Nu Line Construction Group Pty Ltd v Fowler

Judgment 1HER HONOUR: In these proceedings, the claim by the plaintiff company (Nu Line Construction) is principally for restitutionary relief in respect of moneys said to have been paid by it or on its behalf to the first defendant (to whom I will refer as Mr Fowler but who is also known as Mr Grippaudo) in the period between June 2000 and February 2001 in relation to or in anticipation of the proposed purchase by Nu Line Construction of industrial land then owned by Mr Fowler's wife, the second defendant (Mrs Grippaudo), at Wetherill Park. That purchase did not proceed and the land was sold in 2009 (after the commencement of the present proceedings) to an unrelated entity. 2An alternative claim for a constructive trust, based on the Muschinski v Dodds ((1985) 160 CLR 583) and Baumgartner v Baumgartner ((1987) 164 CLR 13) line of authority, was pleaded but it was acknowledged by Senior Counsel for Nu Line Construction, Mr Hale SC, that this claim turned on the same issues as those on which the restitutionary claim itself was based. Mr Hale also confirmed that no claim was made on the basis that there was any enforceable contract for the sale of the land. 3As summarised by Counsel for the defendants (Mr H Stitt), the defence of this claim rests essentially on the following contentions: that Nu Line Construction has no standing to sue and therefore no cause of action against the defendants (it being contended both that the relevant agreement to purchase the land was one entered into with the principals of the company in their personal capacity and that Nu Line Construction had not established that the payments in question were made by it rather than by one or other of the principals on their own behalf) and, further, that any action to recover moneys paid to the defendants is statute barred by force of the Limitation Act 1969 (NSW). 4It is submitted by Mr Stitt that even if Nu Line Construction's claim were to succeed the appropriate remedy would have been a remedy at common law for moneys had and received but that such a claim became statute barred six years from the date(s) of the payments in question. In response on this issue, Mr Hale submits that a cause of action for moneys had and received (based on a failure of consideration) accrues only on the failure of consideration (in the sense of the failure of the contemplated state of affairs, in anticipation of which the money was paid, to materialise) and that this was when the property was sold in 2009 or, at the earliest, in 2006 when the negotiations for the sale "finally" broke down. Hence it is submitted that the claim was not statute barred as at September 2008 when the proceedings were commenced. 5As to the claim for a constructive trust, which ultimately was not pressed, Mr Stitt submitted that the Court should not exercise a discretion to impose a constructive trust so as to extend the limitation period within which he submits a claim for moneys had and received should have been brought. It was in this context that it was submitted that Nu Line Construction had been guilty of laches (the relevant delay being from the last correspondence in relation to the proposed purchase that took place between the parties in 2002, when Nu Line Construction failed to respond to requests for confirmation as to whether it wished to proceed with the purchase, and the bringing of the claim in 2008). Mr Stitt also submitted that an issue of unclean hands arose in this (and other) regard(s). 6Issue is taken by Mr Hale to the ability of the defendants to raise the issue of unclean hands, whether by way of defence or as going to any exercise of discretion, having regard to the fact that it was not raised on the pleadings. Issues 7There are a number of factual issues in dispute (including those that go to whether Nu Line Construction is the proper plaintiff in these proceedings and as to whether it has established that all of the amounts claimed were in fact paid to Mr Fowler by or on its behalf) but ultimately the issues for determination fall into a narrow compass: whether Nu Line Construction has standing to bring this claim; whether there was a total failure of consideration for some or all of the payments made to Mr Fowler, so as to make the retention of those payments an unjust enrichment on the part of Mr Fowler, (the payments effectively falling into two classes: first, the $60,000 payment in June 2000, acknowledged by Mr Fowler at the time as being a "part payment on" the land in question, and, second, any moneys established to have been paid in relation to invoices submitted for payment by Mr Fowler in relation to building works on his own property) and hence to give rise to a prima facie liability on the part of Mr Fowler to make the restitution which has not been dispelled; whether it is open to Nu Line Construction to maintain a restitutionary claim to interest and, if so, over what period; and whether the claim made by Nu Line Construction is statute-barred. Summary 8In summary, for the reasons set out below, I have concluded as follows. 9As to the payment of $60,000 made to Mr Fowler in June 2000, that: (a)it should properly be characterised (consistently with the contemporaneous record of the payment) as a payment of part of the then agreed purchase price for the land (and in anticipation that a contract for the sale of the land would be finalised and completed), rather than as a deposit of the kind ordinarily paid on exchange of contracts or some form of holding deposit and not, as the defendants have contended as an option (for which consideration might well be said to have been given by the property having been kept "off the market" for some time); (b)it was made on behalf of Nu Line Construction as the then contemplated purchaser of the property (and hence the company has, or had at the relevant time, standing to sue for its recovery); (c)there was a total failure of consideration for that payment at the time when, viewed objectively, the contemplated state of affairs in anticipation of which the money was paid had failed to materialise; and (d)that this time had arisen at or around mid 2002 (having regard to the lack of any response by Nu Line Construction to successive requests made over the period from February to May 2002 as to whether it wished to proceed with the proposed sale), such that any cause of action for recovery of the said sum based on a failure of consideration had accrued before September 2002 and was, by September 2008, statute barred. 10Thus, while I accept that, as at mid 2002, there was a cause of action in restitution for recovery of the $60,000 (on the basis that Mr Fowler would at that stage be said to be unjustly enriched by the retention of that sum in circumstances where the sale of the Wetherill Park land, in anticipation of which it was paid, had by then failed to materialise and was no longer actively being pursued), I am of the view that such cause of action was no longer maintainable as at September 2008. 11As to the claim for recovery of the moneys allegedly paid to third parties on behalf of Mr Fowler in respect of invoices provided by Mr Fowler, I am not satisfied that (with the possible exception of one payment of $9,075) Nu Line Construction has established that the moneys claimed were in each case actually paid out by it for the benefit or at the request of Mr Fowler. Further, I do not accept that the evidence establishes that any moneys paid in payment of the invoices were moneys paid as part of the purchase price for the land. It seems to me that the more likely explanation for any such payments is that these moneys were paid in order to assist Mr Fowler with his financial situation, in circumstances where the sale contracts had not yet been exchanged, and where they were not intended as a gift but no terms of any loan were discussed. Such a payment would be able to be characterised as moneys repayable on demand. However, even on Mr Fowler's own version of events, some such moneys were paid and they were paid with a view to a purchase of the land occurring (thus is it not unreasonable to infer that the parties would have contemplated that such payments would ultimately have been offset against the purchase price payable on the final completion of the purchase). Whether or not such an inference should be drawn, I accept that in principle any amounts established to have been paid in respect of invoices provided to Mr Fowler should be treated in similar fashion to the $60,000 deposit (not as part payment of the purchase price but as payments in anticipation of a future purchase. Nevertheless, for the same reason as above, the claim to recover any such payments as at September 2008 was in my view statute barred. 12Even if any invoice moneys paid were only in the nature of advances repayable on demand (such that a restitutionary claim for their recovery would not lie), a claim for recovery of those moneys would have been statute barred in each case six years after the payment(s) in question (and hence, at the latest, by February 2007). 13Had the moneys in question ($60,000 and any amount established to have been paid in respect of the invoices) been paid as an option fee (as Mr Fowler contends) or as a holding deposit to keep the property off the market pending a proposed sale to Nu Line Construction (as Mr Fowler formerly contended), no claim based on a total failure of consideration would lie (as there would then have been no total failure of consideration for the payments). However, I am not satisfied that the moneys can be characterised in such a fashion. 14On the basis of the above findings, no claim for restitutionary interest arises. Had the claim for recovery of the $60,000 (and/or any such claim for the invoice payments) not been statute barred, then I would have found that there was a restitutionary claim for interest but only from the date on which it objectively became apparent that the contemplated sale had failed to materialise (not from the date on which the moneys were paid) as it was only from that later date that I consider the retention of the moneys could be said to have become unjust. 15While the result of the above findings is that moneys were paid to Mr Fowler in anticipation of a contract that did not materialise and in circumstances where it had not been the intention of Nu Line Construction (or one of its then principals, Mr Mijatovic) that Mr Fowler should have a "gift" of the moneys, Mr Stitt emphasised that, from a practical point of view, Nu Line Construction had the benefit of the property not having been sold (and effectively kept off the market), hence available for it to purchase, for a considerable time and thus that the retention of the moneys was not unjust. As at mid 2002, it seems to me that this could not be said to be the case. However, I accept that the position may be viewed differently as at September 2008. The broad rationales underlying the enactment of statutory limitation periods (explained by McHugh J In Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 and noted by Spigelman CJ with approval in BP Australia Ltd v Brown & ors [2003] NSWCA 216), reflect a balancing of the interests of claimants and those against whom claims are made and involve a statutory recognition that there are cases where (a claim not having been made within the requisite time) the loss must lie where it falls. This seems to me (unfortunately for Nu Line Construction) to be such a case. Pleadings 16As emphasis was placed during the hearing on the ambit of the matters raised on the pleadings, I summarise at the outset the claims made in the pleadings before turning to the facts giving rise to the present dispute. 17Nu Line Construction contends that, in about March 2000, Mr Fowler (acting as agent for and with the authority of his wife, Mrs Grippaudo) entered into an agreement for the sale to it of the Wetherill Park property. The agreement (particularised in [7A] of the Further Amended Statement of Claim filed in February 2011) is said to be oral and "entered into on behalf of Mr [Leo] Mijatovic [then one of three directors of Nu Line Construction but now the sole director of that company] for [Nu Line Construction]" and Mr Fowler for and on behalf of Mrs Grippaudo. 18The terms of the alleged agreement pleaded at [8A] of the Further Amended Statement of Claim are that the purchase price was $450,000 ([8A.1]); that Nu Line Construction would pay "a deposit of $60,000 as part payment of the purchase price" ([8A.2]); that, prior to the sale of the property, Nu Line Construction would pay expenses "up to about $90,000" in relation to a separate property owned by the defendants "as and when directed to do so" by Mr Fowler ([8A.3]); that the said expenses paid prior to settlement of the sale would be part payments of the purchase price and deducted from the overall purchase price at settlement ([8A.4]); and that the parties would execute a formal written contract for the sale of the property with a stated purchase price of $300,000 ([8A.5]). 19Nu Line Construction seeks to recover the amount of $152,427.55, that being the aggregate of the sums it alleges says were paid to (or for the benefit of) Mr Fowler pursuant to the alleged agreement. It does not contend that the agreement pleaded in [7A] of the Further Amended Statement of Claim is (or was) enforceable (and, hence, did not press at the hearing the claims for damages for the alleged breach of that agreement contained in its pleading). Rather, it is alleged that there has been a total failure of consideration for the payments in question and that Mr Fowler would be unjustly enriched if allowed to retain those payments in the circumstances that have transpired. 20Nu Line Construction also claims interest on the moneys from the date of payment of the respective amounts as a separate restitutionary claim (or in the exercise of the original or auxiliary equitable jurisdiction) up to the date from which a statutory claim for interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) would otherwise lie. 21The relief sought in the Further Amended Statement of Claim includes a declaration that, in the events that have occurred, there is a constructive trust in favour of Nu Line Construction "as to one-third of the value" of the Wetherill Park property. As adverted to above, Mr Hale indicated during opening submissions that although a claim in equity was included in the pleadings (referring, as I understand it, to the claim for a declaration as to the existence of a constructive trust), it was the restitutionary claim that was at the forefront of the claims made in these proceedings. 22Paragraph [24] of the Further Amended Statement of Claim pleads, "further or in the alternative", a claim for moneys had and received "as a result of the alleged payments". (It is by no means clear, however, that a claim for moneys had and received is in truth an alternative to a claim for restitution based on a failure of consideration and, in my view, this case stands or falls on the claim as principally put, which is for restitution.) 23The Defence, as filed, consists of a series of bare admissions, denials and non-admissions. A limitation defence is expressly pleaded and it is further alleged that the claim is inequitable (though without particularisation of the basis on which it is so alleged). 24There was no express pleading of an "unclean hands" defence. In light of this, issue was taken by Mr Hale not only as to the maintenance of such a defence but as to reliance on such an allegation as going to any issue of discretion that might arise in relation to the relief sought by Nu Line Construction. He objected to any reliance by the defendants on matters such as the alleged failure of the directors to disclose to the external administrator of the company, during the period the company was in voluntary administration or while it was subject to a deed of company arrangement, any claim or interest in respect of the property. In particular, Mr Hale argued that had it been pleaded in the defence that no claim in restitution would lie because of a failure to disclose certain matters to the administrator then the plaintiff would have had the opportunity to find out what in fact was disclosed to the administrator and, if necessary, to call the administrator to give evidence in the proceedings. (Though, as will be noted below, Mr Mijatovic himself gave evidence from which a conclusion as to non-disclosure could be drawn.) 25Rule 14.7 of the Uniform Civil Procedure Rules requires that all the material facts on which that party relies for his or her claim must be pleaded (and the same applies to a defence). Hence, if a defence were to be based on non-disclosure of matters to the company's external administrator, this fact should have been pleaded. Further, rule 14.14 requires that matters be specifically pleaded that would otherwise take the opposing party by surprise, including matters pleaded in defence that the party alleges would make the claim of the opposing party not maintainable. This rule is grounded in a wider principle that each party is given a proper opportunity to prepare and present its case (Bright v Sampson & Duncan Enterprises Pty Ltd (1985) 1 NSWLR 346; Re Robinson's Settlement; Gant v Hobbs [1912] 1 Ch 717; White v Overland [2001] FCA 1333 at [4] per Allsop J (as his Honour then was). Subrule (3) of r 14.14 provides a non-exclusive list of matters that must be pleaded (such as fraud or the statute of limitations). 26In this regard, I am not satisfied that the bare allegation in the defence in this case that the claim was inequitable would suffice to bring to the plaintiff's attention that a plea of unclean hands was being raised made, let alone on what facts, matters and circumstances such a claim might be based. (Although in the initial Defence, laches was not pleaded, in the Defence to the Further Amended Statement of Claim filed on 8 June 2011, there was an express plea of laches, acquiescence and delay as a defence to any claim for equitable relief. In my reasons published earlier today I had overlooked this pleading and I have now published amended reasons to correct the error to which Mr Stitt has quite properly drawn my attention. It does not change the outcome of the proceedings.) 27In some circumstances it seems that a court may take into account effect to matters that are not specifically pleaded (see, for example, Sykes v Stratton [1972] 1 NSWLR 145 at 162, a case where restoration was sought of trust property in the context of a transaction that was considered by Helsham J, as his Honour then was, to be an illegal transaction). However, the general rule is that a court would not be required to consider a defence not raised by the parties (North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461; Knowles v Fuller (1949) 48 SR (NSW) 243) and that cases are to be determined on the issues raised by the pleadings. It is recognised that the parties may by their conduct of the case acquiesce in a departure from, or may disregard or enlarge, a pleaded case or, in the words of Spigelman CJ in Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; (2007) 62 ACSR 1; [2007] NSWCA 75, at 17 [57], may choose to fight the case on a different basis. Nevertheless, in the present case, it could hardly be said, in light of Mr Hale's insistence on adherence to the pleaded case, that Nu Line Construction had acquiesced in any expansion of the issues raised expressly by way of defence in the pleadings to include an allegation of unclean hands. 28Pausing here, I have not been able to find in the authorities specific discussion as to the question whether unclean hands can be raised as going to the exercise of the Court's discretion, if not expressly pleaded as a defence. In Dewhirst v Edwards [1983] 1 NSWLR 34 at 45 there was reference in the judgment to facts in the summary of the defendant's submissions which Powell J, in obiter, indicated would suffice successfully to raise such a defence. In Tolcher v Loiterton [2002] NSWSC 373, again in obiter, Gzell J suggested that a ground for rejection of the cross-claim before him (had certain alleged representations otherwise been made out) would have been unclean hands (without there being an indication in his Honour's reasons that an unclean hands defence had in fact been pleaded), stating (at [24]): Secondly, if the representations were made, the defendants were prepared to allow a document which did not reflect and, indeed, suggested the opposite situation, to be placed before the meeting of creditors. In those circumstances not only is it not unconscionable conduct on the part of the plaintiff to ignore any assumption made by the defendants, but also equitable relief should be refused because the defendants come to this Court with unclean hands (Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641). 29However, while I do not accept that inferences adverse to the plaintiff could not have been drawn from some of the material which it is submitted raises the issue of unclean hands (and hence considered in the exercise of any discretion as to the relief to be granted), ultimately I have reached my decision without drawing any such inferences. Background Facts 30As at early 2000, Nu Line Construction was a property development company with three directors and shareholders (Mr Michael Lebic, Mr Mick Mijatovic and Mr Leo Mijatovic). Mick and Leo Mijatovic are brothers. (Where necessary to distinguish between the two Mijatovic brothers I will do so by their first names. Where I refer simply to Mr Mijatovic, I am referring in each case to Mr Leo Mijatovic.) 31Up to June 2005, the shareholding of the company was held as to 40% by Mr Lebic; as to 40% by Mr Mick Mijatovic and as to 20% by Mr Leo Mijatovic. In 2003 the company went into external administration (as will be discussed further below). After the external administration came to an end in 2005, the shareholding of the company changed and since then the sole shareholder (and director) has been Mr Leo Mijatovic. 32There was a falling out between Mr Leo Mijatovic and Mr Lebic some time around late 2005 or early 2006. (Mr Lebic accepted that it was over serious allegations made against him by Mr Mijatovic, which allegations were denied; that it occurred at the end of 2005 or early 2006; and that they had not spoken since - T 232.46.) There does not appear to have been any such falling out as between the Mijatovic brothers (since Mr Mick Mijatovic attended in Court during the hearing, in Mr Leo Mijatovic's own words to 'support' his brother). Mr Mick Mijatovic was not, however, called to give evidence in Nu Line Construction's case, a matter on which Mr Stitt invites me to draw a Jones v Dunkel (1959) 101 CLR 298 inference. 33As at 2000 (and until its sale in 2009), Mrs Gabriella Grippaudo (Mr Fowler's wife) was the registered proprietor of industrial land at Wetherill Park. Although the Wetherill Park property was in fact owned by Mrs Grippaudo, no issue was raised as to Mr Fowler's authority to negotiate in relation to the land on her behalf. Mrs Grippaudo, who was not required for cross-examination, swore an affidavit in the proceedings in which she deposed that she had had no dealings with Nu Line Construction and that all dealings in relation to the Wetherill Park land were done by her husband with her permission. 34The Wetherill Park land is a battleaxe block on which, at the relevant time, there was a telephone tower that was the subject of leases to both Optus and Vodafone. There was no building on the land but Mr Fowler says that some of his machinery was kept on the land and he carried on some part of his construction business from the land.

• Discussions in February 2000 re proposed purchase of land 35In early 2000 there were discussions between one or more of the principals of Nu Line Construction, on the one hand, and Mr Fowler, on the other hand, as to the proposed purchase of the Wetherill Park land. There is an inconsistency between the evidence of Mr Fowler and that of Mr Mijatovic as to what participation the latter had, if any, in discussions before 15 March 2000 in relation to the proposed purchase. 36Both Mr Fowler and Mr Lebic gave evidence that Mr Lebic had initially contacted Mr Fowler in relation to the property. Mr Lebic says that he had heard through a third party that the land was for sale and that he contacted Mr Fowler to express interest in purchasing the land. Mr Lebic places this event as occurring in around late January or early February 2000. Both he and Mr Fowler say that there was a meeting between them on site shortly after that conversation. Mr Fowler's recollection is that Mr Mick Mijatovic was also at that meeting on site but he does not have any recollection of Mr Leo Mijatovic being at that meeting. (Mr Fowler gave evidence that he did not meet Mr Leo Mijatovic until June 2000.) For his part, Mr Lebic does not refer to anyone else being at the February site meeting. 37While Mr Mijatovic does not say that he was at any February site meeting, he does depose that on about 18 February 2000 he had a conversation with Mr Fowler (and says that his "former business partner", by whom I understand him to be referring to Mr Lebic, "was also in attendance" during that conversation) in which Mr Fowler told him about the land and said he would like him to consider buying it. Mr Mijatovic deposes that, in the conversation he had with Mr Fowler in February, Mr Fowler had indicated that there was space on the land to build a warehouse and that he (Mr Mijatovic) had indicated interest in building a warehouse because "our current warehouse is getting small and we need larger premises" (at [6]). He also says that in that conversation Mr Fowler had said that the empty land alone could earn about $50,000 a year because it had a telephone tower that was leased to Optus and Vodafone. 38Thus there seems to be an inconsistency as to whether it was Mr Lebic who first initiated discussion with Mr Fowler as to the possible purchase or whether it was Mr Fowler who suggested to Mr Mijatovic that he buy it. (The possibility that there were two pre-site conversations in February seems unlikely given the overlap of the discussion recounted by the respective directors of the company as taking place in February.) 39Whether or not there was a February telephone conversation between Mr Fowler and Mr Mijatovic (as Mr Mijatovic deposes there was in his affidavit at [6]), there is no reason to doubt that there was a discussion between Mr Fowler and Mr Lebic on site in February 2000 as to the price for which Mr Fowler would be prepared to sell the land or that he wanted to receive for the land. Mr Fowler says (at [7] of his affidavit of 23 February 2010) that he told Mr Lebic that he wanted $300,000 for the land, referring to the need for "a considerable number" of retaining walls to be built that would reduce the effective area of the land (seemingly offering this as justification for the price). Mr Lebic's recollection (albeit in summary terms) differed in that he deposed that: [6] ... We met on site and after looking at the property and discussing the details with Peter, I agreed to buy it. We agreed on a price of $450,000 or $460,000, I cannot now recall precisely. I believe we agreed on a deposit of up to $160,000 with $300,000 being the balance. [my emphasis] 40Apart from the discrepancy as to the amount said to have been discussed or agreed at that meeting as to the total sale price (which I consider in due course), this again highlights the inconsistency between the evidence of Mr Mijatovic, on the one hand, and that of Mr Fowler (and Mr Lebic), on the other, as to when and with whom the initial agreement as to the proposed purchase price occurred. 41If the discussion that Mr Mijatovic recalls taking place on 18 February is one that took place after the site meeting attended by Mr Lebic, then this would make little sense (as Mr Fowler and Mr Lebic by then had already discussed the potential sale of the property on that earlier occasion). There is no evidence from Mr Mick Mijatovic to shed any light on this, or any other, issue. However, not much turns on this (other than to highlight the difficulty of placing weight on the witnesses' recollections of events from so long ago). 42Nu Line Construction, in its pleadings, contends that the "agreement" was reached in or about March 2000 (Mr Mijatovic referring at [9] and [11] to a discussion he had on 15 March 2000 with Mr Fowler), whereas the tenor of the evidence from each of Mr Lebic and Mr Fowler is that the agreed price was struck in February 2000 and that the discussions before 17 June 2000 in relation to the sale were between the two of them. 43The explanation for this discrepancy may well be that the respective witnesses were using the word "agreement" in a loose sense to indicate consensus (which would not be inconsistent with the informal manner in which the parties seem to have progressed discussions in relation to the proposed sale) and hence that each of Mr Lebic and Mr Mijatovic may separately have come to a consensus with Mr Fowler as to the price (although the prospect of two separate price negotiations following the same path at different times seems unlikely - once a price had been struck one would hardly expect the process to begin all over again at the initial starting point, at least without some reason to do so). Again, little turns on whether an agreed price was struck in February or March 2000. However, it does serve to highlight the potential unreliability of the parties' present recollection of events occurring some 12 years ago. (There was also an unresolved discrepancy between Mr Mijatovic's recollection that he had dealt with Mr Fowler before this particular transaction and Mr Fowler's denial that he had had any prior business or professional relationship with Mr Mijatovic.) 44Ultimately, I have little confidence in the reliability of any of the witnesses' recollections as to the timing of event or content of discussions and I place weight instead on the (few, if any) contemporaneous documents.

Amendments 31 May 2012 - [6], [24], [26], [319] Amendments to reflect fact that laches was raised on the pleadings; [27] Minor amendment to include reference to unclean hands; [321] & [322] Further commentary on defence of laches Amended paragraphs: [6], [24], [26], [27], [319], [321] & [322] 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: 31 May 2012