Burner v Sanctuary Homes Pty Ltd and Dimov

Judgment

1. THE COURT: On 1 July 2009 the appellant, Lee Burner, entered into a contract for the purchase of a townhouse at St Marys in western Sydney. The purchase price was $317,000. The builder and vendor was Sanctuary Homes Pty Ltd, the principal of which was John Dimov. The builder was anxious to obtain an early settlement and it was agreed that the purchase would be completed before the building work was finished. It was also agreed that 10% of the purchase price would be retained by the purchaser's conveyancer in her trust account, to be released to the builder once the building work was completed and an occupation certificate was issued. Settlement occurred on 12 August 2009.
2. On 18 September 2009 the appellant directed her conveyancer to release the amount held on trust by repayment to the appellant.
3. There was an ongoing dispute between the parties as to whether the required works had been completed. On 21 October 2010 Penrith City Council issued an occupation certificate. The following day Mr Dimov sent Ms Burner a letter noting that the occupation certificate had been issued and that the balance of the payment was due. The letter threatened legal action if the amount was not paid. He expanded on the vendor's entitlement to the funds in a further letter of 29 October 2010.
4. On 24 February 2017 proceedings were commenced by Mr Dimov and Sanctuary Homes in the District Court. Although the oral agreement was pleaded, together with an allegation that the appellant had breached the agreement, the cause of action relied upon was not simply for breach of contract. That was because, by the time the proceedings were commenced, such a claim would have been barred pursuant to s 14 of the Limitation Act 1969 (NSW). Rather, a claim was pleaded on the basis that the appellant had made "a number of false and deceptive representations", [1] known to the appellant to be "false", [2] and had "breached the verbal agreement with the plaintiffs by way of fraud and/or deceit." [3]
5. There was also a pleading that the conveyancer, who had held the funds in her trust account had acted in breach of the agreement (to which she was not alleged to have been a party) and in "breach of the trust" in dispersing the funds to the appellant. The appellant was said to be a party to or privy to the breach of trust, although counsel for the plaintiffs eschewed any claim in equity. Finally, the statement of claim alleged that as a consequence of the "breach of agreement, breach of trust and deceit" the plaintiffs had suffered loss and damage which were particularised as the refusal to pay the moneys due to them together with "consequential loss." [4] No consequential loss was established and the case turns on the claim for the balance of the purchase price and interest.
6. The purpose of pleading a cause of action in fraud or deceit was apparently to obtain the benefit of s 55(1) of the Limitation Act which provides as follows: 55 Fraud and deceit (1) Subject to subsection (3) where: (a) there is a cause of action based on fraud or deceit, or (b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.

District Court proceedings

1. The trial in the District Court took place on 30 November 2017. The trial judge delivered judgment on the following day, 1 December 2017.
2. The Court gave judgment "for the plaintiffs" against Ms Burner in the sum of $31,700, together with interest which was later agreed at an amount of some $15,350.
3. The trial judge set out in his reasons the submissions and the evidence given. He made the following factual findings: [5] "1. That there was an oral agreement made on 11 August 2009, between Mr Dimov and Ms Burner, that in consideration of [the] second defendant [Ms Burner's conveyancer] retaining 10% of the purchase price of the property, namely the sum of $31,700, the first plaintiff, Mr Dimov, on behalf of the second plaintiff, would attend [to] certain building work to rectify defects in Unit 8, as identified by Ms Burner. Further, that the defendant agreed to proceed to completion of the sale on the following day, namely 12 August 2009. 2. I find that completion did take place on 12 August 2009. 3. I further find that an inspection of the premises took place on 17 September 2009, by the defendant, Mr Dimov and Mr Macpherson. Following that inspection, the defendant said she was happy with the state of the premises and on that basis, the keys were handed by the agent, Mr Macpherson, to her. 4. I find that on or about 18 September 2009 the defendant authorised the second defendant to release the funds, the subject of these proceedings, to her, without the authority of or the knowledge of the plaintiffs. I find that this was done by the defendant to deprive the plaintiffs of that money, and that she has refused to pay the plaintiffs that money ever since. 5. I further find that that was money to which the defendant had no entitlement, and she was fraudulent in obtaining it and continuing to refuse to pay it in the sense that her conduct in so doing was unconscionable."
4. The judge then turned to the defences and set out the submissions of each party with respect to those matters. Relevantly for present purposes, he dealt first with the Limitation Act defence and the application of s 55. His conclusions were to be found in two passages: [6] "I find that this is an action based on fraud to which s 55 applies. It is not a case of concealment. However, the fraud here was a continuing one. Annexure E to Mr Dimov's affidavit - namely, the letter he wrote to Ms Burner on 29 October 2010, makes it clear that as at that time, Mr Dimov regarded the matter as an outstanding debt. I accept the plaintiff's submission that the full extent of Ms Burner's fraud - namely her unconscionable conduct - became discoverable only upon the conclusion of the CTTT proceedings, namely on 14 November 2012, and therefore s 55 of the Limitation Act applies to extend the time for bringing the proceedings. I therefore find that the limitation defence relied on by the defendant fails. … It is clear from the above that I have not accepted the defendant's submissions in this case. Whilst a breach of agreement may have occurred on 17 September 2009 or more correctly on 18 September 2009, the defendant's fraud was a continuing one, in the sense that her unconscionable conduct continued up and until the conclusion of the CTTT proceedings, when it became clear that she was not going to repay the money. The defendant's submissions with respect to concealment, therefore, do not apply here, and were misconceived." The judge rejected a submission that "the fraud" had not been pleaded.
5. Pursuant to leave granted on 30 July 2018, Ms Burner has appealed from the judgment in the District Court. The only issues raised on the appeal concerned the findings made with respect to operation of s 55(1)(a) of the Limitation Act.

Determination of appeal

1. The trial judge obtained little assistance from the pleadings. This was unfortunate for the obvious reason that, in order to apply s 55(1)(a) of the Limitation Act, he needed to be satisfied that (i) the plaintiff's cause of action was based on fraud or deceit, (ii) that plaintiff did not immediately discover the fraud and (iii) the plaintiff could not with reasonable diligence have discovered the fraud before 24 February 2011, being the date six years before the plaintiff commenced the proceedings. Nowhere in the pleadings was there reliance on s 55; although the defence relied on the Limitation Act, s 14, there was no reply.
2. The matter appears, however, to have been crystallised in the following exchange between the judge and Mr Brennan, counsel for the plaintiffs: [7] "HIS HONOUR: I understand from your opening, and I may have misapprehended it because I didn't know anything about the case at the time, that the fraud you were relying on was her approaching the agent to get the agent to pay the money to her at a time when she wasn't entitled to it. BRENNAN: That's right, but my friend has gone through the idea of discovery - HIS HONOUR: That's a separate concept, but I just need to be clear in my own mind what you say is the fraud. BRENNAN: The fraud is to say, 'yes, all good, mate, thanks for the keys,' then on the phone say, 'it's terrible.' Those two things can't sit together, and Ms Burner admitted they can't sit together. Some of it's got to be wrong. HIS HONOUR: Is the fraud as I've just articulated it to you? BRENNAN: Yes, that's the fraud. The fraud is saying one thing to one person and then saying the exact opposite to somebody else, so that on the one hand Mr Dimov was not on notice to urgently protect his money, and on the other hand it was released by the conveyancer. It was the saying of completely opposite things so as to shake loose the money. That is the fraud. HIS HONOUR: Yes, well, he became aware of that within a few days. BRENNAN: He did become aware of that in a few days, but he became aware of the behaviour. … But whether it's enough of a fraud, clear enough of a fraud, for a court to find it a fraud is not clear, because the answer could always be, 'I honestly believed in what I was doing'. And stupidity or mistake don't amount to fraud…. HIS HONOUR: So going back to discoverability, you say that became discoverable on conclusion of the CTTT proceedings. BRENNAN: Yes, I do. And I remind your Honour of - HIS HONOUR: What date was that? BRENNAN: Judgment handed down 14 November 2012, statement of claim in this matter lodged less than six years after that day, and indeed less than six years after 30 July 2012, when it appears that the quantum of the claim by the defendant in this matter was crystallised in the sum of $11,569.50. … Those things shone light on the behaviour which amounts to the fraud and made it discoverable as being not explicable by mistake or stupidity or anything else that it might be passed off as, or that would be put in its defence in a criminal proceeding, or anything else. That was the time when the CTTT did what it did, all in evidence - that it became a situation where there was just no sensible alternative to the fact that the earlier actions, the actions on 17 and 18 September 2009, were a fraud."
3. This exchange failed to clarify the nature of the cause of action relied on by the respondents. As a result, having received little assistance from the pleadings, it is perhaps not surprising that the reasons of the primary Judge are not particularly easy to follow. A fair reading of the judgment as a whole, however, suggests that the respondents succeeded in obtaining judgment for $31,700 on the basis of a finding that the appellant breached the oral agreement of 11 August 2009. She did so, the primary judge held, by instructing the conveyancer to release to her the moneys held in trust, an instruction given without the knowledge or approval of the respondents. The finding that the appellant breached the oral agreement was consistent with the pleadings even though the pleadings contained diffuse allegations of misrepresentation and fraud. This basis of resolving the claim in favour of the respondents was flawed in a number of respects.
4. First, the cause of action on which the respondents succeeded was not based on fraud or deceit. It was sufficient that, both on the pleaded case and on the judge's findings, the appellant acted without the respondents' knowledge or authority in giving the direction to the conveyancer. Fraud was not a necessary element in the cause of action founded on breach of contract.
5. Secondly, it is clear that the finding in relation to fraud equated fraud with "unconscionable conduct". What was said in the fifth finding reproduced above was reinforced later in his Honour's reasons: "I accept the plaintiff's submissions that the full extent of Ms Burner's fraud - namely, her unconscionable conduct - became discoverable only upon conclusion of the CTTT proceedings ...". The case was run on the basis of fraud at common law. Counsel for the appellant took the Court to a passage in the opinion of Lord Herschell in Derry v Peek. [8] The canonical passage in Lord Herschell's opinion was in the following terms: "First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false."
6. The key elements of fraud at common law, in contrast to the concept of fraud in equity, were concisely stated by Leeming JA in Nadinic v Drinkwater: [9] "[22] First, as Gleeson CJ said in Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 at [17], 'the concept of "fraud" is wider in some legal contexts than in others.' For present purposes, it will suffice to distinguish the two senses in which 'fraud' is used in civil litigation which correspond to different meanings at law and in equity. The difference turns on the state of mind of the person said to have committed fraud. At common law, 'fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false': Derry v Peek (1889) 14 App Cas 337 at 374. The contrast with equity was explained by Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932 at 953-954: '[i]n Chancery the term "fraud" thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction.' His Lordship emphasised that a person who misconceived the extent of the obligation which a court of equity imposed upon him or her, 'however innocently because of his ignorance', was taken to have violated an obligation which he was taken by the court to have known, and with the result that the conduct was labelled fraudulent. He said of fraud in this sense at 954 that: 'What it really means in this connection is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience.' The distinction must be taken to be settled law. For example, a unanimous High Court said (albeit in a statutory context) that establishing equitable fraud 'does not require that an actual intention to cheat must always be proved': Polyaire Pty Ltd v K-Aire Pty Ltd (2005) 221 CLR 287; [2005] HCA 32 at [35]."
7. There was no suggestion in this case that anything short of fraud or deceit in the common law sense would engage s 55(1)(a) of the Limitation Act.
8. There was no notice of contention seeking a finding of fraud in the common law sense of the term. That was understandable, as no such finding would have been available to the trial judge. The cross-examination of Ms Burner did not involve any suggestion that she knew in September 2009 that she had no right to deny payment of the balance of the purchase price to the vendor. There was in fact a dispute as to whether the necessary work had been properly completed by the builder. That issue was litigated in the Consumer, Trader and Tenancy Tribunal (CTTT), in proceedings in which the appellant was partly successful. It was not suggested to her in cross-examination that those proceedings were an abuse of process and, even before they commenced, she had known that she had no claim to any part of the unpaid purchase price after the issue of an occupation certificate in October 2010.
9. Thirdly, as the exchange with counsel demonstrated, the trial judge was conscious of the fact that s 55(1)(a) would only assist the vendor in claiming the balance of the purchase price if, assuming that there was a cause of action based on fraud or deceit, the vendor, through its principal, had first discovered the fraud or deceit within six years of commencing the proceedings. The basis on which counsel suggested that the CTTT proceedings revealed fraud for the first time was fallacious. His final submission to the trial judge was as follows: [10] "BRENNAN: All that said, your Honour, I think the evidence tells the story mostly by admission as well as direct assertion. I say fraud is proven. I say discoverability was always going to be a problem until someone adjudicated on the building defects, and that brings it back to the six years."
10. Although the conclusion of the trial judge did not explain the underlying reasoning, it appears that he accepted that submission. There are several flaws in that submission. First, it is self-defeating to say that one does not know whether fraud has been committed until the court has determined that question.
11. Fourthly, the CTTT proceedings made no finding of any kind in relation to the state of mind of the appellant who brought the proceedings: far less did they produce a finding that she knowingly made a false claim.
12. Fifthly, what must be discovered (or be reasonably capable of discovery) are the facts upon which the claim in fraud or deceit can be presented. There was no finding by the trial judge that any such material became available to the vendor in the course of the CTTT proceedings. Indeed, the matter was not put in that way, but rather as depending upon "someone [having] adjudicated on the building defects".
13. Sixthly, there was no finding (nor could there have been) that the appellant knew in September 2009 that she did not have any claim with respect to the unpaid purchase price. Indeed, on the vendor's case it was not entitled to the balance until an occupation certificate issued, more than 12 months later.
14. Seventhly, although the judge accepted that Ms Burner had directed her agent to release the funds to her in order to deprive the vendor of the opportunity to obtain that money, and that she had refused to pay the vendor the outstanding balance, neither is a finding which comprises, or evidences, fraud. Indeed, at the date the funds were released, more than a year before the occupation certificate was issued, the vendor had no more than a contingent interest in being paid the full amount of the purchase price.
15. Eighthly, there was no finding that Mr Burner's direction or the subsequent release of the funds caused the vendor any loss, without which no claim based on fraud or deceit could have supported the judgment below.

Conclusions

1. At the hearing of the appeal, counsel for the individual respondent, Mr Dimov, conceded that he had no legal interest in the proceedings. The party entitled to the balance of the purchase price could only have been the vendor.
2. It was also common ground that the proceedings could not succeed unless the time for commencement of the limitation period was postponed because of the fraud or deceit of the appellant. For the reasons set out above, the conclusion that s 55(1)(a) was engaged and had that effect cannot be supported on the findings made by the primary judge.
3. Accordingly, the Court made orders at the conclusion of the hearing of the appeal. The final orders are: 1. Allow the appeal. 2. Set aside the orders and judgment made in the District Court. 3. Give judgment for the first defendant in the District Court, with costs. 4. Order that the respondents pay the appellant's costs in this Court.

Endnotes

1. Statement of claim, pars 26 and 27.
2. Statement of claim, par 28.
3. Statement of claim, par 29.
4. Statement of claim, par 33.
5. Judgment, pp 15-16.
6. Judgment, pp 18 and 22.
7. Tcpt, 30/11/17, p 68.
8. (1889) 14 App Cas 337 at 374.
9. (2017) 94 NSWLR 518; [2017] NSWCA 114.
10. Tcpt, p 70(47).

Amendments 04 December 2018 - [16] - Amending "with" to "when" in the quote. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 December 2018