Chan v Eastern Blue Pty Ltd [2021] VSCA 121

LEAVE TO APPEAL - Discretion to refuse leave to appeal even if some proposed grounds of appeal have real prospect of success - First applicant refused leave to appeal on basis that allowing appeal and remitting proceeding to Magistrates' Court would be futile because restitution claim bound to succeed against her.

Ms MSP Chan, in person and on behalf of the second applicant

1 The first applicant ('Ms Chan') is the sole director and shareholder of the second applicant ('Assets China'). The second respondent ('Ms Zhang') is the sole director and shareholder of the first respondent ('Eastern Blue').

2 Assets China is the owner of a brothel business known as 'Studio 466' at 466 City Road, South Melbourne. Assets China and the respondents executed a contract dated 6 September 2017 for the sale of the business for $250,000. Under the contract of sale, Eastern Blue was the purchaser and Ms Zhang was the guarantor of Eastern Blue's obligations. Ms Chan was not a party to the contract of sale.

3 Clause 3.1(a) of the contract of sale required payment of a deposit of $25,000 into the trust account of Assets China's solicitor. Clause 6.1 contained a condition precedent that the landlord of the business premises consent to a transfer of the lease to Eastern Blue within 90 days. Clause 26.4 stated that a provision of or a right created under the contract may not be varied except in writing signed by the parties to be bound by the variation.

4 Even though the contract of sale was dated 6 September 2017, it was not signed by Assets China until 7 September 2017. On that day, a bank cheque dated 7 September 2017 for $25,000 made out to the trust account of Assets China's solicitor was provided to Assets China. Despite this, the parties initialled a handwritten note on the signed contract acknowledging '[r]eceipt of $25,000 on 6 September 2017'. A further bank cheque for $50,000 made out to Ms Chan was provided to her upon her signing the following written acknowledgement dated 7 September 2017:

I, Michelle Chan, have received $50,000 from Dinah Zhang as an extra payment for the purchase of Studio 466.

This amount, less up to $3000 reimbursement for legal costs for the landlord's negotiation for the transfer of lease for 466 City Road South Melbourne 3205, will be refunded to Dinah Zhang in the event that the landlord successfully refuses to grant the consent for the transfer of same lease.[1]

5 On 27 November 2017, the solicitor for Eastern Blue provided documents to the solicitor for Assets China in support of a transfer of the lease, and also sent those documents directly to the solicitor for the landlord. On 4 December 2017, the solicitor for Assets China instructed the solicitor for the landlord to disregard the documents provided directly by Eastern Blue. On the same day, the solicitor for Assets China served a notice of default and rescission upon the solicitor for Eastern Blue. By letter to the solicitor for Assets China dated 11 December 2017, the solicitor for Eastern Blue stated that Assets China had frustrated the effective discharge of the condition precedent regarding the landlord's consent. On 12 December 2017, the notice of default and rescission was withdrawn and the solicitor for Assets China stated that Eastern Blue had asserted that the contract of sale had been frustrated and that Assets China accepted that the contract was at an end. On 13 December 2017, the solicitor for Assets China refunded the deposit of $25,000. However, the additional payment of $50,000 was not refunded.

6 Eastern Blue and Ms Zhang instituted a proceeding in the Magistrates' Court against Assets China and Ms Chan for recovery of the amount of $50,000. The statement of claim alleged that the contract of sale was varied on 7 September 2017 by a 'Further Deposit Agreement' pursuant to which the amount of the deposit was increased by a 'Further Deposit Sum' of $50,000. It was alleged that the Further Deposit Sum was repayable because the condition precedent regarding the landlord's consent was not satisfied. Paragraph 22 of the statement of claim pleaded an alternative claim in restitution, in the terms set out at [19] below.

7 In their defence, the applicants denied that the contract of sale had been varied as alleged by the respondents. In relation to para 22 of the statement of claim, they denied that the respondents were entitled to any restitutionary relief, in the terms set out at [24] below.

8 After the respondents completed their evidence, the applicants made a no-case submission and, upon being put to their election, elected not to call any evidence.

9 The magistrate found that the contract of sale was varied on 7 September 2017 to increase the deposit by $50,000 and that, as the contract had been terminated by the applicants, they were obliged to pay that amount to the respondents. The magistrate stated that, if her analysis of the contractual claim was wrong, the restitution claim would have succeeded. On 17 July 2017, the magistrate made an order that the applicants pay the sum of $50,000 to the respondents together with interest and costs.[2]

10 The applicants appealed to the Trial Division under s 109 of the Magistrates' Court Act 1989 alleging that the magistrate had made errors of law in deciding that the applicants were contractually liable to pay the sum of $50,000 to the respondents. On 19 October 2020, an associate judge dismissed the appeal.[3]

11 On 3 December 2020, the applicants sought leave to appeal against the associate judge's decision. Ms Chan represented herself and was given leave by Sifris JA on 2 February 2021 to represent Assets China. The amended application for leave to appeal, which was drafted by Ms Chan, sought an order that the judgment be set aside and that the proceeding be remitted to the Magistrates' Court for

re-hearing. The applicants rely upon the six proposed grounds of appeal that are set out at [37] below.

12 On 15 February 2021, the respondents served a bankruptcy notice on Ms Chan in relation to the judgment. Ms Chan has applied to the Federal Circuit Court for an extension of time within which to comply with the notice.

13 On 30 March 2021, the applicants sought a stay of execution of the judgment.

14 The application for leave to appeal and the application for a stay were heard by us on 12 April 2021. The parties made oral submissions on the grounds of appeal in addition to their written cases. We raised with the parties the possibility that, even if some of the grounds of appeal had a real prospect of success, it would be open to us to refuse leave to appeal if we were satisfied that an order remitting the proceeding to the Magistrates' Court would be futile. We stated that this would apply if we were satisfied that, on the pleadings and evidence before the magistrate, there was no valid defence to the respondents' restitution claim. As the parties were not in a position to make submissions on these issues, we made an order granting them leave to file supplementary written submissions and staying execution of the judgment until further order.

15 We have now considered the parties' supplementary submissions. For the reasons that follow, we have concluded that:

(a) leave to appeal should be granted to Assets China because some of the grounds of appeal have a real prospect of success as between it and the respondents;

(b) although some of the grounds of appeal have a real prospect of success as between Ms Chan and the respondents, Ms Chan should be refused leave to appeal on the basis that it would be futile to set aside the judgment against her; and

(c) the stay should be maintained only in relation to Assets China.

16 By their statement of claim, the respondents pleaded that the contract of sale was entered into on or about 6 September 2017 and that the deposit of $25,000 was paid by Eastern Blue to Assets China on 6 September 2017. They alleged that, on 7 September 2017, by a 'Further Deposit Agreement', the parties varied the contract of sale to increase the deposit by a 'Further Deposit Sum' of $50,000. The Further Deposit Sum was said to be payable by the respondents towards the purchase price and was received by the applicants, as confirmed by Ms Chan's acknowledgement dated 7 September 2017. The respondents pleaded that the Further Deposit Sum was refundable to the respondents (less an amount of up to $3,000) in the event that the landlord did not transfer the lease to the respondents.

17 The respondents alleged that the applicants terminated the contract of sale on 13 December 2017 by returning the deposit of $25,000. It was said that, as a result of the termination of the contract, neither the landlord nor the respondents could consent to a transfer of the lease, through no fault of their own.

18 The respondents pleaded that the applicants had an obligation under the contract of sale and the Further Deposit Agreement to refund the Further Deposit Sum and that they breached this obligation.

19 The respondents pleaded a further or alternative claim in restitution at para 22 of their statement of claim in the following terms:

Further or alternatively, the [applicants] are not entitled to retain the [respondents'] deposit moneys as:

1. It was the [applicants] who purported to terminate the Contract of Sale and Further Deposit Agreement; and
2. no consideration whatsoever has been provided to the [respondents] in exchange for the [respondents'] payment of the Further Deposit Sum, and

1. the [applicants] are unjustly enriched by their retention of the [respondents'] Further Deposit Sum.

20 In the applicants' defence, Assets China acknowledged executing the contract of sale and receiving the deposit of $25,000 on 7 September 2017. Ms Chan denied that she was a party to the contract of sale, any variation of that contract or the alleged Further Deposit Agreement.

21 The applicants denied that there was a Further Deposit Agreement. Instead, they alleged that Ms Chan and Ms Zhang had personally entered into a 'risk offset agreement' pursuant to which Ms Zhang paid Ms Chan the sum of $50,000. It was said that, in exchange, Ms Chan (in her capacity as sole shareholder of Assets China and the person entitled to that company's profits) agreed to sell the business to Eastern Blue and take the risk that, if the transaction was not completed, the applicants would lose the opportunity to sell the business to a third party. Paragraph 8B of the defence stated that it was a term of the 'risk offset agreement' that the sum of $50,000 (less an amount of up to $3,000) would be refunded to Ms Zhang only in the event that the landlord successfully refused to grant consent to the transfer of the lease.

22 Assets China denied that it had terminated the contract of sale. It alleged that Eastern Blue had asserted that the contract had been frustrated, which automatically terminated the contract. It was said that Assets China returned the deposit of $25,000 because it accepted Eastern Blue's position that the contract was terminated.

23 The applicants pleaded that the respondents were not entitled to repayment of the sum of $50,000 because the respondents had caused the condition precedent regarding the landlord's consent not to be satisfied due to their failure to provide the requisite information prior to the expiration of the 90 day period.

24 In para 22 of their defence, the applicants denied that the respondents were entitled to any restitutionary relief, in the following terms:

Save to admit that there was no consideration flowing from [Assets China] to [Eastern Blue] to support the allegation that there was a variation to the Contract of Sale/further deposit agreement and that the pleading is contrary to known fact and law, [Assets China] otherwise denies each and every allegation contained in paragraph 22.

[Ms Chan] denies each and every allegation contained in paragraph 22.

Save as aforesaid the [applicants] refer to and repeat paragraphs 8 to 8K (both inclusive) hereof.[4]

25 Ms Zhang gave evidence on behalf of the respondents. Surprisingly, some of the questions she was asked were directed to her subjective intentions and understanding of the legal effect of the parties' dealings. Some of Ms Zhang's answers were confusing.

26 During examination in chief, Ms Zhang stated that the sum of $50,000 was paid to Ms Chan in addition to the purchase price of $250,000.[5] During

cross-examination, she said that the contract of sale was signed on 7 September 2017 and that, at the same time, she gave Ms Chan the two cheques for $25,000 and $50,000, respectively.[6] She also stated that there was no variation to the contract and that Ms Chan's written acknowledgement dated 7 September 2017 represented a separate agreement between her and Ms Chan in their personal capacities.[7]

27 During re-examination, Ms Zhang stated that the two cheques were drawn from her personal bank account and that Eastern Blue did not have a business account. She said that, in her understanding, the $50,000 deposit was an extra payment to purchase the Studio 466 business and that, if Ms Chan did not go through with the transaction, those funds would be returned to her.[8]

28 The evidence before the magistrate included the following communications between Ms Chan and Ms Zhang:

(a) On 23 June 2017, Ms Zhang sent a text message to Ms Chan stating: 'I think it will help [if] your solicitor can have the contract price for $250k and I will have the $50k pay by cash to you as a non refundable deposit. Thanks again.' Ms Chan replied: 'Noted. Thanks.'

(b) On 28 July 2017, Ms Chan sent an email to Ms Zhang, stating in part: 'I am willing and happy to return all of your deposits should you not [be] successful in getting the lease transferred to you ...'

(c) On 25 August 2017, Ms Chan sent an email to Ms Zhang which relevantly stated: 'I can provide a note for you re the extra payment. Please note that I will declare such payment on my side (only on my personal tax and absolutely not any other agency).'

29 On 20 May 2019, after the respondents had completed their evidence, the applicants made a no-case submission. They contended that the evidence presented by the respondents was insufficient to support a judgment against either or both of the applicants on the causes of action pleaded by the respondents, namely, breach of contract and restitution. The applicants argued that the respondents' cause of action in restitution for total failure of consideration was without substance for two reasons. First, the respondents did not plead that any consideration flowed from Assets China which could have totally failed. Secondly, the allegation that there was a total failure of consideration relied upon the respondents establishing that the contract of sale was varied, which was not supported by the evidence.

30 The applicants elected not to call any evidence in the event that the no-case submission did not succeed.

31 The magistrate delivered a ruling on 27 June 2019 in which she rejected the applicants' no-case submission and found in favour of the respondents. A proper understanding of the magistrate's reasoning and the applicants' challenges to that reasoning requires that the ruling be set out in full. After referring to the pleadings and the respondents' evidence, the magistrate stated:

The defendants submit that the evidence of the plaintiff, that both cheques were handed over on the same day and that the $50,000 was not part of the purchase price under the contract of sale, means that the plaintiffs' case is untenable. The defendants place heavy reliance on Ms Zhang saying under cross-examination that there was no variation to the contract. Additionally they submit that no claim can be made against Ms Chan in her personal capacity.

Further the defendants say that for there to be a valid variation it would need to be in accordance with the formal process set out at clause 26.[4] of the contract of sale. I reject this last submission as it goes against the authorities on this point ... I consider that there is sufficient evidence for me to be satisfied that there could be a variation as pleaded. The evidence I have taken into account is Ms Zhang's oral evidence, the texts, the emails and the wording of [Ms Chan's written acknowledgement dated 7 September 2017]. Even though it seems that this was signed on the same day as the contract of sale and I note the defendant made much of this, it appears to me to have been an afterthought. It could constitute a variation, a side agreement or even a separate agreement but nonetheless it relates to the sale of the business.

In any case, there was consideration. An additional sum of money was paid by [Ms Zhang] in exchange for getting the deal over the line and/or the efforts that Ms Chan had indicated that she would need to make to get the landlord to agree to transfer the lease.

The document evidencing the payment of the additional $50,000 was signed by Ms Chan with no indication on the face of that document that she was signing it on behalf of [Assets China]. However, in my view, it is inextricably linked to the agreement between [Eastern Blue] and [Assets China] for the sale of the business. Further, I note that a corporate entity can only act through its officers, employees and agents and that in this case we are not dealing with complex corporate structures. Ms Chan and Ms Zhang were the only natural persons who could act on behalf of their respective companies and they both signed the contract of sale on behalf of those corporate entities.

I find that on the evidence of the plaintiffs and the pleadings, I could make a finding in [favour] of the plaintiffs. I therefore reject the defendants' no case submission and will proceed to determine the substantive matter.

I turn now to the issues to whether there was a variation to the contract of sale and if so, what were the terms of that variation. I am referring to some of the matter that I have already considered and dealt with in my decision in relation to the no case submission, but I note further that Ms Zhang sent Ms Chan an SMS on 23 June or July - I may have made a mistake there. It is a document that is in evidence - I will check that date, but Ms Zhang sent Ms Chan an SMS offering to pay $50,000 as a non-refundable deposit. Ms Chan sent Ms Zhang an email on 28 July 2017 stating, 'I am willing and happy to return all of your deposits should you not ... be successful in getting the lease transferred to you ... Both those documents are exhibited or rather form a part of [exhibit] P6.

The primary evidence of the terms of the agreement in relation to the additional $50,000 is of course the written document itself, that is [Ms Chan's written acknowledgement dated 7 September 2017]. It clearly states that the $50,000 less up to $3,000 in legal costs will be refunded in the event that the landlord refuses to grant consent to transfer the lease.

The contract came to an end before the landlord had made a decision about the transfer of the lease. It cannot be the case, in my view, that in those circumstances, that is where it was not possible for that decision to be made, that the deposit is not refundable, as there was no consent granted for the transfer of the lease.

I noted earlier that the plaintiffs had also pleaded unjust enrichment and I say that even if I am wrong in relation to my analysis of the contractual dealings between the parties, I am of the view that the plaintiff would be entitled to relief on the basis of unjust enrichment, noting that of course unjust enrichment is a source of restitutionary obligation where money has been transferred or paid, notwithstanding that no contractual right of recovery can be established.

For all the reasons I have outlined, I find on the balance of probabilities that the further written agreement was a variation to the contract of sale and given the terms of that variation, the amount of the additional deposit being $50,000 is payable to the plaintiff.[9]

32 Subsequently, on 17 July 2019, there was a discussion as to the form of order and costs. In that context, the following exchange took place between the applicants' solicitor and the magistrate:

[APPLICANTS' SOLICITOR:] Now, [the respondents'] whole case [in restitution] was based on a contractual right of recovery, Your Honour. They [say] total failure of consideration. They did not succeed on that. They succeeded on another basis and with respect, Your Honour, as we stand here today we don't actually know what was that non-contractual right of recovery based upon which they in fact did succeed. Monies (indistinct) paid under [a mistake], we don't know. What we do know is that the basis on which they succeeded the non-contractual right of recovery, was not their pleaded plan. It was not the claim they ran.

HER HONOUR: But that wasn't my finding ... The finding was on the basis of variation to the contract. What I said in relation to the restitution [claim] was even if I'm wrong I would have found - but I didn't need to make that finding. It's an alternate claim that can only be - or rather an [alternate] remedy that can only be the case if there is no valid contractual remedy.

[APPLICANTS' SOLICITOR]: Sorry, as I understand it, Your Honour, in our discussion not so long ago about the position of [Ms Chan], it was stated that there was a finding made that payment - that there was a restitutionary claim and therefore that's the basis upon which an order can be made against [Ms Chan].

HER HONOUR: No, the [respondents' counsel] may have said something like that but I certainly didn't. My finding is that because Ms Chan effectively is the director or sole shareholder of [Assets China], that either way wherever the money actually comes from is really neither here nor there. That payment needs to be made.

Now, whether somehow Ms Chan has - whether that money was, I don't know, I suppose sectioned off and put in personal funds is not really something that concerns me. My finding was that the contract was varied and that the repayment of the deposit has to be made one way or another by either or both of the defendants.

[APPLICANTS' SOLICITOR]: Sorry, Your Honour, if I understand this correctly there has been no finding that the plaintiff - for the plaintiff under [para] 22 of the statement of claim.

HER HONOUR: No.

[APPLICANTS' SOLICITOR]: No. So the only entitlement to relief is on the variation claim.

HER HONOUR: Yes.[10]

33 It is clear from the above exchange that, having decided to make an order that the applicants pay the sum of $50,000 to the respondents as a contractual remedy, the magistrate did not grant any restitutionary relief. This is not surprising, as an order for the payment of a particular sum cannot be made under a contract as well as on the basis of the principles of restitution.[11]

34 On the same day, the magistrate made an order in the following terms:

1. THE [APPLICANTS] TO PAY THE [RESPONDENTS] $50,000 ON THE CLAIM, INTEREST PURSUANT TO STATUTE AND COSTS ON SCALE 'F' UNTIL 13 MAY 2019 AND AFTER THAT DATE ON SCALE 'G', EXCEPT IN RELATION TO THE NO CASE SUBMISSION WHERE A COSTS ORDER HAS ALREADY BEEN MADE.
2. COSTS TO BE TAXED IN DEFAULT OF AGREEMENT.
3. THE COUNTERCLAIM IS DISMISSED.

35 The applicants appealed to the Trial Division against the magistrate's order on the following grounds:

1. Error of law in finding that [Ms Chan's written acknowledgement of 7 September 2017] was a variation to the [contract of sale]
2. Error of law / failure to set out reasons in respect of the Restitutionary Claim
3. Error of law / failure to set out reasons to justify joint liability or joint entitlement to relief
4. Error of law in permitting departure from pleadings / natural justice / procedural fairness

36 The associate judge found no error in the magistrate's reasons and dismissed the appeal. She noted that the applicants did not pursue ground 2 because it was common ground before her that the magistrate did not make her ultimate findings on the claim for restitution.[12]

37 The applicants seek leave to appeal from the associate judge's decision on the following proposed grounds:

1. The learned Associate judge erred in law in holding that a contract can be brought into existence and varied as part of the same transaction.
2. The learned Associate judge erred in law in finding that there was any or any sufficient consideration flowing from [Ms Chan] to the Respondent to support the variation found.
3. (Further and/or alternative to Ground 2) The learned Associate judge erred in law in holding that there was any or any sufficient consideration flowing from either Applicant to the Respondents to support the variation found.
4. The learned Associate judge erred in law in holding that the finding of personal liability on the part of [Ms Chan] did not breach the principles of privity of contract in circumstances where [Ms Chan] was not a party to the principal contract.
5. (Further and/or alternative to Ground 4) The learned Associate judge erred in law in holding that the contract had been varied to include [Ms Chan] as a party to the principal contract, in circumstances where:

(a) There was no such allegation made by the Respondents at first instance or on appeal; and

(b) There was no such finding made by the Court at first instance; and

(c) Such finding was against the overwhelming weight of the evidence; and was in fact contrary to the uncontradicted evidence of [Ms Zhang].

1. The learned Associate judge erred in law in denying the Appellants procedural fairness (notice and opportunity to respond) in respect of the finding that the contract was varied to include [Ms Chan] as a party to the Contract.

Principles for determining applications for leave to appeal

38 Section 14C of the Supreme Court Act 1986 provides that '[t]he Court of Appeal may grant an application for leave to appeal ... only if it is satisfied that the appeal has a real prospect of success'. In Molonglo Group (Australia) Pty Ltd v Cahill,[13] this Court explained that, notwithstanding that the minimum requirement of s 14C is satisfied, the Court may in an appropriate case refuse leave to appeal. It stated as follows:

Even if this Court is satisfied that an appeal has a real prospect of success, it may nevertheless refuse to grant leave in the exercise of its residual discretion, such as when no substantial injustice will be done if the decision at first instance stands, or the order sought to be appealed against is one of practice and procedure. The question of leave may sometimes be approached by considering, first, whether discretionary considerations exist which justify a refusal of leave, regardless of an applicant's prospects of success. Where discretionary considerations exist but by themselves are insufficient to justify a refusal of leave, refusal may nevertheless be warranted where those discretionary considerations arise in the context of an appeal that has low, albeit real, prospects of success.[14]

39 This Court has refused leave to appeal, despite the proposed grounds of appeal having real prospects of success, in circumstances where the appeal would be futile.[15] That may occur where the orders made at first instance can be supported on another basis.[16]

40 With respect to ground 1, the applicants submitted that a contract could only be varied by subsequent agreement and, in the present case, no subsequent variation agreement was established. It was also said that the contract of sale was not varied at the time of execution to incorporate Ms Chan as a party or the payment of $50,000 because, in contrast to the receipt of the sum of $25,000, those matters were not evident in the signed contract itself.

41 With respect to grounds 2 and 3, the applicants contended that the 'deal' was 'over the line' when the contract of sale was entered into and that, under that contract, Assets China was obliged to make efforts - through its sole director, Ms Chan - to get the landlord to agree to transfer the lease. Accordingly, it was said that the consideration found by the magistrate was past consideration which was incapable of supporting the alleged variation.

42 With respect to grounds 4 and 5, the applicants argued that it was not open on the evidence to find that the contract of sale was varied to include Ms Chan as a party. Consequently, they submitted that Ms Chan could not be personally liable under the contract.

43 With respect to ground 6, the applicants contended that, insofar as the associate judge held that the magistrate found that the contract of sale was varied to include Ms Chan as a party or that Ms Chan was personally liable under a contract to which she was not a party, the associate judge denied Ms Chan procedural fairness. This was said to be because Ms Chan was not given notice of, or an opportunity to consider and respond to, those potential findings.

44 In their supplementary written submissions, the applicants argued that there was no general principle of unjust enrichment which permits restitution simply because a defendant retains a payment made without any legal basis. They submitted that the statement of claim failed to plead facts which gave rise to a recognised category of restitution. They contended that, insofar as the respondents relied upon a total failure of consideration, the statement of claim did not identify the consideration the respondents alleged had failed.

45 The applicants argued that the respondents' failure to identify the consideration made it impossible for the applicants to plead a defence of change of position or to seek counter-restitution.

46 According to the applicants, Ms Chan's written acknowledgement of 7 September 2017 represented the terms upon which the sum of $50,000 was repayable, not the benefit bargained for by the respondents. The applicants contended that the only evidence before the magistrate as to the consideration Ms Zhang believed she was receiving for the payment of the sum of $50,000 was for Ms Chan to sign the contract of sale.

47 The applicants argued that the magistrate made an unchallenged finding that they provided consideration in the form of 'getting the deal over the line' and that this benefit bargained for by the respondents was satisfied when the contract of sale was executed. Accordingly, it was said that that there was no failure of consideration.

48 With respect to ground 1, the respondents submitted that the magistrate did not make a finding as to the exact times that the contract of sale and the written acknowledgement were signed. According to the respondents, the sum of $50,000 was repayable upon the contract of sale being terminated due to the landlord's failure to consent to a transfer of the lease, and the applicants did not demonstrate a legal basis which entitled them to retain that sum. Consequently, it was said, the magistrate's order should not be disturbed.

49 With respect to grounds 2 and 3, the respondents contended that those grounds were without merit because the applicants were seeking to overturn findings of fact by the magistrate, in an attempt to retrospectively avoid the consequences of the forensic decision they made at trial to press a no-case submission. According to the respondents, the evidence before the magistrate did not constrain her from making those factual findings.

50 With respect to grounds 4, 5 and 6, the respondents argued that there was no finding that Ms Chan was a party to the contract of sale. In oral submissions, they conceded that the magistrate could therefore not grant any relief against Ms Chan under the contract. However, they argued that there would be no utility in remitting the proceeding to the Magistrates' Court because, by virtue of the respondents' claim in restitution, the outcome would not be reversed.

51 In their supplementary written submissions, the respondents argued that the applicants have not demonstrated that they have any defence to the respondents' restitution claim. They contended that the applicants' own conduct - in preventing the landlord from considering the respondents' documentation in support of a transfer of the lease - removed the basis upon which the respondents had paid the sum of $50,000, namely, to obtain a concluded transaction for the sale of the business.

52 In our opinion, the magistrate's analysis of the principles of contract and her factual findings regarding variation to the contract of sale were insufficient to warrant judgment being granted in favour of the respondents based on contract.

53 The magistrate made the following relevant findings on the respondent's claim in contract:

(a) A variation of the contract of sale did not need to be in accordance with the formal process set out at cl 26.4 of the contract.[17]

(b) Ms Chan's written acknowledgment of 7 September 2017 constituted a variation of the contract of sale between Assets China and Eastern Blue.[18] The acknowledgement was inextricably linked to the contract of sale.[19]

(c) Consideration for the payment of $50,000 by Ms Zhang was provided in the form of 'getting the deal over the line and/or the efforts that Ms Chan had indicated that she would need to make to get the landlord to agree to transfer the lease'.[20]

(d) There was no indication on the face of Ms Chan's written acknowledgment that she was signing it on behalf of Assets China. However, this case did not involve complex corporate structures. Ms Chan and Ms Zhang were the only natural persons who could act on behalf of Assets China and Eastern Blue, respectively, and they both signed the contract of sale on behalf of those corporate entities.[21]

(e) The sum of $50,000 constituted an additional deposit which was refundable (with a possible adjustment up to $3,000) in the event that the landlord did not consent to a transfer of the lease.[22]

(f) The additional deposit must be refunded in the present case because the landlord did not consent to the transfer of the lease before the contract of sale came to an end.[23]

54 The magistrate did not make any specific findings on the following important matters:

(a) The timing of the variation agreement relative to the timing of the contract of sale. The magistrate did not find either that the variation agreement was made after the contract of sale came into force or that the variation agreement was made contemporaneously with the contract of sale coming into force.

(b) The capacity in which Ms Zhang made the payment of $50,000. In circumstances where the magistrate noted that Ms Zhang was the only natural person who could act on behalf of Eastern Blue, the magistrate did not make a clear finding as to whether those funds were provided by Ms Zhang personally, on behalf of Eastern Blue or on behalf of both of them.

(c) Who provided the consideration of 'getting the deal over the line and/or the efforts that Ms Chan had indicated that she would need to make to get the landlord to agree to transfer the lease' in exchange for the payment of $50,000. In circumstances where the magistrate raised the possibility that Ms Chan signed the written acknowledgement on behalf of Assets China rather than in her personal capacity,[24] the magistrate did not state whether the consideration was provided by Ms Chan personally, on behalf of Assets China or on behalf of both of them.

(d) The parties to the variation agreement. The magistrate did not make a finding that one of the terms of the variation agreement was that Ms Chan became a party to the contract of sale and assumed obligations under that contract.

55 The timing of the variation agreement relative to the contract of sale is important. A contract can be modified as part of the parties' negotiations leading up to the finalisation of the contract without the need for separate consideration for each negotiated modification. In such a situation, the finalised contract is the only negotiated contract, supported by the consideration set out in its terms. However, the position is otherwise in relation to a variation that is negotiated after a contract comes into force. In order for the variation to be effective, it must satisfy the elements of a contract, including consideration. It follows that grounds 1, 2 and 3 have a real prospect of success.

56 The absence of a finding by the magistrate that Ms Chan became a party to the contract of sale means that no remedy could be granted to the respondents against Ms Chan under the contract of sale. Yet, that is precisely what the magistrate did. It follows that ground 4 has a real prospect of success.

57 Grounds 5 and 6 do not arise because it was common ground before us that the magistrate did not make a finding that Ms Chan became a party to the contract of sale. The associate judge also did not make such a finding.

58 In relation to Assets China, consequent upon our conclusion that grounds 1-4 have a real prospect of success, we will grant it leave to appeal, as we are not satisfied that there is any basis for us to exercise our discretion to refuse such leave. The stay of execution in relation to the judgment against Assets China will continue until the hearing and determination of the appeal. However, as a practical matter, the appeal by Assets China may not proceed in the light of the following:

(a) our conclusion below that Ms Chan will be refused leave to appeal and the stay of execution of judgment in her favour will be vacated, thus allowing Ms Zhang and Eastern Blue to execute the judgment against her based on restitutionary principles;

(b) Ms Zhang and Eastern Blue may concede that, having regard to their ability to execute the judgment against Ms Chan based on restitutionary principles and to the fact that contractual and restitutionary remedies are not available in respect of the same amount, they cannot maintain any contractual claim against the applicants; and

(c) Ms Zhang and Eastern Blue may consent to an order amending para 1 of the magistrate's order so that it refers only to Ms Chan rather than to both of the applicants.[25]

59 In relation to Ms Chan, notwithstanding our conclusion that grounds 1-4 have a real prospect of success, leave to appeal will be refused in the exercise of our discretion. In our opinion, the setting aside of the judgment against Ms Chan and remittal of the proceeding to the Magistrates' Court would be futile. That is because, contrary to the applicants' supplementary written submissions, on the basis of the pleadings and evidence before the magistrate, the restitution claim against Ms Chan is bound to succeed, at least in favour of Ms Zhang.

60 We reject the applicants' submission that para 22 of the statement of claim did not plead a restitutionary claim that fell within a recognised category. In our opinion, the wording of para 22 was sufficient to convey to the applicants that the respondents were relying on the cause of action for money had and received on the basis of a total failure of consideration. The elements of that cause of action and our reasons for concluding that those elements were satisfied in the present case are discussed at [70]-[72] below.

61 We also reject the applicants' submission that para 22 did not identify the consideration which was said to have totally failed for the purpose of attracting the cause of action for money had and received on the basis of a total failure of consideration.

62 Paragraph 22 must be read in the context of the statement of claim as a whole. Paragraph 22 refers to the payment of the Further Deposit Sum which is defined in para 8 as the sum of $50,000 that was paid by the respondents towards the purchase price of the Studio 466 business. The particulars to para 8 make it clear that the terms upon which the respondents allege that the payment was made include those set out in Ms Chan's written acknowledgement dated 7 September 2017. That acknowledgement expressly provided for the sum to be refunded to Ms Zhang (with a possible small adjustment) 'in the event that the landlord successfully refuses to grant the consent for the transfer of same lease'.

63 It follows that para 22 of the statement of claim, read with para 8, sufficiently pleads that the consideration for the payment of the sum of $50,000 was the acquisition of the Studio 466 business by Eastern Blue. By referring to Ms Chan's written acknowledgement dated 7 September 2017, the particulars to para 8 make it clear that the sum was refundable (with a possible small adjustment) in the event that the landlord did not consent to the transfer of the lease, that is, if the condition precedent in the contract of sale was not satisfied. Paragraph 9 of the statement of claim also clearly pleads that the sum was refundable in the event that the landlord did not transfer the lease.

64 In accordance with basic principles of contract, the legal effect of the parties' dealings with each other are to be determined objectively rather than on the basis of the parties' subjective intentions. In circumstances where parties are negotiating a contract for the sale of a business which is conditional upon the landlord's consent to a transfer of the lease, unless the contract states otherwise, on an objective analysis, the moneys paid by the purchaser to the vendor are not in consideration for the execution of the contract. Rather, the moneys are paid in consideration for the contract of sale becoming unconditional and the purchaser acquiring the business.

65 Even if it is assumed that Ms Zhang's evidence is relevant in this context, it is not inconsistent with the above objective analysis. Whilst Ms Zhang's evidence was confusing and difficult to follow, it could not be fairly construed as being to the effect that she paid the sum of $50,000 in return for Assets China signing the contract of sale. Ms Zhang's statements 'I thought maybe to emphasise about the $50,000 I will get the purchase or get the business'[26] and 'Extra payment to purchase the business'[27] indicate that the purpose of the payment was not merely to secure the signing of the contract of sale, but to secure the acquisition of the business pursuant to that contract.

66 The magistrate's statement that the consideration for the sum of $50,000 was 'getting the deal over the line' was made in the context of her impugned finding that the contract of sale had been varied. This statement is consistent with the objective analysis referred to above. We reject the applicants' contention that the 'deal' was the signing of the contract of sale. The deal was the sale of the Studio 466 business. Rather than getting the deal over the line, the applicants, by their conduct in thwarting the approval of a transfer of the lease, prevented the deal from being completed.

67 It is common ground that Ms Chan was given a bank cheque for $50,000. Ms Chan has at no stage denied receiving these funds. The magistrate did not make a finding as to whether these funds were provided to Ms Chan on behalf of Ms Zhang personally or on behalf of Eastern Blue.

68 In their supplementary written submissions, the applicants conceded that the payment of $50,000 was not a gift. Ms Chan's written acknowledgement dated 7 September 2017 puts this beyond doubt. It makes clear that the payment was for the purchase of the Studio 466 business and that the funds would be refunded (with a possible small adjustment) 'in the event that the landlord successfully refuses to grant the consent for the transfer of same lease'.

69 The condition for the refund of the $50,000 (with a possible small adjustment) in Ms Chan's written acknowledgement dated 7 September 2017 was satisfied. The landlord did not consent to the lease being transferred to Eastern Blue because, on 4 December 2017, the applicants' solicitor instructed the landlord's solicitor to disregard the supporting documents that the respondents had provided and thereby thwarted the respondents' ability to obtain the landlord's consent. The applicants' solicitor terminated the contract of sale on 12 December 2017 without attributing any breach or default to the respondents.

70 The elements of the cause of action for money had and received are as follows:[28]

(b) An unjust factor in the defendant retaining the payment, such as mistake, duress, illegality or total failure of consideration. In this context, consideration means the state of affairs contemplated as the basis or reason for the payment. Where the relevant basis is the benefit that is bargained for, the test is whether or not the plaintiff has in fact received any part of the benefit bargained for under the contract or purported contract. It is sufficient that there is a total failure of a severable part of the consideration.

71 All of these elements were satisfied in the present case as between Ms Chan and Ms Zhang:

(b) The state of affairs contemplated as the basis for the payment was the acquisition of the Studio 466 business by Eastern Blue, which necessarily involved satisfaction of the condition precedent in the contract of sale, namely, the landlord consenting to the transfer of the lease to Eastern Blue. Eastern Blue's ability to obtain the landlord's consent was thwarted by the applicants and the contract of sale was subsequently terminated without attribution of fault to the respondents. Accordingly, Ms Zhang has not received any part of the benefit she bargained for with Ms Chan.

(c) Ms Chan was not a party to the contract of sale. Consequently, no contractual remedy is available against her.

72 Depending on whether any part of the sum of $50,000 was paid by Ms Zhang to Ms Chan on behalf of Eastern Blue - a matter upon which the magistrate made no finding - the elements would be satisfied as between Eastern Blue and Ms Chan for that part of the sum.

73 In para 22 of their defence, the applicants admitted that Assets China did not provide any consideration for the payment of $50,000, referred to earlier parts of their defence dealing with the contract claim and otherwise denied that they were liable to the respondents in restitution. Ms Chan did not admit that she did not provide any consideration for payment of the $50,000 and relied on earlier parts of the defence where she alleged the entering into of a 'risk offset agreement'. However, reliance on the alleged agreement does not assist her because, in para 8B of the defence, Ms Chan acknowledges that the sum of $50,000 was repayable in the event that the landlord successfully refused to grant consent to the transfer of the lease.[29] As we have already explained, due to the conduct of the applicants, the landlord did not grant consent to the transfer of the lease.

74 The applicants did not plead any substantive defence to the respondents' restitution claim. For example, they did not plead the defence of change of position. We reject the applicants' submission that they were not able to plead any substantive defence or seek counter-restitution because para 22 of the statement of claim did not identify the consideration that was said to have totally failed. For the reasons set out previously, para 22, read with para 8, did identify that consideration.

75 As all the elements of the cause of action for money had and received on the basis of a total failure of consideration were satisfied and the applicants did not plead any substantive defence, the cause of action was made out against Ms Chan. She is obliged to repay the sum of $50,000 to Ms Zhang. It is not necessary for us to determine whether Ms Zhang will receive the sum in her own right or as agent for Eastern Blue and be liable to account to Eastern Blue for all or part of the sum. That is a matter between Ms Zhang and Eastern Blue.

76 Any lack of clarity as to the precise entitlements of Ms Zhang and Eastern Blue does not warrant setting aside the judgment and remitting the restitution claim to the Magistrates' Court for re-hearing. That is so because, on any view, Ms Chan is obliged to repay the sum of $50,000 to Ms Zhang or to Eastern Blue or to both of them. As Ms Zhang and Eastern Blue are joint and several beneficiaries of the judgment for $50,000 against Ms Chan, the judgment should stand. Payment of that sum by Ms Chan to either Ms Zhang or Eastern Blue will satisfy the judgment debt as against both of them. Accordingly, the fact that both Ms Zhang and Eastern Blue will be able to enforce the judgment does not, as a practical matter, create any additional legal liability for Ms Chan. Nor will the joint and several nature of the judgment disadvantage Ms Zhang or Eastern Blue, as Ms Zhang is the sole shareholder and director of Eastern Blue.

77 In their supplementary written submissions, the applicants contended that it would be unfair for this Court to refuse leave to appeal to Ms Chan on the basis that the respondents' restitution claim against her is bound to succeed if the proceeding were remitted to the Magistrates' Court. They argued that the features of the restitution claim upon which this Court drew attention at the hearing on 12 April 2021 were not previously articulated at trial. They further argued that, had those features been articulated at trial, they would have addressed them and may not have made a no-case submission.

78 We have some sympathy for these submissions. The manner in which the trial proceeded was less than ideal. However, the no-case submission was, in its clear terms, directed to both the contract claim and the restitution claim. The applicants made a considered forensic decision not to go into evidence on either claim. A remittal from this Court would not provide an opportunity for the applicants to revisit that choice and expand the evidentiary material. In this Court, the applicants have been given a fair opportunity to address the issues relevant to the restitution claim in their supplementary submissions. Having considered those submissions, we are firmly of the view that, on the evidence and findings of the magistrate that have not been impugned, Ms Chan could not resist a claim for money had and received on the basis of a total failure of consideration in circumstances where the evidence before the magistrate showed that:

(a) Ms Zhang paid the sum of $50,000 to Ms Chan, not as a gift, but as an extra payment in consideration for the acquisition of the Studio 466 business by Eastern Blue.

(b) Ms Chan was obliged to refund the sum of $50,000 to Ms Zhang if the sale of the business was not completed due to the failure of the landlord to consent to the transfer of the lease through no fault of the respondents.

(c) The landlord failed to consent to the transfer of the lease.

(d) On 4 December 2017, the applicants' solicitor instructed the landlord's solicitor to disregard the documents provided to him by the respondents in support of a transfer of the lease.

(e) On 12 December 2017, the solicitor for the applicants accepted that the contract of sale was at an end without attributing any fault to the respondents.

79 In the light of the above circumstances, the order of the magistrate insofar as it concerns Ms Chan was correct, and it would not serve the administration of justice to grant her leave to appeal.

80 For the above reasons, we will make the orders set out at [15] above.

[1] Ms Zhang is also known as Dinah Zhang.

[2] The magistrate also dismissed a counterclaim that had been made by Assets China against the respondents. The counterclaim is not presently relevant.

[3] Assets China Pty Ltd v Eastern Blue Pty Ltd [2020] VSC 685 ('Reasons').

[4] Paragraphs 8-8K of the defence deal with the Further Deposit Agreement alleged by the respondents, the risk offset agreement alleged by the applicants and the contractual basis upon which the applicants pleaded that the respondents were not entitled to repayment of the sum of $50,000.

[5] Transcript of Proceedings (1 May 2019) 58.22-58.23, 59.11-59.16.

[6] Transcript of Proceedings (1 May 2019) 82.4-84.15.

[7] Transcript of Proceedings (1 May 2019) 85.11-85.13, 86.8-86.11.

[8] Transcript of Proceedings (1 May 2019) 166.6-166.19.

[9] Transcript of Proceedings (27 June 2019) 222.11-225.11 (citations omitted) ('Ruling').

[10] Transcript of Proceedings (17 July 2019) 364.28-366.8.

[11] See [70] below.

[13] [2018] VSCA 147 ('Molonglo').

[14] Molonglo [2018] VSCA 147, [96] (citations omitted).

[15] Muto v Shepparton City Council (2018) 228 LGERA 188, 208 [90]; [2018] VSCA 73.

[16] Popovski v Ericsson Australia Pty Ltd [1998] VSC 61, [27]-[28].

[24] See [53(d)] above.

[25] We note that, as Ms Chan is the sole shareholder of Assets China, the assets of Ms Chan against which the judgment can be enforced will include her controlling shareholding in Assets China.

[26] Transcript of Proceedings (1 May 2019) 58.19-58.21.

[27] Transcript of Proceedings (1 May 2019) 166.12. See also [27] above.

[28] David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353, 376-83; [1992] HCA 48; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516, 525-30 [16]-[29], 539-58 [62]-[109]; [2001] HCA 68; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, 516-23 [30]-[45]; [2012] HCA 7; Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 373 ALR 1, 7-8 [14]-[18], 10 [23]-[24], 43-5 [164]-[168], 47 [175]; [2019] HCA 32.

[29] See [21] above.