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[2026] NSWSC 656
Supreme Court of NSW
2026-06-10
Elkaim AJ
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Parramatta Co-Operative Housing Society t/as Co-Operative Housing Society v Yabbyland Pty Ltd t/as Yabbyland Unit Trust [2026] NSWSC 656
Hearing dates: 13 and 28 May 2026
Date of orders: 10 June 2026
Decision date: 10 June 2026
Jurisdiction: Common Law
Before: Elkaim AJ
Decision: 1. Judgment for the plaintiff in the sum of $364,275.
2. The defendant is to pay the plaintiff’s costs of the proceedings.
3. The parties have leave, within seven days, to make written submissions to achieve a different costs order, the decision to be made on the papers.
Catchwords: CONTRACTS — enforceability of loan agreement — non-compliance with s 127 of the Corporations Act 2001 (Cth) — no entitlement to rely on assumptions in s 129 of the Corporations Act 2001 (Cth) — whether agreement ratified by making of loan repayments
MORTGAGES AND SECURITIES — indefeasibility of registered mortgage — whether mortgage secures any debt owed by the defendant
RESTITUTION — claim for money had and received — money advanced by mistake under unenforceable loan agreement — change of position defence — quantum of restitution — whether mortgage secures obligation to make restitution — entitlement to interest on restitution
Legislation Cited: Civil Procedure Act 2005 (NSW), s 56
Co-operative Housing and Starr-Bowkett Societies Act 1998 (NSW)
Corporations Act 2001 (Cth), ss 127, 128, 129
District Court Act 1973 (NSW), s 133
Real Property Act 1900 (NSW), s 42
Uniform Civil Procedure Rules 2005 (NSW) rr 17.3(2), 42.34
Cases Cited: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14
Australian Orthopaedic Fixations Pty Ltd v Amplitude Australia Pty Ltd [2017] SASC 88
Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd [2018] NSWSC 1960
Bennett v Strauss [2016] NSWCA 324
Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391; [2012] NSWCA 381
ConnectEast Pty Ltd v CityLink Melbourne Ltd (No 3) [2025] VSC 554
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48
Firth v Staines [1897] 2 QB 70
Government Insurance Office of New South Wales v Healey (No 2) (1991) 22 NSWLR 380
Heydon v NRMA Ltd (2001) 53 NSWLR 600
Leybourne v Permanent Custodians Ltd [2010] NSWCA 78
Meldov Pty Ltd v Bank of Queensland [2015] NSWSC 378
National Australia Bank Limited v Budget Stationery Supplies Pty Ltd NSWCA 23 April 1997
Olsen v James [2020] NSWSC 1015
Perpetual Trustee Co Ltd v Moussa [2013] NSWSC 131
Preston v Diaspora Holdings Pty Ltd; Diaspora Holdings Pty Ltd v Owners Corporation of Strata Plan 68608 [2019] NSWSC 651
Category: Principal judgment
Parties: Parramatta Co-Operative Housing Society t/as Co-Operative Housing Society (Plaintiff)
Yabbyland Pty Ltd t/as Yabbyland Unit Trust (Defendant)
Representation: Counsel:
D Eardley (Plaintiff)
D Robertson (Defendant)
Solicitors:
Stacks Collins Thompson (Plaintiff)
Carroll & O'Dea Lawyers (Sydney) (Defendant)
File Number(s): 2025/118560
Publication restriction: No
The proceedings were commenced with the filing of a statement of claim on 27 March 2025. The relief sought is for possession of a property in the mid-north coast town of Karuah (the property) and a monetary sum of $645,848.50.
A defence was filed on 1 May 2025, denying the plaintiff’s entitlement to the relief claimed, but as will be seen below, making some important admissions.
The plaintiff is a society incorporated under the Cooperative Housing and Starr-Bowkett Societies Act 1998 (NSW). The defendant is a corporation registered under the Corporations Act 2001 (Cth).
The plaintiff alleges that it entered into an agreement with the defendant on 15 October 2021, pursuant to which the plaintiff advanced the sum of $430,000 to the defendant. The defendant was obliged to make monthly repayments. The plaintiff was given the right to register a mortgage on the title to the property as security for the loan. A mortgage was registered on 21 October 2021.
The plaintiff alleges that the defendant stopped making repayments as required and therefore defaulted on the agreement. The plaintiff now wants its money back together with interest and also seeks possession of the property arising from its rights as the mortgagee.
The loan was drawn down on 21 October 2021, with 35 repayments made up to 2 March 2023. Taking into account interest, the loan balance stood at $424,210.13 when the repayments stopped.
In the defence, at [9], the defendant admits the plaintiff advanced $430,000 to the defendant, and, at [13], admits the plaintiff registered a mortgage against the security (the property). Further, the defendant admits the indefeasibility of the mortgage.
In his opening on 13 May 2026, learned counsel for the defendant also accepted that the monies had been received and applied to the ‘improvement’ of the secured property.
Counsel also said that it was acknowledged that if the plaintiff failed in this litigation, it may have alternate remedies. It could sue on the guarantee given by a Mr Geoffrey Weir, a director of the defendant at the time of the loan, or it could seek restitution of the loan amount (perhaps plus applicable interest) on the basis of money had and received.
I thought it would be a significant waste of time and costs (and specifically contrary to s 56 of the Civil Procedure Act 2005 (NSW)) for there to be potentially two sets of proceedings.
Mr Eardley, on behalf of the plaintiff, said he had foreshadowed this problem, and had prepared an amended statement of claim to cater for the restitution argument. I suggested he add in the ratification point he had made in his opening and provide the new pleading to the defendant. He did so.
After considering the amendments, the defendant indicated that it would not oppose the amendments if it had time to meet them. I considered this to be a reasonable stance and adjourned the matter to 28 May 2026. The hearing therefore took place over two days, as originally envisaged, but on 13 May and 28 May 2026.
The plaintiff filed the amended statement of claim on 15 May 2026, bringing together the claims for possession and for a monetary sum arising from the loan agreement as originally made or later ratified by the 35 repayments, or alternatively on the basis of money had and received (restitution).
The (pre-amendment) defence was straightforward. Quoting from the defendant’s written submissions:
“(a) The purported Loan Agreement is not binding because the Agreement was not duly executed by the defendant in accordance with s 127 of the Corporations Act 2001 (Cth); and
(b) Because the Loan Agreement is not binding, and therefore does not give rise to any debt owed by the defendant to the plaintiff, the Mortgage does not secure any debt owed by the defendant to the plaintiff, and therefore it is of no effect as a security.”
As to the mortgage, the defendant while accepting its indefeasibility, pointed out that the mortgage secured money arising from the mortgagor being a borrower, and for money due under the loan agreement. If the loan agreement did not bind the defendant, then the defendant was not a borrower, and the mortgage did not secure any amount due under the loan agreement.
An amended defence was filed on 21 May 2026 to respond to the expanded allegations in the amended statement of claim. The defendant specifically denies it ratified the loan agreement and denies the restitution claim made by the plaintiff. As to the latter, the defendant pleads that in the circumstances applicable to the receipt and use of the monies, “it would be inequitable and unjust to require the Defendant to repay the Advance (or any part of it) to the Plaintiff.”
There are two other important procedural documents. On 22 October 2025, the plaintiff issued a Notice to Admit Facts on the defendant requiring it to admit the following fact:
“The Defendant Company received the sum of $428,835.39 being the balance of the loan advance of $430,000.00 less costs into the banking account operated by the Defendant company with St George Bank being BSB xxx xxx and Account Number xxxxxxxxx on 21 October 2021.”
A notice disputing facts was not issued so the facts are taken to have been admitted (r 17.3(2) Uniform Civil Procedure Rules 2005 (NSW) (UCPR)).
On 16 March 2026, the plaintiff issued a second Notice to Admit Facts to the defendant. Paragraph 1 of the notice states:
“That the money referred to in paragraph [13] of the defence filed on the 1 May 2025 (‘Defence’) in the sum of $430,000 was used by the defendant for its business and its own purposes.”
Again, the defendant did not respond with a notice disputing facts so that the facts alleged in [1] of the notice are taken to have been admitted. This stance by the defendant is confirmed in the amended defence at [35].
The following is a summary of the parties’ final contentions:
Plaintiff: The plaintiff relies on the loan agreement to found the claim for repayment and on the mortgage to give it a power of sale.
Defendant: The defendant says the loan agreement is not binding because it was executed in contravention of s 127 of the Corporations Act and the plaintiff cannot rely on the protections given by ss 128 and 129. Further, if the loan agreement is not binding no debt was created which can be pursued through the mortgage.
Defendant: There was no ratification because the only person who was aware of the repayments was Mr Weir, whose actions did not bind the defendant.
Defendant: The plaintiff has a prima facie entitlement to restitution, but it is largely defeated by the defence of change of position. However, if restitution is ordered there is no entitlement to interest and the restitution does not create a debt under the mortgage. If restitution is ordered it can only result in a judgment for an amount of money. The mortgage has no part to play.
The plaintiff relied on the following affidavits and attached exhibits:
Mr David Thompson dated 10 July 2025, 24 October 2025, and 6 May 2026.
Mr Graeme Northcott dated 11 July 2025, 6 August 2025, 8 September 2025, and 8 May 2026.
Mr Thompson is the plaintiff’s solicitor. Mr Northcott is the secretary of the plaintiff society.
The defendant relied on three affidavits of Mr James Lavater-Williams dated 29 August 2025, 21 May 2026, and 26 May 2026. Mr Lavater-Williams is a director of the defendant company. His last two affidavits were made after the plaintiff expanded its case. They primarily deal with the ratification and restitution claims.
Mr Northcott and Mr Lavater-Williams were cross-examined.
The plaintiff loans money to other persons, usually residential loans, but sometimes commercial loans.
As CEO or General Manager of the plaintiff Mr Northcott assessed and recommended approval or rejection of loans. However, the final decision lay with the Board.
Mr Geoffrey Weir was a director from the registration of the defendant on 26 November 2019 until 9 February 2023. Mr Lavater-Williams has been a director since 22 June 2021. Mr Peter Gillies became a director on 25 May 2022.
The defendant’s Constitution, at cl 14, states:
“(1) If the company has a sole director and does not have a secretary, the sole director may:
(a) execute a document (including a deed) without fixing a common seal to it: or
(b) execute a document (including a deed) by fixing a common seal to it and witnessing the fixing.
(2) This clause does not limit the ways in which the company may execute a document.”
Mr Northcott was approached by Mr Weir in September 2021. He had known Mr Weir from earlier financial dealings involving a residential mortgage.
All of the dealings Mr Nortcott had in relation to the formation of the loan to the defendant were conducted with Mr Weir.
Mr Northcott confirmed a company search had not been performed before the loan was signed. Mr Northcott agreed that an email from Mr Weir on 3 September 2021 referred to a “second Director in name only”.
The loan proposal, under the heading “Staffing and Wages” states “Jamie Williams is a Director, and lives on site.”
Mr Northcott thought Mr Lavater-Williams was an employee, not a director. He had no shareholding and no voting rights.
At the date of the agreement, 15 October 2021, the directors of the defendant were Mr Weir and Mr Lavater-Williams. Mr Weir was also then the company secretary and remained secretary until 21 December 2022.
The relationship between the parties commenced with a loan proposal sent by Mr Weir to the plaintiff in August 2021. The proposal sought a loan of $415,000 over a three-year term. The funds were to be used for “the expansion of farm activities with the construction of 34 yabby growing ponds and 4 sediment ponds”.
A “Guarantor Needs Analysis” and a “Client Needs Analysis” were completed by Mr Weir on 12 September 2021. A letter of offer was sent by Mr Northcott to Mr Weir on 1 October 2021. The loan amount is $430,000. Mr Weir is listed as the guarantor.
The loan was executed by Mr Weir, as a director of the defendant on 15 October 2021. The mortgage contemplated by the loan agreement was registered on 21 October 2021. It became indefeasible under s 42 of the Real Property Act 1900 (NSW).
Also, on 21 October 2021 the plaintiff paid $429,879 into the defendant's bank account. The difference to the $430,000 was on account of pre-paid expenses.
On 25 October 2021, $428,835.39 was transferred from the defendant’s bank account into the St George Bank account of its related entity, Australian Yabby Farms Pty Ltd ATF Australian Yabby Farms Unit Trust (Account Number xxxxxxxx). The deposit into this account was described as “loan funds”.
Repayments of the loan were arranged by Mr Weir, initially from an account held by Yabby Farms and then on 5 October 2022, Mr Weir signed a direct debit authority authorising payments to the plaintiff from the St George Bank account in the name of “The Trustee for Yabbyland Unit Trust.” The account details were BSB xxx xxx, Account number xxxxxxxxx.
Monthly payments were made to the plaintiff until 2 March 2023. Notably the payments continued for some 15 months while both Mr Lavater-Williams and Mr Weir were directors.
In relation to the daily operation of the venture, Mr Lavater-Williams described it in this way in his affidavit of 29 August 2025:
“12 Yabby Farms conducts an aquaculture farm on the Property in respect to freshwater crayfish and fish.
13 Both prior to the incorporation of Yabbyland and since, I have been involved with the day to day operations of the farm, including living on site and working on the Property.
14 When Yabbyland was incorporated in 2019, Mr Weir was appointed as a Director and the Secretary and was responsible for managing the financial affairs of Yabbyland and Yabby Farms.
15 Mr Weir was limited in the times he attended the Property during 2020 and 2021 due to the COVID restrictions.
16 From 2019 to August 2022 we both did our duties largely independent of each other. In that, I would receive invoices and accounts and pass them onto Mr Weir and left the financial affairs with him, whilst I attended to the daily operations of the farm and he did not ask me to explain what I was doing at the farm.”
“16 On about 29 October 2019, Mr Weir and I entered into an agreement whereby he would acquire an interest in the Yabbyland and the associated trust and the company Australian Yabby Farms Pty Ltd (Yabby Farms) and its associate trust (Ownership Agreement).
17 The Ownership Agreement provided inter alia
a. Mr Weir was to pay a total of $750,000 in 2 tranches of $375,000.
b. There was no provision for Mr Weir to encumber the land of the Yabbyland to be used to fund his purchase or for any other purpose.
18 A copy of a document setting out the terms of the Ownership Agreement signed by Mr Weir is at page 25 of Exhibit JW-2.
19 Mr Weir paid the first amount of $375,000 to a company controlled by me, Pleasures Pty Ltd, at which time ownership of the Property was transferred from Pleasures Pty Ltd to Yabbyland. That was done in accordance with the terms of the Ownership Agreement (as set out under the heading ''Transaction Details" in the Agreement).
20 The terms of the Ownership Agreement provided that Mr Weir would pay the second amount of $375,000 by paying that amount directly to contractors for work carried out to construct new commercial ponds and supporting infrastructure on the Property, to be paid to those contractors when construction began (as set out under the heading ‘Transaction Details’ in the Agreement).”
Under cross-examination Mr Lavater-Williams identified the date of the agreement as 14 December 2019. I will refer to this agreement as the “investment agreement”. The agreement was said to be part of the exhibit to his affidavit of 21 May 2026. The document in the exhibit (at p 25 of 43) is undated and is not the investment agreement referred to by Mr Lavater-Williams. Under cross-examination he explained the discrepancy as the exhibited document being a signed confirmation (by Mr Weir) of the investment agreement.
Notwithstanding the omission from the affidavit of the original investment agreement, the document exhibited does confirm Mr Lavater-Williams’ evidence as to Mr Weir undertaking to pay $375,000 towards the “completion of ponds and buildings.”
In paragraph 17 of his affidavit of 29 August 2025 Mr Lavater-Williams states that Mr Weir told him in December 2021, that he had taken out a loan against the property. Mr Lavater-Williams assumed this was a personal loan to enable Mr Weir to make the payments required by the investment agreement between Mr Weir and Mr Lavater-Williams.
Assuming that Mr Lavater-Williams actually saw the bank statement showing the deposit, his belief that the funds were a personal loan from Mr Weir may explain why he did not question the description of the deposit into Account Number xxxxxxxxx as “loan funds”.
This is a convenient point to discuss contrasting submissions by the parties as to the drawing of an inference arising from the absence of any evidence from Mr Weir.
The plaintiff submitted that a Jones v Dunkel inference should be drawn against the defendant for not obtaining evidence from Mr Weir, noting that Mr Weir could corroborate a good deal of the assertions made by Mr Lavater-Williams about his ignorance of the loan from the plaintiff. The inference would be that Mr Weir’s evidence would not assist the defendant’s case. It was pointed out that Mr Weir still retained a significant shareholding (one third) in the yabby farm business.
The defendant responded that Mr Weir was not in the defendant’s camp because he and Mr Lavater-Williams had fallen out, and Mr Weir could not have been expected to assist the defendant. To the contrary, submitted the defendant, the plaintiff could have obtained evidence from Mr Weir in support of its case that Mr Lavater-Williams was aware of the loan.
I think there is merit in the submissions of both parties to the extent that I think it appropriate not to draw an inference against either side arising from the absence of evidence from Mr Weir.
It is also convenient to make observations about the credit of Mr Lavater-Williams. A number of propositions were put to him which he denied, but for which there was no later evidence to contradict his denials. For example, it was suggested he was aware of the loan when it was signed, and he was aware the funds had emanated from the plaintiff after the loan agreement was executed.
Mr Lavater-Williams maintained his position throughout his cross-examination that he did not know of the plaintiff’s involvement (as the source of the funds) until August 2022.
There were aspects of Mr Lavater-Williams’ evidence that caused me some concern. These included the assumption that the funds paid into Account Number xxxxxxxxx, and described as “loan funds” referred to a personal loan taken out by Mr Weir to meet his obligations under the investment agreement and not to any loan taken out by the defendant. An ingredient of this point is that under the investment agreement it was $375,000 that was to be paid by Mr Weir in respect of construction, not $428,835.39 (or thereabouts).
On the other hand, as referred to above, the investment agreement does at least confirm that Mr Weir was to pay for improvements to the property. In addition, in his affidavit of 21 May 2026, Mr Lavater-Williams says he only became aware of the funds advanced to the defendant in July 2022 and he shortly thereafter contacted Mr Northcott and then, the following year, lodged a complaint with the Australian Financial Complaints Authority (AFCA).
The initial complaint to AFCA is not in the evidence but the recommendation made by the Authority on 7 March 2024 is exhibited to Mr Lavater-Williams’ affidavit of 21 May 2026. The recommendation confirms the history given by Mr Lavater-Williams that he only became aware of the loan in August 2022. The recommendation also includes a history that the plaintiff was approached for the loan by Mr Weir, that Mr Weir alone executed the loan agreement and the mortgage and that the plaintiff thought Mr Weir was the only director of the defendant. The latter fact was assumed notwithstanding that the plaintiff had been told there was a second director.
The AFCA recommendation also records some parts of the proposal that had been made in August 2021 by Mr Weir. It relates that:
“[Mr JW] is a Director and lives on site. His key roles are as caretaker of the property, management of the ponds, harvesting, packing and sales. [Mr W] receives a salary of…
[Mr GW] is a primary Director and is on site on the farm three days per week and working from home in … Key tasks are purchasing, marketing, logistics, accounting/bookwork, identification of new products and regulatory responsibilities.”
These excerpts from the loan proposal are consistent with the evidence given by Mr Lavater-Williams about the respective roles of the two directors in the workings of the defendant and confirm that the plaintiff was told that Mr Lavater-Williams was a director of the defendant.
The main area of concern relating to Mr Lavater-Williams was his effectively ignoring the notice to produce, and then making documents available through his later affidavits. His explanation seems to have been that “I was unaware of, of the accounts in the name of the defendant other than what we were able to, to produce as far as my affidavit.”
Mr Lavater-Williams later said that he did not recall seeing the notice to produce, which I find difficult to accept.
Subject to the reservations I have outlined, I cannot see any basis upon which I can reject the evidence of Mr Lavater-Williams. It is not contradicted by the evidence of any other person, and it is consistent with the contact made with the plaintiff in August 2022, and with the complaint to AFCA. The loan proposal also confirms the respective roles of Mr Weir and Mr Lavater-Williams in the running of the business.
I will now turn to the main issues in the case.
Execution of documents (including deeds) by the company itself
Executing a document without a common seal
(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director--that director, if:
(i) the director is also the sole company secretary; or
(ii) the company does not have a company secretary.
Note 1: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.
Note 2: The requirement to sign may be satisfied electronically: see Division 1 of Part 1.2AA (about technology neutral signing).
Note 3: Because a CCIV has no natural person directors and no company secretary, it executes documents through the directors and company secretary of its corporate director: see section 1223.
Executing a document with a common seal
(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director--that director, if:
(i) the director is also the sole company secretary; or
(ii) the company does not have a company secretary.
Note 1: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(6) for dealings in relation to the company.
Note 2: Because a CCIV has no natural person directors and no company secretary, it executes documents through the directors and company secretary of its corporate director: see section 1223.
(2A) For the purposes of subsection (2), the fixing of a common seal to a document is taken to have been witnessed by a person mentioned in paragraph (a), (b) or (c) of that subsection if:
(a) the person observes, by electronic means or by being physically present, the fixing of the seal; and
(b) the person signs the document; and
(c) a method is used to indicate that the person observed the fixing of the seal to the document.
Note: For provisions about technology neutral signing, see Division 1 of Part 1.2AA.
Executing a document as a deed
(3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).
Note: For provisions about technology neutral signing, see Division 1 of Part 1.2AA.
(3A) A company may execute a document as a deed in accordance with subsection (1):
(a) without that execution being witnessed; and
(b) regardless of whether the document signed by the director or company secretary of the company, as applicable, is in physical form or electronic form.
Note: An effect of paragraph (b) of this subsection is that, despite any common law rule, the document may be executed without the use of paper, parchment or vellum.
(3B) Delivery is not necessary if a company executes a document as a deed in accordance with subsection (1) or (2).
Other ways of executing documents not limited
(4) This section does not limit the ways in which a company may execute a document (including a deed).
Note: For example, a company's constitution may set out other ways in which a document (including a deed) may be executed.
“HIS HONOUR: But do you accept that there should have been two directors signing this?
EARDLEY: In retrospect, there should have been two directors. I have to--
HIS HONOUR: Yes, and you then rely on section, is it 128, or the presumptions?
EARDLEY: Yes, that's correct.
HIS HONOUR: Even though you knew that there were two directors?
EARDLEY: Well, I think the evidence from Mr Northcott was he understood him to be a director in name only.
HIS HONOUR: Well so what?
EARDLEY: I understand that. And perhaps prudence would have informed that by a company search. But that is not the only way that you can accept an agreement. You can ratify it.”
The plaintiff did not undertake a company search. It knew there were two directors. It cannot rely on the assumptions arising from ss 128 and 129.
I think it fair to say that neither side relied on the Constitution of the defendant company to advance its respective position. Clause 14 was treated as ‘neutral’.
The plaintiff’s primary case, that the loan agreement had been validly executed by the defendant, must fail.
“The requirements of a valid ratification were stated by Wright J in Firth v Staines [1897] 2 QB 70 at 75 as follows:
…To constitute a valid ratification three conditions must be satisfied: first, the agent whose act is sought to be ratified must have purported to act for the principal; secondly, at the time the act was done the agent must have had a competent principal; and, thirdly, at the time of the ratification the principal must be legally capable of doing the act himself.”
“47. In the first place, ratification causes a relationship of principal and agent to come into existence retrospectively. Thus, where a person (A) has acted without the authority of another person (P) in making a contract on their behalf with a counterparty (C), that other person (P) may, by subsequent conduct cause the first person (A) to be regarded as having been his or her agent when the contract was made, even though a relationship of principal and agent did not exist at that past time.
48. Where such a counterparty (C) seeks to enforce such a contract against the supposed principal (P), it is essential that the acts of the actor (A) in truth amounted to the immediate making of a contract. Only if the counterparty (C) establishes that the acts of the actor (A) were of that quality is there any question of the supposed principal (P) being fixed with contractual liability through ratification.
49. The counterparty (C) must next establish that the person who acted (A) did not ‘assume’ or ‘profess’ or ‘purport’ to act in his or her own right and for his or her own benefit, but rather ‘assumed’ or ‘professed’ or ‘purported’ to act for the supposed principal (P). That supposed principal will usually be an ascertained person but it may not be necessary for the person’s precise identity to be known at the time of the contract.
50. There can be no ratification by an undisclosed principal, that is, where the actor (A) appears to be contracting for themself and the counterparty (C) has no notice that the actor is acting in a representative capacity. This was authoritatively established in Keighley Maxsted & Co v Durant.
51. Only if all these conditions are satisfied in relation to the course of conduct between the actor (A) and the counterparty (C) does any question arise as to whether subsequent conduct of the supposed principal (P) amounted to ratification causing, first, the actor (A) to be seen retrospectively as the agent of the supposed principal (P) (who, in turn, comes to be seen retrospectively as the principal for whom the actor acted) and, secondly, the rights and liabilities under the contract made between the actor (A) and the counterparty (C) to be seen retrospectively as rights and liabilities as between the counterparty (C) and the now recognised principal (P).” (footnotes omitted)
“131 A principal can ratify the making of a contract entered into by a purported agent when the agent did not in truth have authority to make the contract on behalf of the principal. The ratification has retrospective effect, and the agent is treated as having had the requisite authority: Union Bank of Australia Ltd v McClintock (1922) 1 AC 240 at 248; [2006] NSWSC 1028 at [81]; Jones v Peters (1948) VLR 331 at 335.
132 Whether the conduct of the principal amounts to ratification is a question of fact, but there should be ‘clear adoptive acts’ (Eastern Construction Co Ltd v National Trust Co Ltd (1914) AC 197 at 213 per Lord Atkinson); the conduct must be unequivocal (for example, Petersen v Moloney (1951) 84 CLR 91 at 101). It is well expressed in Dal Pont, Law of Agency, 2nd ed at 5.28 -
‘The positive acts of the alleged principal may, aside from any express words, constitute sufficient evidence of ratification. This may be so where the fair inference to be drawn from a person’s conduct, on an objective basis, is that the person consents to a transaction to which he or she might properly have objected. Put another way, ratification “is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party whether his mind in fact approved or disapproved or wholly disregarded the question”.’ (citations omitted)
133 Acceptance of the benefit of the unauthorised act of the agent with knowledge that the benefit flows from that act will ordinarily suffice (Australian Blue Metal Ltd v Hughes (1961) 79 WN (NSW) 498 at 515; Brockway v Pando [2000] WASCA 192 at [120]). Suing on a transaction brought about by an agent acting beyond authority will also ordinarily mean ratification of the unauthorised transaction: the reason is obvious, see Dal Pont, op cit, at para 5.29 and cases cited.
134 There must be full knowledge of all the material circumstances in which the act was done, unless the principal intends to ratify and take the risk whatever the circumstances (for example, Bremner v Sinclair NSWCA, 3 November 1998; (2001) ANZ Conv R 29 at [32] per Campbell J. The extent of knowledge necessary depends on the particular facts. It should be enough knowledge to decide whether or not to adopt the unauthorised act (Bremner v Sinclair at [32]).”
The repayments were submitted to be the “clear adoptive acts” referred to in Leybourne. However:
The loan repayments (the automatic direct debit) were set up by Mr Weir alone.
The direct debits were “electronic” and automatic, not requiring any input or confirmation by any person.
The debits did not initially emanate from an account held by the defendant. They came from a St George account held by Australian Yabby Farms Pty Ltd as trustee for Australian Yabby Farms Unit Trust. The defendant is Yabbyland Pty Ltd as trustee for the Yabbyland Unit Trust.
The repayments ceased in March 2023 followed by Mr Lavater-Williams making a complaint to AFCA. The making of the complaint was an effective disputing, not ratifying, of the loan agreement.
In my view nothing done by Mr Lavater-Williams or by the defendant (acting as a principal) was an adoptive act. No act can be seen as confirming, adopting, or endorsing the defendant’s acceptance of being bound by the loan agreement. The instalments were paid because Mr Weir, alone, set up the automatic debit acting, as he did in respect of the execution of the loan agreement, without the knowledge of any other director or officer of the defendant.
I therefore cannot see the repayments as an act of ratification. This part of the plaintiff’s claim must also fail.
“Having rejected the so-called traditional rule denying recovery in cases of payments made under a mistake of law, it is necessary to consider what principle should be put in its place. It would be logical to treat mistakes of law in the same way as mistakes of fact, so that there would be a prima facie entitlement to recover moneys paid when a mistake of law or fact has caused the payment. Jurisdictions which have abolished the traditional rule by legislation have done so by stating that recovery should be allowed in cases of mistake of law in the same circumstances as it would be were the mistake one of fact (Western Australia and New Zealand).
The proposition that there should be a prima facie entitlement to recover moneys paid when a mistake of fact or law has caused the payment has not been universally accepted. Two alternative formulations of the basis of recovery have been proposed: first, that the person making the mistaken payment must have supposed that he or she was legally liable to make the payment; and, secondly, that the mistake of the person making the payment must have been a fundamental one. The first of these formulations can be subjected to the same criticism levelled at the traditional rule denying recovery in cases of mistake of law, namely, that it is illogical to concentrate upon the type of mistake made when the crucial factor is that the recipient has been enriched. To overturn the traditional rule and then replace it with a proposition incorporating the classic formulations of the liability approach by Parke B. in Kelly v. Solari and Bramwell B. in Aiken v. Short would be counter-productive. In Barclays Bank v. W. J. Simms Ltd., Goff J. illustrated ((1980) QB, at pp 690-695) how existing authority had moved beyond the narrow liability approach. In Australia and New Zealand Banking Group Ltd. v. Westpac Banking Corporation, this Court implicitly accepted that view and we see no reason now to doubt that conclusion.
The second alternative formulation asserts that, in addition to being causative, the mistake must also be fundamental. This raises the question expressly left open in Westpac Banking Corporation. In that case, the Court stated:
‘[I]t is unnecessary, for the purposes of the present case, to investigate what constitutes a “fundamental mistake” for the purposes of the principle that money payable under a fundamental mistake of fact is prima facie recoverable by the payer: see, e.g., Porter v. Latec Finance (Qld.) Pty. Ltd. It can, however, be said that we can see no reason to doubt the correctness of the view expressed or implicit in the judgments in the courts below to the effect that the notion of “fundamental mistake” does not require either that the payer's mistake be shared by the payee or that the mistake be as to the existence of a fact which, if it had existed, would have resulted in the payee being under a legal obligation to make the payment: see Commercial Bank of Australia Ltd. v. Younis; Barclays Bank Ltd. v. W. J. Simms Son and Cooke (Southern) Ltd; Bank of New South Wales v. Murphett. That having been said, it is preferable to leave for another day consideration of the question whether the requirement that the mistake be fundamental involves any more than that it appears that, without the mistake on the part of the payer, the payment would not have been made: cf., e.g., Porter and Barclays Bank Ltd. v. W. J. Simms Son and Cooke (Southern) Ltd.’
The requirement that the mistake be fundamental as well as causative is not as restrictive as the liability approach considered above, but it has been suggested that the requirement is still a worthwhile precaution against a potential flood of claims and consequent insecurity of receipts. The notion of fundamentality is, however, extremely vague and would seem to add little, if anything, to the requirement that the mistake cause the payment. If the payer has made the payment because of a mistake, his or her intention to transfer the money is vitiated and the recipient has been enriched. There is therefore no place for a further requirement that the causative mistake be fundamental; insistence upon that factor would only serve to focus attention in a non-specific way on the nature of the mistake, rather than the fact of enrichment. If a strict approach is taken towards the issue of mistake so that a plaintiff bears the burden of establishing on the balance of probabilities that a causative mistake has been made, there would also be no need to appeal to the element of fundamentality as a limiting factor. So, the payer will be entitled prima facie to recover moneys paid under a mistake if it appears that the moneys were paid by the payer in the mistaken belief that he or she was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys. Such a mistake would be causative of the payment.” (footnotes omitted)
“423. Restitutionary relief will not be available where the payment is one to which the recipient is contractually entitled, or in circumstances where a grant of restitutionary relief would contradict the contractual obligation to pay. However, restitutionary relief may be available in respect of payments made as a result of a mistaken understanding or construction by the payer of their contractual obligation to pay. Certainly this has been so since the High Court’s confirmation in David Securities Pty Ltd v Commonwealth Bank of Australia that there is no rule that precludes recovery of payments made under a mistake of law.
424. The payer’s right to recover overcharged amounts requires that it establish a mistake that was causative of the payment, and is subject to the usual range of defences to restitutionary claims (such as change of position). As no defence has been invoked by Fixations, the only issue on Amplitude’s set off and counterclaim in this case is whether it has established a causative mistake.
- In David Securities Pty Ltd v Commonwealth Bank of Australia, the High Court took a broad view of what will suffice to establish a relevant mistake. A payment predicated upon a conscious but mistaken understanding or construction of the relevant legal obligation will obviously suffice. But even ignorance of the relevant contractual provisions, and hence ignorance of the basis for denying the legal obligation to pay, may suffice, as long as the payer mistakenly assumes that he or she was under a legal obligation to pay, or that the payee was legally entitled to payment. Indeed, even negligence by a payer in failing to properly investigate the circumstances of a payment does not preclude recovery in restitution for mistaken payment.”
“In order to sustain a restitutionary action, the mistake need no longer be a mistake of fact. It may be a mistake of law instead: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at [376]. But whether of fact or law, it must still be a mistake as to an existing state of affairs.”
The defendant here has conceded the plaintiff’s entitlement to restitution but only to the extent of $7,680 which was calculated as follows: The amount originally drawn down on 21 October 2021 was $429,897. After the drawdown, the defendant paid back $65,604 bringing the claim down to $364,293. Next, submitted the defendant, was a further deduction of $356,613, resulting in the $7680 mentioned above.
I note that the defendant’s submitted figures have a slight error in that the draw down figure was actually $429,879. This in turn means the defendant’s figure of $364,293 should be $364,275, and then $7,680 should be $7,662.
The $356,613 is the amount of the drawn down funds spent by the defendant on the yabby farm in the mistaken belief the funds had come from Mr Weir and not from the plaintiff. This deduction is a product of the defendant’s ‘change of position’ defence.
The starting point here is the defendant’s concession that there was an entitlement to restitution, only to be defeated by establishment of its defence of change of position.
In Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391; [2012] NSWCA 381 at [57], Barrett JA, after examining the High Court authorities on the change of position defence, gave this summary:
“It may be accepted, therefore, that the High Court has confirmed detrimental change of position by the recipient, in good faith and in reliance on the receipt, as a ‘defence’ to a restitutionary claim in respect of a payment made under a mistake, whether of fact or law - or, perhaps more accurately, as a matter that displaces the prima facie right of recovery under the restitutionary claim because it rendered the enrichment resulting from receipt of the payment (and its retention) not ‘unjust’.”
“253. … For the defence of change of position to apply, the defendant must establish that the detrimental change of the position must have caused or contributed to the impugned transaction. On the element of causation, the joint judgment in Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391; [2012] NSWCA 381 stated at [6]:
‘The circumstances in which the payee acts on the faith of, or in reliance on, the receipt will be many. It will be a factual question in each case. The acts and omissions will occur in the context of a certain body of knowledge which will include knowledge of the receipt and of facts that support reliance upon the stability of the receipt and an entitlement to treat the receipt as able to be dealt with. In many cases it will be a matter of fact and degree as to whether there was any such reliance. This introduces both some degree of mental advertence to the existence of the receipt, and a causal element to the analysis of the relationship between the payment and the change of position; the ascription of the latter to the former: see Perpetual Trustees v Heperu at [133]; and J Edelman and E Bant, Unjust Enrichment in Australia (2006) Oxford at 326-331. The nature and degree of the causal connection may vary from case to case. It is unnecessary to discuss what questions of approach as to causation may intrude at this point: see the discussion in E Bant, The Change of Position Defence (2009) Hart at 30-41. It is sufficient for the resolution of this case to express our agreement with what Barrett JA has said on this subject at [84] - [86].’
254. And Barrett JA, as he then was, stated at [86]:
‘The reference in David Securities Pty Ltd v Commonwealth Bank of Australia to expenditure or financial commitment “which can be ascribed to the mistaken payment” therefore contemplates a cause and effect relationship between receipt of the mistaken payment and the subsequent expenditure or financial commitment. If it is found that the subsequent action would not have been taken “but for” the receipt, the causal link will be established. I do not say that it might not also be established by proof of some less clear-cut connection; but, given the facts of the present case, that is a question that need not be pursued.’”
“The defence of change of position is established where a defendant proves the existence of two conditions. The first condition is that the defendant has acted (that is, done something the defendant would not otherwise have done) or refrained from acting (that is, not done something the defendant would otherwise have done) in good faith on the assumption that the defendant was entitled to deal with the payment which the defendant received. The defendant need not for the purpose of meeting this condition have acted on knowledge derived from the payer. Whether the defendant needs also to have acted reasonably is a question which does not now arise for determination. The second condition is that, by reason of having so acted or refrained from acting, the defendant would be placed in a worse position if ordered to make restitution of the payment than if the defendant had not received the payment at all. The detriment constituted by that difference in position need not, in every case, be financial or pecuniary. If financial or pecuniary, it need not, in every case, be established with precision. It can be an opportunity forgone. It must, in every case, be shown by the defendant to be substantial.” (footnotes omitted)
The defendant submitted the defence was available to it because:
Upon receipt of the advanced funds the defendant acted in good faith.
The defendant’s action occurred in good faith through Mr Lavater-Williams who believed the source of the funds was Mr Weir. It was only in August 2022 that he discovered the true source of the funds was the plaintiff. By this time most of the funds had been spent.
Therefore, the defendant used the advanced money “without knowledge that it was the plaintiff’s money…”
Although the money was used to improve the property (owned by the defendant) it could not “sell those improvements separately and realise the money again in order to repay the plaintiff.”
The improvements to the property were mostly the construction of a number of ponds to farm yabbies. The inserted ponds are not a saleable commodity.
The current position of the defendant, as stated by Mr Lavater-Williams was that the defendant did not have the funds to repay the money spent, and would need to sell the property to realise the funds. It would be inequitable to require it to do so.
Counsel for the defendant concluded:
“That’s the change of position defence because if Mr Williams’ evidence is accepted then the defendant, being the corporate entity, paid on these funds and allowed Yabby Farms to spend these funds on improvements not knowing that they were the plaintiff’s funds and that’s why the date is also relevant. By the time the defendant had notice or knowledge that the funds were the plaintiff’s funds, tallying up the various invoices, et cetera, as Mr Williams had done, amounts totalling $356,613 had been spent. It wasn’t the entirety of the funds, but it was a substantial part of the funds.”
The plaintiff’s response to the defence was threefold: firstly, the amended defence did not plead the defence as it was ultimately being advanced; secondly, Mr Lavater-Williams’ evidence should not be accepted; and thirdly, in any event, the defendant had called no evidence to show there was no realisable betterment of the property.
On the pleading point I disagree with the plaintiff to the extent that it was asserted the case put forward did not reflect the pleading. I do however accept the submission, as will be more fully discussed below, that the assertions concerning the unjustness of the restitution claim have not been substantiated.
As to the acceptance of Mr Lavater-Williams, I have concluded above that I do generally accept his evidence. I am not in any position to dispute Mr Lavater-Williams’ assertion of his assumption that the monies being spent on the farm emanated from a personal loan taken out by Mr Weir.
I think the plaintiff is correct in its third point. When dealing with the pleading point the plaintiff submitted:
“The second part, if the defendant were required to repay the advance or any part of it to the plaintiff, it would be required to sell the property. How does your Honour form a conclusion based on that without any evidence? Again, it's a bare assertion. I think it's para 34 in the affidavit. Nothing to substantiate that conclusion.”
Mr Lavater-Williams said, in his affidavit evidence, that the yabby venture would effectively end if the property were to be sold. This is a logical statement. It is the inequity and unjustness of having to make the sale that are at the core of the defence.
It was submitted that the sale of the property would be a specific disadvantage to the defendant because any sale would not reflect the input of the money spent by the defendant when it was under the illusion that Mr Weir was the source of the funds. This is because the sale value of a property with a number of ponds would not reflect the value of the property as an asset to the yabby business. Put another way, why would a prospective purchaser pay hundreds of thousands of dollars over the value of a property for the inclusion of the ponds?
There is a degree of logic in the defendant’s submission, but it is a logic that is not based on any evidence. As the plaintiff submitted, there is no evidence of the valuation of the property either before or after the insertion of the ponds, and there is no evidence of the current value of the property should it be sold. It can only be mere speculation that the ‘improvements’ arising from the expenditure of the funds are not included in the re-sale value.
The defendant’s point also ignores the possibility of the property being purchased by a person interested in continuing a yabby business, or some other business in which the infrastructure would be an asset.
I am not satisfied that the defendant’s position has changed to such an extent that it has established that its position is substantially worse off as required by the second condition stated at [157] of Australian Financial Services and Leasing Pty L**td.
I also note that the AFCA recommendation refers to Mr Lavater-Williams offering to repay the plaintiff $375,000, an offer which was rejected by the plaintiff. Presumably, Mr Lavater-Williams had this sum available to him when he made the offer, in contrast to his present position where he says he does not have any funds available.
The failure of the defence means there should be an order for restitution of the amount advanced ($429,879) less the repayments made ($65,604). The result is $364,275.
The next question is whether the obligation to make restitution creates a debt which enables the plaintiff to exercise its powers under the mortgage. The plaintiff seeks a declaration to this effect.
Annexure A to the mortgage states:
“What this mortgage secures
This Mortgage secures payment to the Mortgagee of all money owing now or at any time in the future by the Mortgagor either as borrower or guarantor or in any other way including money due in respect of the agreement(s) specified in the Schedule. Any other Mortgage specified in the Schedule also secures payment of that money.”
“debt means all money owing by you to the mortgagee now or in the future on any account. The debt includes any money due or possibly due by you to the mortgagee as a result of any arrangement including any loans made to you or guarantees given by you to the mortgagee, and includes any loss or damage suffered by the mortgagee as a result of those arrangements. It also includes interest, costs, fees, duties, taxes and any other amount you are obliged to reimburse or pay to the mortgagee at any time under the mortgage or otherwise.”
For this argument, the plaintiff read the definition of debt in this way: “debt means all money owing by you to the mortgagee now or in the future on any account [and] includes … any other amount you are obliged to reimburse or pay to the mortgagee at any time under the mortgage or otherwise.”
The plaintiff’s interpretation of the meaning of the debt was submitted to be so wide as to include any amount owing, however originating, and certainly including a payment by way of restitution.
In Perpetual Trustee Co Ltd v Moussa [2013] NSWSC 131 McCallum J was dealing with a loan agreement where the borrower’s signature had been forged by a relative. The related mortgage secured the “amount owing”, defined to include “all money which one or more of you owe us, or will or may owe us in the future …”.
In relation to whether liability to make restitution was an “amount owing” within the meaning of the mortgage, her Honour stated, from [48]:
“48. One of the issues agitated at the hearing was whether such a liability is capable of being a debt within the meaning of the definition of a mortgage in s 3 of the Act (‘any charge on land...created merely for securing the payment of a debt’). That raises both a legal and a temporal question. It was noted on behalf of Perpetual that Deane J in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 255 described the obligation to make payment in restitution as:
an obligation or debt imposed by operation of law which arises from the defendant having taken the benefit of work done, goods supplied or services rendered (emphasis added).
49. It is doubtful whether a debt arises on that basis at the time of the payment under mistake. That is an issue which may have a bearing on the manner in which Perpetual would be entitled to enforce the mortgage, but it is not necessary for me to resolve that question. At the very least, it may be accepted that a liability to make restitution can be enforced by obtaining a judgment, and perhaps that is the sense in which the term ‘debt’ is to be comprehended in the passage of Pavey & Matthews set out above. I see no reason in principle why the Real Property Ac**t should be construed so as to preclude the creation of a charge on land to secure the payment of such a debt.”
“55. The Perpetual mortgage includes a number of other provisions which point against the conclusion that a liability in restitution is secured by the mortgage.
56. Clause 1.1 is relevant in this context, indicating an intention to secure voluntarily assumed obligations. As submitted with some force by Mr Crossland, who appeared for Mrs Moussa, a liability to make payment in restitution can only have come about completely contrary to the intention of the parties, and indeed due to the collapse of those intentions.
57. The default provisions in the mortgage also point to an intention to secure obligations deliberately assumed by agreement. Clause 18 is firmly infused with the notion of debt subject to an agreed regime for repayment. In particular, clause 18(a) provides that the mortgagor is in default if she does not pay the amount owing ‘on time’. As submitted on behalf of Mrs Moussa and the Registrar General, those words provide strong support for finding an objective intention that any ‘amount owing’ must be owed pursuant to some agreement or arrangement between the parties delineating an agreed time for payment. Clause 18(b) reinforces that conclusion.
58. Similarly, clause 19 (dealing with the means of enforcement in the event of default) speaks on the assumption of an agreed debt; specific amounts of money due at particular times; an obligation to make payments the lateness of which can be rectified during a period of grace and so on.
59. A consideration of those principles points to the conclusion that the ‘all moneys’ definition in the present case does not extend to include any liability in restitution. The definition of ‘amount owing’ in my view sits uncomfortably with the notion of a liability in restitution, which is not of the same type or character as the debt the mortgage evidently sought to secure. There is nothing in the transaction documents to indicate that a potential liability in restitution was within the objective contemplation of the parties at the time the mortgage was executed. On the contrary, so far as the terms of the transaction documents reveal, the commercial purpose of the transaction was to secure the funds advanced in accordance with the loan agreement purportedly entered into between Perpetual and Mrs Moussa.
60. I do not accept that it was within the objective contemplation of the parties that moneys mistakenly paid by the mortgagee as a result of the fraud of a third party would be secured by the mortgage.”
In Meldov Pty Ltd v Bank of Queensland [2015] NSWSC 378 Slattery J, after carefully considering the decision in Moussa, distinguished the facts from those that were before him. In Meldov there was no element of fraud but there had been a mistaken overpayment by the bank to the mortgagors, raising the question of whether a mortgage secured the overpayment.
Slattery J referred to the very wide definition of the ‘all moneys clause’ and the definition, as relevant to the case he was hearing, of “total amount owing” and concluded that the overpayment was secured by the relevant mortgage. His Honour stated, from [79]-[82]:
“79. The Memorandum in the instant case more clearly and conventionally defines the Mortgagors’ obligation to repay the amount owing to the Plaintiff than was the case with the special mortgage provisions in Moussa. Additionally to Memorandum, cl 3.1 (which is materially similar to cl 1.1 of the mortgage in Moussa), Memorandum, cl 4.1 of the Memorandum states that the Mortgagors mortgage the property ‘for the purpose of securing to us payment of the total amount owing you mortgage the property’.
80. Further, under the interpretation clause, Memorandum cl 2, the parties to the First Mortgage agree that the mortgage is to be interpreted broadly:
‘It is the parties’ intention that, in the interpretation of this mortgage:
(a) if possible, words which have an ordinary meaning are given that meaning;
(b) this mortgage is to be interpreted broadly;
(c) if a general term is used it must be given a broad meaning; and
general terms must not be limited because of any legal rules of interpretation.’
81. To give effect to that interpretation requires that the Court, as it says, should interpret the terms of the agreement broadly. The phrase ‘total amount owing’ is itself defined broadly in the Memorandum, cl 1 as ‘all money which … you owe us’. It would not be giving effect to a broad interpretation of the Memorandum to interpret the stipulation that all money owed to the mortgagee should not include a restitutionary debt, which arises as a result of the transactional relationship as it does here. Whether that debt strictly arises under either the LOC or the VRCL Facility, as the defendant alleges, it is not necessary to determine. The restitutionary obligation that arose here is one that fits into the scope of the term ‘total amount owing’ broadly interpreted. The Memorandum contemplates that the mortgage will secure obligations owing to the mortgagee, including those incurred ‘because of an error’. It is not the Court’s place to stifle that contemplation through the application of a narrow interpretation which the Memorandum expressly disclaims.
82. The nature of the restitutionary obligation here provides a further distinction from Moussa. In Moussa, such an obligation arose through fraud and thus without the knowledge of the mortgagor. Such an obligation was of a different nature and character from the types of debts expressly secured by the First Mortgage. In this case, the Mortgagors had full knowledge of the mistaken payment that created the restitutionary debt and have used the Additional Funds. Although the Mortgagors did not request the payment of the Additional Funds and so did not voluntarily assume the relevant debt, their request for an advance from the VRCL Facility is the occasion for the creation of the obligation.”
While the breadth of a clause cannot be numerically assessed, the ‘all money’ or debt clause in the present case seems to me to sit somewhere between the clause in Moussa and that in Meldov. An element that distinguishes this case from Moussa is fraud, or some other criminal illegality, perhaps making the contemplation of the scope of the definition of debt to be less limited.
However, the current facts do include that the plaintiff, a loan company presumably having experience of dealing with corporate entities, neglected to do a company search (which would have revealed a second director), took no account of being told there was a second director and diminished the status of the known second director to one of employee only. It might be said that the plaintiff negligently or recklessly ignored the provisions of the Corporations Act governing the execution of documents.
This then raises the question, as was posed by McCallum J, as to whether it was within the objective contemplation of the parties that moneys paid by the mortgagee pursuant to an unenforceable loan would be secured by the mortgage. The circumstances here do not include fraud, but they do include the plaintiff having knowledge of the factors that rendered the loan agreement unenforceable, and which were capable of easy remedy.
In my view I should not make the declaration sought by the plaintiff.
There is a difference here to monies being advanced by mistake, as in Meldov. The facts that rendered the loan agreement unenforceable go to the very establishment, or beginning, of the agreement. There was not a valid agreement and then a mistake made in its implementation. This loan agreement was never enforceable. I cannot see how it could have been within the objective contemplation of the parties that the definition of debt could extend, through the mortgage, to secure an involuntarily imposed liability for restitution that was never envisaged by the loan agreement.
The final issue to be decided is whether the plaintiff is entitled to interest on the sum I will order to be paid by way of restitution ($364,275). My initial thought was that the plaintiff, having been deprived of its funds, should be entitled to interest. The defendant submitted that notwithstanding the application of logic, the awarding of interest does not accord with authority.
I should say that the defendant’s position seemed to change from remarks made at the commencement of the hearing (on 13 May 2026) to its present position. This exchange occurred on 13 May with the defendant’s counsel:
“ROBERTSON: That's the position. Now that does not mean on one view the defendant's position is unpalatable because it has received these funds, it's used these funds to improve its property but because the loan agreement is invalid does not mean that the plaintiff is without any remedy. It of course has the guarantee with Mr Weir and there's no evidence as to what if anything the mortgagee is doing about pursuing Mr Weir. But secondly, it would also have a claim in restitution for money hadn't [sic] received on the basis of now that cause of action arises upon the failure of loan agreement. If there's a binding contract then there can't be a claim in restitution but if the contract is not binding then the plaintiff would have a claim in restitution.
HIS HONOUR: Okay.
ROBERTSON: Now, no such claim has been brought in these proceedings.
HIS HONOUR: How much would that claim be for?
ROBERTSON: It would be for the principal amount.
HIS HONOUR: Plus interest.
ROBERTSON: Which was 429,000 odd, it wouldn't be for the amount of contractual interest.
HIS HONOUR: No but what interest would it be/
ROBERTSON: Well, there's some debate in the authorities as to what the rate of interest would be and when it would run from but it would be the court rate of interest.”
Counsel might be interpreted as having said the only interest issue was the appropriate rate. However, because at that stage there had not been any pleaded restitution claim I do not think it would be appropriate to hold the defendant to a view essentially expressed on the run. Equally appropriately, the point was not taken by the plaintiff.
The defendant submitted that the law in regard to restitutionary interest was comprehensively examined by Stynes J in ConnectEast Pty Ltd v CityLink Melbourne Ltd (No 3) [2025] VSC 554.
Her Honour, in ConnectEast, seems to have had the same initial disposition towards awarding interest as I had. She said, at [89]-[90]:
“89 I note that if ConnectEast’s claim had been based on a breach of contract, not a claim in restitution for monies wrongfully withheld, there would be no argument about the availability of an award in the nature of interest, independent of statutory interest, focusing on the plaintiff’s loss – that is, a Hungerfords’ award. It seems at odds with commonsense that the common law recognises an obligation to compensate a plaintiff for the loss of use of money but does not require the disgorgement of a benefit to the defendant of having had the use of money had and received.
90 In my view, so long as an award of restitutionary interest calculated to redress a defendant’s unlawful enrichment through use of money remains unavailable at common law, there will not be full restitution and that is unjust.”
“I therefore reject the claim for restitutionary interest at common law. To decide otherwise – to recognise an entitlement to restitutionary interest – would be to fly in the face of seriously considered dicta of a majority of the High Court. That is not a step a trial judge should take.”
Along the way to her conclusion her Honour considered both state and High Court authorities. In particular she referred to the decision of the New South Wales Court of Appeal in Heydon v NRMA Ltd (2001) 53 NSWLR 600. In Heydon the Court of Appeal allowed interest on an amount to be paid by way of restitution where the amount represented monies paid under a judgment that had later been set aside.
I specifically mention Heydon because the plaintiff submitted that Heydon was binding, and I had no choice but to follow the decision. In addition, the plaintiff submitted that the facts in ConnectEast were distinguishable from the matter before me.
The defendant responded that Heydon “did not concern a restitutionary claim for money had and received”. Rather, it concerned a restitution reclaim for money paid under a judgment that was later set aside.
As to being bound by Heydon, the defendant submitted that “there is a single common Law in Australia” and that the High Court had strongly intimated that, at common law, there was no entitlement to restitutionary interest.
In Heydon, Mason P said at [12]:
“A party’s right to restitution with respect to moneys paid under a judgment later set aside, together with interest thereon, is well established (see generally Mason and Carter, Restitution Law in Australia, ch 7. See also Supreme Court Rules Pt 51 r26).”
“13 There is however some uncertainty as to the juridical basis of the right to restitution of moneys paid under judgments later reversed or set aside, in particular the right (if any) to interest. In mentioning interest I am referring to interest upon the capital sum paid over by the ultimately successful party: such capital sum will usually involve a composite amount that includes the judgment debt (which in turn may have included interest pursuant to s94 of the Supreme Court Act or its equivalent) plus interest accruing thereon pursuant to s95 or its equivalent. Money paid in relation to a costs order may also be included.
14 Some have looked to statutes and rules as the source of the power to award restitution with interest. In my opinion, the right exists at common law and is not based upon some discretionary invocation of statutes or rules relating to appeals. It is based on the ‘unifying legal concept’ of unjust enrichment identified by Deane J in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256-7. My views are developed in detail in Mason and Carter, Restitution Law in Australia 1995, especially chapters 7 (Judgments Reversed or Set Aside) and 28 (Interest). In brief, restitution is available regardless of the means whereby the judgment is discharged; and restitution with interest is the right of the ultimately successful party (see esp Rodger v Comptoir d’Escompte de Paris (1871) LR 3 PC 465, Commonwealth v McCormack (1984) 155 CLR 273 (McCormack), TCN Channel 9 Pty Ltd v Antoniadis (No 2 (1999) 48 NSWLR 381).
15 Notwithstanding statements by the highest courts that the common law does not allow interest on recovery of money in claims for debt or damages (see, eg Victorian Workcover Authority v Esso Australia Ltd [2001] HCA 53 at [23], [86] where such a statement appears with qualifications that are not presently relevant) there are many cases of undoubted authority where this has happened.”
“The Full Court decision in SCI Operations that I referred to was reversed by the High Court in The Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285. That decision turned upon a statutory abrogation of any right to interest in the Customs Act. I recognise that McHugh and Gummow JJ commented adversely (at 316-7) upon the notion that there is a “free-standing” right to recover interest in a common law restitutionary claim. In a joint judgment their Honours said that the existing state of authority did not favour acceptance of such a broad proposition. It is unclear both whether this portion of their judgment forms part of the essential reasoning and whether their Honours would reject every claim for interest auxiliary to a restitutionary claim. Since, however, this discussion does not form part of the reasoning of the other members of the High Court I have considered myself at liberty respectfully to maintain my position.”
“The present situation is one of the established categories where interest has been awarded at common law, apparently without question (see Rodger, McCormack).”
“… In my view, the right springs up upon the setting aside of the judgment under which money was previously paid, with interest calculated from the date of payment by the ultimately successful litigant. Orders to repay with interest recognise and give effect to that pre-existing right.”
As submitted by the defendant, I think Mason P was specifically linking the right to restitutionary interest to a well settled right that there is an entitlement to interest when monies are paid back after the setting aside of a judgment which had resulted in monies having been paid under the judgment.
The position in the present case does not fall into the category specifically identified by Mason P in Heydon. The question here is whether there is a general entitlement to interest at common law where there is an order for restitution arising from money had and received. This question I think, as quoted above, was answered in ConnectEast by Stynes J.
In conclusion, and recognising the apparent unjustness, I am not prepared to award interest on the judgment sum.
Notwithstanding my conclusion against awarding interest, I think I should still deal briefly with the parties' respective submissions on the rate to be applied. The plaintiff said interest should be awarded at pre-judgment court rates (as per Practice Note SC 16) on $430,000 from the date of the advance to 1 June 2026, realising a sum of $139,766.49. The payments made ($65,604) would then be deducted so that the judgment sum would be $504,162.49 (as at 1 June 2026).
The defendant submitted the rate should be the RBA cash rate, which is the equivalent of the plaintiff’s rate less 4%. The defendant also said interest should be levied on the amount owing after deduction of the paid instalments. The result would be, up to 2 June 2026, $54,893.47.
I agree with the defendant that the instalments should be deducted before interest is calculated, but I cannot see a justification for reducing the rate. I would have begun the interest calculation from the day after the last instalment (3 March 2023) to the present. On this basis interest would have been $95,504.92.
The defendant has succeeded in defeating a number of the claims made by the plaintiff. However, the plaintiff has succeeded in obtaining a judgment against the defendant for a monetary sum well in excess of the sum conceded by the defendant ($7,680). I think the plaintiff’s success is an event that should attract the normal costs order in its favour.
My view on costs includes an initial assessment that the plaintiff was warranted in bringing, and continuing the proceedings in this Court, and not the District Court. This means I am not impeded by UCPR r 42.34 in making a costs order in favour of the plaintiff.
Another reason for not giving effect to r 42.34 is that part of the plaintiff’s claim was for possession of the property. Section 133 of the District Court Act 1973 (NSW) states:
Jurisdiction in proceedings for possession of land
(1) The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court, in proceedings for possession of land the value of which does not exceed $20,000, as determined by the Court.
(2) Nothing in subsection (1) applies in respect of proceedings under the Landlord and Tenant Act 1899.
The land here obviously has a value in excess of $20,000, making the Supreme Court the correct forum.
I will however give the parties leave to make submissions if they seek a different costs order.
I make the following orders:
Judgment for the plaintiff in the sum of $364,275.
The defendant is to pay the plaintiff’s costs of the proceedings.
The parties have leave, within seven days, to make written submissions to achieve a different costs order, the decision to be made on the papers.
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Parramatta Co-Operative Housing Society t/as Co-Operative Housing Society
Yabbyland Pty Ltd t/as Yabbyland Unit Trust
(1951) 84 CLR 91
(1987) 162 CLR 221
[2000] WASCA 192
(2014) 253 CLR 560
(2012) 82 NSWLR 391
(1992) 175 CLR 353
(1991) 22 NSWLR 380
(2001) 53 NSWLR 600
(1984) 155 CLR 273
(1999) 48 NSWLR 381
(1998) 192 CLR 285