Mitchell as Trustees for Mitchell Fambam Trust v DBell Investments Pty Ltd as Trustee for DBell Investments Trust

Legislation Cited: Civil Procedure Act 2005 (NSW) s 100
Corporations Act 2001 (Cth) ss 440D, 471B

Cases Cited: Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662; [1988] HCA 17
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48
Farah Constructions v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5

Category: Principal judgment

Parties: Elizabeth Mitchell and Nathan Mitchell as trustees for Mitchell Fambam Trust (Plaintiffs)
DBell Investments Pty Ltd as trustee for DBell Investments Trust (First Defendant)
Diana Bell (Second Defendant)
Bell Building Group Pty Limited as trustee for the Bell Group Trust (Third Defendant)

Representation: Counsel:
S Slack-Smith (solicitor) (Plaintiffs)
J O’Sullivan (Second and Third Defendants)
Solicitors:
Slack-Smith Legal (Plaintiffs)
And Legal (Second and Third Defendants)

File Number(s): 2024/00338810

Publication restriction: Nil

JUDGMENT

Background

1. These proceedings arise out of a loan agreement encompassed in a Deed of Loan and Guarantee dated 28 November 2022 (Deed).

2. It is not controversial that the plaintiffs, Elizabeth and Nathan Mitchell as trustees of the Mitchell Fambam Trust were the nominated Lender under the Deed.

3. The first defendant, DBell Investments Pty Ltd as trustee for the DBell Investments Trust was nominated as the Borrower under the Deed. The first defendant has taken no active part in these proceedings. It was placed into administration around November 2023. From the submissions made on behalf of the second and third defendants, it appears that orders for the winding up of the first defendant in insolvency were made in June of this year. Accordingly, pursuant to ss 440D or 471B of the Corporations Act 2001 (Cth), the proceedings against the first defendant are stayed in the absence of the plaintiffs being given leave to proceed against it. The plaintiffs do not seek such leave and consequently, their claim against the first defendant remains precluded by operation of law. In those circumstances, the plaintiffs do not pursue any claim against the first defendant. That will be reflected in orders made at the conclusion of this judgment.

4. The second defendant, Diana Bell, who was a director of the first defendant, was a guarantor under the Deed.

5. The third defendant, Bell Building Group Pty Limited as trustee for the Bell Group Trust, was not a party to the Deed but, in circumstances discussed below, was the entity to which the loan proceeds were paid on settlement of the loan.

6. In an unchallenged affidavit affirmed 20 February 2025, Elizabeth Mitchell says in July 2022, the second defendant reached out to her by email through a community real estate forum. On 17 November 2022, Ms Mitchell had a conversation with the second defendant during which the second defendant said she needed $100,000 to complete renovations to a property in Surf Street, Long Jetty. There followed a discussion as to the terms of a loan for that amount.

7. Ms Mitchell says soon after that, on 28 November 2022, she and the second defendant prepared and signed the Deed. In short, the Deed provided for a loan of $100,000 to the first defendant repayable within 12 months. Interest was payable at a fixed rate of 25%, totalling $25,000 for the term of the loan, payable by two instalments of $12,500 at six months and 12 months from the advance of the loan funds. Provision was made for the first defendant to pay legal costs associated with enforcing the Deed. The Deed also contained a guarantee by the second defendant with a charge over the Long Jetty property, and consent to the registration of a caveat on the title of that property.

8. The plaintiffs, over the course of the following two days, paid the loan funds into the account nominated in the Deed, which although said to be the account of DBell Investments Trust, was, unknown to the plaintiffs at that time, in fact a bank account operated by the Bell Group Trust of which the third defendant was trustee. The evidence shows the second defendant is the sole director and secretary of the third defendant.

9. On 30 June 2023, the first instalment of $12,500 in respect of interest was paid to the plaintiffs together with an ex-gratia payment of $500 to address the fact the payment was one month late.

10. The loan and the remaining interest instalment fell due for payment on 28 November 2023 however, shortly before that, the second defendant contacted Ms Mitchell and told her the repayment could not occur on the due date. The second defendant sought an extension of time for making the payment. Whilst there is some controversy as to what was said at that time and whether it operated to vary the terms of the Deed in relation to the payment of interest, it is common ground there was no repayment of the monies loaned by the plaintiffs or the remaining interest due under the Deed, hence the present litigation.

11. Although the pleadings disputed any liability on the part of the second defendant under the Deed, at the trial it was conceded she was liable to the plaintiffs for the $100,000 loan guaranteed under the Deed. The third defendant disputes any liability to the plaintiffs.

The Issues

12. The issues thrown up by this dispute can be summarised as follows:

13. In addition to the conceded indebtedness of the second defendant under the guarantee for the principal sum of $100,000, is the second defendant liable as guarantor for repayment of interest and the legal costs of enforcing the Deed in accordance with the terms of the Deed, and if so, has interest continued to be payable by the second defendant from the date of default at the rate of 25% per annum?

14. Is the third defendant liable on the basis of monies had and received and unjust enrichment to repay the loan amounts disbursed to it?

Relevant Terms of the Deed

13. Inter alia, the Deed contains the following recitals:

“A. The Borrower has requested the Lender to Loan to the Borrower a total sum of AUD $100,000.00 for the purpose of covering the costs involved with construction and development of the listed site.

…

C. The Guarantor has, at the request of the Borrower, agreed to guarantee the obligations of the Borrower to the Lender on the terms specified in this Deed.”

14. “Principal Sum” is defined in cl 1 of the Deed to be “the sum of AUD $100,000.00”.

15. The loan repayment provisions contained within cl 2 are as follows:

“(a) In consideration of the Principal Sum this day advanced by the Lender to the Borrower, the Borrower agrees that it will repay the Principal Sum in two instalments as stated below:

(i) $12,500 Within or by Six (6) months from the date of fund advance.

(ii) $12,500 plus principal Within or by Twelve (12) months from initial advance.”

16. Interest is dealt with in the following terms in cl 3:

“The Borrower will pay to the Lender interest on the Principal Sum at a fixed rate of return being 25% pa. The total interest accrued at the end of the term will be $25,000.00.”

17. The relevant provisions relating to the guarantee contained in cl 6 are as follows:

“6.1 The Guarantor unconditionally and irrevocably guarantees payment to the Lender of the Principal Sum (guaranteed money).

6.2 If the Borrower does not pay the guaranteed money to the Lender, in accordance with this Deed, then the Guarantor must pay the guaranteed money to the Lender on demand by the Lender.”

18. Clause 9 provides that:

“In relation to the subject matter of this Deed:

(a) this Deed is the whole agreement between the parties; and

(b) this Deed supersedes all oral and written communications by or on behalf of any of the parties.”

19. Finally, cl 10 deals with costs of enforcement in the following way:

“(b) The Borrower agrees to pay the legal costs associated with enforcing this Deed.”

Scope of the Guarantee – Should a Term be Implied?

20. The second defendant as guarantor argues she can have no liability to pay interest provided for under the Deed, or the costs of enforcing the Deed because neither fall within the terms of her guarantee which, under cl 6, is limited to a guarantee of payment of the Principal Sum, defined in cl 1 to be the sum of $100,000.

21. The plaintiffs argue it was an implied term of the Deed that the second defendant would be liable for interest and enforcement costs incurred in the event of the first defendant’s default in its obligations to pay the Principal Sum. The thrust of the plaintiffs’ argument is that such a term ought be implied as a matter of business efficacy. It is contended it is neither business-like, nor does it accord with commonsense that the guarantor would not guarantee the entire liability of the first defendant when that is the very work the guarantee was expected to do. In aid of that proposition, the plaintiffs rely upon recital C which they say reflects the fact that the guarantor agreed to guarantee the obligations of the Borrower to the Lender.

22. The second defendant argues the implication of terms into an agreement is limited by the criteria discussed in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283 and referred to in numerous cases since, namely:

23. The term must be reasonable and equitable.

24. The term must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it.

25. The term must be so obvious that “it goes without saying”.

26. The term must be capable of clear expression.

27. The term must not contradict any express term of the contract.

28. Whilst one may suspect the plaintiffs did not appreciate the limitations of the guarantee, that is entirely a matter of speculation and in any event is ultimately irrelevant. As a matter of principle, one looks to the objective wording of the agreement. Again, to cite established authority, in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346; [1982] HCA 24, Mason J reinforced the principle that the measure for implying a term is not whether the term is reasonable, fair or prudent. Rather, it must be necessary in order for the contract to be effective.

29. I accept the submission made on behalf of the second defendant that recitals in a deed do not constitute operative terms and are relevant only as an aid to the construction of an operative provision. Similarly, while a recital may support an implied term, that will only arise in circumstances where, in accordance with the principles outlined earlier, there is a basis for implying the term.

30. I do not think the recital in question here has any work to do in terms of justifying the implication of a term. In fact, the recital is not necessarily inconsistent with the express terms of the guarantee. Rather than being a recital that the second defendant guarantees all of the first defendant’s obligations under the Deed, it can equally, and perhaps more easily, be read as the second defendant having agreed to guarantee the obligations of the first defendant in the limited terms set out in cl 6 of the Deed.

31. In my view, the terms of the guarantee are clear and unambiguous. The guarantee can operate effectively without amendment. The implied term the plaintiffs seek is not so obvious as to go without saying. Accordingly, there is no basis for implying into the Deed a term extending the guarantee to cover the first defendant’s liability for interests and costs of enforcement.

32. As such, I consider the second defendant to be liable under the guarantee to pay the plaintiffs only the Principal Sum of $100,000.

Liability of the Third Defendant

28. That being the case, the question remaining for determination is whether the third defendant has a liability to repay those monies disbursed to it by the plaintiffs.

29. The plaintiffs’ argument here is that the third defendant has been the beneficiary of an unjust enrichment and/or is liable to repay monies had and received by it. In support of that proposition, the plaintiffs rely on David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48, where the majority of the High Court pointed out that payment made by mistake will prima facie give rise to an obligation to make restitution. In those circumstances, it is for the person receiving the payment to establish why it is not unjust to decline an order for restitution. The plaintiffs point out the third defendant has filed no evidence in support of an argument that retention of the funds by it is not unjust.

30. The plaintiffs contend that, on the face of it, the third defendant is a stranger to the loan and has received the benefit of the payment, with no indication the money was disbursed for or on behalf of the first defendant or otherwise applied in furtherance of the objects of the Deed. Again, the plaintiffs strongly press the submission the third defendant has provided no evidence in relation to why it received, and what it did with, the loan funds. The plaintiffs also contend that had they been aware the monies were to be disbursed to the third defendant, they would have required the third defendant to be a party to the Deed with obligations for repayment under it.

31. The third defendant argues the present situation is no different to any case where monies are disbursed at the direction of the recipient of a loan. This is not, on the third defendant’s submission, at all akin to payment made under a mistake. Although the nomination of the payee in the Deed was incorrect, the third defendant argues nothing turns on this. The plaintiffs were aware the money was being paid at the direction of the first defendant into a nominated account and, says the third defendant, the situation is no different to the scenario where the money was paid to the first defendant and then disbursed by it to the third defendant.

32. The third defendant contends there is no warrant for engaging principles of unjust enrichment on the facts of this case. It says there has been no fundamental mistake, just a misnomer. Any entitlement the plaintiffs have to recovery, says the third defendant, lies against the parties with whom they contracted.

33. The third defendant relies upon the principles discussed in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5, as applied in Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662; [1988] HCA 17 (ANZ v Westpac), and argues it ought be seen as a mere conduit pipe for the monies paid for or on behalf of the first defendant, again pressing the proposition that the plaintiffs’ only remedy is to “go against the principal” or in this case, its guarantor.

34. The plaintiffs argue that, in the absence of evidence, it cannot be said the third defendant was a mere conduit but only that it received the money and then, on the face of it, appropriated that money as it chose to. Indeterminate payments, as reflected by the bank statements before me, say the plaintiffs, do not support the proposition the monies were applied for the benefit of the first defendant.

35. In my view, the plaintiffs have not made out a claim for unjust enrichment on the part of the third defendant.

36. As noted, the plaintiffs argue there is no evidence the third defendant was a conduit for the first defendant in the sense that there is no evidence the funds were applied by the third defendant to the benefit of the first defendant.

37. The bank statements available from the account into which the loan funds were paid [1] do not enable me to know how the funds were disbursed and applied. However, there is no plea by the second defendant, who is a director of both the first and third defendants, that the funds were not received by, or for the benefit of, the first defendant, nor is it asserted that the loan is not recoverable because of payment by the plaintiffs to a third party.

38. There is, in my view, a very real tension between liability on the part of the second defendant as guarantor for monies paid to the first defendant and unjust enrichment on the part of the third defendant in respect of those same funds.

39. It is, on the facts of this case as I see them, a necessary corollary of the second defendant’s liability under the guarantee that the loan funds were appropriated to or for the benefit of the first defendant. I consider, consistent with the observations of the High Court in ANZ v Westpac, that the third defendant received the funds on behalf of, or as a “mere conduit pipe” for, the first defendant, with the plaintiffs’ remedy being a claim against those with whom the plaintiffs contracted, not the party receiving the money under the direction and authority of the Borrower.

40. If that conclusion is wrong, in my view the plaintiffs fail to establish unjust enrichment on a doctrinal basis. In short, if the view is taken that there was “enrichment” on the part of the third defendant, I am not satisfied such enrichment was “unjust”. The authorities make it clear that whether enrichment is unjust is not determined by reference to a subjective evaluation of what is fair or unconscionable. Rather, recovery depends on the existence of a qualifying or vitiating factor falling into some particular category. [2]

41. Those qualifying or vitiating factors typically include mistake, duress, illegality or a failure of consideration.

42. The plaintiffs argue an unjust factor in the present case is the plaintiffs’ mistake as to the identity of the operator of the account into which the loan proceeds were paid.

43. I accept the plaintiffs were misled as to the identity of the account holder, though I cannot say whether that was deliberate or otherwise. Whether that misrepresentation would give rise to a remedy in itself is academic in the circumstances. However, I am not persuaded the payment made into the third defendant’s bank account can be regarded as a mistake, be that of fact or law. The identity of the account holder was not an operative part of the agreement. The plaintiffs’ payment into that account was deliberate and was not made in error. In any event, that payment could not be regarded, in any sense, a fundamental mistake. The Deed, whilst referring to the object of the loan to be building works on a property (which was not specified), did not in its terms make payment conditional on the way in which the loan proceeds were used, nor the identity of the recipient of those proceeds as directed by the first defendant.

44. Beyond that, the plaintiffs plead unjust enrichment based on a failure of consideration. However, in my view, that proposition is without substance in the context of this case. There was in fact consideration provided by the first defendant and in any event, the loan was under Deed. The third defendant did not receive the loan payment based upon a contractual relationship with the plaintiffs, rather the payment was made to the third defendant at the direction of the party which had provided consideration for the payment. Generally speaking, failure of consideration in the context of unjust enrichment more readily involves a payment made for goods or services that are not in fact provided, which is not this case.

45. Accordingly, even if the third defendant did not receive the loan funds as a conduit for the first defendant, in my view there are no “unjust factors” entitling the plaintiffs to recover from the third defendant on the basis of unjust enrichment or monies had and received. For those reasons, the claim against the third defendant fails.

Relief Against the Second Defendant

46. Whilst, on my findings, the plaintiffs are not entitled to interest or enforcement costs against the second defendant in accordance with the terms of the Deed, they seek in the alternative pre-judgment interest on the Principal Sum of $100,000 pursuant to s 100 of the Civil Procedure Act 2005 (NSW). I accept the plaintiffs are entitled to such interest which, in my view, should properly run from 20 May 2024, being the date upon which liability accrued following demand on the second defendant for payment under the guarantee in accordance with cl 6.2 of the Deed. I understand there to be no dispute as to the rates and methodology used in the calculation of pre-judgment interest contained in the plaintiffs’ written submissions. Bringing those calculations up to the date of judgment, I allow pre-judgment interest pursuant to s 100 Civil Procedure Act 2005 (NSW) at $10,415 (rounded). Accordingly, judgment will be entered against the second defendant for the total sum of $110,415.

Claims Against the Other Defendants

47. In light of the matters discussed at the commencement of the judgment, I propose to dismiss the plaintiffs’ claim against the first defendant.

48. For the reasons outlined, the plaintiffs’ claim against the third defendant will also be dismissed.

Costs

49. As between the plaintiffs and the second defendant, I consider costs should follow the event, in the result the second defendant is to pay the plaintiffs’ costs.

50. In the circumstances, I propose to make no order as to costs in relation to the plaintiffs’ claim against the first defendant.

51. I will hear the parties in relation to costs as between the plaintiffs and the third defendant and accordingly, reserve that question for now.

Orders

52. For those reasons, I make the following orders:

53. Judgment for the plaintiffs against the second defendant in the sum of $110,415 (including pre-judgment interest).

54. The second defendant is to pay the plaintiffs’ costs.

55. The plaintiffs’ claim against the first defendant is dismissed.

56. I make no order as to costs as between the plaintiffs and the first defendant.

57. The plaintiffs’ claim against the third defendant is dismissed.

58. I reserve the question of costs as between the plaintiffs and the third defendant and will make directions in consultation with the parties for the determination of that issue.

**********

Endnotes

Which run for the period between 1 September 2022 – 28 February 2023.

See Farah Constructions v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [150]-[151] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ and the authorities referred to therein.