and Rickett, published in 2000, pages 157 through to 164. They deal with Goss v Chilcott and with David Securities and so on.

MR GAGELER: Yes, and can I add to that, your Honours, at pages 151 to 152 in the same work.

GLEESON CJ: Is that a convenient time, Mr Gageler?

MR GAGELER: It is, your Honour, yes.

GLEESON CJ: We will adjourn until 2.15.

AT 12.43 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

GLEESON CJ: Yes, Mr Gageler.

MR GAGELER: Your Honours, I was dealing before lunch with the second way in which we put the case for money had and received, the way that does not rely upon the existence of a promise. There are just two further things I wish to say about that. One is to give your Honours a reference to a case in which the language of total failure of consideration was used and applied, where there was no promise to perform. The case is Martin v Andrews [1856] EngR 944; 119 ER 1148. I do not need to take your Honours to it.

The next and more significant thing is to take your Honours to a very relevant decision of Justice Cardozo when, on the Court of Appeals of New York in Wayne County Produce Co v Duffy-Mott Co 155 NE 669. What happened in that case was that the defendant sold sweet cider to the plaintiff and collected a 10 per cent war tax from the plaintiff which it then paid to the Federal Government. After the payment to the Federal Government it was held that sweet cider was not the subject of that tax and the defendant obtained a refund from the Federal Government. It was held that the plaintiff was entitled to money had and received.

KIRBY J: Now, that would be like the consumers from your client being entitled to recover from your client, is that correct? That is the analogy you are - - -

MR GAGELER: No, your Honour, the tax was paid to a manufacturer and although the plaintiffs are not clearly identified, one would assume that the plaintiffs here were retailers. Your Honour, could I - - -

GAUDRON J: There were a lot of gallons, were there not?

MR GAGELER: There were a great number of gallons.

KIRBY J: It might have been a very thirsty consumer.

MR GAGELER: As with all of Justice Cardozo's writings - - -

GLEESON CJ: It was a claim for an overpayment, was it not, overpayment of purchase price?

MR GAGELER: Well, your Honours, can I go through it in a little detail the facts. The second sentence of Justice Cardozo's judgment:

The price was to be 141/2 cents per gallon subject to a stated discount, plus the manufacturer's war tax of 10 per cent, which was to be paid in full without discount.

Then there are a couple of sentences that I do not need to take your Honours to. Then it is said:

In 1922 came a ruling of the courts that sales of sweet cider were not subject to any tax whatever.

Then at the bottom of that column:

Defendant demanded and obtained a refund of the taxes thus unlawfully collected. The question is whether the money thus refunded by the government is held by the defendant to its own use or to the use of the plaintiff who is suing to get the money back.

We think the plaintiff must prevail. This - - -

GLEESON CJ: May I ask you a moment just to pause there. Do you say that if you were suing on a common money count in the old form, this would be an action for money payable by the defendant to the plaintiff for money had and received by the defendant to the use of the plaintiff?

MR GAGELER: Yes, your Honour.

GLEESON CJ: That would your count in the present case, indebitatus assumpsit?

MR GAGELER: Yes, and it appears that is also the form of action being discussed here.

KIRBY J: Would that be equally available in a theoretical suit by a consumer against you?

MR GAGELER: Can I answer that by taking your Honour to the next paragraph here:

We think the plaintiff must prevail. This is not a case where the item of the tax is absorbed in a total or composite price to be paid in all events. In such a case the buyer is without remedy, though the annulment of the tax may increase the profit to the seller . . . This is a case where the promise of the buyer is to pay a stated price, and to put the seller in funds for the payment of a tax besides. In such a case the failure of the tax reduces to an equivalent extent the obligation of the promise. The form of the transaction was not thoughtless or accidental. It was deliberate and purposed.

So to answer your Honour's question, if the form of the transaction is to separate the price and the tax, then the action would be available. If the form of the transaction is simply to have a lump sum price, one component of the seller's cost of which might be a tax, then the action is not available.

KIRBY J: This is presented as a common law analysis as distinct from an equitable analysis.

MR GAGELER: Your Honour will see in the next case that I take your Honour to that virtually the same analysis can be used and has been used by Justice Learned Hand.

KIRBY J: I will be very interested to see that.

GLEESON CJ: It is the first sentence in the next paragraph that is the key to the reasoning, is it not?

MR GAGELER: I think it is, your Honour, and I was going to take your Honours to it. It is an expansion of what I think I have already read to your Honours.

The contract therefore, in effect, was this and nothing more, that whatever moneys were necessary for the payment of a tax would be furnished by the buyer.

GLEESON CJ: So it was to recover an overpayment. The buyer paid more than the contract stipulated the buyer should pay.

MR GAGELER: Your Honour, that is one way of analysing it. Another way of analysing it is that by the terms of the contract, the purpose of a severable part of the payment to be made by the buyer to the seller was and was only for the payment of a tax, and that reason for the payment had ceased to exist. In our submission, that way of analysing the case is the preferable construction of what Chief Justice Cardozo was saying and is also consistent with the authorities which we have developed at some length in our written submissions dealing with the availability of the counterfoil money had it received where the purpose of the payment fails. One can call that failure of consideration, using the word "consideration" in its more antiquated sense or one can simply call it failure of a purpose where the purpose was the only reason for the payment.

Your Honours, can I move from the common law claim to the constructive trust claim, and in doing so go directly to the only other case in the common law world that we could find bearing directly on the issues in the current case and, again, a decision of an eminent jurist, Justice Learned Hand, in 123 East Fifty-Fourth Street Inc v United States 157 - - -

GUMMOW J: It is a dissenting judgment, actually.

MR GAGELER: Yes, it is, and it is none the worse for that, your Honour, because it arose in a statutory context, and that really explains the nature of the dissent.

GUMMOW J: But am I right in thinking that even the majority in that case would have said there was a "money had and received" count available?

MR GAGELER: Yes, that construction is available, your Honour, and certainly that is the way Justice Gyles interpreted it.

GUMMOW J: Where does that appear?

MR GAGELER: That appears in the second-last paragraph of the majority judgment, but not in a way I confess, your Honour, that strikes one immediately. The last few sentences appear to be consistent with that view.

GUMMOW J: I see. Last two sentences, yes, I see. In the penultimate paragraph.

MR GAGELER: Yes. Your Honour, this was a case where there was a cabaret tax that was added to a restaurant bill. It was later found that the particular restaurateur was not liable to pay cabaret tax, and the question in the case was whether or not the restaurateur could recover the amount paid to the State, given that the amount had been added onto the bill and obviously passed on to the patrons. The majority held that recovery could occur, but Justice Learned Hand in dissent said something relevant about the relationship between the patron and the restaurateur. That appears at page 70 in the full paragraph that begins at about point 5 in the right-hand column, where his Honour says:

I shall assume what is not, strictly speaking, in the record, but what, it seems to me, is fairly inferrable from it: I shall assume that, when the plaintiff charged its guests with the amount of the tax for which it supposed itself liable, it added the amount as a separate item and described it as a tax which it must pay, and which it was apparently collecting from the guests in order to pay it to the Treasury. If the plaintiff wishes to dispute this, I should allow it to do so, because I regard the distinction as crucial whether it made the charge in that form, or merely included in the bills rendered the amount of the supposed tax without saying anything about it. If it said nothing, I should agree with my brothers that the guests had no legally recognizable interest in the money collected, which gave them any claim to it superior to the plaintiff's; and in that case some statute would be necessary to deprive the plaintiff of its right to recover. 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 plaintiff's hands. For example, if, before the plaintiff had paid it, the Treasury had declared that the tax was not due, the plaintiff could not have successfully resisted the guests' demand that it be turned back to them, the very purpose for which they had paid it having then become incapable of execution.

That reasoning was picked up and endorsed by Chief Justice Mason in Commissioner of State Revenue (Victoria) v Royal Insurance Ltd [1994] HCA 61; (1994) 182 CLR 51 beginning at page 75 towards the bottom of the page but relevantly concluding at the bottom of page 77.

KIRBY J: There is a dark hint in Mr Walker's submission that this was not really the subject of submissions before his Honour or that there was not an opportunity to debate this in that case.

MR GAGELER: He has it now.

KIRBY J: I am sorry.

MR GAGELER: Mr Walker has the opportunity now.

KIRBY J: But it is said to be a fatal flaw in Chief Justice Mason's reference to it.

MR GAGELER: Yes.

KIRBY J: However, we are dealing with the substance now so we can - - -

MR GAGELER: We are dealing with the substance and the substance appears at the bottom of page 77 about point 9:

I would accept so much of Judge Learned Hand'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.

KIRBY J: Now, here the analogies are you are the owner and the consumer is the patron.

MR GAGELER: Yes.

KIRBY J: So the suggestion is that you would have a fiduciary duty to the consumer?

MR GAGELER: Well, your Honour, can I answer that by going to what the majority said here in the Full Court?

KIRBY J: You do not seem to be very happy at that idea. If that is the price of your recovery, is that a price you are willing to tender or proffer?

MR GAGELER: No, it is not a price I am willing to tender but can I answer your Honour's question directly? The critical difference for the constructive trust case, but also as your Honour has seen in the reasoning of Justice Cardozo in relation to the common law case, is between a contract for the sale of goods which has a single lump sum price and a contract for the sale of goods which distinguishes between a payment for the goods and a payment in respect of tax.

GLEESON CJ: I thought that is what your section 41(3) argument was about, to distinguish your situation vis-a-vis Mr Walker from your customer situation vis-a-vis you?

MR GAGELER: Your Honour, that is part of it. The 41(3) construction assists - - -

GLEESON CJ: Explains your interest in having the taxpayer - - -

MR GAGELER: Explains my interest, yes, and makes more likely the construction of the contract which involves a promise on the part of Mr Walker's client, yes.

GLEESON CJ: The smokers of cigarettes are never under a potential obligation to pay the tax.

MR GAGELER: No, but, your Honour, can I say this about the judgment in 123 East Fifty-Fourth Street and also the judgment of Justice Cardozo: neither of those had any suggestion that the buyer would become liable to pay the tax if the seller did not. So, my case is a much stronger case than those.

KIRBY J: Yes, but smokers do not pay the tax directly and the form of the law does not impose the tax on the smokers but after every Budget you would see that the cigarettes are up so many cents and that is addressed in reality, if not in legal form, to the smokers. They are the ones who actually pay it. Why should you be able to pocket the amounts that the smokers have paid into your pocket? I realise you have legal analysis and that may lead to that conclusion, but once we are in the realm of equity we are in a different realm altogether, it seems to me.

MR GAGELER: Your Honour, can I say two things. One is that we are concerned with an action between the retailer and the wholesaler. We are concerned with the rights vis-a-vis those parties. It may or may not be that the customers of the retailer would have an action against a retailer, but that is a separate issue.

KIRBY J: Yes, but we have reached the point in the argument where we pass through the common law and statutory arguments to the point of equitable argument, therefore, we are not entirely forgetting that the people who were equivalent to the patrons, namely, the purchasers of cigarette packets.

MR GAGELER: Yes.

GAUDRON J: I suppose that really raises only this question: to the extent that equitable relief is discretionary might have been refused? But it would not go to the question of equitable principle, would it?

MR GAGELER: No, your Honour. What was seen to give rise to the equity was not the fact or the substance of passing on, because in a sense all of the seller's costs are one way or another passed on to a buyer if the seller is to remain in business, but what gave rise to the equity was the earmarking of a particular amount for a particular purpose and the failure of that purpose.

GUMMOW J: Yes, I hear you say that, but then what is your answer to your opponent's submissions in paragraph 64 on this question of equivalence on this constructive trust argument? The last sentence in paragraph 64(c):

Accordingly, there was no equivalence, nor even any relationship, between (i) the amount paid by retailers which was stated in invoices . . . and (ii) the amount already paid by -

Rothmans -

to renew its licence - - -

MR GAGELER: Your Honour, that goes back to the same answer that I gave in relation to the same point effectively when it was made in paragraph 30. This is the construction of the statutory scheme that has the wholesaler doing nothing more in a relevant period, using the statutory expression, than recouping a licence fee that it has already paid. As I have said before, that is a misconstruction of the statutory scheme. No doubt the first licence fee that will be paid will be a sunk cost to the retailer, the costs of getting into business, like the cost of setting up a warehouse. Thereafter, the scheme of the legislation is that the money gets collected during a calendar month and gets paid over on or before the 27th day of the following calendar month. That is my answer.

GAUDRON J: The first fee would only have been $10 or thereabouts, would it not?

MR GAGELER: Your Honour, another problem with this, as I have sought to say in the submissions in reply, is that this gets very close to a change of position defence that was never sought to be proved at trial. The first fee here would be lost in the mysteries of time. The first fee would not have been under this legislation but under the 1975 Act or probably even earlier legislation. These people have been in business for a very long time. The first fee was probably $10 plus some very small percentage of whatever was the estimated wholesale sales in some period back perhaps in the 1960s. Since then there have been numerous increases in the rate of tax ultimately to 100 per cent and we simply do not know what might or might not have happened to Rothmans' business during that period. But it is a fundamental misconstruction to go down that path because it really misstates the way in which the entire scheme operated and it misstates the way in which it was characterised in Ha and Hammond.

KIRBY J: It may be that the common law provides answers to your entitlement and if that be so, then so be it. But in so far as you are seeking relief in equity, why would equity give you relief to disturb the situation as it stands to, as it were, pocket in your pocket - not leaving it where it stood but pocket it in your pocket - the amount that in effect, if you are looking at the realities, as you earlier invited us to do, you have secured from consumers, disturbing the status quo, without your giving any undertaking or any agreement or any scheme or any proposal to reimburse those who have in effect and in reality paid the money over to you? I mean, it is the patron's position of Justice Learned Hand. You do not come offering equity; you just want to receive it. You have made it clear to me that you will not offer equity. You are not offering to reimburse consumers. That is your position, is it not?

MR GAGELER: That is the position, yes. Your Honour, it is because of this, that the equity arises because of the earmarking of a payment which comes from my clients' pockets and went into Mr Walker's pocket. My clients are business people. They are very small business people. Yes, they made a profit - - -

KIRBY J: Consumers are very small consumers.

MR GAGELER: Well, your Honour, yes, my clients made a profit, but to concentrate on my clients' profit on the sale is to focus, in my submission, on the wrong thing in a restitutionary action.

GLEESON CJ: This point cannot be answered differently in the circumstances of the present case from the way it would be answered if the problem had arisen, not because of the invalidity of the tax, but because of a supervening insolvency of Rothmans.

MR GAGELER: Correct.

GLEESON CJ: Then there might have been a good deal of importance attaching to the question of whether some moneys standing to the credit of a bank account of Rothmans at the time of the insolvency were imprest with a trust. Maybe there would be no separate amount of money, but if there were, there could be an argument between you and a liquidator about whether you had equitable rights in relation to that money.

MR GAGELER: Yes.

KIRBY J: But on the assumption of the validity of the legislation, it would be imprest with a trust that would ultimately lead to the payment of the tax which is what the consumer is expected. What you are now putting before us is that the tax is not payable by a decision of this Court and that you should be allowed to disturb the status quo to pocket the funds for yourself with no promise - I mean, the imposition of a scheme whereby you reimbursed consumers who were sick as a result of cigarette smoking might well do equity and I could understand that sort of argument, but to simply pocket it for your own profit does not seem to be equitable at all. It seems completely unequitable.

MR GAGELER: I want to approach it in a principled way, your Honour. The factor that gives rise to the equity is the earmarking for a purpose and the failure of that purpose. That is what has been identified by Justice Learned Hand and by Chief Justice Mason. That equity is not present in the consumer contract that occurs when a consumer comes into a retailer shop and buys, for a single lump sum price, a cigarette or a packet of cigarettes. That is the difference, your Honour.

KIRBY J: I hear what you say about that. I mean, you appeal to us for reality in one matter and then you ask us to ignore reality on the other. You appeal for reality in so far as you look at the invoice and you look at your obligation to pay the tax, but when it comes to your doing reality in order to, as it were, reimburse those who have been levied with the tax ultimately, the consumer, you are not willing to do it. I do not see why equity would bother itself with such an application.

MR GAGELER: Well, can I tell Your Honours what the Full Court said about it. At page 542 of volume 3, I will pick it up at about line 70:

But, according to Judge Learned Hand's analysis, that inability or unwillingness would presumably be relevant only if the Retailers were, in turn, constructive trustees for those who bought cigarettes from them and that would be so only if a separately identified amount for tax was charged to them: we do not know whether that was so or not, but we may reasonably suppose it to be unlikely. If that supposition is correct -

this is important -

literal acceptance of the proposition stated by Judge Learned Hand or the qualified proposition stated by Mason CJ would, we should think, lead to the conclusion that Rothmans was subject to a constructive trust, or should have a trust imposed on it, in favour of the Retailers. The money paid by the Retailers to Rothmans was their own, not subject to any trust. Because Rothmans separately identified the amount charged for tax to the Retailers, the amount paid by the Retailers to Rothmans was subject to a constructive trust.

That is the way in which the majority saw and, in our submission, correctly saw the analysis of Learned Hand and Sir Anthony Mason applying.

GAUDRON J: Yes, and of course you paid this money out before you took the sale price from an individual consumer.

MR GAGELER: Yes.

GLEESON CJ: Presumably there is some competition in the retail market.

MR GAGELER: With duty free stores, your Honour, yes, of course, and I am simply - no I will not go back into the general equities of it. But what the majority then go on to do, having accepted the application of the reasoning of Learned Hand and Sir Anthony Mason, is to engage in a chain of reasoning over the next page, that basically goes like this: their Honours say, "Well this so-called constructive trust is very much like a Quistclose trust" but a Quistclose trust we know is an express trust. This is not an express trust because it was not contemplated that the wholesaler would keep the moneys separate. Therefore, it cannot be a constructive trust", and that is the point that their Honours come to at the bottom of page 543, about line 50. Their Honours say:

It would, in our view, be somewhat anomalous if in circumstances where there was an intention which, but for the lack of some other essential element, would give rise to a Quistclose trust, the Court would nevertheless give effect to the same intention by recognising or imposing a constructive trust to precisely the same effect.

What they have - - -

GUMMOW J: The first thing is all these submissions would have to be on the hypothesis that your earlier arguments fail, I would have thought, because the law is inadequate, it is not getting what you need.

MR GAGELER: Yes. Your Honour, if I can succeed on a common law count, I do not need to go further.

GUMMOW J: Rothmans in not in insolvency. You are not in competition with any liquidator problem.

MR GAGELER: No, and, indeed, Justice Gyles found it unnecessary to deal with the point simply because he did regard that as the situation. Yes, your Honour, if I succeed on common law money count, I do not need to go further, but there is no inconsistency with an equitable remedy being available in precisely the same circumstances as a common law money count.

GAUDRON J: I am just wondering, though, whether we might not be losing sight of original equitable notions. I mean, what is the basis for a trust in respect of an earmarked fund, or earmarked money? Is it not that really it is to be inferred that that was the intention of the parties? Is that not the same - although we tend to classify express trust, resulting trusts, and constructive trusts, but leave aside the constructive trust - are you not talking, in a real sense, in many resulting trusts about a presumed intention?

MR GAGELER: Yes, your Honour. It may be a matter of terminology, but we have not submitted, in the circumstances of this case, that there was an intention, actual or presumed, to retain the beneficial interest in the funds paid over by the retailer to the wholesaler from the beginning. We say, in the events which have happened, there has been a failure of the purpose for which those funds were paid over, but in the traditional analysis of a constructive trust - - -

GAUDRON J: Would the failure of the purpose be sufficient of itself to bring about a constructive trust?

GUMMOW J: That is the real question, I think.

MR GAGELER: Yes. In our submission, yes. The courts have recognised, although I accept not clearly defined, the circumstances in which a payee can come under a personal equitable obligation in respect of moneys that are paid over. By that I mean, even in the absence of a trust relationship, the payee can take the beneficial interest but nevertheless be under a personal equitable obligation to deal with the moneys or their proceeds in some way.

GLEESON CJ: When you say "the moneys", this is not a tracing exercise.

MR GAGELER: No, it is not a tracing exercise.

GLEESON CJ: You are not suggesting that the moneys were paid on terms that they be kept separate from the money and applied in a certain way?

MR GAGELER: No. That is why I have never put the case as an express trust nor as a resulting trust using that terminology in the more traditional way. I accept that the beneficial interest in the moneys transferred from the retailer to the wholesaler. The question is,. in circumstances where they were earmarked for a purpose and the purpose fails, can equity impose a constructive trust?

GAUDRON J: It would only be so, would it not, if it could be said that it was unconscientious for Rothmans in this case to insist on its legal title?

MR GAGELER: Yes.

GAUDRON J: It would not simply be the earmarking, I should not have thought. You would have to go that one step further.

MR GAGELER: Yes.

KIRBY J: Do you agree with that?

MR GAGELER: I agree with that.

KIRBY J: Well, why is it unconscientious if you do not proffer some intention to establish a scheme or contribute to a scheme or participate in something that pays it over to those who have originally paid for the tax?

MR GAGELER: Your Honour, I can only repeat what I have said, in those circumstances - - -

KIRBY J: I do not see why the windfall shall fall for you.

MR GAGELER: Your Honour, because it has come out of my clients' pocket and into Rothmans' pocket.

KIRBY J: It has come out of the consumer's pocket.

GAUDRON J: It may have or it may not have later on.

MR GAGELER: It may or may not have, your Honour.

GAUDRON J: You see, the fact is, is it not, it would be some considerable time or it would at least be some time after your clients had paid out the money that the customers would be coming in and buying the cigarettes.

MR GAGELER: Yes.

KIRBY J: That is form. That is not reality.

GAUDRON J: But at some stage in that process the decision in Ha would have come down.

MR GAGELER: Yes.

GAUDRON J: We do not know whether at that point the price of cigarettes fell.

MR GAGELER: No, and it was never explored.

GAUDRON J: No. It may well have.

KIRBY J: I bet they did not. I bet they remained the same.

MR GAGELER: Your Honour, the point was simply not explored. Your Honours, I was referring to a personal equitable obligation. Can I give your Honours - - -

HAYNE J: How does this branch of your argument relate, if at all, to the "money had and received" branch in this sense? Are we to consider this branch of your argument on some hypothesis that you fail in the "money had and received" branch? Are we to see them as true alternatives? What?

MR GAGELER: Your Honour, if I succeed on the "money had and received" count, I do not need to go further.

GLEESON CJ: And if you fail, why have you failed?

HAYNE J: And does failure spell failure for this branch? It is that which troubles me at the moment.

GUMMOW J: I think that is what Justice Gaudron was getting you to with that.

MR GAGELER: Yes. I do not wish to speculate on the reasons why I could fail on the money had and received count.

GLEESON CJ: No, but it may be that your need to rely on this argument will undermine your reliance.

MR GAGELER: Yes.

MR GAGELER: Your Honours, can I go back a step? If your Honours - - -

GAUDRON J: Well - - -

MR GAGELER: I am sorry.

GAUDRON J: It seems to me that if you succeed on the second branch of your money had and received, it is because, in a sense, the common law has recognised the equivalent of an equitable principle that says something like where money is clearly earmarked for a severable purpose the parties are to be presumed that the payee is not to hold it for his own benefit if the purpose cannot be achieved.

MR GAGELER: Yes, or another way of putting the same thing, your Honour, that the money is to be treated as being paid, conditionally, upon the achievement of that purpose.

GAUDRON J: Yes, and that seems to be almost the same thing as you must say is a constructive trust area of law.

MR GAGELER: Yes, your Honour.

GAUDRON J: But you have disavowed any presumed intention you said to me a little while ago.

MR GAGELER: Yes, I have.

GAUDRON J: But you say only in relation to express and resulting trust type.

MR GAGELER: Yes, your Honour, because - - -

GLEESON CJ: Yes, but that points out the ambiguity in this word "earmarked" does it not? That particular metaphor might be thought to indicate that there was some obligation to apply these particular moneys in that particular way but it would not have been a breach of any intention or understanding if the moneys - if the cheque that your client paid over, or your clients paid over to Rothmans had been used by Rothmans to buy a new truck, would it?

MR GAGELER: No.

GLEESON CJ: Well, then, what do you mean to say "the money is earmarked"?

MR GAGELER: The payment, I am sorry, your Honour. The payment is earmarked for a purpose. I think, coming back to your Honour the Chief Justice's question, the difference between this way of putting the case and the common law money had and received way of putting the case is in what, if any, obligation may attach to the earmarked amount. The first way in which I put the common law count was that the earmarked amount was the subject of a promise to be paid over - a contractual promise to be paid over. The second way in which I put the common law count was that there was no promise but that the payment of the tax was the reason for the payment and in this way of putting - - -

GAUDRON J: The common reason.

MR GAGELER: The common reason.

GAUDRON J: Joint reason.

MR GAGELER: Yes. Yes, the contractually identified reason for the payment, with no obligation attaching to the subsequent payment to the State, and this way of putting the argument, if there is a difference, turns on saying that the earmarking gave rise to an equitable obligation as distinct from a contractual obligation to pay the money over to the State.

GAUDRON J: Because of the presumed or imputed common intention of the parties.

MR GAGELER: Yes, your Honour. If that means I have to change my - - -

GUMMOW J: Based on what Mansfield said, upon the honesty and rectitude of the matter. That is what he said in Hawkes v Saunders 98 ER, at 1091.

MR GAGELER: It is not at all surprising that we find here - - -

GUMMOW J: They then apply the promise to repay. That is the foundation of the common law action.

MR GAGELER: Your Honour, all of Lord Mansfield's writings in this area emphasised that the common law action was founded on equitable principle, so it is by no means surprising that one would find concurrent equitable and common law remedies arising from these facts.

GAUDRON J: Well, it is something like, the way you now put it, it is not quite the joint enterprise situation considered in Baumgartner and Muschinski v Dodds.

MR GAGELER: That is an alternative argument.

GAUDRON J: But it is really the presumed common intention, or, perhaps, the presumed common purpose.

MR GAGELER: Yes, and I do not draw a distinction between those terms.

GAUDRON J: And the purpose having failed, just as the enterprise failed in Muschinski v Dodds and in Baumgartner, then a constructive trust is appropriate.

MR GAGELER: Yes, your Honour, as a remedy, as a remedial device.

Your Honours, can I move on, then, to the final way in which we put the argument, which is - - -

GUMMOW J: But why would your constructive trust give you any more than an obligation to pay money?

MR GAGELER: It would not. I do not need it to do more.

GUMMOW J: It would not fix some of the assets of Rothmans, would it?

MR GAGELER: It may or may not. Your Honour will recall - - -

GUMMOW J: It would not need to. Rothmans is not going to be insolvent tomorrow.

MR GAGELER: No. No. I am agreeing with your Honour. What I was going to say is, in the context in which it was being discussed in 123 - - -

GUMMOW J: Just that this word "trust" has all sorts of aspects to it.

MR GAGELER: It does, and I am not saying that I need a proprietary remedy or I am asking for a proprietary remedy in this case. All I was going to point out - - -

GUMMOW J: You want cash in hand.

MR GAGELER: Yes. All I was pointing out was that in the context in which it was being discussed in 123 East Fifty-Fourth Street there was a fund because the question was what was going to happen to this fund of money being repaid from the state to the restaurateur.

GUMMOW J: Had the State actually repaid it?

MR GAGELER: Well, the question was whether the State should repay it in that case, whether the restaurateur could get back.

GUMMOW J: Yes, which is why it was in - - -

MR GAGELER: Which is why it may well have been a proprietary remedy in that case.

Your Honours, can I turn, finally, to the question of an implied term? This is not a case where the parties have engaged in any process of negotiation and it is not a case where the contract has been reduced to a complete written form. It is, therefore, sufficient to imply a term that the term be necessary for the reasonable operation of the contact in the circumstances of the case - - -

GLEESON CJ: But you are not implying a term in aid of a claim for damages, are you?

MR GAGELER: No. I am seeking to imply a term here - - -

GLEESON CJ: To what end?

MR GAGELER: The term is, the pleaded term, that there be a refund.

GLEESON CJ: So you are, what, seeking specific performance?

MR GAGELER: Sorry, your Honour. The claim is in aid of a claim for damages, the measure of damages being the difference between what my clients have now and what they would have had if the term were performed, being the amount - - -

GAUDRON J: Why would you not, however, simply put your implied term as a term that an amount equivalent to the money received and identified as tobacco tax would be paid by the wholesaler to the Commissioner of Tax not later than the 27th day of the following month, or thereabouts.

MR GAGELER: Well, your Honour, I have here moved beyond what - - -

GAUDRON J: Yes, but that is the only term you need, is it not? If there was a breach, you get your damages. Your damages are going to be - - -

MR GAGELER: No. My client suffers - - -

GLEESON CJ: It is not a claim for damages. It is a claim for debt, is it not?

MR GAGELER: I am sorry, your Honour, it is, yes.

GLEESON CJ: A promise to pay money. The implied term ends up - - -

MR GAGELER: The implied term is a promise to pay money - - -

GLEESON CJ: The bottom line of the implied term is that, "I promise to pay you this money".

MR GAGELER: Yes, your Honour is absolutely right.

GAUDRON J: But would there be any difference between debt and the measure of damages? It would be a liquidated sum - - -

MR GAGELER: In respect of the implied term that I am here referring to, which is an implied term to make a refund, the answer would be, no.

GAUDRON J: But even if it were an implied term to pay the money and the implied term was wholly breached.

MR GAGELER: Well, that comes back to the total failure of consideration case, your Honour.

GAUDRON J: It would be the same case but based on an implied term rather than a separate promise.

MR GAGELER: I am so sorry, your Honour, yes. The promise to pay money to the State is either express or implied, but I have moved on from that submission to another submission dealing with a different implied term - - -

GLEESON CJ: But what you are now saying is that it was a term of the contract of sale of the cigarettes from Rothmans to you that if for some reason Rothmans did not pay the amount of money denominated on the invoice as wholesale tax, they would repay it to you.

MR GAGELER: Yes. It is volume 1 of the appeal book at page 15, paragraph 26, in the statement of claim, the way in which we sought to put the implied term.

GAUDRON J: Well, I can see why the term I have put to you might be necessary for business efficacy.

MR GAGELER: Yes.

GAUDRON J: I cannot see why this one could be.

MR GAGELER: Well, it depends on what your Honour means by "business efficacy" and, in our submission, the cases that deal with business efficacy, even going back to The Moorcock, are not concerned simply with what is necessary to work out, in the ordinary course, the express terms of a contract, that they can and do extend to circumstances where something goes wrong, that is that they are concerned with the allocation of risk outside the ordinary course.

HAYNE J: Is your formulation necessary for the reasonable operation of the contract any more than a disguised attempt to state the proposition as one of reasonable term? That is, what weight do you give to "necessary"?

MR GAGELER: I treat it as appropriate.

GLEESON CJ: You cannot imply a term just because it is fair.

MR GAGELER: No, but you can imply a term where the circumstances are such that the parties acting reasonably would have immediately assented to the term if put to them by a hypothetical bystander.

GUMMOW J: Take Codelfa. What actually happened in Codelfa at the end? Was the term implied?

MR GAGELER: I cannot remember what the term was, your Honour.

HAYNE J: Everybody can chant page 334 or whatever it is but nobody reads the - - -

MR GAGELER: I do not recall. Your Honours, can I just refer to three things. I want to just refer your Honours to the way in which it was dealt with by the majority at page 534.

GLEESON CJ: A possible point of view, you know, is that if the parties had been tapped on the shoulder by the officious bystander at the time this contract was being entered into and had said, "What will happen if this tax is declared invalid?", they would have said, "That depends on, for example, what's going to happen in relation to the consumers, what's going to happen to the price of cigarettes".

MR GAGELER: It might turn on the question that is asked by the officious bystander. Your Honours will see at 534 paragraph 51 the question which, in our submission, is the appropriate question asked by the officious bystander:

"but what if Rothmans have received an amount for tax from a retailer and it turns out that neither Rothmans nor the retailer has an obligation to pay tax to the government?" does not admit of a clear answer and would be unlikely to elicit a unanimous one.

CALLINAN J: Justice Gyles inserted another word. He said "or possible", which it seemed to me might be quite significant if it becomes not merely a matter of it not being necessary to make the payment but it becomes impossible to make the payment.

MR GAGELER: Yes. Your Honour has gone to the passage at page 559 paragraph 115, lines 24 and following, and your Honour I perhaps too quickly said it was the right question.

CALLINAN J: And is it not a necessary term in the sense that what you are talking about is asking a purchaser to pay a very significant additional sum of money?

MR GAGELER: Yes.

CALLINAN J: Underlying every question is the assumption that no purchaser is going to pay anything that it is not necessary to pay. The necessity to pay only arises if there is a necessity in turn to pay the tax.

MR GAGELER: Yes.

CALLINAN J: So the necessity is demonstrated in that way.

MR GAGELER: Yes, your Honour, I adopt that, and I too readily said that that was the right question - wrong question and wrong answer.

HAYNE J: Is not this case in fact very similar to the position in Codelfa where the term was not implied, because this, as was Codelfa, is a case where the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. His Honour goes on in Codelfa 149 CLR 356 about the difficulty of implying a term:

It is greater because in many situations it is easier to say that the parties never agreed to be bound in a fundamentally different situation which has unexpectedly emerged than it is to assert that in a like situation the parties have impliedly agreed that the contract is to remain on foot with a new provision, not adverted to by them, governing their rights and liabilities.

You want to imply a term covering the circumstance which, by hypothesis, they never thought about.

MR GAGELER: No, I do not think I do, your Honour. That was not a case of contractual prepayment, and that may well distinguish that case from this case. The closest analogy to this case where an implied term has been found to exist was the case of The Commonwealth v Ling, which is referred to by Justice Gyles at the top of page 560. It was not included on our list of authorities, but can I tell your Honours what it was about. It was a case where Chinese students had paid in advance to attend English language courses in Australia and those students did not obtain visas so as to be able to enter Australia and attend the courses.

It was held by Justice Beaumont at first instance that there should be a term implied into each of the contracts with the students that the fees paid by the students would be refunded if they did not obtain the visas so as to do the courses. That was upheld on appeal to the Full Federal Court in [1994] FCA 1156; 51 FCR 88, the court comprising Justices Gummow, Lee and Hill. Can I just read one passage at the bottom of page 97 to 98, in the Full Court judgment. It was said:

It is further submitted that the implication of such a term would not be reasonable or equitable, nor would it be necessary to give business efficacy to the contracts, nor would it "go without saying" -

And the response of the Full Court was:

Not surprisingly, the submissions did not concentrate on either reason or equity. It would be a brave submission that there was something inequitable about a term which ensured that a person unable to obtain a visa to pursue a course of study, the cost of which had been pre-paid, was entitled to a refund of that which had been paid.

The Full Court upheld the existence of such an implied term in those circumstances. Your Honours, we rely upon what Justice Gyles said at page 559 in paragraph 115 as expressing, in our submission, the only reasonable view. And the parties, in answering the officious bystander, must be presumed to act reasonably.

KIRBY J: In that case, their Honours in the Full Federal Court seem to have taken as a step in their reasoning the fact that it would be unreasonable for the consumer who has paid up front the fee for the visa not to have that incorporated in the implied term as part of the implied term. Why would that not be so here? In other words, if you want your bit of the implication, why would one not incorporate also - and of course, something would have to be done to pay back the consumers.

MR GAGELER: Well, your Honour, if a consumer brought a suit against my clients and we could look at the precise circumstances of the relationship between the consumer and my clients and see who wins.

KIRBY J: That may be the answer at common law, but it still leaves the question of equitable relief that you seek.

MR GAGELER: I was here dealing with a contractual term.

KIRBY J: Yes.

MR GAGELER: If your Honour pleases.

GLEESON CJ: Thank you, Mr Gageler. Yes, Mr Walker.

MR WALKER: May it please your Honours. A deal of my friend's argument, probably all of it at bottom, rests on the proposition that but for a certain kind of assurance his client sought, though you will find no evidence of any such dealing between the parties by way of query and reassurance, against the possibility of them paying not merely the second last line of every invoice but also at some time in the near future thereafter, paying what he calls a double payment, that is, paying by way of a fee for their own retailer's licence calculated by reference to an aggregate in which that would have to be included, that tobacco. Now, it can be seen, with respect, that that must underlie the whole of any appeal to the Moorcock principles in relation to an implied term argument, whether the term to be implied is a term imposing on us not merely the mixture of criminal and fiscal sanctions in the Act to pay our licence from time to time at the appropriate rate, but also a contractual promise to do so. It would also underlie the implied term case if that implied term were a term that in default for one reason or another, or at least for some of them, of such payment by us in the future, there would be refund pro tanto with respect to what might be called "that tobacco", section 41(3) of the Act.

So far as the trust is concerned, it would appear that however it is put, whether it is put by analogy with the agreement of a man and woman to spend their efforts and money more or less jointly and mingle on renovating an old sandstone house, whether it is on that basis which is joint endeavour, whether the joint endeavour is compliance with the law or whether the joint endeavour is the sending of licence fees to the State or whether the trust is one which pace what my friend has said to Justice Gaudron, one based upon a true presumed intention to which, of course, evidence, alas, from my friend's point of view, would be relevant, then it can be seen that the trust there also depends on the need perceived in equity to avoid the double payment spectre.

We come to money had and received, where it is clear that whether it is put on a Fibrosa basis of consideration in the old-fashioned, non-technical, contractual sense for the reason or occasion for the payment or any other basis that might be distinguished in my friend's submissions as to money had and received, such as a promise which, in a certain kind of way, cannot still be performed, there again it can be seen that the notion of this money being had and received for the use of the plaintiff is one which, as my friend powerfully put it, depends upon the need to avoid this spectre of double payment.

It is all based, in our respectful submission, upon a reading of the Act and not only section 41(3), which is wrong, and in what I am about to put at the outset there is no need for us to rely upon what we seek by the notice of contention for which we, in turn, seek leave. The first part of this argument embraces the meaning of section 41(3), such as it is, to be found in the majority judgment in the Full Court and therefore embraces the argument advanced by my learned friend.

It is said that understood as the majority in the Full Court understand it, and notwithstanding the very express reservations they have about the textual difficulties of their own interpretation, to which we would add in particular the highly embarrassing tenses of "has paid" or "is" - I stress "is" - liable to pay at the time when the retail licence holder makes the payment which gives him or her or it a retail licence, but it is by dent of a payment - quite apart from that embarrassment, it is clear that what the Full Court embraces is that at some time in the then future it will be known retrospectively by reason of facts which could not yet have occurred, could not possibly yet have occurred, because of the Dennis Hotels retrospectivity requirement, that the wholesaler - Rothmans, say - had not included in its aggregate of the past sales which produce by the arithmetic the licence fee the particular sale of, again and I quote, "that tobacco" to which section 41(3) refers.

Now, that is my friend's submission. That is what the Full Court says, with no marked enthusiasm, is the only reading they can give to those words in order to give it any meaning. Your Honours, it is a reading which, accepting it is correct as to section 41(3), has not received in the argument to your Honours thus far from the appellants, any reference to the scheme of the Act with respect to the imposition of liability on a wholesaler. When I say "on a wholesaler", I include somebody who holds a licence and somebody who does not hold a licence but who in either case sells to a retailer - sells at wholesale.

Now, we know, and the parties ought to be taken to have known, that wholesaling of tobacco was at all relevant times regulated and not merely by a device inspired by a now exploded understanding of section 90 of the Constitution. It was regulated, as are all licence schemes, whether they are truly for health regulation or for tax raising or for a combination of the two, by imposing a prohibition and then conditionally removing that prohibition, and that prohibition is criminally sanctioned and so one starts off with section 28 making it a crime to have sold at wholesale or retail unless you held a licence.

We would interpolate at that point the statutory scheme is scarcely one which supports either the need to imply terms that one would obey the criminal law or that one would need to infer for the purposes of money had and received or for the purposes of a trust argument anything concerning the purpose of what would then pass between the parties directed to compliance with the criminal law.

Having started with what is the natural starting point, section 28, one then moves to the case of someone who has sold at wholesale and it is said there has not been included in the aggregate of sales relied upon to justify the fee paid the amount with respect to tobacco bought by a retailer being that tobacco for the purposes of section 41(3). This is not left to the fond hope of those responsible for administering the statutory scheme that such a wholesaler, licensed or unlicensed, would see the error of its ways and volunteer the late payment.

A mechanism is provided in familiar term turning on the formation of an appropriate opinion by the officer in question, here the Chief Commissioner, for the imposition of a liability, a liability that comes about because it becomes proper at law for the Chief Commissioner to regard a fee as having been short paid or a licence as not having been received at all.

Section 46(3) says that:

If on a reassessment the fee is increased -

something which happens if the fee has not been big enough -

the additional amount . . . is payable.

There is the liability of the wholesaler where there has been a short payment. That is the first of the two possible cases for a continuing wholesaler in the hypothesis my friend puts. To remind your Honours, the hypothesis my friend puts is of a retailer one day at the back of the wholesaler's van outside the kiosk wondering and seeking assurance: "Is the wholesaler licensed?" We know that there was no attempt to suggest that there was any such circumstance between these parties at all. It turns out that your Honours might presume that these retailers proceeded on the basis that a company such as my client conformed with the law, and in particular the criminal law, in a highly regulated industry. This was a safe and secure presumption which turned out to be correct.

But the hypothesis goes further beyond "Are you licensed?" The hypothesis goes, "I need reassurance that I won't end up paying twice the amount which appears on the second-last line of your invoice, one before the line that has `NET TOTAL' on it. I need reassurance that these will be tobacco for which you have paid or which you are liable to pay licence fee". We know from the way my friend has put it, which, with respect, needs no improvement from us, that the scheme in question rendered the sale of that tobacco or its value by wholesaler to retailer utterly immaterial to the question of the licence fee which had most recently been paid by that wholesaler.

We also know that the payment of the licence fee which would be measured by an aggregate including that sale could not occur until some time in the future. We stress "aggregate". It is only the aggregate that one can look to when the payment comes to be made. If there is a shortfall, my friend's argument has never once grappled with the practical and legal difficulties which follow from the impossibility at first of knowing whose tobacco has not been counted in the aggregate which the Commissioner determines to be short two months later.

HAYNE J: The case against you is not concerned with that kind of case at all, is it, Mr Walker? It is concerned with Rothmans ceasing to carry on business.

MR WALKER: That is an important matter to which we are coming in relation to section 33A, to which no reference has been made but to which reference must be made for the purposes of this statutory scheme. If your Honours will bear with me for just one short minute more, in relation to section 41(3) and sections 46 and 47, because it is the spectre of double payment that lies, foundationally, underneath all my friend's argument and also lies, not coincidentally, as the substance underneath what passes for the merits argument in favour of the appellants.

GAUDRON J: It may underlie some of them. I am not too sure that it is right to say that it underlies it. I mean, an equal valid underlying assumption would be something like that to which Justice Gyles referred, "I am not going to pay anything I do not have to".

MR WALKER: I will come back to that, your Honour. We tackle that head on. That is not an assumption, with respect, that will stand contractual analysis which is, in logical order, the next after statutory analysis, as the proper one to be undertaken. But at the statutory analysis point, which must come first, we know then from section 47 that the other of the two possibilities, namely, no licence at all, a breach of the criminal law, section 28, that in that case as well the licence which should have been paid or to quote, "would have been payable", that fee and an amount equal to it plus penalty of twice that amount, becomes payable, thus the liability.

From all of that, it follows that, within the meaning of section 41(3), and making the allowance that the majority in the Full Court have to make for the inapposite use of grammar, the tenses that one finds in "has paid" or "is liable", which cannot be literal - they accept that, and so does my friend - and looking to the earliest point at which payment or liability to pay could be ascertained, which is when the wholesaler either made the application for licence with an insufficient aggregate of sales or did not renew the licence when it should have, then at that earliest point when you could determine the question, one can say that there is liability to pay the amount.

If one has to put it in the alternative and resort to the practicalities which my learned friend's argument does not embrace, but which the majority in the Full Court noted, and asked, "How would the retailer ever find out?", one knows that the retailer would only ever find out about the situation that my friend says would lead to a double payment at the point that the Chief Commissioner says, "This has been an inadequate aggregate of sales for which the wholesaler's later licence fee was paid", or, "There should have been a licence fee paid and there has not been".

On that slightly more elaborate version the same result follows. There is liability. On that reading, which includes more than just 41(3) but the other parts of the scheme to which 41(3) is a mere interpretative adjunct, on that reading there will be no double payment.

Now, your Honours, that also accords with what one intuits from the facts and evidence in this case and, in particular, that which was never the subject of any attempt to prove and was never the subject of any attempt to explore by documentary discovery or the like. There was simply no dealing between these parties where the massive and multifarious detail of all the sales to everybody at wholesale for relevant periods were vetted or monitored, as it were, by any retailers, let alone any of these appellants, in order to be assured of that which my learned friend's written submission says that it was critical for them to be assured of, namely, no double payment. This assurance being talked about is nothing other than a particularly complicated way of saying there ought to be a contractual provision requiring you to pay in the future a licence fee referable to and measured by an aggregate of sales in which this particular sale is included.

When it is put that way it is not only very longwinded but, we would submit, as brief as it can possibly be, bearing in mind the scheme in question, it is also one which defies credulity as to a Moorcock implication leaving, for obvious reasons, the inquiry whether or not it is the kind of term which might arise on a mere interpretation, and we will come back to and deal with that separately.

Before doing so, those being contractual matters, and, if your Honour will forgive me, in a deferred answer to your Honour Justice Hayne's point, may we come to what one might facetiously call the eschatological aspect of it, the last days of a wholesaler, because that was dealt with by the Parliament. My learned friend has not pointed to it at all and, in our submission, it can be seen that particularly the "money had and received" count, but equally obviously the contract count, and in a sense the trust count, however that be framed, have to be seen as attempts to get money from us which, in effect, Parliament did not want to happen. May I explain?

Section 33A was inserted by the 1996 amendment into the 1987 Act and your Honours will find it in the legislation bundle on page 6 of the 1996 Amendment Act, it being found in Schedule 1 of that Act, that is, the Business Franchise Licences (Tobacco) Amendment Act Act 119. Item [8] of Schedule 1 inserted section 33A. It says of:

A person who:

(a) declares under section 50A -

to which I will come -

an intention to cease carrying on a business of buying or selling tobacco . . . must not, during either of the licence periods in respect of which the declaration was made or ought to have been made, sell tobacco at a price less than 195 per cent of its wholesale value as determined for the time being -

You must not sell it for:

a price less than 195 per cent of its wholesale value - - -

KIRBY J: What is the relevancy to this? The premise does not seem to be applicable. The premise here is quite different.

MR WALKER: Your Honour, the relevancy is this, it is said that it is the statutory scheme, aspects of its artificiality, and in particular it was emphasised this morning, section 41(3) and the spectre of double payment, that is equally hypothetical, it did not happen in this case, but the premise is lacking entirely for that. We were at all times licensed and at all times paid licence fee in respect of all relevant tobacco. So, the premise does not apply for 41(3) either, but my friend uses it to interpret the scheme as something which informs money had and received, contract and trusts in different ways and to varying degree and, with great respect, we adopt and urge the proposition that many of these teasings out by my learned friend, and in answer, perhaps by me, of consequences from this statutory scheme really do not address the core of the matter, but it is important for us to address them because unless it is put completely then, in our submission, a wrong because incomplete view of the consequences can be found.

One of the most obvious reasons why a wholesaler would never become, within the meaning of section 41(3), liable to pay a licence fee with respect to certain tobacco, the most obvious reason is that the wholesaler decides to go out of business and all things do come to an end, including, in a context to which I will come later, retailer's activities as well.

KIRBY J: But so far as you are concerned you got this very large sum of money - and it is said that in aggregate of all the tobacco interests it is $75 million - and it is just a complete windfall to you and it was given to you on an assumption, on a premise that it was going to be paid over to the Government and by reason of a supervening decision it is not.

MR WALKER: Well, no and no are my responses, but would your Honour forgive me if I develop the reasons why we resist the characterisation of a windfall but in any event say that will not be determinative or even helpful.

KIRBY J: Well, it is a windfall. It is completely unintended. It was not intended by the legislature that imposed these duties.

MR WALKER: But, your Honour, look at 33A(1).

KIRBY J: Yes, but that is for a very particular circumstance; not for the circumstance that has ensued.

MR WALKER: Quite, but there, your Honour, there is a positive obligation to charge not less than 195 per cent of what is called its wholesale value. The first thing to be made clear is that when Parliament in 1996 used those expressions, contrary to some of the suggestions my learned friend made about the form of the commercial documents in this case, one can see that the concept of price and value are, on any view of it, concepts which have been given highly artificial labels, both price and value, in a way that needs to be looked at in context whenever one comes across it.

The price is to be something not less than 195 per cent of wholesale value, and your Honours know because my friend has told you that value is to be determined by ministerial direction, which happens to include something called price. So that the price at which tobacco is to be sold within the meaning of section 33A(1) will include, we know, itself something called a wholesale list price. That means the price in a commercial sense, what you get from the consumer, by Parliament was contemplated to be in these last months, where it was obviously intended that tobacco not be discounted by a wholesaler no longer having commercial incentive to recoup payments because they were going out of business and would not need to buy in advance another licence, they required 195 per cent, at least, to be charged.

There could not be discount or rebate agreed between wholesaler and retailer obviously so that you paid the 195 per cent but got 95 per cent back. That would be, as a matter of substance rather than form, to have sold it for something less than 195 per cent of its wholesale value, and this is a criminally sanctioned matter. That means that so far as Parliament was concerned you could not have a contractual provision during those months by which the retailer could end up paying less than 195 per cent. If there could not as a matter of criminally sanctioned law be such a contractual provision, we ask rhetorically, believing, with respect, there could not be an answer to this, how could the ancillary body of doctrine of money had and received or trust possibly engraft nonetheless an obligation to do that which could not be done by contract?

These are, as your Honour Justice Kirby has pointed out and we accept entirely, special circumstances applied at the end of a trading relation. Their particular piquancy for our argument emerges in this fashion: as I think your Honour Justice Hayne pointed out, one way, in effect, of describing a form of the promise, the contractual promise contended for by my learned friend is that the wholesaler will stay in business long enough for the Dennis Hotels two-month device to catch up and require inclusion in the aggregate of sales which measure a licence fee to be paid, the tobacco in question. With great respect, that can be the only effect at bottom, given that my learned friend regards as impossible donations by Rothmans to the State. Now clearly they put that that is impossible because they say that the present position following 5 August 1997 represents an impossibility. You cannot pay the money to the State by way of licence fee, nor you can, though no doubt you could have paid it as a donation.

CALLINAN J: In that respect, it is rather like frustration, though, is it not? It is almost as if part of the performance, in part at least, of the contract is frustrated.

MR WALKER: Yes, your Honour, we wish to start our contractual analysis in due course with the doctrine that until your Honour has mentioned it, has played no part in the argument, but which, in our respectful submission, must play a part in the analysis of the position at contract between these parties, bearing in mind objectively the background known to each of them against which they contracted, including the statute; bearing in mind the state of the law as understood by them, at least by July 1997 according to the evidence to which I shall take you; and in particular bearing in mind what we are going to call, adapting a phrase from another area of contract law, "objectively the commercial matrix or genesis" and, we would add, "aim", "of the transaction itself".

Frustration has not been any part of the juristic basis of my learned friend's claim to recover for excellent reason. But, in our respectful submission, it needs to be looked at because, perhaps contrary to what your Honour wished me to consider by raising the matter, we will be arguing and seeking to persuade your Honours that this could never have been a frustration case.

CALLINAN J: No, I am not putting to you that it is a frustration case. I am suggesting to you that it raises a question of a kind which is closely analogous to a frustration case and why, therefore, should not the principles that apply in relation to frustration apply to this aspect of the contract?

MR WALKER: Depending upon how generally one states those principles, depending on to what extent they are normative or descriptive, the answer to your Honour's question would be a qualified yes, they should. May I elaborate immediately as follows. It is clear that a contract would not be regarded as frustrated unless there are judgments of degree and quality about the effect on the parties' expectations in light of: (a) their overt assumptions and knowledge and risk allocation; and (b) the terms of the contract itself, of the events which are said to have led to frustration.

Classically, and importantly for our case, frustration arises some time into the mutual performance of an executory contract. And that, of course, then fits this case. One asks why, if it could not be said to have been a frustrating event for this Court to have handed down Ha, why would one disturb the risk allocation, and, more to the point, the bargain had and received, fully performed by the relevant date, which these parties set out in their contracts, to which I will be coming.

Now, that, of course, is to state the matter at an extremely general level but, in our respectful submission - - -

CALLINAN J: Is it fully performed?

MR WALKER: Yes.

CALLINAN J: Is it fully performed when the money has not been paid to the revenue authority?

MR WALKER: Yes. That, of course, is an answer I am bound to give, because my submission is that there never was any promise contractually enforceable - that is, a contractual promise - by us to each retailer to benefit the Commissioner; that is, to - - -

CALLINAN J: But the retailer remained liable, at least, contingently liable.

MR WALKER: No, never.

CALLINAN J: Was the retailer not liable if the money was not paid by your client?

MR WALKER: No, your Honour. Could I take your Honour to the really important provision in section 41 - not the tail, but the dog - paragraph 41(1)(c). This is not a case of us being a surrogate or proxy for the retailers in taxpaying. Assuming, as I now have to in this brief, that it was a tax - and for convenience, calling it a tax - the tax imposed on us is the one under - - -

GUMMOW J: It was a tax. The question was whether it was an excise.

MR WALKER: I am sorry, your Honour?

GUMMOW J: It does not matter.

MR WALKER: An exaction, your Honour. Paragraph 41(1)(b), that was the one applying to us. There is no relevant difference between (a) and (b). The question for each of the appellants was 41(1)(c). And your Honour will see that in neither of them, and for surpassingly obvious reasons, given the Dennis Hotels attempt which failed, is there any relation - criterion of liability, whatever one calls it - directly between any particular transaction, its quantum, value, or date of occurrence - - -

CALLINAN J: Could I ask you this? Assume that under (b) your client had to pay $200. So say that were the total amount and say under (c) the retailers had to pay $150. If either paid any of that amount, would the liability of the other be the same?

MR WALKER: No, they have only one relation, your Honour, that the licence was not paid by reference, obviously, to the sale of tobacco permitted by the licence. That is the important holding, obviously, in Ha, that to state that proposition was not to remove its character as an excise. But it remains - whether one criticises artificial or not, does not matter - it remains the fact, in law, of how the licence fee came to be paid. These are real, not formal, matters. They lead to the question of criminal liability under section 28.

CALLINAN J: Perhaps I have not put my question very well. If your client discharged its total liability under (b), what further, if any, liability would Mr Gageler's clients have under (c)?

MR WALKER: With great respect, your Honour is eliding the distinction - - -

CALLINAN J: No, I am just asking a question.

MR WALKER: None. None is the - - -

CALLINAN J: None, thank you.

MR WALKER: In order to be a retailer they have to have a licence. Now, they could buy from us without holding a retailer's licence, but they are going to have to have an awfully big warehouse and they are not going to make any money. So they do not have to have a licence to buy. They do have to have a licence to sell. Now, in due course, I am going to come to the fact which has really escaped any emphasis in my friend's submissions, that these are wholesale transactions, sales by A to B, B being somebody who is going to sell to consumers for profit. But I will come back to that proposition for other purposes later.

In answer to your Honour Justice Callinan's question, once my client has paid its fee and has a licence for, I will call it period 3, one is able to say with respect to tobacco sold by my client in period 1, that it has, to adapt the language of subsection (3), paid a licence fee in respect of that tobacco. There is a real importance in relation to those different periods because it is period 3 which is the period for which the licence exists and prevents your sales to anybody being illegal, but it is paid for by an amount reflecting the aggregate of sales in period 1.

One then asks the question about a retailer dealing with my client in period 3, and the short answer is, it is of no concern to that retailer for that transaction to buy tobacco in period 3 to inquire into any fact other than that we had a licence during period 3.

CALLINAN J: Mr Walker, you then take issue with the appellants' statement of the facts in paragraph 5 on page 3 of the appellants' submissions.

MR WALKER: Yes, your Honour.

CALLINAN J: And it is said to be a statement of fact but I suppose it is a statement of law, the last sentence:

the effect of sections 41(1)(c) and 41(3) of the Act was that a licensed retailer would become liable to pay the fee upon renewal of the retailer's licence if the licensed wholesaler did not.

MR WALKER: Yes, your Honour.

CALLINAN J: You say that that statement is not a correct statement of the effect of the section.

MR WALKER: That is right. We have to be licensed. If we are licensed and they buy from us, come period 5 or before period 5 when they are applying for their licence in period 5, they are able to say to the Commissioner, "Don't count towards any ad valorem component of the licence fee for us in period 5 what we bought from Rothmans in period 3, because in period 3, they were licensed". Now that is the relation and the only relation, your Honour, and it can be seen from that analysis together with the consequences of sections 46 and 47 in light of the overall view given by section 33A that it is not the case that in default of us paying licence fee for tobacco it follows by reason of that fact that the retailer does. It simply does not happen that way.

HAYNE J: Can I just work through a moment with you the way in which this works and the words of 41(c) and 41(3).

MR WALKER: May it please, your Honour.

HAYNE J: Section 41(c), the fee of X dollars:

together with an amount equal to 100 per cent of the value of tobacco sold by the applicant -

that is 100 per cent of the value of tobacco which the applicant for retailer's licence sells at retail.

MR WALKER: Yes.

HAYNE J:

in the course of tobacco retailing during the relevant period, disregarding any such tobacco -

"such tobacco" relevantly is the tobacco that has been sold at retail.

MR WALKER: And it has been purchased and, as your Honour obviously is aware, I have used periods 1, 3 and 5, but you cannot leave out of account in that example minus 1, 2 or 4 because the wholesale transaction, as your Honour Justice Gaudron has pointed out, has no necessary relation except as to inventory control by the retailer and success in trading with the time of the retail sale.

HAYNE J: But the relationship between 41(c) and 41(3) lies in the expression "the value of tobacco" being the value of tobacco which - - -

MR WALKER: Has been purchased.

HAYNE J: No. The value of tobacco spoken of is the value of tobacco that would ordinarily be brought to account in the second line of 41(c), "the value of tobacco" at retail.

MR WALKER: It is really the last two lines of 41(c). Yes, but, is the answer to your Honour's question, it is that component of that tobacco which you may disregard which is referred to in subsection (3). Subsection (3) is in the nature of a glossing or perhaps a limiting provision of a substantive requirement in 41(1)(c). The substantive requirement in 41(1)(c) is that in order for the value of tobacco sold by a retailer not to go towards an ad valorem licence fee it must have been tobacco which was at any time purchased from a licensee. Obviously, relevantly, a wholesaler. Then we are told in subsection (3) that in order to fit within what I will call the disregarded class of tobacco, which might be called licensed wholesale tobacco, it has to answer the description in subsection (3), but for the reasons, with great respect, well put by Justice Emmett - but I still do not want to stray into my notice of contention point - and accepted, with respect, by the majority of the Full Court, and clearly accepted by my learned friend, the language of 41(3) requires, on any reading, some pushing and pulling because it talks about "has paid or liable to pay".

If they were given their ordinary literal meaning you could never disregard any tobacco, if you were a retailer, purchased by a wholesaler, unless it was purchased a very long time before - - -

GUMMOW J: The question is, though - it is a temporal problem, is it not?

MR WALKER: Yes, and that is all it is.

GUMMOW J: At what point of time do you disregard, that is the question.

MR WALKER: It may be, your Honour, that it simply arms you in an argument against the Commissioner. When the Commissioner says, "Look, you - - -

GUMMOW J: I think it is at the time the fee is to be paid.

MR WALKER: That is the obvious and natural time, yes, your Honour.

GUMMOW J: Why can it not work?

HAYNE J: But the confusion lies in the introduction of value, repeatedly, in this.

MR WALKER: Yes, your Honour. If I may say so, your Honour, confusion is redoubled when the Minister then decides, for reasons best known to himself, to determine value in terms which include the word "price" and there are conundrums but they are partly alleviated if one does not give these words necessarily their ordinary meaning, treats them as integers in the arithmetic towards constructing a price to be paid for a licence - I should not say price - the money to be paid for a licence by way of a fee and then one asks what does 41(3) do in relation to the potential exposure of a retailer to pay the double that my learned friend repeatedly raises.

In our submission, the way in which the Full Court has interpreted it is not to be preferred and here I am in a notice of contention point, the way Justice Emmett argues it, with respect, turns out to be a more schematic way of giving 41(3) work to do. Either interpretation, or perhaps I could say, because there may be more than two, any interpretation will lead to oddities with respect to 41(3) which we know, as the Full Court has recorded, was added to section 41 - it was not there originally - added by dint of legislative activity unaccompanied by any illumination or enlightenment as to the perceived mischief or the objective aim of its provisions.

So we have to make some sense of it, but, in our respectful submission, what has happened in this case is that my learned friend in his argument has made 41(3) the keystone of the scheme. From a mere glance of the set out of the statute, it is and could not be the keystone of the scheme. The keystone of the scheme is the combination, ultimately, of section 28, section 41(1) and sections 46 and 47. Now, I do not say that that is the end of it, but those are the working parts, the main members of the machine to raise money.

GAUDRON J: Now, your argument assumes that no question will arise, does it, or your argument proceeds on the premise that no question will arise as to a licensee's liability for any one sale until the 27th of next month? Now, is that necessarily so?

MR WALKER: Necessarily so, yes, your Honour. If a retailer, your Honour, goes out of business, as they do, or sells their business, as they do, and does not take a licence, in the example I have given in period 5, it does not want a licence, then there is no question of the retailer being assessed with respect to period 5 to anything.

GAUDRON J: Exactly. Then if you read (3), as I would have thought, as meaning has paid, only if he has paid at the 27th of the next month or is thereafter liable to pay a licence fee, which is the only way it would sensibly seem to be able to be read - - -

MR WALKER: Yes, we accept that, your Honour.

GAUDRON J: - - - are they not right?

MR WALKER: No.

GAUDRON J: Is Mr Gageler's argument not correct?

MR WALKER: No, your Honour.

GAUDRON J: Unless by the 27th - though it may not be that his liability will immediately come home on the 27th, but it cannot come home before the 27th.

MR WALKER: No, it could. It could. If you bought the tobacco as a retailer in month 1, that would be a sale by a wholesaler, so that is going to be included in the assessment of the wholesaler's licence fee if it stays in business for period 3. If you are the retailer - - -

GAUDRON J: You keep saying period 3, but let us just deal - it is going to be in the wholesaler's - the wholesaler will have to pay it by the 27th of the next month.

MR WALKER: In order to be covered for what I am calling period 3.

GAUDRON J: Yes.

MR WALKER: There is the month in between. There is the relevant period, the month in between, and then the month covered by the licence, the fee for which is gauged by sales performance in the so-called relevant period. Now, for convenience and - - -

GAUDRON J: Now, assume your man with the van goes and sells Mr Gageler a carton of cigarettes I smoke today - - -

MR WALKER: I hope that does not mean your Honour has an interest in Justice Kirby's suggestion?

GAUDRON J: No, I do not deal with those particular retailers.

MR WALKER: Good.

GAUDRON J: The first time Mr Gageler's client would be liable to pay any duty on this, leave aside subsection (3), would be 27 July, or would it be 27 May?

MR WALKER: It is July, yes.

GAUDRON J: The first time you would be liable to pay anything on it would be 27 July also.

MR WALKER: No, is the answer to all of that. Your Honour has talked about only one transaction, the purchase by Mr Gageler from me - - -

GAUDRON J: And on the same day I buy - the cigarettes have been out of stock up until today and I have been waiting there for your delivery man.

MR WALKER: We will speak to them, your Honour. Bought and sold on the same day?

GAUDRON J: Yes.

MR WALKER: Thank you. Then the answer is, yes, and we will obviously be liable to pay, if we have not paid.

GAUDRON J: Yes. Now, what you might do in the meantime though, come 27 June, you may omit to pay your licence fee. Let us assume shortly before 27 June the receivers are appointed.

MR WALKER: Thank you, your Honour, yes, and we are insolvent.

GAUDRON J: And you are insolvent. But this whole transaction has proceeded on 2 May.

MR WALKER: Insolvency does not prevent the fact that you are liable. In fact, disappointed or unsatisfied liabilities are the stuff of the insolvent administration. We are liable. He never gets to pay - he does not have to pick up - he is not a guarantor of our solvency. Section 41(3) ensures that no tobacco slips through the net.

HAYNE J: And that is the key.

MR WALKER: Yes.

HAYNE J: And the key is, the State does not care who pays. It does not care whether it is retailer or wholesaler. What it - no, just let me finish, Mr Walker - - -

MR WALKER: Sorry, your Honour.

HAYNE J: It does not care who it gets it from but it does care that it gets it and it cares when it gets it. It requires it by the 27th of the month. So that if paid by the wholesaler by the date that the retailer's licence fee is due, or if the wholesaler is liable to, so be it. If not paid by the wholesaler, as a matter of fact, and if not liable to pay, the retailer shall pay.

MR WALKER: Yes, yes. And the last is the essential part: if not paid and not liable to pay. But here, clearly, there will be a liability to pay if you have wrongly not included, in the aggregate of the sales which produce the size of your licence fee, the value of that tobacco.

HAYNE J: No.

MR WALKER: That is what section - - -

HAYNE J: Liability to pay relevantly arising at the 27th of the month. And liability in respect of that tobacco. Your contentions seem to me to require a construction of 41(3), firstly, that faces this temporal element, or alternatively, assumes a particular form of stock management. What is essential is that if a retailer sells it before the liability in respect of that tobacco has come home to its wholesaler, the retailer shall pay.

MR WALKER: But another period on, obviously.

HAYNE J: Whenever - - -

MR WALKER: I think that is what your Honour is putting to me. It is included in the aggregate.

HAYNE J: Whether it is a period on or a period earlier, that is, if a retailer sells quickly.

MR WALKER: If by "quickly" your Honour means "in the same period as it purchased at wholesale" - the same day example Justice Gaudron gave me, then the dates, when the aggregates of the relevant period sales respectively by the wholesaler and by the retailer have to yield a fee to be proffered by each of them for their separate, respective licences, will be the same. Only if they are - - -

GAUDRON J: And if, on 23 June, the receivers come in - they ignore your new section, say "we are closing the doors, we will not be renewing our licence, we have no money", you say you are still liable.

MR WALKER: No, we are not liable, your Honour.

GAUDRON J: No. But Mr Gageler's client - - -

MR WALKER: But we would have - - -

GAUDRON J: - - - is then liable, when I come in and buy my packet.

MR WALKER: No, but there are consequences not under - there are consequences, then, under 33A, your Honour, because if we had done that, we would have done that without the requisite notices. And I gather that is what your Honour is talking about.

GAUDRON J: Yes, I understand that. But I also understand that people do not always, in commercial ventures, serve out - well, in a case of insolvency or appointment of a receiver, companies may not always do that.

MR WALKER: One does not have criminal offences but for the fact that conduct was expected by Parliament to occur, which requires to be sanctioned in that fashion. I accept that the existence of an offence suggests the occurrence.

GAUDRON J: So let us now forget about the receiver.

MR WALKER: There is no insolvency of course talked about - - -

GAUDRON J: No, no, exactly, let us - - -

MR WALKER: Not only in the facts of this case, if you will excuse me, your Honour, but also as to any of the relations between these parties giving rise to any of the mutual expectations or commercial background of their dealing.

GAUDRON J: Now, let us assume that you are not Rothmans for the moment, but you are a wholesaler who has somehow managed to get its hands on a good supply of a particular cigarette and probably it fell off the back of a truck, let us say, which I think is not unheard of in this industry, and it sells them to Mr Gageler today, I buy the packet from Mr Gageler today and you have already paid your $10 and perhaps a bit more.

MR WALKER: I am licensed?

GAUDRON J: Yes, let us assume you are licensed. Then you think, "Oh well, my supplier is letting me down, this is an irregular supply of this man who gets it from wherever that I don't really know about. I'll just sell out what is left in this van, what is left of my current supply, and I won't give him a licence". Mr Gageler is still liable, is he not, on the 27th?

MR WALKER: Yes, and, with respect, that is because of what Justice Hayne says.

GAUDRON J: Yes.

MR WALKER: Sales of tobacco are going to produce an ad valorem contribution.

GAUDRON J: Exactly.

MR WALKER: We, with respect, accept part of what Justice Hayne says in relation to the State does not care, although of course it is clear that there is a State interest in relation to the efficiency of taxes of this kind in dealing with as few and as formidable trading corporations as you can concentrate the liability to. That is a practical, perhaps fiscal, concern the State will have, but the face of the statute bespeaks the intention that sale of tobacco with the appropriate territorial nexus will produce an ad valorem contribution to State coffers from whomever of the parties, the personages which are singled out by this licensing scheme to make that contribution - - -

GAUDRON J: But what I am really coming to is that the precise construction and what you say is the hypothesis - well, first of all, the precise construction of 41(3) to the hypothesis does not really matter.

MR WALKER: Probably not.

GAUDRON J: And the second thing I was going to come to is this, that the hypothesis is not negatived by your construction.

MR WALKER: On no view could one see the relation between, for example, paragraphs 41(1)(b) and (c) as a relation which removes all concern on the part of retailers about the state of our fiscal relations with the State. That is all the more so given whatever interpretation you accord to 41(3) and in that regard, as we have said in our written submissions and repeat now, it is not critical to the outcome of any of the arguments which of those interpretations be correct but it is clear from this morning's argument that my learned friend says that the double payment which follows inexorably and simply from the failure to remit, to use a word adapted from his argument on our part, is that which justifies the various consequences under the various causes of action to which we will come and what I am trying to - - -

GAUDRON J: What the failure is is to maintain yourself as a licensee ultimately.

MR WALKER: Yes.

GAUDRON J: But that, and the term that is being suggested is, that for the purpose or to facilitate that purpose an amount equivalent to the money, not the exact money but an amount equivalent to that money will be paid to the Commissioner not later than 27 July. We are assuming the contract with respect to today's delivery.

MR WALKER: We understand that that is what is put against us, yes, and it is put that that is a contractual matter.

GAUDRON J: Yes. Your construction, it does not seem to me, negates it - does not negate it, I am sorry.

MR WALKER: Almost by definition, the interpretation of these parts of the statute could not negate of itself or as a matter of law an argument about the implication of the term or the interpretation of the term of a contract. However, what our construction does point out is that the liability to pay under 46 and 47 is one which, in our submission, will answer the description - I think your Honour Justice Gaudron put it this afternoon - is, thereafter, liable to pay because liability is obviously a state of legal relation that exists before payment and it may continue for an indefinite period.

In our submission, that is the case, if by accident or design it can be shown that the particular tobacco in question did not have its value included within an aggregate necessary by law to fix the price of the wholesaler's later licence fee. That liability descends, in our submission. It means that there will not be the automatic, inexorable, universal double payment that my learned friend now says was so important. The word was "critical" in the written submissions concerning the trading relations of these parties. It is important to note there is not a syllable of evidence suggesting that this critical matter was ever the subject of any communication, any assumption which was made express of any kind.

CALLINAN J: But, Mr Walker, take 4 August 1997.

MR WALKER: Yes, your Honour.

CALLINAN J: By that date the appellant would have paid to your client considerable sums of money identified on the invoices as tobacco licence fee, is that not right, in respect of sales made by your client during the period 1 July 1997 to 4 August 1997?

MR WALKER: Yes, your Honour.

CALLINAN J: Considerable sums of money identified as tobacco licence fee would have been paid, is that right?

MR WALKER: Yes, your Honour.

CALLINAN J: For sales during that period.

MR WALKER: Considerable sums of money have been paid including within all of them amounts which are for particular products and are for the second-bottom line of invoice, the TLF line.

CALLINAN J: Yes, and so much of the amount as has been in fact identified as tobacco licence fee from 5 August 1997 was no longer payable by your client to the revenue authority on that account, is that right?

MR WALKER: Yes, in this sense. The money does not become payable by us because it has, as it were, been charged by us. The money becomes payable by us to the Commissioner if we applied for a licence and it is money generated by a transaction which lawfully must be included in the aggregate of sales values which produce the size of our licence fee. Now, my learned friend has put an argument as if each time we received money that was, as it were, in advance for a future liability.

CALLINAN J: Can I ask you one other question? We will be adjourning soon, no doubt. Do you agree with the last sentence in paragraph 16 of the majority's judgment at page 521?

MR WALKER: In the normal course of events?

CALLINAN J: Yes.

MR WALKER: Yes.

CALLINAN J: Thank you.

MR WALKER: Now, that makes an assumption which is the normal course of events borne out by this case. We would remain in business continuing to hold a licence and they would continue, relevantly, to buy from us.

GLEESON CJ: Mr Walker, is that a convenient time?

MR WALKER: Yes, your Honour.

GLEESON CJ: How long do you expect to require for the remainder of your argument?

MR WALKER: I would expect about an hour and a half, your Honour.

GLEESON CJ: We will say that the next case in the list will be taken not before 11.00 and we will adjourn until 10.00 am.

AT 4.18 PM THE MATTER WAS ADJOURNED

UNTIL THURSDAY, 3 MAY 2001