(2009) 236 FLR 1
Bellgrove v Eldridge (1954) 90 CLR 613(2022) 365 FLR 45
Clark v Macourt (2013) 253 CLR 1[1991] HCA 54
Cook's Construction Pty Ltd v Brown [2004] NSWCA 105(2004) 49 ACSR 62
Coulton v Holcombe (1986) 162 CLR 1[1986] HCA 33
Dare v Pulham (1982) 148 CLR 658[1982] HCA 70
Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234
G v H (1994) 181 CLR 387[1994] HCA 48
GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 3297 ALJR 857
Ho v Powell (2001) 51 NSWLR 572[2001] NSWCA 168
Israel v Foreshore Properties Pty Ltd (in liq.) (1980) 54 ALJR 421
Jones v Dunkel (1959) 101 CLR 298[1959] HCA 8
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361[2011] HCA 11
Lumbers v W Cook Builders Pty Ltd (in liq.) (2008) 232 CLR 635[2008] HCA 27
O3 Capital Pty Ltd v WY Properties Pty Ltd (2016) 49 WAR 517[2003] HCA 53
Shalhoub v Buchanan [2004] NSWSC 99
Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245[1988] HCA 11
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
Ltd v AM Green Investments Pty Ltd [2012] NSWCA 225
Rialto Sports Pty Limited v Cancer Care Associates Pty Limited [2022] NSWCA 146
Robinson v Harman (1848) 1 Exch 850
Russo v Aiello (2003) 215 CLR 643; [2003] HCA 53
Shalhoub v Buchanan [2004] NSWSC 99
Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245; [1988] HCA 11
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
Tabcorp Holdings Limited v Bowen Investments Pty Limited (2009) 236 CLR 272; [2009] HCA 8
Way v Latilla [1937] 3 All ER 759
Texts Cited: IM Jackman, The Varieties of Restitution (2nd ed, 2017, Federation Press)
JD Heydon, Cross on Evidence (13th ed, 2021, LexisNexis)
RM Goode, Payment Obligations in Commercial and Financial Transactions (1st ed, 1983, Sweet & Maxwell)
Category: Principal judgment
Parties: Capitalink Pty Ltd (Appellant)
Marc Douglas Withnall (Respondent)
Representation: Counsel:
[2]
S A Lawrance SC (Appellant)
P Knowles SC with M Connor (Respondent)
[3]
Centurion Lawyers (Appellant)
Macpherson Kelley (Respondent)
File Number(s): 2023/445571
Decision under appeal Court or tribunal: District Court of New South Wales
Jurisdiction: Civil
Citation: [2023] NSWDC 547
Date of Decision: 07 December 2023
Before: Abadee DCJ
File Number(s): 2021/357102
[4]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[5]
HEADNOTE
[This headnote is not to be read as part of the judgment]
The Appellant, Capitalink Pty Ltd (Capitalink), brought a contractual claim against the Respondent, Mr Marc Withnall, pursuant to a promise by the latter to guarantee the performance by Development Delivery Construction Pty Ltd (DDC) of its contractual obligations in relation to the development of six partially completed townhouses located on land in Queensland (the Property) which was purchased by the Appellant. The guarantee was contained in a so-called Deed of Agreement (the Deed) between the Appellant and DDC to which the Respondent was also a party. It was common ground that DDC had failed to complete its obligations under that Deed.
The Appellant sued the Respondent on the guarantee to recover damages in the sum of $479,935.08, plus interest and costs. This sum was comprised of past and future costs associated with the completion of the project. Although many (but not all) of the invoices issued by third party contractors in relation to past costs were addressed to the Appellant, two companies other than the Appellant, namely LBT Corp Pty Limited (LBT) and Ray White Tingalpa (Ray White), who was appointed by the Appellant as the managing agent of the Property, paid the invoices in respect of past work, including those that had been issued to the Appellant. A large number of other invoices said to relate to past costs incurred to complete DDC's obligations were addressed to First State Pty Limited (First State) but also paid by LBT.
The Appellant's principal witness was Mr Andrew Kavanagh who was "one of the ultimate beneficiaries of the shares held on trust by Lisa Maree Young" in the Appellant. Ms Lisa Maree Young was the sole and beneficial shareholder of Capitalink. Mr David Kavanagh was the sole director and secretary of LBT. LBT registered a first ranking registered mortgage over the property on 30 July 2018. Ms Lorraine Young, Andrew Kavanagh's mother-in-law, was the sole director and secretary of both First State and Capitalink. None of David Kavanagh, Lisa Maree Young or Lorraine Young gave evidence in the proceedings.
Mr David Whitting of Teak Projects Pty Ltd (Teak) was engaged by the Appellant and First State to manage the completion of the townhouses in mid-2019 and he prepared a report in December 2021, detailing "expenditure incurred to date by Capitalink or anticipated to be expended to enable completion of a … 6 dwelling Multi Unit Dwelling" (the Teak Report).
Andrew Kavanagh gave evidence of and limited to his belief that there was an understanding between Capitalink and each of LBT and First State that LBT/First State would pay the financial obligations of Capitalink as and when required and that Capitalink would repay those monies on demand. No documents were tendered which recorded or otherwise documented this understanding such as any loan account as between the companies referred to.
The primary judge held that the Respondent's guarantee pursuant to the Deed was contractually valid and binding but that the Appellant had not established a right to substantial damages on the basis that it had not proved that it was liable for the amounts that had been (past costs) or would be (future costs) paid to complete the project. His Honour awarded nominal damages in the sum of $100 and ordered that the Appellant pay the Respondent's costs of the proceedings: Capitalink Pty Ltd v Withnall (No 2) [2023] NSWDC 547.
On appeal, the Appellant challenged the findings in relation to the past and future costs. The thrust of submissions made on appeal in respect of past costs was that they were incurred by LBT for the benefit of the Appellant and that, pursuant to the law of restitution and/or the doctrine of implied contract, the Appellant was legally obliged to reimburse LBT such that the Appellant had suffered loss and damage for which the Respondent was ultimately liable under the guarantee. The Respondent contended that this argument was not run at first instance and could not be raised on appeal. In the case of the costs paid by Ray White, the Appellant argued that those costs were paid from a trust account in the Appellant's name (the Ray White Trust Account) such that they were a measure of loss suffered by the Appellant.
The Court held (Bell CJ, Leeming and Stern JJA agreeing) upholding grounds 2 and 7 of the appeal and entering judgment in favour of the Appellant in the sum of $133,160.51 (being $113,239.78 in relation to future costs and $19,920.73 in relation to a portion of the past costs, being payments made from the Ray White Trust Account):
1. In relation to the future costs, Mr Whitting's evidence of his understanding in respect of those costs did not supply a basis upon which the present case could be distinguished from the orthodox principle that, to establish loss and entitlement to payment under the guarantee, all that the Appellant needed to establish was that the development was still defective because DDC admitted non-performance of its obligations, and the costs claimed for remediation were necessary and reasonable: [32].
Robinson v Harman (1848) 1 Exch 850, Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, Tabcorp Holdings Limited v Bowen Investments Pty Limited (2009) 236 CLR 272, Clark v Macourt (2013) 253 CLR 1, Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245, Bellgrove v Eldridge (1954) 90 CLR 613, Rialto Sports Pty Limited v Cancer Care Associates Pty Limited [2022] NSWCA 146, referred to.
1. The restitutionary argument underpinning the challenge to the findings in relation to past costs was sufficiently in play at first instance notwithstanding that it went beyond the pleadings. No question of prejudice arose to the Respondent in this circumstance: [49].
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, Coulton v Holcombe (1986) 162 CLR 1, Progressive Pod Properties Pty Ltd v AM Green Investments Pty Ltd [2012] NSWCA 225, Dare v Pulham (1982) 148 CLR 658, referred to.
1. An understanding of the kind referred to by Andrew Kavanagh in his affidavit evidence is one that would be expected to be reflected in documents such as loan accounts and financial statements of each of the companies or in deductions claimed in tax returns. No such documents were in evidence nor was the mortgage tendered or any evidence led as to what it secured. The unexplained failure of David Kavanagh, Lisa Maree Young and Lorraine Young to give evidence also permitted the negative inference to be drawn that their evidence would not have assisted the Appellant's case: [66]-[70] (Bell CJ), [85] (Leeming JA).
CBRE (V) Pty Ltd v City Pacific Ltd (in liq) [2022] NSWCA 54, Lumbers v W Cook Builders Pty Ltd (in liq.) (2008) 232 CLR 635, Progressive Pod Properties Pty Ltd v AM Green Investments Pty Ltd [2012] NSWCA 225, O3 Capital Pty Ltd v WY Properties Pty Ltd (2016) 49 WAR 517, Birmingham and District Land Co Ltd v London and North Western Railway Co (1886) 34 Ch D 261, Way v Latilla [1937] 3 All ER 759, Israel v Foreshore Properties Pty Ltd (in liq.) (1980) 54 ALJR 421, Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234, Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, Russo v Aiello (2003) 215 CLR 643, Blatch v Archer (1774) 1 Cowp 63, G v H (1994) 181 CLR 387, Ho v Powell (2001) 51 NSWLR 572, Cook's Construction Pty Ltd v Brown [2004] NSWCA 105, Shalhoub v Buchanan [2004] NSWSC 99; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229, Jones v Dunkel (1959) 101 CLR 298, Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, referred to.
1. The evidentiary onus which lay on the Appellant was not discharged in relation to the past costs issue and the material relied upon by the Appellant was insufficient to establish an implied promise to repay the Appellant. Such an implication is less readily drawn where the parties involved were part of a "family" group of companies: [72] (Bell CJ), [87] (Leeming JA).
CBRE (V) Pty Ltd v City Pacific Ltd (in liq) [2022] NSWCA 54, referred to.
1. Ray White paid third party creditors from funds held by it in the Appellant's name in the Ray White Trust Account. These payments evidenced the fact that, to the extent of those payments, the Appellant was out of pocket in relation to payment for work the performance of which the Respondent had guaranteed and entitled to damages to the extent of those payments: [77].
[6]
JUDGMENT
BELL CJ: This appeal from the decision of Abadee DCJ (the primary judge) flows from a contractual claim by the Appellant, Capitalink Pty Ltd (Capitalink), against the Respondent, Mr Marc Withnall, pursuant to a promise by the latter to guarantee the performance by Development Delivery Construction Pty Ltd (DDC) of its obligations in relation to a residential development in Queensland. The guarantee was contained in a so-called Deed of Agreement (the Deed) between the Appellant and DDC to which the Respondent was also a party.
It was common ground that DDC had failed to complete its obligations under that Deed. In fact, DDC entered external administration on or about 9 March 2017 and was deregistered on 12 September 2020.
The Appellant purchased land (the Property) upon which upon which there was already a partially completed multi-unit dwelling comprising six townhouses on 30 October 2014. It became the registered proprietor of the Property on 1 July 2016.
The Deed, which was executed on 23 December 2015, related to the completion of the development. By cl 1 of the Deed, DDC was obliged:
"… in return for the consideration payable to it under this Deed (of $229,720.000) complete all of the outstanding works required to the Townhouses in a good and workmanlike manner, pay all statutory fees and statutory/council contributions, and do all such things necessarily required such that;
a) The Townhouses are fully completed … and otherwise clean and tidy and able to be rented to residential tenants; and
b) DDC will obtain the signed/ approved strata subdivision linen plan from the Local Council in registrable form …"
Clause 2 of the Deed provided that:
"Capitalink will pay to DDC a fixed sum of $229,270.000 (incl gst) as consideration under this Deed ("the Consideration"), as follows:
a. $229,270.000 paid to DDC upon completion of all its obligations under this Deed.
b. DDC warrants to complete the Works as quickly as possible but in any event by no later than 8 weeks from the execution of this Agreement.
c. DDC shall be responsible as part of its obligations under this Deed for preparing, lodging and obtaining final signatures from the Local Council in relation to the strata subdivision linen plan for the Townhouses, along with obtaining all necessary statutory approvals in connection with the construction and separate strata titling of the completed Townhouses. DDC must provide the full building, structural and product warranties for the completed Townhouses and provide all necessary documentation in relation to such warranties to Capitalink. DDC must provide to Capitalink all certificates including ALL structural, plumbing, electrical, waterproofing, glazing, acoustics in relation to the property …
…
h. MW [Marc Douglas Withnall] agrees to personally guarantee to Capitalink all of the obligations of DDC under this Agreement. …"
[7]
The primary judgment
On 7 December 2023, the primary judge held that the Respondent's guarantee pursuant to the Deed was contractually valid and binding but that the Appellant had not established a right to substantial damages on the basis that it had not proved that it was liable for the amounts that had been (past costs) or would be (future costs) paid to complete the project. His Honour made a limited award of nominal damages in the sum of $100 and also ordered that the Appellant pay the Respondent's costs of the proceedings: Capitalink Pty Ltd v Withnall (No 2) [2023] NSWDC 547 (the primary judgment or PJ).
The thrust of submissions made on appeal in respect of past costs was that they had been incurred for the benefit of the Appellant by LBT and Ray White and that, pursuant to the law of restitution and/ or the doctrine of implied contract, the Appellant was legally obliged to reimburse LBT such that, pro tanto the expenditure which had been made by LBT, the Appellant had suffered loss and damage for which the Respondent was ultimately liable under the guarantee. In the case of expenditure made by Ray White, the Appellant's position was that Ray White had paid certain invoices from its trust account in the Appellant's name. This is addressed under appeal ground 7.
The essence of the primary judge's reasoning was as follows:
"[145] It is apparent that none of the invoices Capitalink relied upon to establish its claim for past incurred losses were actually paid by Capitalink; even though many invoices were addressed to it. In numerical terms (rather than in value terms), most were paid by LBT. Some were paid by Ray White Tingalpa, the managing agent.
[146] It is also apparent (Exhibit 1, being p 61 of Ex BLSI) that rent from the occupation of the properties appears to have been paid to LBT and it was from LBT's account out of which the managing agent, Ray White Tingalpa, deducted its fees; even though the managing agent identified the client as Capitalink.
[147] I infer that LBT is a shorthand reference to LBT Corp Pty Ltd. Andrew Kavanagh's brother, David, is the sole director and secretary of that company. LBT has a mortgage over the Property. It may be further inferred that LBT had provided the loan finance for Capitalink to purchase the Property.
[148] As to the part of its claim that concerns expenses incurred to the date of the hearing, it was LBT who paid the expenses directly, or indirectly, through the managing agent deducting from an account in LBT's name. It appears that Capitalink was, essentially a passive owner of the Property.
[149] In my opinion, Capitalink's difficulty cannot be sidestepped by pointing, in vague terms (ie Andrew Kavanagh's subjective understanding) about the closeness of the connection between LBT and Capitalink. For one thing, there was an absence of admissible proof as to what those connections or arrangements actually were. There were not, for example, any ASIC searches to disclose information about membership of the companies which might, conceivably, have proven that they one of more were subsidiaries of a holding company within a corporate group. Further, given that LBT was a mortgagee, Capitalink might (barely) have adduced evidence about the existence of secured loan arrangements, but that only facilitated proof of Capitalink's obligation to make loan repayments to LBT. It did not adduce evidence of obligations with LBT viz a viza rental receipts and expenses associated with the Property itself. So Capitalink's first problem is evidentiary in nature.
[150] More fundamentally, however, to assimilate LBT's position to Capitalink's position would be to deny their separate status as companies, a fundamental tenet of company law (Saloman v Saloman & Co Ltd [1897] AC 22). Counsel for Capitalink submitted that LBT was a family company that has an interest (T 136.48, 139.33) and invited the Court to infer that that Capitalink would bear liability for the expenses. Even if, for the sake of argument, LBT and Capitalink were proven to be companies within a family group of companies, Australian law, solidly entrenched since 1976, is that entities within corporate groups are separate entities, with the consequences that assets of companies within the group cannot be pooled to pay for debts incurred by each company within the group and debts incurred by each company belong to the particular company and not the group collectively. It is not enough that they are acting in a general way to benefit each other.
[151] I agree with Mr Withnall's submission that it would be necessary for Capitalink to show that Capitalink is legally obliged to reimburse LBT for payments the latter entity made to the contractors and other suppliers engaged to complete the 'works' left unperformed by DDC. This it did not do, either by documents or admissible testimonial evidence.
[152] Counsel for Capitalink argued that the circumstance that LBT received rent whilst paying expenses to improve the Property facilitated the Court's inference of Capitalink being ultimately liable to LBT and invited the Court to presume that it had liability to LBT. I am unable to accept that argument. It is not surprising that an arrangement would be made that LBT would receive rent as a quid pro quo for paying out expenses. As a mortgagee it had its own interest in the improvement of the condition of the Property. Capitalink also had its interest in the improvement of the Property for potential resale purposes. These circumstances are not compelling in identifying how Capitalink itself bore liabilities by reason of LBT's payments of the expenses in connection with complete of the property. There is no basis for any such presumption.
[153] The same position pertains to First State Pty Ltd, the entity that had engaged (and apparently paid) Mr Whitting for Teak's services. Similarly, it was said about that this company that there is a family connection between First State's manager (Lorraine Young) and Andrew Kavanagh.
[154] Further, to reason that LBT was paying expenses for the benefit of Capitalink does not advance Capitalink's position. Capitalink's Counsel disclaimed any submission that LBT (or First State) could be regarded as acting as Capitalink's agent in its dealings with the third parties for the purposes of works on this development project (T 138.40).
[155] Without proof that it has suffered loss or losses, Capitalink cannot prove that any losses caused by DDC can be sheeted home to DDC and, therefore Mr Withnall."
[8]
The Notice of Appeal and challenges to factual findings
The Appellant raised the following grounds of appeal:
"2 The learned trial judge erred in finding that the future cost remaining to complete the works ($113,239.78) was not a measure of loss suffered by the appellant.
…
5 The learned trial judge should have found that the past costs of completing the works paid by LBT Corp and First State were paid by them at the request of the appellant.
6 The learned trial judge should have found that the appellant was liable to reimburse LBT Corp and First State for costs paid by them to complete the works (alternatively, for payments made by LBT Corp and First State that discharged a liability of the appellant to the payee).
7 The learned trial judge erred in finding that the past costs of completing the works paid from the rent account ($19,920.73) were not loss suffered by the appellant."
The following factual findings of the primary judge were also challenged and are relevant to ground 7 of the Notice of Appeal:
"1. The appellant challenges the finding at J [145] that the managing agent, Ray White Tingalpa, deducted its fees from an account of LBT.
2. The appellant challenges the findings at J [148] (repeated at J [161]) that expenses paid by the managing agent, Ray White Tingalpa (a) were paid by deduction from an account in LBT's name and (b) were paid by LBT indirectly."
(The reference in the first challenge to PJ [145] was mistaken; the correct reference was to [146]. Nothing turned on this, as it was plain from the Appellant's written submissions that the reference should have been to PJ [146].)
[9]
Ground 2
Ground 2 of the appeal related to the primary judge's refusal to award damages in relation to the future costs of works required to be undertaken as at the time of the hearing in order to put the Appellant in the position it would have been in had DDC complied with its obligations under the Deed, it being contended that the primary judge erred in finding that the future costs remaining to complete the works ($113,239.78) were not a measure of loss suffered by the Appellant.
A preliminary matter to be noted is that his Honour did accept that the future costs, i.e. the costs required to be incurred to complete DDC's obligations under the Deed that had been guaranteed by the Respondent, amounted to $113,239.78: PJ [169]-[171]. It follows that, if his Honour erred as a matter of principle in relation to ground 2, no question of quantum or quantification arises.
By ground 2 of the appeal, the Appellant contends that the primary judge erred in holding that it was necessary for the Appellant to prove that it "undertook to become liable to other entities" in respect of future costs: see PJ [156]. Rather, the Appellant put that it was entitled to the damages claimed because those damages were required to put it, as nearly as possible, in the position it would have been in had DDC completed the project, citing in this regard classical statements as to the purpose of compensatory contractual damages in cases such as Robinson v Harman (1848) 1 Exch 850 at 855, Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80, 98, 117, 134, 148 and 161; [1991] HCA 54, Tabcorp Holdings Limited v Bowen Investments Pty Limited (2009) 236 CLR 272; [2009] HCA 8 (Tabcorp) at [13], Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 at [26] and Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245 at 255; [1988] HCA 11.
The Appellant also referred to Bellgrove v Eldridge (1954) 90 CLR 613 at 620; [1954] HCA 36 (Bellgrove) and Rialto Sports Pty Limited v Cancer Care Associates Pty Limited [2022] NSWCA 146 at [112]-[113]. In the latter case, it had been argued that certain lot owners could not recover damages insofar as remedial works to the common property had not yet been undertaken and the lot owners could never undertake those works themselves. Gleeson JA, with whom Macfarlan JA and I agreed, rejected this argument, holding by reference to Tabcorp at [13]-[15] that the lot owners could recover the costs of rectification of incomplete or defective building work in accordance with the contract, and noting, by reference to Bellgrove, that it is not the point that the work may be never done by the owners corporation. In Bellgrove, Dixon CJ, Webb and Taylor JJ said (at 620):
"It was suggested during the course of argument that if the respondent retains her present judgment and it is satisfied, she may or may not demolish the existing house and re-erect another. If she does not, it is said, she will still have a house together with the cost of erecting another one. To our mind this circumstance is quite immaterial and is but one variation of a feature which so often presents itself in the assessment of damages in cases where they must be assessed once and for all."
[10]
Grounds 5 and 6
Grounds 5 and 6 of the appeal were that the primary judge should have found that:
1. "the past costs of completing the works paid by LBT Corp and First State were paid by them at the request of the Appellant"; and
2. "the Appellant was liable to reimburse LBT Corp and First State for costs paid by them to complete the works (alternatively, for payments made by LBT Corp and First State that discharged a liability of the appellant to the payee)."
In fact, as the Appendix to these reasons shows, while First State was invoiced for some of what were claimed as past costs, the invoices issued to it were paid by LBT. So also, First State did not itself pay any invoices issued to the Appellant.
In support of these grounds, Mr Lawrance raised what was essentially a restitutionary argument in support of these two grounds based upon implied requests (by the Appellant to LBT to pay third party invoices largely issued to the Appellant) and corresponding implied promises on the part of the Appellant to repay LBT.
On this theory, that restitutionary obligation as between the Appellant and LBT/First State, as a result of the latter companies' discharge of the former's obligation to third party contractors, would underpin the Appellant's claim of loss and corresponding right to compensation by the Respondent pursuant to the guarantee. This form of analysis was explained by Leeming JA (with whom Brereton JA and I agreed) in CBRE (V) Pty Ltd v City Pacific Ltd (in liq) [2022] NSWCA 54; (2022) 365 FLR 45 (CBRE) at [32]:
"… if there is to be an implied loan, what matters is not so much an implicit request, but rather an implicit promise to repay. A moment's pause enables this to be seen. An implicit or explicit request to make a payment discharging the obligation of another may amount to a gift, or it may be a form of financial accommodation giving rise to an obligation to repay. What matters for the purpose of the legal character of the transfer of money is whether the person whose obligation has been discharged by the payment has impliedly promised to repay the payer. Obviously, much will depend on the nature of the relationship. If the parties are at arm's length then a promise to repay may be discerned more readily. On the other hand, if the parties are related, the same implied promise may not so readily be discerned."
Behind these observations there lies a vast body of case law, some of which was expressly relied upon by Mr Lawrance including Lumbers v W Cook Builders Pty Ltd (in liq.) (2008) 232 CLR 635; [2008] HCA 27 (Lumbers) at [89]; Progressive Pod Properties Pty Ltd v AM Green Investments Pty Ltd [2012] NSWCA 225 at [36], [47], [59]-[60] (Progressive Pod); O3 Capital Pty Ltd v WY Properties Pty Ltd (2016) 49 WAR 517; [2016] WASCA 82 at [74]-[78] (O3 Capital); CBRE at [32]-[36]; IM Jackman, The Varieties of Restitution (2nd ed, 2017, Federation Press) at 125-128.
[11]
Was the argument "in play" at first instance?
Mr Lawrance referred to a number of matters to suggest that the issue was "in play". What follows are the principal matters referred to and relied upon.
First, he submitted that it was obvious from well before the trial and the evidence filed that, notwithstanding the pleaded case, the Appellant had not itself directly paid any of the invoices which collectively comprised the "past costs". In this circumstance, Mr Lawrance submitted that the Appellant could only succeed on the question of past costs at least if there was some argument based upon an "implied loan" or implicit agreement that the Appellant would repay LBT and First State and that this must have been clear to the Respondent.
Second, this was made even more clear by para 12 of Andrew Kavanagh's affidavit reproduced at [16] above. Although that paragraph was objected to, it was not an objection other than as to its form, including any attempt to rely on it for hearsay purposes. It was not objected to on the basis that it was irrelevant to the case and it was admitted, albeit subject to a limitation under s 136 of the Evidence Act 1995 (NSW). While that ruling no doubt diminished the forensic and evidentiary force of para 12 of Andrew Kavanagh's affidavit, the key point emphasised by Mr Lawrance was that it showed how the Appellant was putting its case at first instance, and that this was not said to be irrelevant by the Respondent.
Third, that the Respondent appreciated how the Appellant was seeking to put its case (even if only in part and perhaps without the greatest clarity), was supported by reference to the Respondent's own opening oral and written submissions. Paragraphs 55-59 of the written opening referred to para 12 of Andrew Kavanagh's affidavit and stated:
"Most of the invoices claimed have not been issued to Capitalink and, as such, the Court would not accept that it is liable for those invoices and has suffered any relevant loss. That is amplified by the evidence that most if not all of the invoices, if they have been paid, have not been paid by Capitalink; they have been paid by either LBT Corp Pty Ltd (LBT) or First State Pty Ltd (First).
In a faint attempt to address this issue, Mr Kavanagh asserts that there is some 'understanding' between Capitalink and each of LBT and First that they will pay expenses on behalf of Capital Link. [This was the reference to [12] of Mr Kavanagh's Affidavit].
Mr Kavanagh is not a director, or otherwise an officer of Capitalink or a shareholder of Capitalink and does not state how he is aware of the purported understanding. There is no evidence of when the understanding was formed, how the understanding was formed, whether there was correspondence or conversations between the directors of the respective entities or the limits to the understanding.
Lorraine Young is the director of both Capitalink and First and, without explanation from Capitalink, has not given evidence in the proceedings. Also, David Kavanagh, the director of LBT, without explanation from Capitalink has ailed to give evidence in the proceedings. That is, each of the individuals who control the entities said to be part of the understanding have not given evidence. The Court would draw an adverse inference in those circumstances.
Further, Capitalink has not adduced any of the documents which would be expected to support its assertion regarding the existence of the understanding in that it has not adduced any:
a) loan documents suggesting intercompany loans.
b) contemporaneous correspondence between Capitalink, LBT and First requesting or agreeing to make payment.
c) financial statements or other accounting records to show intercompany liabilities.
d) evidence of any demands by LBT or First.
e) documents showing repayments made by Capitalink to LBT or First.
f) tax returns showing the accounting treatment of the payments or understanding."
[12]
Was there an implied request and an implied promise to repay?
This was not a case, at least on the evidence before the Court, where third party payments were made by LBT as a result of an express request or authorisation by the Appellant, although they undoubtedly did benefit the Appellant on the assumption that its creditors have not pursued the Appellant and would appear to have treated the debts as having been discharged. In the case of an express request to pay, it has been described as "trite law" that a party who acted on the request is entitled to an indemnity from the requesting party, a classic restitutionary obligation (see Israel v Foreshore Properties Pty Ltd (in liq.) (1980) 54 ALJR 421 at 423) although, as Leeming JA (with whom I agreed) observed in CBRE, that decision is "not authority for the proposition that in every case a person who makes payment without consideration at the request and for the benefit of another is entitled to an indemnity" (emphasis added): at [34]. His Honour pointed to the fact that the proposition was styled as a "'general principle', its being grounded in a concept of implied contract, and the references to equitable principles and the possibility of identifying a contrary intention" as "all tell[ing] against there being any such rule."
Accepting this, a request to make a payment might be implied from slight circumstances (Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 at 241) and, as Professor Goode observed many years ago now, "a deliberate officious payment of another's debt is relatively rare": RM Goode, Payment Obligations in Commercial and Financial Transactions (1st ed, 1983, Sweet & Maxwell) at 24. But everything turns on the context, circumstances of the case and the evidence adduced. The careful and qualified language of the Western Australian Court of Appeal in O3 Capital at [76] to the effect that
"… in a commercial context, it might (generally speaking) readily be inferred that a party laying out money for another person would have an expectation to be repaid, and that the other person, knowing of the payment, might be inferred to have knowledge of that fact"
underscores the point that ultimately one is addressing a question of fact, and that is how the primary judge correctly approached the question.
As has been noted, the invoices in relation to past costs which were addressed to the Appellant, their dates, the amount claimed and by whom they were paid are set out in the Appendix to these reasons. The Appendix also sets out those past costs taken from the Teak Report which were invoiced to Ray White and First State.
[13]
Ground 7
This ground of appeal related to $19,920.73 of expenses (involving some 17 separate payments) which were paid out by Ray White from its trust account in the name of the Appellant on account of expenses that had been identified in the Teak Report as past costs in respect of the development.
Ground 7 was that the primary judge "erred in finding that expenses paid by Ray White Tingalpa had been paid, indirectly by LBT as opposed to the appellant". The Appellant also raised the two factual challenges noted at [21] above relating to PJ [146] and [148]. Those paragraphs, with those parts of his Honour's reasoning under challenge underlined, were as follows:
"[146] It is also apparent (Exhibit 1, being p 61 of Ex BLSI) that rent from the occupation of the properties appears to have been paid to LBT and it was from LBT's account out of which the managing agent, Ray White Tingalpa, deducted its fees; even though the managing agent identified the client as Capitalink. …
[148] As to the part of its claim that concerns expenses incurred to the date of the hearing, it was LBT who paid the expenses directly, or indirectly, through the managing agent deducting from an account in LBT's name. It appears that Capitalink was, essentially a passive owner of the Property."
It was ultimately accepted in argument by Mr Knowles that references in these two paragraphs to "LBT's account" and "an account in LBT's name" were erroneous and that the account was the Ray White Trust Account in the Appellant's name. Once this error was acknowledged, consistent with a concession that was made at first instance, namely that "[i]n the schedule provided to Court summarising the invoices claimed by Capitalink, the only invoices which appear to have been paid by Capitalink, albeit through Ray White, total $20,627.48…". At PJ [126], the primary judge had recorded the concession in the context of summarising the Respondent's argument, namely that "a large preponderance of the invoices were not ultimately paid by Capitalink at all: an exception was an aggregated amount ($20,011.48) which was only indirectly paid by Capitalink" (emphasis added). For reasons which are not entirely clear, the sum sought on appeal in relation to the Ray White payments was $19,920.73 as opposed to $20,011.48.
The fact that Ray White also paid money out of the Appellant's trust account to others including LBT did not assist the Respondent on this aspect of the argument or indeed more generally. Such payments did not alter the fact that Ray White paid third party creditors from funds held by it in the Appellant's name. Subject to the argument considered in the next paragraph, such payments evidenced the fact that, to the extent of those payments, the Appellant was out of pocket in relation to payment for work the performance of which the Respondent had guaranteed.
[14]
Conclusion
For the above reasons, although the Appellant was unsuccessful in relation to grounds 5 and 6, the appeal should otherwise be allowed.
The orders of the primary judge should be set aside and, in lieu thereof, there should be judgment for Capitalink in the sum of $133,160.51, being $113,239.78 in relation to future costs and $19,920.73 in relation to the payments from the Ray White Trust Account. To the figure of $133,160.51 should be added interest.
My view is that costs should follow the event, both in relation to the trial and the appeal.
LEEMING JA: I agree with the Chief Justice that, for the reasons he gives, this appeal should be allowed on grounds 2 and 7, but dismissed on grounds 5 and 6. The Chief Justice has explained how whether Capitalink's implied obligation to repay LBT and First State was sufficient to satisfy its claim on the guarantee was both outside its pleadings but nonetheless within the scope of the arguments raised at trial so as not to entitle the respondent to prevent these grounds from being raised in this Court, and I have nothing to add. The Chief Justice has also explained why Capitalink has failed to discharge its onus. I wish to add the following reasons not because I disagree with those of the Chief Justice, but in recognition of the quality of both sides' submissions on an issue as to which my mind has wavered both during and after the hearing.
I fully recognise that, consistently with the authorities to which the Chief Justice referred, it is not difficult to infer an entitlement to be repaid, even when related companies discharge each other's obligations. The most important consideration which leads me to conclude that Capitalink did not discharge its onus of establishing a liability to be repaid, is that there was so much that Capitalink could have done to establish its liability to LBT and First State, without undue difficulty if there were ordinary financial statements available, and if not, by testimonial evidence. Capitalink chose to put forward a lengthy affidavit from Mr Kavanagh in support of its case, but that affidavit merely expressed the casual statement that there was an "understanding" that payments made by LBT and First State were "taken to be monies lent by LBT Corp/First State to Capitalink" which were repayable on demand. If the statement were correct, it might be expected that two loan accounts would be readily capable of being produced. Similarly, Mr Kavanagh identified the mortgage, but made no effort to identify the obligations secured by it.
[15]
APPENDIX
Appendix - Capitalink Pty Ltd v Withnall (676659, pdf)
[16]
Amendments
19 July 2024 - Changed "Capital Link" to "Capitalink" in Order 2 on Coversheet.
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: 19 July 2024
In or around June 2016, tenants moved into some of the townhouses on the Property and commenced paying rent. Capitalink's receipts from tenants (after deducting agent's costs and miscellaneous expenses but not all costs associated with the townhouses) were between $8,000 and $10,000 per month. The Appellant appointed Ray White Tingalpa (Ray White) as the managing agent of the Property and Ray White established a trust account for those purposes in the Appellant's name (the Ray White Trust Account).
By way of a Statement of Claim filed on 16 December 2021, the Appellant sued the Respondent on the guarantee to recover damages in the sum of $479,935.08, plus interest and costs. This sum essentially was comprised of two components (past and future costs) as reflected in para 9 of the pleading:
"As a consequence of DDC's failure to compete the Incomplete Works:
(a) the Plaintiff has, at its own cost, expended the sum of $388,635.08 in seeking to complete the Incomplete Works;
(b) the Plaintiff will incur the further sum of $91,300 to complete the Incomplete Works; and
(c) the Plaintiff has suffered loss and damage, being the loss of bargain obtained under the DDC Deed for the completion of the Incomplete Works."
By the time of the trial, the sum of estimated future costs had risen to $113,239.78.
Paragraph 12 of the Statement of Claim pleaded that the Appellant was "entitled to claim as against the [Respondent] loss of bargain damages in the sum of $479,935.08, being the costs incurred and to be incurred by the [Appellant] in completing the Incomplete Works." As volunteered by Mr Lawrance SC, who appeared for the Appellant in this Court (but not at first instance), the reference to "loss of bargain" damages was somewhat problematic but nothing ultimately turned on that.
The invoices in relation to past costs which were addressed to the Appellant, their dates, the amount claimed and by whom they were paid are set out in the Appendix to these Reasons.
Although many (but not all) of the invoices issued by third party contractors in relation to past costs were addressed to the Appellant, the evidence was (and the primary judge accepted) that two companies other than the Appellant, namely LBT Corp Pty Limited (LBT) and Ray White paid the invoices in respect of past costs, including those that had been issued to the Appellant. A large number of other invoices said to relate to past costs incurred to complete DDC's obligations were addressed to First State Pty Limited (First State) but also paid by LBT. (The invoices paid by Ray White amounted to $19,920.73 and were the subject of ground 7 of the appeal, dealt with at [74]-[80] below.)
Mr David Whitting of Teak Projects Pty Ltd (Teak) was engaged by the Appellant and First State to manage the completion of the townhouses in mid-2019 and he prepared a report in December 2021 detailing "expenditure incurred to date by Capitalink or anticipated to be expended to enable completion of a … 6 dwelling Multi Unit Dwelling" (the Teak Report).
Apart from Mr Whitting, the Appellant's principal witness was Mr Andrew Kavanagh. He described himself in his affidavit as "one of the ultimate beneficiaries of the shares held on trust by Lisa Maree Young in" Capitalink and as authorised by Capitalink to make his affidavit on behalf of Capitalink. An ASIC search in relation to Capitalink deposed that Ms Lisa Maree Young was the sole and beneficial shareholder of Capitalink.
Andrew Kavanagh deposed to the fact that he made his affidavit from "an examination of Capitalink's records available to me, or otherwise from information within my own knowledge" and that where he deposed to matters from information and belief, he did so "after having made all relevant inquiries".
Lisa Maree Young did not give evidence, nor did Mr David Kavanagh. He was identified in Andrew Kavanagh's affidavit, under the heading "Capitalink's payment arrangements with family companies", as Andrew Kavanagh's brother and the sole director and secretary of LBT. LBT registered a first ranking registered mortgage over the Property on 30 July 2018. That mortgage was not annexed nor was any evidence led as to what it secured. A prior mortgage had been released on 1 July 2016.
Andrew Kavanagh also deposed to the fact that "First State Pty Ltd ACN 155 959 569 (First State) is a company that has as its sole director and secretary my mother-in-law, Lorraine Young." Lorraine Young was disclosed on the ASIC search as the sole director and secretary of Capitalink. She also was not called as a witness. As has already been noted, and as can be seen in the Appendix, some of the invoices in respect of work alleged to have been done to complete DDC's obligations were addressed to First State and not to the Appellant.
Andrew Kavanagh gave evidence of (and limited to) his belief that there was:
"… an understanding between Capitalink and each of LBT Corp and First State that:
(a) as and when required by Capitalink, LBT Corp/First State pays the financial obligations of Capitalink, which is taken to be monies lent by LBT Corp/First State to Capitalink; and
(b) Capitalink is to pay back LBT Corp/First State, on demand, all or part of the monies that LBT Corp/First State pays on behalf of Capitalink."
No documents were annexed or tendered in evidence which documented this understanding or disclosed any loan account as between the companies referred to. This was of some significance for appeal grounds 5 and 6 dealt with at [34]-[73] below.
In his written submissions, the Respondent accepted that "the prima facie measure of damage to give effect to this principle in the context of defective or incomplete building contracts is the cost of rectifying or completing the building works to the standard as promised under the contract" and that "in many (and perhaps most) cases it will be sufficient for the plaintiff to simply prove the reasonable costs of future remediation works". The Respondent's key submission on this aspect of the appeal was as follows:
"What sets this case apart from Bellgrove and Rialto Sports is that in this case there was a factual finding (consistent with the pleaded case) that the remediation work would be completed and also a finding (contrary to the pleaded case) that the costs of those future works would be met by a party other than Capitalink. Where there is a finding of fact that that it will be done in future, but paid for by someone other than the plaintiff, compensatory damages do not require the plaintiff receive the double benefit of compensation and remediation. That would be to allow an "uncovenanted profit": Tabcorp Holdings v Bowen Investments Pty Limited (2009) 236 CLR 272 at [17]. Thus, it is not the case that whether or not a plaintiff intends to complete the contracted works is never relevant to the assessment of damages. In Willshee v WestCourt Ltd [2009] WASCA 87 at [72], Martin CJ accepted that there may be cases where the plaintiff's intention will be relevant, but that it will be for a defendant to prove the relevant facts. In this case, the defendant did prove to the satisfaction of the primary judge that the remediation works would be completed, and also proved that such works would not be at the expense of Capitalink." (Emphasis added.)
It is not necessary to determine whether there is a qualification to orthodox principle which the Respondent otherwise accepted, namely that, to establish loss and an entitlement to payment under the guarantee, all that the Appellant needed to establish was that the development was still defective because DDC admitted non-performance of its obligations, and the costs claimed for remediation were necessary and reasonable (as to which there was no issue).
It is important to attend to what the primary judge actually found with respect to future costs as well as the slender evidence in relation to future costs. Whereas, in relation to past costs, there was an issue as to who had incurred the costs and whether the Appellant could claim them under the guarantee (the principal issue that arose under grounds 5 and 6), the future costs had, by definition, not been incurred. The primary judge appeared to assume and proceeded on the basis that they would be incurred by LBT and there was no evidence that the Appellant would be or had undertaken to be liable for those future costs, even if it did not pay for them directly itself. Thus, his Honour said at PJ [156]:
"The same problem, in principle, afflicts Capitalink's case in respect to future losses. There was no evidence that, consistently with past practice or experience, that Capitalink undertook to become liable to other entities (LBT or First State) in the event that it or those other entities incurred losses."
Contrary to the Respondent's submission including that "[t]he primary judge can be taken to have accepted that the future costs would be paid for by a third party", this was not "a finding … that the costs of those future works would be met by a party other than Capitalink": cf the Respondent's written submission set out at [27] above.
Mr Knowles SC, who appeared with Mr Connor for the Respondent, sought to fasten on to the following evidence which had been given by Mr Whitting under cross examination:
"Q. You recall that you gave evidence broadly about your estimate of the total future costs being incurred?
A. Yes.
Q. You understand, don't you, that the entities that are going to be engaged to undertake that work, they will issue invoices to First State. Correct?
A. Correct."
For a number of reasons, this evidence did not supply a basis upon which the present case could be distinguished from the line of authority reflected in the cases referred to in [25]-[26] above. Mr Whitting was not an officer of the Appellant. Secondly, the basis for Mr Whitting's "understanding" was not established and, in any event, it was an understanding as to something that had not yet happened. Implicit in the question put to him was that no one had been engaged to do the future work. Thirdly, whatever Mr Whitting's understanding was on the question of to whom future invoices would be issued did not necessarily bear upon whether that entity would be recompensed for undertaking works to and for the benefit of the Property of which the Appellant was the registered proprietor.
For these reasons, ground 2 must succeed with the consequence that the Appellant was entitled to future costs in the sum of $113,239.78.
In short, these authorities are to the effect that, although, in general, the bare fact of the conferral of some benefit upon another does not suffice to establish an obligation to repay the expenditure in providing that benefit (Lumbers at [80]), the law will imply a promise by A, who requests B to pay a third party creditor, to repay B, in the form of the old actions, an action for money paid for and at the request of a party, whether the request was made expressly, or its making was to be implied from the actions of the parties in the circumstances of the case: Lumbers at [89], citing Birmingham and District Land Co Ltd v London and North Western Railway Co (1886) 34 Ch D 261 at 274; Way v Latilla [1937] 3 All ER 759 at 765.
The law will also imply an obligation to repay where a party, A, adopts a payment already made by B which discharges a third party debt of A at least in circumstances where it is understood that B did not intend to discharge A's debt gratuitously, that is to say, without any expectation of repayment by A such that the original payment was in the nature of a gift.
The primary judge considered that there was insufficient evidence of the relationship and dealings as between the Appellant, LBT and First State to satisfy him that any obligation to repay had arisen by implication from the discharge by LBT of the invoices issued to the Appellant and First State. Indeed, the evidence as to how LBT came to pay invoices addressed to both the Appellant and First State was also exiguous. His Honour was also exercised by the possibility that LBT's payment of invoices addressed to it may also have been for its benefit (at least since it took a mortgage over the Property). Discharge of a third party's liability that also benefits the payer may not so readily entail an expectation of repayment: Progressive Pod at [62].
Mr Knowles submitted that the arguments sought to be raised by Mr Lawrance in relation to grounds 5 and 6 had been neither pleaded nor run at first instance and should not be permitted to be raised on appeal, invoking the well-known principles in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35 (Suttor) and Coulton v Holcombe (1986) 162 CLR 1 at 7-8; [1986] HCA 33. Reference was also made to Progressive Pod at [40] where Macfarlan JA observed that "Greens neither pleaded nor argued at first instance a restitutionary claim based upon an implied request by Progressive." Having referred to the famous statement in Suttor at 438 that:
"Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards"
his Honour pointed out at [42] that the principal new point sought to be raised on appeal is the "question of fact of whether Progressive impliedly requested Greens to construct the roundabout."
Mr Lawrance frankly conceded that the argument he sought to advance on appeal went beyond the pleaded case (which was to the effect that the Appellant "has, at its own cost, expended the sum of $388,635.08"). In light of this concession, Mr Lawrance maintained that, although not pleaded, the type of reasoning he was seeking to deploy was sufficiently "in play" during the proceedings at first instance and that this was a case where the parties could be said to have fought the case at first instance outside of the pleadings. In Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70, reference was made to "cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial".
Much of the argument on appeal related to whether the argument Mr Lawrance sought to propound on appeal was "in play" at first instance and, if it was (with the consequence that the argument was able to be made on appeal), whether the implied request/implied obligation case could be sustained on the evidence.
Perhaps most significantly, when one has regard to PJ [148]-[155] extracted at [19] above, it is tolerably clear that the case fought at first instance, or at least the argument advanced, encompassed in substance the arguments sought to be put forward on appeal by Mr Lawrance.
In light of the extracts from the Respondent's submissions at first instance and the terms of the primary judgment, it is evident that, while perhaps not presented with the same clarity of analysis and supporting reference to authority as this Court received from Mr Lawrance, the argument was sufficiently in play at first instance notwithstanding that it went beyond the pleadings. No question of prejudice to the Respondent arises in this circumstance.
The fact that the invoices in the Appendix addressed to the Appellant have been paid by either LBT or Ray White makes it easier to imply or infer a request made by the Appellant to the entity which paid the invoice to do so than is the case with respect to the invoices addressed to First State. How they came to be addressed and sent to First State, and the underlying contractual responsibility for undertaking the work to which they related, was not explained in the evidence.
In relation to the invoices addressed to the Appellant, where the evidentiary deficit lay in the opinion of the primary judge was in the paucity of evidence available to support the existence not only of a request to pay but of a corresponding promise by the Appellant to repay LBT, which paid for the vast bulk of the past costs. (The situation in the case of payments made by Ray White is different, in short because, as explained later in these reasons, payments to third party creditors were in fact paid by Ray White from moneys held by it in the Ray White Trust Account for the Appellant's benefit.)
Mr Lawrance pointed to a body of material said to negative any donative intent by LBT and to support the drawing of an inference or implication that the Appellant agreed to repay LBT for discharging the Appellant's obligations to third party contractors. With commendable candour, Mr Lawrence conceded that this body of material was "slender".
Before turning to consider the material relied upon by the Appellant, there are a number of well-known principles (in addition to the observations of Leeming JA in CBRE) which inform the analysis and which were referred or alluded to by Mr Knowles. In Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 (Ferrcom) at 417, Handley JA explained that:
"There appears to be no Australian authority which extends the principles of Jones v Dunkel to a case where a party fails to ask questions of a witness in chief. However I can see no reason why those principles should not apply when a party by failing to examine a witness in chief on some topic, indicates 'as the most natural inference that the party fears to do so'. This fear is then 'some evidence' that such examination in chief 'would have exposed facts unfavourable to the party': see Jones v Dunkel (at 320-321) per Windeyer J. Moreover in Ex parte Harper; Re Rosenfield [1964-5] NSWR 58 at 62, Asprey J, citing Marks v Thompson 1 NYS 2d 215 (1937) at 218, held that inferences could not be drawn in favour of a party that called a witness who could have given direct evidence when that party refrained from asking the crucial questions."
Although Handley JA referred to examining "a witness in chief on some topic", his Honour's observations apply equally to a circumstance where a witness' evidence in chief is supplied by affidavit (or a witness statement adopted in the witness box) but the affidavit does not address a particular topic which it is reasonable to expect the witness was in a position to address (and which is not covered by other evidence, documentary or testamentary).
The same reasoning underpinning the observations of Handley JA in Ferrcom may be seen in Gleeson CJ's decision in Russo v Aiello (2003) 215 CLR 643; [2003] HCA 53 at [10]:
"… when regard is had to the nature of the question about which satisfaction is required, which is a question concerning the reasons for the conduct of the claimant, and is a matter about which the claimant will ordinarily be the person best able, and will often be the only person able, to give information, then a court would be likely to infer that such information as is made available to it by a claimant (which may involve information in addition to that provided to the insurer) is all that a claimant can say by way of explanation of his or her conduct."
In the present case, the relevant conduct of the claimant was the arrangements, if any, between the Appellant and LBT as to reimbursement or repayment of any amounts paid by LBT to discharge obligations of the former (and First State). The only witness put forward by the Appellant on this topic was Andrew Kavanagh. Paragraph 12 of his affidavit has already been referred to at [16] above. His position and that of his relatives in relation to the Appellant, LBT and First State have also been noted at [12]-[15] above.
In Blatch v Archer (1774) 1 Cowp 63 at 65, Lord Mansfield famously said that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted." That principle continues to be of great importance in the everyday work of Australian courts in the ascertainment of contentious facts and the drawing of inferences. Thus, in G v H (1994) 181 CLR 387 at 391-392; [1994] HCA 48. Brennan and McHugh JJ stated that:
"… when a court is deciding whether a party on whom rests the burden of proving an issue on the balance of probabilities has discharged that burden, regard must be had to that party's ability to adduce evidence relevant to the issue and any failure on the part of the other party to adduce available evidence in response."
To similar effect, in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14]-[15], Hodgson JA stated that:
"… in deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision. …
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so…"
In Cook's Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 at [42], Hodgson JA also observed that:
"… where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party's favour from indirect and second-hand evidence, when the party doesn't call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation…"
See also Shalhoub v Buchanan [2004] NSWSC 99 at [71]; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 at [440].
With these principles in mind, I turn to consider the body of material relied upon by Mr Lawrance in support of the Appellant's case based upon an implied promise to repay.
First, reliance was placed upon two statements made in Andrew Kavanagh's affidavit (paras [77] and [172]) to the effect that the Appellant "incurred" the past costs. These paragraphs were, unsurprisingly, the subject of objection and there was a debate as to the extent of the primary judge's evidentiary ruling and, in particular, whether his Honour limited the witness' use of the word "accrued" to the witness' understanding. There was a degree of ambiguity upon an examination of the transcript and, while the better view is that his Honour's ruling did so extend, even if it did not, the evidence was utterly conclusory in a case where the question of whether or not the Appellant had in truth "incurred" the costs for which it had in fact not paid was hotly in contest. No weight could sensibly or reasonably be given to it in these circumstances.
Mr Lawrance next placed reliance upon para 12 of Andrew Kavanagh's affidavit (reproduced at [16] above). That evidence was limited to evidence of Andrew Kavanagh's understanding but that understanding was itself of an "understanding" between three companies, the Appellant, LBT and First State, none of which Andrew Kavanagh was an officer or shareholder of. It was evidence of an extremely exiguous character.
Moreover, an understanding of the kind Andrew Kavanagh referred to is one that would, if it existed, be expected to be reflected in documents such as loan accounts and financial statements of each of the companies, including the Appellant. Deductions claimed in annual tax returns would also have been revealing as to how various payments had been accounted for. No such documents were annexed to his affidavit or otherwise tendered notwithstanding his statement that his evidence was in part based upon "an examination of Capitalink's records available to me". Applying the principles derived from the cases set out at [59]-[61] above, no favourable inference can be drawn to support the Appellant.
Moreover, the unexplained failure of any of David Kavanagh, Lisa Maree Young or Lorraine Young to give evidence permits the negative inference to be drawn that their evidence would not have assisted the Appellant's case: Jones v Dunkel (1959) 101 CLR 298 at 308, 312 and 320-321; [1959] HCA 8 (Jones v Dunkel). There was no question that those witnesses were in the Appellant's camp, given Andrew Kavanagh's reference in his affidavit to LBT, First State and the Appellant being "family companies". In Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [63], Heydon, Crennan and Bell JJ described the rule in Jones v Dunkel as:
"… the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue." (Footnotes omitted.)
Next, Mr Lawrance referred to the fact that LBT registered a mortgage over the Property in 2018, and that that mortgage was entered into after some of the "past costs" had been incurred and paid for by LBT and some four years after the Property had been purchased by the Appellant. As such, the mortgage did not appear to represent a refinancing at least of a secured lender as no mortgage was taken out when the property was purchased in 2014 or when the Appellant became registered proprietor of the Property in 2016. The inference which the Court was asked to draw was that the mortgage secured the repayment of moneys owed to LBT by the Appellant, including the moneys paid by LBT to third party contractors to discharge the Appellant's liabilities.
Moreover, the fact that a mortgage was given by the Appellant to LBT over the Property defeated, to some degree, the notion that payments made by LBT to discharge the Appellant's debts to third party creditors were gratuitous and understood by the Appellant to have been made with donative intent by LBT.
Allied with the reliance on the mortgage was the fact that, from at least December 2017, i.e. before the registration of the mortgage, there were regular withdrawals of the balance of funds from time to time sitting in the Ray White Trust Account with payment to LBT. The ledger entries took the form "Withdrawal by EFT to owner LBT Corp Pty Ltd". These entries certainly supported an inference that the Appellant had directed Ray White to make payments to LBT but whether or not this was by way of a "repayment" to LBT for its discharge of third party obligations as opposed to some other form of financing or in relation to some other obligations was left as a matter of speculation. The description of LBT as "owner" was also opaque.
The absence of any evidence in relation to these matters, coupled with the failure to tender the mortgage or to lead any evidence as to what it secured, works powerfully against the Appellant and the case it sought to put on appeal in relation to past costs. The authorities referred to above are clear that an inference in favour of the Appellant should not be drawn in such circumstances. The onus was the Appellant's to discharge.
Mr Lawrance also advanced an argument to the effect that, by commencing the proceedings against the Respondent, the Appellant in some way ratified its obligation to reimburse LBT for paying its third party creditors. While the bringing of the proceedings may be consistent with the existence of such an obligation, it assumes the existence of the very obligation whose existence is in question. That obligation either existed or it did not. The position may be contrasted with a case where a third party creditor sued the Appellant in relation to allegedly unpaid invoices. A plea by way of defence that the debt had been discharged by a third party would amount to a ratification of that payment by the Appellant (if not previously adopted) and confirm an obligation by it to make restitution to the party that discharged the debt.
Resolution of grounds 5 and 6 of the appeal is finely balanced but I have concluded that the Respondent was correct in his submission, as was the primary judge in his reasons, that the evidentiary onus which lay on the Appellant was not discharged in relation to the past costs issue and that the material relied upon by the Appellant was insufficient to establish an implied promise to repay by the Appellant. Such an implication is far less readily drawn, as Leeming JA observed in CBRE at [32] where, as here, the parties involved were not at arm's length. Another way of putting this is to observe that the commercial unlikelihood of one company discharging another company's liability gratuitously is less so in a "family" group of companies, which was how the only witness authorised to speak for the Appellant, Andrew Kavanagh, described the Appellant's relationship with First State and LBT.
For these reasons, appeal grounds 5 and 6 should be rejected.
The only other argument advanced by Mr Knowles in this context was that his Honour had not been satisfied that all of the past costs incurred were in fact referable to DDC's non-performance of its obligations under the Deed which the Respondent had guaranteed. It was for this reason, for example, that the primary judge had contemplated a reference out of individual items of past costs to confirm that they related to the completion of obligations which had been DDC's under the Deed.
In my opinion, given that the Teak Report was received in evidence and so categorised the expenses paid for from the Ray White Trust Account, presumably by direction of the Appellant, this final argument of the Respondent should not be accepted.
Ground 7 of the appeal should succeed.
As the Chief Justice observes, the principles stated by Hodgson JA in Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14] are apposite, notably his Honour's observation that the court is concerned not just with the question "what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision". That proposition is undoubted, and was endorsed by J D Heydon, Cross on Evidence (13th ed, 2021, LexisNexis) at 47 [1215] whose endorsement was itself endorsed more recently by Kiefel CJ, Gageler and Jagot JJ in the joint majority reasons in GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32; 97 ALJR 857 at [58].
I appreciate that it can be difficult to run a relatively small claim, especially where as here there were many issues (including whether the so-called "Deed of Agreement" was a deed, and if not, was there consideration to support the guarantee and was it varied), and the defendant took all the points available to him. But none of that absolves a plaintiff from establishing each element of its case. On balance, I am unpersuaded that Capitalink did that, for the reasons given by the Chief Justice supplemented by the above.
I agree with the Chief Justice that, in light of Capitalink's substantial albeit incomplete success, it is entitled to orders for costs (noting that grounds 1, 3 and 4 were abandoned well in advance of the hearing, no later than when the appellant's submissions were first supplied).
STERN JA: I agree with the Chief Justice and with the additional observations of Leeming JA.