The Third Issue - Mrs Lloyd's restitution case
161 This issue is whether the primary judge erred in rejecting Mrs Lloyd's restitution case. It is raised by grounds 1 to 7 of Mrs Lloyd's cross-appeal and ground 1 of the notice of cross-contention filed by Belconnen and Messrs Hindmarsh and Ryan.
162 By grounds 1 to 7 of Mrs Lloyd's notice of cross-appeal, she contends, in summary, that:
(a) the primary judge erred in construing cl 24.5 of the Lloyd Contract as a warranty by Belconnen to Mrs Lloyd that the sale of the residential unit was a taxable supply for the purposes of the GST Act (Reasons, [43(5)], [308]-[310], [373]);
(b) the primary judge erred in failing to find that, on its proper construction, cl 24.5: (i) does not contemplate the possibility that the sale of the residential unit would not be a taxable supply; (ii) does not provide a remedy in the event that the sale of the unit is not a taxable supply; (iii) was only intended to protect the position of a buyer who wishes to and can apply the margin scheme; and (iv) has no operation where the buyer does not wish to or cannot apply the margin scheme;
(c) the primary judge erred in finding that no restitutionary remedy was available to Mrs Lloyd because the contract appropriately allocated the risk that the sale would not be a taxable supply (Reasons, [310], [373]);
(d) the primary judge erred in finding that no restitutionary remedy was available to Mrs Lloyd in circumstances where there was no contractual remedy, or satisfactory contractual remedy, available;
(e) the primary judge ought to have ordered Belconnen to account to Mrs Lloyd for money had and received in an amount equivalent to the full amount of the GST payable by Mrs Lloyd under the contract;
(f) the primary judge ought to have ordered Belconnen to account to the Altitude Group Members for money had and received in an amount equivalent to the full amount of the GST payable by the group members; and
(g) the primary judge ought to have rejected Belconnen's purported change of position defence to the claim for money had and received.
163 By ground 1 of the notice of cross-contention, Belconnen contends that the conclusion of the primary judge should be affirmed on the following additional grounds (in summary):
(a) there was no failure of consideration upon which an action for money had and received could be maintained, including because: Mrs Lloyd and the Altitude Group Members were contractually obliged to pay the entire purchase price, whether or not GST was remitted to the ATO; such an action could only be maintained upon a total failure of consideration, which has not occurred when Mrs Lloyd and the group members became the registered proprietors of the leases of the residential units in exchange for payment of the purchase price; and/or the consideration for the transfer of title did not include any distinct and severable portion referable to GST;
(b) there was no relevant mistake founding a claim for money had and received, in circumstances where: the contract remained valid and effective; the full purchase price was required to be paid under the contract upon settlement in exchange for the transfer; there was no distinct and severable portion of the purchase price referable to GST; and/or the primary judge found, correctly, that Mrs Lloyd would have entered into the contract at the same purchase price (and paid the same price) had she known at the time that GST was not payable, or would not be paid, at settlement (Reasons, [354]); and
(c) it would be inequitable in all the circumstances to require Belconnen to make restitution to Mrs Lloyd and/or group members, or in the alternative to make restitution in full, in circumstances where Belconnen changed its position by: (i) amending its GST returns; (ii) repaying to the Commissioner amounts equivalent to the input tax credits previously claimed; (iii) forgoing input tax credits; and (iv) incurring other costs connected with the changes to the GST treatment of the sales.
164 As set out above, in dismissing Mrs Lloyd's restitution case, the primary judge relied on essentially the same reasons as for Mr and Mrs Eppelstun's case: see the Reasons, [373]. In summary, in relation to both Mr and Mrs Eppelstun's case and Mrs Lloyd's case, the primary judge held that the claim for money had and received was unavailable in circumstances where the contract of sale (specifically, cl 24.5) applied (or was engaged) and provided a right to damages: see the Reasons, [308]-[310], [373]. In so concluding, the primary judge relied on the judgment of Kiefel CJ, Bell and Keane JJ in Mann v Paterson at [24].
165 In our view, for the reasons that follow, the primary judge was correct to conclude that Mrs Lloyd's restitution case failed. However, our reasons for reaching this conclusion are different from those of the primary judge.
166 Mrs Lloyd's claim for money had and received relies on two alternative bases - total failure of consideration and mistake. We will focus, first, on the claim based on a total failure of consideration. Mrs Lloyd alleged in the statement of claim that "a distinct and severable portion of the Price paid by [Mrs Lloyd] and each of the Group Members to Belconnen Lakeview was referable to GST". It was alleged that "there was a failure of consideration in respect of each Contract in that Belconnen Lakeview was not liable to pay GST in respect of the sale of the unexpired term of a Unit Lease for a Unit". It was alleged that, by reason of the failure of consideration, Belconnen was liable to repay "an amount equivalent to the component of the Price referable to GST to [Mrs Lloyd] and each of the Group Members".
167 Mrs Lloyd's claim for money had and received on the basis of a total failure of consideration relies heavily on the reasoning of the High Court in Roxborough. In brief and slightly simplified outline, the facts of that case were as follows. The appellants (the Retailers) were each retailers of tobacco products and holders of a retailer's licence granted pursuant to the Business Franchise Licences (Tobacco) Act 1987 (NSW) (the NSW Act). The respondent (Rothmans) was a wholesaler of tobacco products and the holder of a wholesaler's licence under the NSW Act. In the period between 1 July and 5 August 1997 (the relevant period), Rothmans supplied tobacco products to each of the Retailers. On 5 August 1997, the High Court held in Ha v New South Wales (1997) 189 CLR 465 (Ha's Case) that the NSW Act was invalid as imposing an excise contrary to s 90 of the Commonwealth Constitution. The NSW Act had imposed a license fee in a nominal sum on the retail and wholesale sale of tobacco and an additional ad valorem fee, calculated by reference to 100 per cent of the value of the tobacco sold in the period preceding the licence period. Rothmans' invoices identified separately as subtotals: (a) the wholesale list price of the goods sold; and (b) an amount representing the ad valorem licence fee. The invoices also set out the total amount due, being the sum of the two subtotals. The Retailers sued Rothmans in the Federal Court to recover sums equal to the amounts shown as "tobacco licence fee" in seventy-four identified invoices supplied to them by Rothmans in the relevant period. The Retailers had paid those sums to Rothmans within or shortly after the relevant period. Rothmans had retained them once the judgment in Ha's Case was handed down. The High Court held by majority (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ; Kirby J dissenting) that there had been a failure of a distinct and severable part of the consideration for the purchase of the goods, so that there was a total failure of that consideration. Accordingly, the amount claimed was recoverable as money had and received. It was further held that the amount was recoverable by the Retailers notwithstanding that when they had sold goods to their customers they had charged prices which covered the cost of the amount they sought to recover from the wholesaler.
168 Mrs Lloyd relies on an analogy with Roxborough. Mrs Lloyd contends that there was a total failure of consideration with respect to a severable component of the purchase price, namely the component referable to GST, and claims recovery of that component by way of a claim for money had and received. The quantum of that component, in Mrs Lloyd's case, is said to be $46,759, being the GST that would have applied to the sale of the unit had the supply been a taxable supply and subject to the margin scheme (as set out in Annexure A to the Reasons).
169 In our view, on the facts of this case, a severable component of the purchase price cannot be identified. Accordingly, there was no total failure of a severable part of the consideration.
170 First, neither the contract nor any other contemporaneous document passing between the parties identified the amount that was referable to GST. It is important to note that the contract was prepared on the basis that the margin scheme would apply to the supply. Thus, this was not the ordinary case where the GST was 1/11 of the value of the supply. Rather, a somewhat complicated calculation would need to be carried out to determine the margin applicable to the supply of the interest, and thus to determine the GST. It will be recalled that Belconnen originally acquired a Crown lease. This was later subdivided into leases with respect to each residential unit. In these circumstances, calculation of the margin applicable to each lease for the purposes of the margin scheme was not straightforward. The GST amount, being 1/11 of the margin, was later agreed between the parties for the purposes of the proceeding as being $46,759, but there is no suggestion that that amount was known to, or even able to be calculated by, Mrs Lloyd at the time of contracting.
171 Secondly, while the contract was prepared on the basis that the supply would be a taxable supply subject to the margin scheme, this was merely the anticipated nature of the supply. The contract itself recognised that the actual nature of the supply for GST purposes at settlement might be different from that anticipated in the contract. This is seen, for example, in cl 24.6 (see [52] above). This is a matter that was recognised by the primary judge and informed his Honour's adoption of the Post-Ruling Representation rather than the "GST Representations" pleaded by Mrs Lloyd in the context of the misleading or deceptive conduct case. In the events that happened, the relevant supply from Belconnen to Mrs Lloyd (of the unexpired term of the lease of the relevant residential unit) was an input taxed supply and not a taxable supply. Accordingly, no GST was payable in respect of the supply. In these circumstances, it is inaccurate to speak of there being a component of the purchase price referable to GST. Rather, it was anticipated that there would be a component of the purchase price that would be referable to GST.
172 We note that under cl 24.7 of the Printed Terms (see [52] above), the Seller was required on completion to give the Buyer a tax invoice for any taxable supply by or under the contract. However, that provision referred to "any taxable supply". In the events that happened, the supply from Belconnen to Mrs Lloyd was not a taxable supply and therefore that obligation did not operate. The invoice foreshadowed by that clause does not, therefore, on the facts of this case, overcome the difficulties outlined above.
173 Further, Mrs Lloyd acquired the unexpired term of the lease of the relevant residential unit and there was no evidence at trial that the unit was worth anything less than the amount she paid at the time of purchase (Reasons, [336]). In the circumstances, Mrs Lloyd obtained the full benefit for which she paid the purchase price. This is a further reason why, in the present case, there was not a total failure of consideration (or a total failure of a severable part of the consideration).
174 We note also that any liability for GST on the supply fell on Belconnen as the supplier; it did not fall on Mrs Lloyd, the purchaser. This provides a further distinction with Roxborough, where the Retailers had an interest in the licence fees being paid by the wholesaler, as this relieved them of a corresponding liability: see Roxborough at [16]. It was in this context that Gleeson CJ, Gaudron and Hayne JJ observed at [17] that it was in the "common interests" of the parties that the fees, when incurred, would be paid to the revenue authorities.
175 In light of the above, there was no severable component of the consideration referable to GST. It is therefore not possible to say that there was a total failure of consideration with respect to a severable component of the consideration. By reason of the facts and matters set out above, the present case is materially different from Roxborough.
176 Insofar as Mrs Lloyd's claim for money had and received is based on mistake, this aspect of the claim was given little attention in the parties' submissions. There would seem to be a number of difficulties with claiming recovery on this basis, including that, for the reasons set out above, there was no severable component of the purchase price referable to GST. Accordingly, there is difficulty in identifying a component that was paid by mistake.
177 For these reasons, we agree with the primary judge's conclusion that Mrs Lloyd's restitution case failed, albeit for different reasons.
178 In light of the above conclusion it is unnecessary to consider whether the contract in the present case precluded a claim for money had and received. However, we make the following observations for the sake of completeness, in circumstances where this formed the basis of the primary judge's decision on this claim.
179 In Mann v Paterson, the High Court, by a majority (Gageler, Nettle, Gordon and Edelman JJ; Kiefel CJ, Bell and Keane JJ dissenting) held that, in respect of any stages of the contract in issue that had not been completed at the time of termination (other than for variations), the builder had, as an alternative to a claim for unliquidated damages for breach of contract, a right to recovery on a quantum meruit for work and labour done, not exceeding a fair value calculated in accordance with the contract price or the appropriate part of the contract price. It should be noted that Mann v Paterson was concerned with a claim for recovery on a quantum meruit rather than a claim for money had and received, which is the type of claim in the present case. Nevertheless, the conclusions and reasoning are of assistance given that both types of claim seek restitution.
180 Justice Gageler drew a distinction between work for which the builder had accrued a contractual right to payment, where an action for restitution was unavailable (see [64]), and work for which the builder had not accrued a contractual right to payment (described as category (3)). In respect of that category, Gageler J framed the issue as follows at [65]:
More difficulty attends the outcome in relation to work done within category (3). Determining the outcome requires this Court to make a choice. Should the Builder be restricted in respect of that work to enforcing the Builder's undoubted entitlement to recover damages for loss occasioned to the Builder in consequence of the termination of the Contract? Or should the Builder be able to elect to recover instead an amount representing the value of the work by way of restitution on a non-contractual quantum meruit?
181 In respect of that category, his Honour concluded that the law should allow an innocent party to maintain a non-contractual quantum meruit as an alternative to an action for unliquidated damages for breach of contract (at [83], [85], [91], [105]). His Honour stated at [91]:
In my opinion, the problem is more appropriately addressed by limiting the measure of restitution than by denying the availability of the common law action for restitution. If the measure of the value of the services rendered by the innocent party is capped by reference to the contractually agreed remuneration for those services - the contract price - the distortion is substantially eliminated.
182 His Honour expressed the following conclusion at [105]:
The preferable outcome, in my opinion, is accordingly that the Builder can recover from the Owners by way of restitution on a non-contractual quantum meruit an amount in respect of the work done by the Builder for which the Builder had accrued no contractual right to payment under the Contract at the time of its termination. The amount recoverable is a liquidated amount representing reasonable remuneration for the work. That amount cannot exceed the portion of the overall price set by the Contract that is attributable to the work.
183 In a joint judgment, Nettle, Gordon and Edelman JJ also held that, with respect to uncompleted stages of the contract (in respect of which the builder had not accrued a contractual right to payment) (that is, a category corresponding to category 3 as referred to above), the builder had, as an alternative to a claim for unliquidated damages for breach of contract, a right to recovery on a quantum meruit (at [176], [177], [192]-[197], [215]). Their Honours stated at [176]:
Generally speaking, a construction contract which is divided into stages, and under which the total contract price is apportioned between the stages by means of specified progress payments payable at the completion of each stage, is viewed as containing divisible obligations of performance. In that event, where at the point of termination of the contract by the builder's acceptance of the principal's repudiation some stages of the contract have been completed, such that progress payments have accrued due in respect of those stages, there will be no total failure of consideration in respect of those stages. The builder will have no right of recovery in restitution in respect of those stages, and the builder's rights in respect of those completed stages will generally be limited to debt for recovery of the amounts accrued due or damages for breach of contract. But if there are any uncompleted stages, there will be a total failure of consideration in respect of those stages due to the failure of the builder's right to complete the performance and earn the price. In that event, there will be nothing due under the contract in relation to those stages, and restitution as upon a quantum meruit will lie in respect of work and labour done towards completion of those uncompleted stages.
(Footnote omitted.)
184 Further, their Honours stated at [215]:
It is, therefore, appropriate to recognise that, where an entire obligation (or entire divisible stage of a contract) for work and labour (such as, for example, an entire obligation under or an obligation under a divisible stage of a domestic building contract) is terminated by the plaintiff upon the plaintiff's acceptance of the defendant's repudiation of the contract, the amount of restitution recoverable as upon a quantum meruit by the plaintiff for work performed as part of the entire obligation (or as part of the entire divisible stage of the contract) should prima facie not exceed a fair value calculated in accordance with the contract price or appropriate part of the contract price.
185 The conclusion of the majority is to be contrasted with the view of the minority, comprising Kiefel CJ, Bell and Keane JJ, that a right to recovery on a quantum meruit was unavailable with respect to the uncompleted stages of the contract in circumstances where the builder could claim damages for breach of contract (at [13], [20], [22], [24], [30]-[32], [37], [53]). Their Honours dealt with accrued contractual rights at [19], stating that, in circumstances where the builder has an enforceable right to money that has become due under the contract, there is no room for a right to elect to claim a reasonable remuneration. Their Honours then turned to damages for loss of bargain, and stated at [20]:
The same may be said where, as in the present case, the innocent party has an enforceable contractual right to damages for loss of bargain. The extent of the obligation to pay damages for loss of bargain, governed as it is by the terms of the terminated contract, reflects the parties' allocation of risk and rights as between each other under the contract. To allow a restitutionary remedy by way of a claim for the reasonable value of work performed unconstrained by the terms of the applicable contract would undermine the parties' bargain as to the allocation of risks and quantification of liabilities, and so undermine the abiding values of individual autonomy and freedom of contract.
186 Their Honours stated at [22]:
To allow a restitutionary claim for quantum meruit to displace the operation of the compensatory principle where the measure of compensation reflects contractual expectations would be inconsistent with what Gummow J described as the "gap-filling and auxiliary role of restitutionary remedies". Similarly, from an American perspective, it has been said that "the noncontractual remedy was originally allowed as a way to fill important gaps in contract remedies, providing compensation in damages that contract law now affords directly". Further, the restitutionary claim for quantum meruit cannot be supported on the basis that it is needed to prevent the defaulting party from being unjustly enriched because "a party who is liable in damages is not unjustly enriched by a breach of contract and indeed is not enriched at all".
(Footnotes omitted.)
187 Their Honours distinguished cases of restitution such as Roxborough, where payments of money were held to be recoverable because of the failure of the basis on which the payments had been made by the payers (at [23]), and stated at [24] (a passage relied on by the primary judge):
In Roxborough, consistently with the view later taken in Lumbers, Gummow J explained that restitutionary claims, such as an action to recover moneys paid on the basis of a failure of consideration, "do not let matters lie where they would fall if the carriage of risk between the parties were left entirely within the limits of their contract". His Honour was at pains to explain that where a plaintiff already has "a remedy in damages … governed by principles of compensation under which the plaintiff may recover no more than the loss sustained", allowing the plaintiff to claim "restitution in respect of any breach … would cut across the compensatory principle" of the law of contract.
(Footnotes omitted.)
188 Their Honours stated at [53] that it was not necessary to consider the position in other contexts or with respect to other restitutionary claims, given that the case before the High Court was concerned only with a claim for remuneration for work and labour done under a contract terminated for repudiation or breach.
189 The implication of the conclusion and reasoning of (at least) the majority in Mann v Paterson for present purposes is that, if (contrary to our conclusion above) Mrs Lloyd were able to establish that there had been a total failure of a severable part of the consideration, it may have been open to her to claim for money had and received as an alternative to a claim for damages for breach of contract: see also Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 355, 358, 359 per Mason CJ; Roxborough at [16] per Gleeson CJ, Gaudron and Hayne JJ.
190 If Mrs Lloyd had been able to establish a total failure of a severable part of the consideration, the key question would have been whether cl 24.5, properly construed, comprehensively covered the situation relating to GST, such as to exclude a claim for money had and received. Clause 24.5 (set out at [52] above) stated that, if the contract said that the Buyer and Seller agree that the margin scheme applies to the supply of the property, "the Seller warrants that it can use the margin scheme and promises that it will". The Lloyd Contract did state that the Buyer and the Seller agree to apply the margin scheme (see [50] above). Thus, it is true that the opening condition or premise of cl 24.5 was satisfied. However, unlike cl 24.6, cl 24.5 did not specifically deal with a situation where the contract said that the sale was a taxable supply and the sale was not in fact a taxable supply. In the context of the margin scheme provisions of the GST Act, cl 24.5 would appear to be directed to the interest of a commercial purchaser in being able to use the margin scheme for a future sale. It does not seem to be intended to deal with a situation where the contract said that the sale was a taxable supply and the sale was not a taxable supply.
191 In conclusion, for the reasons set out above, we uphold the primary judge's rejection of Mrs Lloyd's restitution case on the basis of ground 1 of the notice of cross-contention filed by Belconnen and Messrs Hindmarsh and Ryan. (It is unnecessary to deal with all aspects of ground 1 of the notice of cross-contention, such as the change of position defence.) It follows that Mrs Lloyd's challenge to the primary judge's conclusion on this part of the case is to be dismissed.