Plaintiff v Defendant

1 By writ filed 16 August 2017, the plaintiff seeks a declaration that a mortgage to the defendant dated 18 November 2016 ('the mortgage') over the plaintiff's land at 20 Irvine Crescent, Brunswick West, Victoria, being the land described in Certificate of Title Volume 4590 Folio 811 ('the Land'), has been discharged; and consequential orders.

2 By counterclaim dated 9 October 2017, the defendant claims orders that:

(a) the plaintiff pay the defendant the sum of $354,783.40 plus interest from 9 October 2017 pursuant to a facility agreement entered into on or about 11 November 2016 ('the Facility Agreement') or a further facility agreement entered into in about early February 2017 ('the Further Facility Agreement'); or alternatively

(b) the plaintiff pay the defendant $230,116.66 on the basis of the principles of unjust enrichment.

3 The plaintiff corporation was registered on 12 June 2013 and the directors since that time have been Rajvir Singh Kalkat, Kulvir Singh Sangha, and Peter Nicholas Wilson. The corporation has 12 issued shares. Kalkat and Sangha hold three shares each beneficially; and PNW Pty Ltd (ACN 096 227 100) holds six shares on trust for the PNW Trust (an entity associated with Wilson). Initial shareholder funding was provided by loans to the plaintiff by Sangha of $300,000 and Kalkat of $50,000.

4 By an HIA Victorian New Homes Contract dated 13 July 2015 ('the Building Contract'), McLeod Style Pty Ltd (a corporation of which Wilson is the sole director and shareholder) agreed to construct four double storey brick units on the Land for $712,500 (inclusive of GST) ('the Development'). The Building Contract was signed by Kalkat on behalf of the plaintiff and by Wilson on behalf of McLeod Style.

(a) a loan from La Trobe Financial Asset Management Ltd ('La Trobe'), which was secured by a first mortgage over the Land; and

(b) an advance of $170,000 repayable in six months under a loan agreement between the plaintiff and Auscapital Pty Ltd, dated 17 March 2015 ('the Auscapital Loan').

6 By letter dated 22 January 2016 to the plaintiff, Auscapital Pty Ltd confirmed a variation of the Auscapital Loan, increasing the advance from $170,000 to $245,000 with an expiry date of 12 March 2016. Pages 3 and 4 of the letter included an 'Acknowledgement and Agreement' which was executed by:

(a) the plaintiff, under the signatures of Kalkat and Wilson as directors;

(b) Wilson, Kalkat, and Sangha in their own right;

(c) Wilson as director of PNW Pty Ltd; and

(d) Wilson as director of McLeod Style Pty Ltd.

7 Pursuant to a Deed of Loan dated 18 November 2016, the defendant loaned the plaintiff the sum of $385,500 which was applied in repayment of the Auscapital Loan, and in reimbursement of approximately $90,000 ( an amount that Wilson had contributed to the plaintiff to enable it to pay interest on its loans). Under the Deed of Loan, the transaction documents were defined to include:

(c) the General Security Agreement from the plaintiff;

(g) the Guarantee and Indemnity from the guarantor;

(e) the Deed of Priority between La Trobe and the defendant.

8 The Facility Agreement was executed by Kalkat and Sangha as directors.

9 The mortgage was executed by Kalkat as a director and Wilson as director/secretary.

10 By a default notice and demand dated 22 December 2016, the defendant claimed arrears of $6,437 as at 23 December 2016, together with the enforcement costs of $990.

11 By email of 3 January 2017 to Wilson and Ma & Company (solicitors for Kalkat and Sangha), (copied to David Lyall - the sole director of the defendant), Linda Biasol (an employee of the defendant) attached a receipt for $3,218.50 paid on 30 December 2016, and asked when payment of the other half of the outstanding amount would be paid.

12 By email of 17 January 2017 to Wilson, Linda Biasol asked when payment of Wilson's 50 per cent of the arrears would be received. The handwritten annotation on the defendant's copy states, 'no money, DL [presumably David Lyall] will call Peter Wilson'.

13 By email of 25 January 2017 to Ma & Company, Linda Biasol stated:

Please find attached Payment Receipt for the sum of $3,218.50 dated 24 Jan 2017 representing 50% of the amount in arrears in respect of the above loan received from your clients, Rajvir Singh Kalkat and Kulvir Singh Sangha.

14 In late January 2017, Wilson called a meeting of the plaintiff's directors at the Kent Hotel in Carlton North. Wilson told them in substance that he owed money to the subcontractors, which he needed to pay so that they would complete the construction of the Development. Wilson proposed that the plaintiff seek a further advance from La Trobe for $100,000, which was the amount that he said was required for completion. Kalkat and Sangha rejected the proposal, and said that they would lend McLeod Style the sum of $100,000, on the basis that they would pay the contractors' invoices directly. Some days after this meeting, Kalkat and Sangha provided a draft mortgage Linked Loan Agreement to Wilson, which proposed that Kalkat, Sangha, and Gurkamal Singh would lend $100,000 to the plaintiff.

15 In early February 2017, prior to receiving the draft mortgage Linked Loan Agreement, Wilson and David Lyall had a conversation in which Lyall enquired, 'How's things going with Brunswick?' to which Wilson replied in substance: 'Not good, we do not have enough money to complete the development'. At a subsequent meeting, Wilson said that he needed about $200,000 to complete the Development and that he 'was having problems with the other directors of Berkerly'. Lyall and Wilson say that it was agreed that Millbrook would lend the further funds to Berkerly ('the Further Facility Agreement') in substance on the same terms as the Facility Agreement, plus the following:

(a) Wilson would provide the invoices, which McLeod Style owed to subcontractors and suppliers, and the defendant could make the payments directly to the creditors.

(b) The additional fees applicable to the loan would be:

(ii) a $50,000 facility fee, to be paid in two tranches of $25,000.

16 By email of 9 February 2017 to Wilson (copied to Lyall), Linda Biasol stated:

Please be advised that your loan balance and monthly interest loan repayments will increase due to the creditors' payments made on 8 February and 9 February in respect of the above loan.

Your next monthly direct debit is due Saturday 11 February.

I shall endeavour to have your new loan details emailed to you and the other two directors this afternoon or tomorrow AM.

There are handwritten annotations on the defendant's copy of the email relevantly including, adjacent to the last paragraph, the word 'no', which records an instruction from Lyall not to email the loan details to the directors.

17 By email of 10 February 2017 to Linda Biasol (copied to Lyall), Ma & Company stated:

I am back to office and note that 50% of the amount was paid. Just may want to let you know that my client is now resolving the issue with the other shareholder and will inject more capital to the company Berkerly Pty Ltd.

Please keep me updated. Once the issue is resolved, all payments will be made immediately.

18 Between 8 February and 9 March 2017, Wilson provided invoices, which were all addressed to McLeod Style Pty Ltd, totalling $230,116.66. The defendant subsequently paid these invoices directly to the subcontractors ('the Advances'). Of the Advances paid to McLeod Style's subcontractors, the sum of $11,866 was paid with respect to work unrelated to the Development. Wilson gave evidence that these moneys had to be paid, because otherwise the affected subcontractors would not have gone back to complete the Development.

19 On 17 July 2017, units 1, 2 and 4 settled and the proceeds were applied, first, in satisfaction of the amount owed to the first mortgagee, and the balance of $385,793.12 was paid to the defendant in satisfaction of the amount due under the Facility Agreement. The defendant claimed that the amount due under the Further Facility Agreement, as at 11 July 2017, was $757,479 and accordingly, after the settlement of units 1, 2 and 4, the defendant claimed $371,685.88 plus interest from 11 July 2017 as outstanding.

20 By an order of Judd J made on 21 September 2017, the proceeds of the settlement of the sale of unit 3, totalling $628,769.86, were paid into court.

21 Under the Building Contract, McLeod Style was entitled to be paid $647,727 net of GST. McLeod Style has been paid $595,023 net of GST (of which $560,023 had been paid as at January 2017). Accordingly, the plaintiff owes McLeod Style the sum of $51,707.38, being construction $46,227 and contingency $5,480.38.

(a) It is entitled to payment of the sum of $403,435.11 (calculated at 18 March 2018) on the basis of the Further Facility Agreement, which binds the plaintiff because of the ostensible authority of Wilson.

(b) Alternatively, it claims the sum of $230,116 together with interest, by reason of the principles of unjust enrichment.

(c) Further, it is entitled to recover the further advances pursuant to cl 7 of the Memorandum of Common Provisions of the mortgage, and it applies for leave to amend the statement of claim accordingly.

Ostensible authority of Wilson to enter the Further Facility Agreement

23 On behalf of the defendant, it was conceded that Wilson did not have actual authority from the plaintiff to borrow the further advances. However, it was contended that he had ostensible authority - for the following reasons:

(a) Wilson was the only person with whom the defendant had dealt; and he held himself out as having authority to borrow further funds on behalf of the plaintiff. Lyall did not speak to the other directors of the plaintiff, Kalkat and Sangha, until about July 2017.

(b) Pursuant to cl 1.1 of the Facility Agreement, Wilson was the authorised representative of the plaintiff; and the defendant was entitled to rely upon this clause as authority for Wilson to bind the plaintiff in entering into the Further Facility Agreement.

24 On behalf of the plaintiff, it was submitted that Wilson did not have the power or ostensible authority to bind the plaintiff - for the following reasons:

(a) At no time did the plaintiff represent that Wilson had authority to borrow further funds on behalf of the plaintiff.

(b) The correct procedure for the defendant would have been to forward the Further Facility Agreement to each of the directors for approval and signature.

(c) In the Facility Agreement, an 'authorised representative' is defined to mean:

[I]n respect of a transaction party a director or company secretary, or a person it notifies to Millbrook (with a certified copy of that person's specimen signature) as being authorised to act as its authorised representative for the purposes of the guarantee and/or the transaction documents where Millbrook has no notice of revocation of that authority.

The plain reading of 'authorised representative' is that a director or company secretary is an authorised representative for the purpose of the guarantee and/or transaction documents; but his claim does not relate to a guarantee or a transaction document.

(d) The defendant knew that there was disagreement between the directors and that the directors were in dispute because:

(ii) Wilson told Lyall there was a disagreement; and

(iii) Lyall directed that the other directors not be given notice of the further advances.

25 The doctrine of ostensible authority applies when:

(a) a principal holds out a person as authorised to contract on the principal's behalf; and

(b) the third party contracts with that person in reliance on the holding out.[1]

The holding out must be the result of a manifestation[2] or a representation[3] made by the principal to the third party.

26 I find that the plaintiff did not hold Wilson out as a person authorised to contract on its behalf - for the following reasons:

(a) The directors of a company, which has more than one director, have power to bind the company through a collective resolution of the board.[4] However, a director acting individually has no usual authority to bind a company in the absence of other circumstances.[5]

(b) The fact that the plaintiff had allowed Wilson to negotiate the Facility Agreement with the defendant did not constitute a representation that Wilson could then bind the plaintiff in the Facility Agreement, much less the Further Facility Agreement. Wilson did negotiate the terms of the Facility Agreement on behalf of the plaintiff; but he did not even purport to bind the plaintiff to the Facility Agreement. The Facility Agreement only bound the plaintiff after it was properly executed by the plaintiff's directors in accordance with its constitution.

27 I find that the defendant did not enter into the Further Facility Agreement in reliance on the mistaken belief that Wilson did have authority to bind the plaintiff. I am not satisfied that Lyall believed that Wilson had authority, and I find that he deliberately refrained from contacting Kalkat and Sangha or otherwise enquiring as to Wilson's authority - for the following reasons:

(a) Wilson told him that there was disagreement among the directors; and Lyall had been copied into emails from the solicitor for Kalkat and Sangha, which referred to Kalkat and Sangha 'resolving the issue with the other shareholder and [that they] will inject more capital to the company Berkerly Pty Ltd'.

(b) Lyall conceded that he gave a direction to his staff not to send an email detailing the Further Facility Agreement to the other directors despite his staff proposing to do so. I do not accept his explanation for that direction, which was that: 'We don't have any email addresses for [the other directors], we don't have any phone numbers for them, so we just kept sending everything to Peter Wilson'. There was email correspondence between the defendant and the solicitor for Kalkat and Sangha throughout the relevant period, and the defendant would have had no real difficulty in confirming the terms of the Further Facility Agreement with their solicitor.

(c) The imposition of additional fees on the Further Facility Agreement of $50,000 (in addition to another $10,000 fee, which had been charged under the Facility Agreement) was sufficiently unusual to have raised the issue in the mind of Lyall, that Wilson, as a director, may not have been authorised by the plaintiff to enter into the Further Facility Agreement.

(d) The fact that Lyall took the unusual step of advancing the further funds without recording the terms of the Further Facility Agreement was unexplained.

Are the Advances recoverable under the mortgage?

28 Clause 1.1 of the mortgage included the following defined terms:

"Building Work" means any work to subdivide, repair, construct, complete or alter an improvement on the Property.

"Building Work Right" means any statutory right to insurance, a guarantee or indemnity or any contractual or other right in relation to building work.

"Secured Money" means all moneys which directly, indirectly, contingently, or otherwise at any time is or becomes due by the Mortgagor (whether alone or not) to the Mortgagee for any reason and, includes any money due: ...

...

1. f) arising from anything done or omitted to be done by the Mortgagor which gives rise to a payment, expense, or loss by the Mortgagee ...

29 Part 7 of the mortgage, with respect to 'Building Work', included the following terms:

7.2. What the Mortgagor must do when Building Work is carried out on the Property

The Mortgagor must:

7.2.1 pay any money due to any person in connection with the Building Work as it becomes due;

...

7.7 The Mortgagee may enforce against builders

The Mortgagor will:

7.7.1 tell the Mortgagee, as soon as discovered by the Mortgagor, of any problem with an improvement which might allow the Mortgagor or the Mortgagee to make a claim, under any Building Work Right;

7.7.2 do whatever the Mortgagee thinks is necessary or desirable to maintain the value of any Building Work Right or to get the benefit of any Building Work Right; and

7.7.3 transfer to the Mortgagee the Mortgagor's Interest in the Building Work Rights, if required by the Mortgagee.

However, the Mortgagee does not have any obligations in relation to the Building Work Rights.

7.8. If Building Work Is not done properly

If Building Work is carried out on the Property and the Mortgagee believes that the Mortgagor is not complying with its obligations under this part, the Mortgagee may complete the Building Work.

The Mortgagee, amongst other things, may:

7.8.1 vary the plans for the Building Work as the Mortgagee decides;

7.8.2 use any materials (including materials on the Property) in the Building Work; and/or

7.8.3 hire workers, and make agreements, as the Mortgagee decide are necessary or desirable for this purpose.

30 On behalf of the defendant, it was submitted as follows:

(a) As at the time of the Advances, the plaintiff had not complied with its obligations under Pt 7, because cl 7.2 required it to pay the amounts due by McLeod Style to the subcontractors.

(b) The defendant believed that the plaintiff was not complying with its obligations under Pt 7.2; and accordingly, pursuant to cl 7.8, was entitled to complete the Building Work.

(c) The plaintiff's omission to pay the amounts due by McLeod Style to the subcontractors was something 'omitted to be done by the mortgagor which [gave] rise to a payment, expense, or loss by the mortgagee' [being the defendant's payments to the subcontractors] and such payments were therefore within the meaning of secured money under cl 1.1.

(d) Accordingly, if the Advances were not validly loaned to the plaintiff, then they were expended to complete the Building Work in accordance with cl 7.8; and were recoverable as secured money under the mortgage.

31 On behalf of the plaintiff, it was submitted as follows:

(a) Lyall did not give evidence that the plaintiff was not complying with its obligations or that he believed that the plaintiff was not complying with its obligations.

(b) A proper reading of cll 7.7 and 7.8 was that, if the mortgagor was not complying with its obligations, the mortgagee could require the mortgagor to transfer its Building Work Right to the mortgagee, and then itself complete the Building Work, after terminating the Building Contract with McLeod Style.

(c) The defendant made an election to advance the money to McLeod Style and to allege that it was lent to the plaintiff; and it could not now say that they were entitled to recover the Advances because they had to do whatever was necessary to complete the Building Work. Where a party has alternative rights under a contract and elects to take one course under the contract, then it is estopped from relying upon its inconsistent contractual rights.[6]

(d) The plaintiff was not contractually obliged to pay the subcontractors and therefore it was not in breach of cl 7.2.1.

Decision as to whether the Advances are recoverable under the mortgage

32 In my opinion, the Advances are not recoverable by the defendant under the mortgage for the following reasons:

(a) Clause 7.2.1 only requires the mortgagor to pay any money due by it in connection with the Building Work; and therefore, it did not fail to comply with its obligations under Pt 7 of the mortgage.

(b) There is no evidence that the defendant believed that the plaintiff was not complying with its obligations under Pt 7.

(c) The defendant did not complete the Building Work pursuant to cl 7.8.

I turn to consider each of these matters in more detail.

Clause 7.2.1 only requires the mortgagor to pay any money due by it

33 It is not in issue that the plaintiff was not liable to pay the amounts due to the subcontractors for the Building Work, because that obligation lay with McLeod Style, which is being paid by the plaintiff through La Trobe in accordance with the terms of the Building Contract. Accordingly, the relevant question is whether cl 7.2.1 requires the mortgagor to pay any money due:

'to any person in connection with the Building Work as it becomes due'.

34 To determine the meaning of the terms of the commercial contract, the Court will ask the question, '[w]hat would a reasonable business person have understood those terms to mean?'[7] For the purpose of answering that question, 'the reasonable businessperson [is] placed in the position of the parties';[8] and the Court applies the following principles:

(a) The terms are construed objectively, and the subjective intentions of the parties are irrelevant.[9] A court 'cannot receive evidence from one party as to its intentions and construe the contract by reference to those intentions'.[10]

(b) The Court will consider not only the text and the ordinary meaning of the terms, but also:

(i) the context, being the entire text of the contract, including matters referred to in the text of the contract;[11] and

(ii) the commercial purpose and object of the contract. The identification of the commercial purpose and object of a contract 'presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating'.[12] For this purpose, the Court may have regard to the surrounding circumstances known to the parties;[13] and is entitled to assume 'that the parties intended to produce a commercial result'.[14]

35 Accordingly, the Court may 'have regard to more than internal linguistic considerations',[15] but ordinarily, where there is no ambiguity, the intention can be discerned by reference to the contract alone. As French CJ, Nettle and Gordon JJ observed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:

[I]f an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[16]

36 The difference between the matters constituting the context and purpose (which may be referred to without ambiguity) and events, circumstances and things external to the contract (which may not) was explained by the plurality in the High Court as follows:

(a) A court may refer to 'events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating'.[17]

(b) However, 'evidence of the parties' statements and actions reflecting their actual intentions and expectations' are inadmissible.[18]

37 In my opinion, the commercial purpose of the mortgage, and in particular Pt 7, is to

(a) require the mortgagor to comply with its obligations with respect to the Building Work; and

(b) empower the mortgagee to exercise the mortgagor's rights with respect to the completion of the Building Work and other related matters, if the mortgagor fails to do so.

38 Accordingly, although cl 7.2.1 may be considered ambiguous (in that it fails to identify the person from whom the money is due), in my opinion, a reasonable business person would not have understood this term to impose an obligation on the mortgagor to pay 'any money due [by any person] to any person in connection with the Building Work as it becomes due' - for the following reasons:

(a) Such an interpretation could have the extreme and uncommercial consequence that a mortgagor would become liable to pay all subcontractors, employees and suppliers of a builder, despite the fact that it had already paid the amount due to the builder (where the builder is directly contractually liable for such sums).

(b) Such payments made by the mortgagor may not be recoverable from the builder unless there was some provision in the Building Contract.

(c) To impose such an obligation on the mortgagor, with respect to contractual arrangements to which it was not privy, would be likely to result in the mortgagor being in breach of the mortgage in circumstances where it had no knowledge of the fact that money was due by the builder to subcontractors; or by subcontractors to sub subcontractors, and so forth.

39 Accordingly, in my opinion, the proper interpretation of cl 7.2.1 is that it imposes an obligation on the mortgagor to pay any money due by it 'to any person in connection with the Building Work as it becomes due'.

No evidence that the defendant believed that the plaintiff was not complying with its obligations under Part 7

40 A precondition to the exercise of the power under cl 7.8 is that 'the Mortgagee believes that the Mortgagor is not complying with its obligations under Part 7'.

41 Lyall did not give evidence that he believed that the plaintiff was not complying with its obligations under Pt 7 of the mortgage. This is not be surprising because, despite proposals to amend the counterclaim in the course of the trial, the defendant only pleaded and relied on cl 7.8 of the mortgage after the Court resumed to hear final submissions. However, no application was made to recall Lyall to give evidence on this question.

The defendant did not complete the Building Work pursuant to clause 7.8

42 The evidence of Lyall was clearly that he made the further advances as a loan on Wilson's request. The terms of the Further Facility Agreement included fees, in addition to interest, of $60,000. The Advances were made to satisfy creditors of McLeod Style. Accordingly, the defendant's principal claims have been that the plaintiff is liable under the Further Facility Agreement or under the principles of unjust enrichment.

43 However, in my opinion, if its principal claim against the plaintiff fails, it is not able to ex post facto assert that it is entitled to recover the moneys as 'a payment, expense, or loss' expended by exercising its rights under cl 7.8 of the mortgage.

44 The defendant submitted that it was entitled to restitution for the amount that it paid on the basis that:

(a) the payment was a benefit received by the plaintiff by which it was enriched;

(c) the plaintiff did not change its position on the faith of the receipt such that it had good defence to the claim.[19]

45 With respect to these elements, it was submitted as follows:

(a) The benefit received by the plaintiff was that the payments to the subcontractors enabled the development to be completed in a timely manner. If the money had been paid by some other person, then the evidence was that those moneys would have been repaid by the plaintiff on completion of the development. Further, the plaintiff was obliged under cl 7 of the mortgage to pay any money due to any person in connection with the building work, which would include subcontractors working on the development.

(b) The defendant paid approximately $230,000 to the subcontractors for the purpose of getting the development finished.

(c) The plaintiff did not change its position to its detriment in reliance on the payment to the subcontractors.

46 With respect to the fact that the Advances were not received by the plaintiff, it was further submitted on behalf of the defendant as follows:

(a) Although the Advances were not made to the plaintiff, the plaintiff did get a benefit, being the completion of the Development without having to borrow further funds.

(b) The plaintiff had always intended to make payments to the subcontractors, as evidenced by the directors' attempts to source finance in early 2017. The Advances fulfilled this need, and 'it is therefore disingenuous for Berkerly and Messrs Kalkat and Sangha to now assert that the moneys used for the same purpose as they were prepared to lend was not lent [for the benefit of] Berkerly'.

(c) The plaintiff and McLeod Style are related parties, so 'the conventional line of thought [in respect of money had and received] does not apply'. The fact that the plaintiff did not receive the money, but other third parties did, does not mean that the plaintiff is not liable for its restitution.[20]

(d) It is well established that an innocent recipient who receives, as a volunteer, funds that are impressed with a trust by reason of being misappropriated, is obliged to make restitution from the funds it retains or the traceable proceeds of such funds.[21]

47 On behalf of the plaintiff, it was submitted that the applicability of the principles of unjust enrichment were determined by the answers to the following five questions:

48 With respect to each of those elements, the plaintiff submitted as follows:

(a) It was McLeod Style which was enriched, not the plaintiff, because McLeod Style was only owed $46,227.

(b) Although the payments were at the expense of the defendant, it was for the benefit of McLeod Style. The plaintiff did not receive the benefit of the payments.

(c) If the directors had made the advance to the plaintiff, it would have been repaid by Wilson on settlement of the development.

(d) The defendant's conduct was to be deplored, because it took advantage of the lack of money available to McLeod Style.

49 In response to the defendant's submissions regarding the fact that the Advances were not received by the plaintiff, it was further submitted on behalf of the plaintiff as follows:

(a) It does not follow that, because the parties are related, there is authority for one to bind the other, or for benefit to flow between the two. The fact that the plaintiff and McLeod Style are related does not alter the contractual relationships between the plaintiff and McLeod Style, and between McLeod Style and the subcontractors. It was the subcontractors, and potentially McLeod Style, who received a benefit, being the money due to the subcontractors under their contracts with McLeod Style.

(b) The bargain struck between Wilson and the defendant was on very different terms to the loan Sangha and Kalkat proposed to advance to McLeod Style in January 2018. It cannot be said that Sangha and Kalkat's denial of the existence of, or the purported benefit derived from, the Further Facility Agreement is disingenuous.

(c) A better pleading by the defendant would be that the money held by the plaintiff, being the balance of the money due under the Building Contract in the sum of $46,227, was now held on trust by the plaintiff for the benefit of the defendant. If restitution is to be made, that figure is closer to the proper quantum.

50 The principles of unjust enrichment, derived largely from the work of Professor Peter Birks,[22] are that, subject to defences, a defendant is liable if:

51 However, these principles do not supply the elements of a cause of action. Unjust enrichment is an ex post facto explanation of the foundation of restitutionary claims 'in which the law allows recovery by one person of a benefit retained by another'.[24] As Deane J explained in Pavey & Matthews Pty Ltd v Paul:

It constitutes a unified legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case ...[25]

52 In Friend, French CJ, Gummow, Hayne and Bell JJ explained:

[W]hile the concept of unjust enrichment may provide a link between what otherwise appears to be a variety of distinct categories of liability ... the concept of unjust enrichment itself is not a principle which can be taken as a sufficient premise for direct application in a particular case.[26]

53 The recognised causes of action that provide a restitutionary remedy include the following:

(a) Money had and received, being an action consequent on that money being paid to the defendant:

(iii) pursuant to a contract where there has been a total failure of consideration;[29] and

(iv) pursuant to a transaction, which is ineffective for uncertainty, illegality, frustration or any other reason.[30]

(b) Money paid for, and at the request of, a defendant.[31]

(c) Work and labour done for, and at the request of or freely accepted by, a defendant.[32]

(d) Goods provided to, and at the request of, a defendant.[33]

54 In this case, the defendant claims restitution on the basis of a payment made under a mistake, being that he allegedly believed that Wilson had authority to bind the plaintiff with respect to the Further Facility Agreement.

55 On a claim for money had and received, a prima facie obligation arises in favour of a payer, once the payer establishes that the payment to the recipient was caused by a mistake. It is then incumbent on the recipient to establish that its receipt or retention of the payment is not unjust.[34]

56 The fact that the restitutionary claim must be against the person who received, or retained, the money paid is apparent from the fact that it falls upon 'the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, ... to raise by way of answer any matter or circumstances which shows that his or her receipt (or retention) of the payment is not unjust'.[35]

57 Examples of defences which may establish that the receipt or retention is not unjust include the following:

(a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or

(b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or

(c) the payee has changed his position in good faith, or is deemed in law to have done so. [36]

58 In my opinion, the defendant has failed to establish a prima facie claim for the following reasons:

(a) The payment by the defendant was not caused by a mistake. For the reasons set out in [27] above, I am not satisfied on the balance of probabilities that Lyall believed that Wilson was acting on the authority of the plaintiff. I consider that he recognised that Wilson probably did not have authority; but advanced the funds, as requested by Wilson, on the basis that it was in the defendant's interest to have the building completed and he expected the defendant to earn substantial fees.

(b) Neither the services provided by McLeod Style's subcontractors nor the Advances paid to the sub-contractors were requested by the plaintiff. The defendant's claim in restitution could be no stronger than if the sub-contractors had performed the building work, but had not been paid by McLeod Style. An unpaid sub-contractor does not ordinarily have a restitutionary claim against the owner, but must look to the principal contractor.[37] Similarly, in this case, the defendant will have a right to recover against McLeod Style or Wilson. In Lumbers, the High Court considered a restitutionary claim by a sub-contractor against owners in the following circumstances:

(i) The sub-contractor had, without the knowledge of the owners, taken over and completed the building work, which the builder had contracted to perform for the owners.

(ii) The owners had not paid the full amount due under the building contract to the builder, and the sub-contractor claimed the sum of about $260,000 from the builder.

(iii) The Full Court found that the sub-contractor was entitled to judgment on restitutionary principles, because 'the service conferred incontrovertible benefit on the [owners], and it would be unconscionable for the [owners] to keep the benefit of the service without paying a reasonable sum for it'.[38]

(iv) The High Court allowed the owners' appeal and dismissed the sub-contractor's claim on the basis that:

A. The owners had not requested that the sub-contractor carry out the building work.[39]

B. The sub-contractor performed the work in satisfaction of its obligation to, and at the request of, the builder; and the builder 'thereby procured the performance of the obligation it owed to [the owners]'.[40] The plurality said that:

To now impose on the [owners] an obligation to pay [the sub-contractor] would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that.[41]

C. To the extent that the owners owed the builder money under the building contract, it did not receive a windfall because it remained liable to the builder under the building contract.[42]

(c) The Advances were not received or retained by the plaintiff.

59 In Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd,[43] Hargrave J accepted that a claim based on money had and received could be brought against a third party volunteer recipient with respect to the traceable proceeds of money paid by mistake.[44] With respect this must be correct - a recipient of money paid into its bank account by mistake could not thwart its recovery by simply paying it into an account of an associated volunteer.

60 However, the defendant's claim, in my opinion, cannot succeed on this basis for the following reasons:

(a) The plaintiff did not receive the services provided by McLeod Style as a volunteer. McLeod Style was obliged under the building contract to complete the works. The fact that money paid to, or at the direction of McLeod Style, allowed it to complete its contractual obligation does not mean that the plaintiff received the services as a volunteer because the services discharged McLeod Style's contractual obligation to the plaintiff. It is analogous to the position of a debtor who pays a creditor using funds, which in equity belong to a third party, or were paid to the debtor as a result of a mistake. If the creditor is unaware of those facts, then it cannot be regarded as a volunteer in a claim of money had and received.[45]

(b) Just as the payment of the misappropriated funds to a creditor was a repayment of an existing and enforceable debt in Fistar, the completion of the work by McLeod Style was the satisfaction of its existing and enforceable obligation under the Building Contract.[46]

61 The Advances were not received by the plaintiff and converted into the services which enabled the completion of the Building Work. Counsel for the defendant was unable to identify any authority in which a recipient of services was found liable for money paid to a third party under a mistake, on the basis that the money had been used to provide such services. Although one may imagine circumstances where such a recipient could be liable under the accessorial liability principles of Barnes v Addy, or as a result of the development of a new category of restitutionary claim based on 'the ordinary processes of legal reasoning',[47] I do not consider it would be applicable to the facts of this case. For example, it would not be just if a home owner, who had paid for a painter to paint her house, could subsequently become liable to a third party on the basis that the painter had, unknown to her, misappropriated the money to purchase the paint from the third party.

62 Neither can it be said that the plaintiff has benefited to the extent, at least, that it has not paid the balance due under the Building Contract.[48] The plaintiff remains liable to McLeod Style to pay the balance due under the Building Contract and concedes it is liable to do so.[49]

(a) give judgment for the plaintiff on its claim;

(b) declare that the plaintiff is entitled to a discharge of the mortgage to the defendant dated 18 November 2016 over the plaintiff's land at 20 Irvine Crescent, Brunswick West, Victoria, being the land described in Certificate of Title Volume 4590 Folio 811; and

(c) dismiss the counterclaim.

I will hear from the parties about further and consequential orders.

[1] G E Dal Pont, Law of Agency (LexisNexis Butterworths, 3rd ed, 2014) 460 [20.7].

[2] P G Watts and F M B Reynolds, Bowstead & Reynolds on Agency (Sweet and Maxwell, 20th ed, 2014) 119 [3-001].

[3] Junker v Hepburn [2010] NSWSC 88 ('Junker') [46] (Hammerschlag J).

[4] R P Austin and I M Ramsay, Ford's Principles of Corporation Law (LexisNexis Butterworths, 15th ed, 2013) 909 [13.080]; Junker [48] (Hammerschlag J).

[5] Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146, 205 (Dawson J); Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VicRp 68; [1992] 2 VR 279, 303 (Ormiston J), and on appeal [1992] VicRp 68; [1992] 2 VR 279, 361 (McGarvie, Marks and Beach JJ).

[6] Inmer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26, 30 (Brennan J).

[7] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ).

[8] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 343 ALR 58, 63 [16] (Kiefel, Bell and Gordon JJ).

[10] DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 429 (Stephen, Mason and Jacobs JJ).

[11] Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [45]-[47] (Santamaria, Ferguson and McLeish JJA).

[12] Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995-6 (Lord Wilberforce), cited with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 350, which in turn was cited by Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45, 52-3. See also Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[13] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[14] Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd [2017] HCA 12 [17] (Kiefel, Bell and Gordon JJ).

[15] Royal Botanical Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45, 52 [10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).

[16] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [48] (French CJ, Nettle and Gordon JJ).

[17] Ibid 117 [50] (French CJ, Nettle and Gordon JJ).

[19] Southage Pty Ltd v Vescovi [2014] VSC 141 [34] (Macaulay J).

[20] Fistar v Riverwood Legion & Community Club Ltd [2016] NSWCA 81; (2016) 91 NSWLR 732, 745 [57]-[59] (Leeming JA, with whom Bathurst CJ and Sackville AJA agreed) ('Fistar').

[21] Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230, 267-8 [163] (Alsop P, with whom Campbell JA and Handley AJA agreed); Fistar, 746 [62]-[64] (Leeming JA, with whom Bathurst CJ and Sackville AJA agreed).

[22] See generally, P Birks, An Introduction to the Law of Restitution (Clarendon Press, 1985; 1989 rev ed); P Birks, Unjust Enrichment (Clarendon Press, 2nd ed, 2005).

1. [23] Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; (2008) 232 CLR 635 ('Lumbers'); Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 ('Friend'); Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269, 299-300 [86]-[89] (Gummow, Hayne, Heydon, Kiefel and Bell JJ); Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, 516-17 [30] (French CJ, Crennan and Kiefel JJ) ('Equuscorp'); see generally, Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; (2014) 253 CLR 560.

[24] Equuscorp, 515-16 [29]-[30] (French CJ, Crennan and Kiefel JJ), citing D Ibbetson, 'Unjust Enrichment in English Law' in E J H Schrage (ed), Unjust Enrichment and the Law of Contract (Kluwer Law International, 2001) 33, 46. On the application of Birksian principles in Australian law see, eg, Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 148-9 [130]-[131], and [136] ff (Gleeson CJ, Gummow, Callinan, Heydon and Crennan J), where their Honours said of the New South Wales Court of Appeal's use of Birks in that case: 'The Court of Appeal said that "in the absence of any High Court authority to the contrary", it saw "no reason why the proverbial bullet should not be bitten by this Court in favour of the Birks approach" ... It was a grave error for the Court of Appeal to have taken this step. That is so for two reasons: it was very unjust and it has caused great confusion.'

[25] [1987] HCA 5; (1987) 162 CLR 221, 256-7 ('Pavey').

[26] [2009] HCA 21; (2009) 239 CLR 129, 141 [7].

[27] David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 ('David Securities').

[28] Smith v Williams Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38, 56 (Isaacs J).

[29] Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516.

[30] Brenner v First Artists' Management Pty Ltd [1993] VicRp 71; [1993] 2 VR 221 (Byrne J).

[31] I_srael v Foreshore Properties Pty Ltd (in liq)_ (1980) 30 ALR 631, 636 (Aickin J).

[32] Pavey. On 'free acceptance', see Brenner v First Artists' Management Pty Ltd [1993] VicRp 71; [1993] 2 VR 221, 257-60 (Byrne J), but cf Lumbers, 656-7 [53] (Gummow, Hayne, Crennan and Kiefel JJ).

[33] Re White Star Line Ltd [1938] Ch 458; BP Exploration Co (Libya) Ltd v Hunt (No 2) [1983] 2 AC 352 (HL).

[34] David Securities, 379 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ); Southage Pty Ltd v Vescovi [2015] VSCA 117; (2015) 321 ALR 383, 395 [50] (Warren CJ, Santamaria JA and Ginnane AJA).

[36] Barclays Bank Ltd v WJ Simms, Son & Cooke (Southern) Ltd [1980] QB 677, 695 (Goff J), as cited in David Securities, 380 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ).

[38] Summarised at ibid 652 [39] (Gleeson CJ).

[39] Ibid 667 [91] and 674 [125] (Gummow, Hayne, Crennan and Kiefel JJ).

[40] Ibid 670 [108] (Gummow, Hayne, Crennan and Kiefel JJ).

[41] Ibid 674 [126] (Gummow, Hayne, Crennan and Kiefel JJ).

[42] Ibid 673 [120] (Gummow, Hayne, Crennan and Kiefel JJ).

[43] [2017] VSC 101.

[45] Fistar, 749 [79] (Leeming JA, with whom Bathurst CJ and Sackville AJA agreed).

[46] Also see the reasoning in Lumbers [58](b) above.

[48] A defence of change of position can apply pro tanto: Australian Financial Services and Leasing Pty Ltd v Hills Industries Limited [2014] HCA 14; (2014) 253 CLR 560, 569 [4], 577 [17] (French CJ), 624 [154] (Gageler J).

[49] Lumbers, 673 [120] (Gummow, Hayne, Crennan and Kiefel JJ).