[1993] HCA 4
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Source
Original judgment source is linked above.
Catchwords
[1993] HCA 4
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Judgment (5 paragraphs)
[1]
Judgment
LEEMING JA: Two interlocutory processes came before me on 12 May 2020 concerning a Deed of Settlement. The Deed required the third and fifth defendants to pay a Settlement Sum of $565,000 to the plaintiff within 28 days, following which releases would be given and the pending proceedings would be dismissed. The Deed defined the Settlement Sum to mean "$565,000 (inclusive of any GST) comprising, and to be payable, in the amounts of $515,000 by Alwin and $50,000 by Seow." The reference to Seow is to the fifth defendant, who paid $50,000 in accordance with the deed. However, the remaining $515,000 was unpaid, and the third defendant was made bankrupt after the deed was executed.
The plaintiff contended that the fifth defendant was liable to pay the full $565,000. The fifth defendant contended, either as a matter of construction, or alternatively through rectification, estoppel or unilateral mistake, that he was only ever liable to pay $50,000. For reasons given on 26 May 2020 I upheld the fifth defendant's construction, and indicated that were it necessary to resolve his claims in equity, I would have rejected them: In the matter of Jimmy's Recipe Pty Ltd (No 2) [2020] NSWSC 632.
As well as dismissing both interlocutory processes, I made the following order (order 3):
"Direct the plaintiff and the fifth defendant to provide agreed short minutes of order, or, failing agreement, orders for which they contend, together with short submissions in support, in relation to the return of the $50,000, any other directions for future conduct of the proceedings, and costs, within 14 days of today, with a view to any other dispute being determined on the papers. If either side contends that there should be an oral hearing, that contention and short reasons in support of it should be included in the document."
The parties sought and obtained an extension of time to comply with the terms of that order. On the afternoon of the last day (16 June 2020), both supplied short submissions.
It was agreed that there should be no order as to costs of either side's interlocutory process. For the achievement of that compromise, the parties are to be wholeheartedly congratulated.
However, there was no agreement as to the $50,000.
[2]
The parties' submissions as to the return of the $50,000
The fifth defendant advised that despite what had been found in the judgment and had been acknowledged during the hearing, he understood that the plaintiff now adopted a different position, which was that the $50,000 had been paid unconditionally. He said that he did not know how that assertion would be supported, at either the level of evidence or legal submission, and requested an opportunity to be heard if that were thought appropriate.
The plaintiff's written submissions were signed by Mr Smallbone, who had formerly been retained but who had not appeared on 12 May. Those submissions contended that there had not been a total failure of consideration of the $50,000 and that accordingly there was no basis for any restitutionary order. It was submitted:
"The payment of $50,000 was an unconditional payment of a specialty debt arising under the deed. It thus discharged an existing debt. The discharge of an existing debt is good consideration for the purposes of the law of restitution. It was not a term of the bargain that Mr Seow should receive a release as consideration for the payment of $50,000."
It was submitted that the relevant question when it is asserted that there is a total failure of consideration is a question of construction, by reference to David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382; [1992] HCA 48, Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 65, Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27 at [51] and [79], and Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 353-354, 378-379, 386-7, 390, 392-393; [1993] HCA 4. It was submitted that the release was expressly conditional upon payment of the entire settlement sum, and that neither Mr Seow warranted that Mr Chong would pay his part, nor vice versa. Nor was there a warranty that Mr Seow would obtain a release upon payment of $50,000.
The plaintiff submitted that:
"The correct approach is that the two payments were equally conditions for the releases to become effective in favour of all parties and that no party would obtain any release unless both payments were made. It follows that the provision of a release was not the bargained for consideration for the $50,000 debt. The obligation to pay that sum was unconditional and did not require consideration because it was a covenant by deed."
The plaintiff also advanced an alternative submission, based on the period between entry into the deed and time of payment. She submitted that she would not have been permitted to enforce the costs judgment during that period, and that, had she sought to do so, she would have been met by an answer that she had expressly or impliedly promised not to do so pending the payment of the Settlement Sum. It was then said that, as a general proposition, there will not be a total failure of consideration where there has been some substantial performance of the consideration under the contract. She relied on Mason CJ's judgment in Baltic Shipping at 350 to the effect that:
"If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration." (emphasis added by the plaintiff)
The plaintiff's submissions concluded:
"The strength of this position is seen in its application even to the case of partial failure of an entire consideration (where performance of part of the consideration has been accepted). Deane & Dawson JJ at 378 said that "ordinarily, … an entire and indivisible consideration will not wholly fail if part of it is tendered and accepted," and went on to pose the hypothesis of a customer who refuses to accept a tender of incomplete performance of an entire obligation as being entitled to recover money paid for a total failure of consideration, and see also at the top of 379. The emphasis in their Honours' reasons was on the loss of this right where there is an acceptance of incomplete performance even where the obligation is entire and indivisible.
It is submitted that for this additional reason there was not a total failure of consideration even if it be held that the release and bar were consideration for the payment of $50,000."
[3]
The course of the hearing of the interlocutory processes
Mr Seow's interlocutory process sought, by way of relief, "an order that the plaintiff pay, or cause to be repaid to the fifth defendant the sum of $50,000 paid to her, or at her direction, by the fifth defendant with interest in equity."
The litigation was conducted, as a final hearing of the two interlocutory processes, on the basis that if Mr Seow was only liable to pay $50,000 (which is what he contended), and not liable to pay the full $565,000 (which is what the plaintiff contended), then the release in the Deed would not take effect, the litigation would continue, and Mr Seow would be repaid the $50,000.
I sought to make this quite clear at the hearing. Early in the plaintiff's final address, there was the following exchange, parts of which I have emphasised:
"HIS HONOUR: Can I just get this off my chest so that either of you can tell me I've misunderstood something fundamental. The outcome you, Mr Barnett, seek in this hearing is to obtain an entitlement to judgment of the balance, 515,000, against the fifth defendant and, if you get that, then everything else goes away because then the release will be given under the deed and the consent orders will be made and so on.
BARNETT: Yes.
HIS HONOUR: On the other hand, what's put against you is that you were only ever entitled, either by contract or by some other extra contractual, estoppel, rectification, whatever, to 50,000 from the fifth respondent. He's done that. The balance of the settlement sum hasn't been paid and there doesn't look as though there's going to be any prospect of it being paid.
Therefore, the promises in the settlement deed won't have been performed and you'll have to pay back the $50,000 and the 2017 proceedings will resume and you'll have all your rights to enforce the costs orders, the contempt, and the underlying rights. That's where we are.
BARNETT: Yes.
HIS HONOUR: Mr Greenwood, have I understood what this litigation before me is about? See, in other words, success for you is you get $50,000 back and back we go to wherever the 2017 proceedings were up to?
GREENWOOD: Yes, certainly we go back to wherever the 2017 proceedings were up to. The actual $50,000 depends upon the relief that you grant.
HIS HONOUR: I don't fully understand that, but I think I probably don't need to at this stage.
BARNETT: Can I just take up that point? What you said is my understanding exactly, which is that, yes, we could - and in the event that we lose, we will have to - enforce, continue with the proceedings as against whoever is remaining that's solvent. One consequence of that, I would imagine, would be that, as a total failure of consideration, there would be some form of restitutionary obligation to repay or account for the 50,000 because we couldn't take the benefit of that and then run the proceedings. Exactly how that works out, I'm not sure, but it would be something along those lines.
That was always contemplated by the form of these releases, that nothing happens in a release sense until a full sum is paid. So, in the usual way for an accord and satisfaction, we have an election when the sum is not paid. We can either seek to recover it or, if we can't recover it, we can sue on the underlying proceedings, but the difference being, if this was an accord and immediate satisfaction, our only rights would be to enforce the deed. That's a little neutral in terms of construction. It certainly explains to some extent why none of the parties really turned their mind to joint versus several in those terms at the time because everyone obviously has in mind that if the full amount is not paid then the plaintiff can, if it elects to, continue with the underlying proceedings. The real issue is whether, in this case, Mr Alwin Chong being unable to pay, it's forced to continue with the proceedings or whether it's allowed to elect to recover against Mr Seow."
I returned to the qualification made by Mr Greenwood at the conclusion of his submissions:
HIS HONOUR: This reminds me, Mr Greenwood, you said, and I think I said at the time I didn't fully understand it, any entitlement to be repaid $50,000 would depend upon an order that I might make?
GREENWOOD: It depends upon the form of relief. If the deed stands as it is, namely, that the payment has been made and, to that extent, the plaintiff decides to accept that payment and waive any other requirement, then the payment doesn't come back and the releases can be given. ..."
Mr Barnett thereafter made his submissions in reply. He said nothing concerning the repayment of the $50,000.
Mr Smallbone had not appeared at the hearing. Mr Barnett appeared in his place for the plaintiff. Even so, in the three weeks which followed delivery of judgment, it must have become clear that the hearing had been conducted on the basis reproduced above. Paragraph [5] of the judgment was as follows (emphasis added):
"It was confirmed during the hearing (T59.38-60.39) that it was common ground that the release in the deed is executory and conditional, and is only operative upon receipt of the full $565,000 in a nominated account. That is to say, it was common ground that, to paraphrase the language of Dixon J in McDermott v Black (1940) 63 CLR 161 at 183; [1940] HCA 4, performance of the payment of $565,000, not the mere promise to pay that amount, was what was taken by Sim in place of her causes of action in the proceedings. The 2017 proceedings remain on foot, and in the event that the $565,000 is not paid, they will continue unless otherwise resolved. Thus, if Seow is right, and he is only obliged to make payment of $50,000, then unless some further compromise is reached, he will be entitled to the return of the money and the proceedings will continue."
The first of the two passages of transcript reproduced above is the passage from pages 59 and 60 of the transcript to which reference is made in paragraph 5 of the judgment.
The reference in paragraph [5] to Mr Seow being entitled to the return of the money "unless some further compromise is reached" was intended by me to pick up the suggestion made by Mr Greenwood in the second of the exchanges reproduced above that in the event that Mr Seow's liability under the Deed was confined to $50,000, the plaintiff might wish to consider whether to retain that amount and release Mr Seow. That has not occurred (I should not be understood as making any implied criticism of the plaintiff for taking that course).
After expressing my conclusions on the interlocutory processes, I said at [163]:
"I will give the parties an opportunity to be heard as to any further orders which are appropriate, including orders for the return of the $50,000 and the further conduct of the underlying proceedings, which will need in due course to attend to the bankruptcy of Alwin and Norannie."
That paragraph proceeds on the basis that the $50,000 would be returned, consistently with the common position confirmed during the hearing.
It will also have been noted that order 3, reproduced above, proceeds on the basis that the $50,000 will be returned.
The consequences of the foregoing are tolerably clear.
1. There was a trial of the issues arising on the two interlocutory processes. Those issues included Mr Seow's claim to an order for the return of $50,000 plus interest arising on his interlocutory process.
2. It was confirmed by counsel then appearing for the plaintiff that if the plaintiff's construction was rejected, she would have to repay the $50,000. Submissions expressly proceeded on that basis.
3. The Court's reasons and order explicitly reflected that common ground.
4. The plaintiff's contention that she does not have to repay the $50,000 is inconsistent with what the plaintiff said by her counsel then appearing for her at trial, and the basis on which the trial was conducted.
5. The plaintiff's contention is also inconsistent with this Court's reasons and order that she return the $50,000.
I appreciate that Mr Smallbone did not appear at the hearing. Yet I find it difficult to doubt that any of this could take counsel now appearing for the plaintiff by surprise. The submissions also purport to be co-authored by Mr Chan, although they are not signed by him. Mr Chan was Mr Barnett's junior at trial. And the common ground as to the return of the $50,000 was explained early in the judgment, with a reference to the transcript. I mention this because conspicuous by its absence from the plaintiff's elaborate submissions as to the absence of a total failure of consideration is any explanation of why the Court might be minded to permit her to depart from what had been admitted at trial. I see no reason to give the plaintiff a further opportunity to explain why she contends she may depart from the course to which she adhered at trial, and how her submission falls within what was envisaged by order 3.
I reject the plaintiff's submission that she need not return the $50,000. I do so because it is inconsistent with the way the trial was conducted, and inconsistent with the reasons and orders of the Court.
Because there was never any issue that the plaintiff would have to repay the $50,000 if her construction of the Settlement Deed were rejected, no attention was given to the juristic basis of Mr Seow's entitlement to its return. I do not see why (and the plaintiff does not explain why) the only basis on which Mr Seow is entitled to the return of the $50,000 is a total failure of consideration, (nor should I be taken to have accepted the plaintiff's submission that there has not been a total failure of consideration). There is the possibility of an implied term in the Deed, for the recovery of a payment which, as it turns out, is wholly worthless. Further, the prayer in the fifth defendant's interlocutory process seeking the return of the $50,000 invoked equity, and it is scarcely unprecedented for equity to require a person who has received money for a particular purpose, which has failed, to require its return (see Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491). Test the matter this way. Although there were presently existing quantified debts owed by other defendants to the plaintiff, there was none owed by Mr Seow. One possibility is that the litigation proceeds and Mr Seow is wholly successful. Sometimes the law can produce odd results, but it is to be doubted that Mr Seow could not in those circumstances recover the $50,000.
The ways in which Mr Seow may be entitled to the return of the $50,000 are not without legal interest. But none was developed at trial, because of the parties' common position, and none has been developed in submissions on orders, because the plaintiff's submissions were supplied on the afternoon of the last day, and the fifth defendant advises that he was not told of the basis for the plaintiff's volte face. I considered inviting Mr Seow to supply submissions in response to what was now advanced, but concluded that would lead only to further delay and cost without appreciable benefit to him.
It is sufficient that my decision rest upon the way in which the parties conducted the trial and the reasons and orders of the Court.
[4]
Orders
For those reasons, I will order the plaintiff to pay, or cause to be repaid to the fifth defendant the sum of $50,000 within 7 days. Those words are taken from the fifth defendant's interlocutory process. They carry with them some ambiguity as to their meaning, and so I should add, lest there be any doubt, that they are not to be regarded as a mandatory injunction, breach of which is a contempt of Court. In the unlikely event that there is any difficulty with the return of the money, I grant liberty to apply on 2 days' notice to my Associate for any application for an order which will support a bankruptcy notice or a garnishee order or a writ.
No submission was made contrary to the fifth defendant's claim for interest. I proceed on the basis that the plaintiff has had the use of his money since it was paid on 23 March 2020. Pre-judgment interest is presently 4.75%. Simple interest at that rate for 87 days amounts to $566.
The plaintiff should pay the fifth defendant's costs of the application for further orders. Otherwise, the orders as to costs will be as formulated by the parties.
The parties have also exchanged competing submissions concerning the future conduct of the litigation. That is a question of case management which is best dealt with by the Corporations List Judge. I shall stand the proceedings into the Corporations List on Monday 29 June 2020 for further directions.
[5]
Amendments
19 June 2020 - [32]: "fifth defendants'" changed to "fifth defendant's"
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Decision last updated: 19 June 2020