Wasada Pty Limited v State Rail Authority of New South Wales

CATCHWORDS : RESTITUTION - general principles - not a cause of action - need for "injustice" which is an element in restitution to be within a recognised category or a new category justifiable by legal reasoning - need to plead facts demonstrating such a category - no such facts pleaded - factual matters actually relied on by plaintiff to establish a restitutionary claim not made out LEGISLATION CITED : Fair Trading Act 1987 Trade Practices Act 1974 (Cth) David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Hill v Van Erp (1997) 188 CLR 159 CASES CITED : Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 Torpey Vander Have Pty Ltd v Mass Constructions Pty Ltd [2002] NSWCA 263; (2002) 55 IPR 542 Wasada Pty Limited v State Rail Authority of New South Wales [2003] NSWSC 894 PARTIES : Wasada Pty Limited - Plaintiff State Rail Authority of New South Wales - Defendant FILE NUMBER(S) : SC 3089/03 COUNSEL : T Hale SC - Plaintiff C Frawley, solicitor - Defendant SOLICITORS : Kemp Strang - Plaintiff Henry Davis York - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

3089/03 WASADA PTY LIMITED v STATE RAIL AUTHORITY OF NEW SOUTH WALES (NO.2) JUDGMENT 1 HIS HONOUR: I delivered judgment in this matter on 14 October 2003: Wasada Pty Limited v State Rail Authority of New South Wales [2003] NSWSC 894. At the time of delivering those reasons for judgment I made a declaration that the State Rail Authority of New South Wales was entitled to possession of the land in dispute, and directed that the matter be restored before me, on a date to be arranged with my Associate, for argument about any further orders which might be appropriate. 2 The matter was restored on 30 October 2003, on which date, by consent, I made orders in the following terms: "1. Order that the plaintiff's summons filed on 30 May 2003 is dismissed. 2. Order that the injunction granted to the plaintiff on 30 May 2003 is discharged. 3. Declare that the defendant is entitled to possession of land situated at and known as 94A Bay Road, Waverton, comprising part of Folio Identifier 3/224574 and Volume 3893 Folio 71 being Lot 1 in Deposited Plan 746295 (the "Land"). 5. Order that the plaintiff deliver up possession of the Land and return the keys to the premises, if any, to the defendant/cross, but so as not to disturb the occupation of the Sub-tenants, namely: [list of sub-tenants] 3 There remained a dispute between the parties about the quantum of mesne profits. I gave directions on 30 October 2003 for the filing of evidence going to that dispute. 4 The matter was further heard on 21 November 2003. By that time, the parties had settled their dispute about the quantum of mesne profits, and I made orders quantifying the amount of mesne profits, and making some consequential orders for payment out of various monies held in a controlled money account pending the determination of the proceedings. I also resolved a dispute about whether costs should be paid on the ordinary basis or on an indemnity basis. 5 Before the orders had been entered, the solicitors for Wasada wrote to my Associate, on 1 December 2003, asking to have the matter restored for the purpose of requesting that I determine a claim for unjust enrichment which Wasada had made. The matter was restored on 11 December 2003. 6 Mr Hale SC, for Wasada, requested that I give consideration to providing further reasons in relation to Wasada's claim for unjust enrichment. It was not submitted that any further argument on that topic should be permitted. Though Mr Frawley, counsel for SRA, submitted that no further reasons were required, I ruled that I would deliver such, if any, further reasons as seemed appropriate after I had reconsidered the matter. The Unjust Enrichment Claim as Pleaded 7 Wasada's claim went to trial on the basis of Further Amended Points of Claim filed 26 August 2003. It pleaded the making of representations by SRA to Mr Hatton at what was referred to as "the Second Meeting" in June or July 1985 (para [14]), the making by SRA of a representation in October 1986 that the terms of the development proposal in question were acceptable to it (para [16]), SRA's failure, prior to March 1997, to inform Wasada that a further lease at a rental based on the unimproved capital value of the land would not be granted (para [17]), and that on and from the Second Meeting, each of Wonsana, Wasada and SRA conducted themselves on the basis of the representations set out in para [14] constituting binding terms of their contractual or other relationship (para [18]). The pleading continued: "19. Acting on the basis of, and in reliance upon, the representations referred to in paragraphs 14 and 16 and the conduct referred to in paragraph 17 above, and the assumptions set out in paragraph 18 above, Wonsana and/or its successor Wasada: (a) entered into an interim lease with SRA; (b) prepared, and submitted to North Sydney Council on 21 November 1985, a development application; (c) prepared, and submitted to North Sydney Council on 3 February 1986, a building application; (d) prepared and submitted engineering drawings to North Sydney Council; (e) completed the development described in the Second Development Proposal on 3 March 1988; (f) entered into a number of sub-lease agreements with the following sub-tenants: (i) Shop 1 - Peter Hatton; (ii) Shop 2 - Peter Stevis; (iii) Shop 3 - Peter Stevis; (iv) Shop 4 - Moses Quasbian trading as Waverton Meats; (v) Shop 5 - Tower Taxi Trucks; (vi) Shop 6 - Tower Taxi Trucks; (g) incurred expenditure in undertaking and performing the matters referred to in sub-paragraphs (a) to (f); (h) expended an amount of $115,673.00 refurbishing the garage buildings on the Premises, which amount has since been repaid by Wasada to Wonsana; (i) expended approximately $210,529.78 in constructing the building on the Premises; (j) in return for Hilrest Pty Limited, a company controlled by Hatton, contributing an amount of $186,696.00 in constructing the building on the Premises, allowed Hatton to occupy a portion of the Premises rent free from 1988; (k) expended an additional amount of $67,950.00 in rent paid to SRA between the period 1 November 1984 and 30 June 1988 prior to receipt of any rent from sub-tenants of Wasada at the Premises whilst the 798 square metre building was being constructed and the sub-tenants' shops were being fitted out. (l) entered into the Lease registered No. 780254; (m) forwent seeking other development opportunities and other locations from which to conduct its business." 8 The pleading then alleged reliance by Wonsana, and Wasada, on the representations and assumed state of affairs as giving rise to an estoppel, and it pleaded the making of the representations and failure to make them good constituted a contravention of sections 52 and 53A(1)(b) of the Trade Practices Act 1974 (Cth), and sections 42 and 45(1)(b) of the Fair Trading Act 1987 (NSW). It then continued: "38. Further, and in the alternative, in the circumstances set out above, the Defendant has obtained a benefit from the work conducted by the Plaintiff as set out in paragraph 19 above. PARTICULARS The Defendant has obtained a benefit in the form of the development of the Premises and the construction of a building thereon, together with a history of commercial rental of those premises and current tenants. 39. The benefit referred to in paragraph 38 above was obtained at the Plaintiff's expense. PARTICULARS The Plaintiff repeats the matters set out in paragraph 19 above. 40. In the circumstances pleaded above, it would be unjust and unconscionable to allow the Defendant to retain the benefit set out in paragraphs 38 and 39 above without making restitution to the Plaintiff. 41. As a consequence of the matters pleaded in paragraphs 38 to 40 above, the Plaintiff [sic] is liable to compensate the Plaintiff for that benefit or unjust enrichment." The Reasons for Judgment 9 The reasons for judgment delivered on 14 October 2003 recorded in para 1 that Wasada, "… seeks certain orders for restitutionary relief … connected with the value of buildings which have been erected on the Land." At para [113], after considering the evidence about the alleged representation at the Second Meeting, I concluded, "For all these reasons, I am not persuaded that the plaintiff has made out its case concerning the making of the representations which Mr Hatton alleges. When that is so, all the various causes of action upon which the plaintiff sues must fail." 10 Thus, Wasada's claim for unjust enrichment had been determined, by a decision that it should fail. Wasada's submission, on 11 December 2003, was that the failure of the case concerning making of representations does not provide sufficient reason for the failure of the unjust enrichment claim. Wasada submits that its arguments on unjust enrichment were not dealt with by the reasons for judgment of 14 October 2003. I have decided it is appropriate to provide these supplementary reasons. Wasada's Written Submissions 11 Wasada's written submission on the topic of unjust enrichment consisted of the following four paragraphs: "33. The elements of unjust enrichment are as follows: (a) that the defendant received a benefit for which it did not pay; (b) that the benefit was at the plaintiff's expense; (c) that it would be unjust for the defendant to retain the benefit without payment. See, for example: Torpey Vander Have Pty Ltd v Mass Constructions Pty Ltd (2002) 55 IPR at [34] per Spigelman CJ; Mason & Carter, Restitution Law in Australia , Butterworths 1995. 34. In Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 - a case which reinforced the notion that an action for recovery lies where there is unconscientious retention of a benefit in reliance on a legal right - Gummow J at para [75], speaking of restitutionary remedies, observed (footnotes omitted): These remedies do not let matters lie where they would fall if the carriage of risk between the parties were left entirely within the limits of their contract. Hence there is some force in the statement by Laycock: 'The rules of restitution developed much like the rules of equity. Restitution arose to avoid unjust results in specific cases - as a series of innovations to fill gaps in the rest of the law'. 35. In a claim based on unjust enrichment: (a) it is not necessary to search for some agreement, promise or representation because it is not founded upon an implied agreement - while facts which might support an implied agreement may be relevant to a claim in restitution, it is not necessary to search for something akin to an agreement or request from which a promise to pay might be applied; (b) it is not necessary to find some clear, unequivocal representation such as might be required in cases of equitable estoppel. 36. In the present case: (a) the SRA knew - or a reasonable person in the position of the SRA would have known - that Wasada was undertaking the construction of the building on the premises expecting to remain in possession of the premises for a time sufficient for it to recoup its expenditure; (b) the construction of the building was undoubtedly of benefit to the SRA and it encouraged Wasada to undertake the works; (c) the SRA encouraged - both through its conduct and failure to speak - Wasada to believe that the only risk in not being granted further leases on the unimproved value of the land after the expiry of the 10 year lease was if quadruplication were required or the land were required by another department. (d) at the expiry of the 10 year lease, the SRA was prepared to grant a new lease but only on the basis of rent calculated on the improved value of the land; (e) in taking this position and the subsequent course of conduct, the SRA unconscientiously and unjustly took advantage of its position to obtain a benefit at the expense of the plaintiff." The "Elements of Unjust Enrichment" - paras 33, 34 and 35 of Wasada's Written Submissions 12 Torpey Vander Have Pty Ltd v Mass Constructions Pty Ltd [2002] NSWCA 263; (2002) 55 IPR 542 was a case where architects sought, and failed to receive, remuneration when their building plans were used by a different entity to the one for whom the architects had prepared those plans. Spigelman CJ (with whom Foster AJA agreed) said, at [34], "… in the absence of proof that it acquired a license to use the plans under the mortgage, it appears that the respondent received a benefit for which it did not pay. However, benefit is not the only element in such a claim. The benefit must be at the appellant's expense and there must be an element of injustice: see, for example, Mason & Carter, Restitution Law in Australia Butterworths, Sydney, 1995 paras [221], [327] and [226]." 13 The reference to para [327] of Mason & Carter in this quotation is a typographical error, and should, I suspect, be reference to para [227]. (Para [327] deals with tracing, a topic which has no connection with the subject which Spigelman CJ was dealing with.) 14 It would be a complete misunderstanding of this paragraph of Spigelman CJ's judgment to treat it as stating that a plaintiff has an action in any circumstances where it could be said that the defendant received a benefit for which he did not pay, the benefit was at the plaintiffs expense, and it would be unjust for the defendant to retain the benefit without payment. To treat it that way is to ignore the plain English of his Honour's statement. When his Honour says, "there must be an element of injustice", he is not saying that any element of injustice, according to anyone's standards, will do -- he immediately specifies the type of element of injustice he means by referring the reader to the identified passages in Mason & Carter. Para [221] in Mason & Carter is not relevant to the "injustice" element, as it deals with the "at the expense of the plaintiff" element.

15 However, the learned authors said, at [226], "There is an "unjust enrichment" if there was an element of injustice, unfairness or inequity in the circumstances in which the enrichment was conferred. Alternatively, the conduct by which the defendant seeks to retain the enrichment must be capable of being described as unjust, unfair or unconscionable." 16 The learned authors continued, at [227]: "… restitution for unjust enrichments must have a rational - principled - basis. However, because restitution developed so pragmatically (in its quasi contractual era) it is somewhat difficult to formulate legal principles governing injustice in the unjust enrichment concept. But to the extent that these have been developed they may be termed "unjust factors". "Unjust" is the "generalisation of all the factors which the law recognises as calling for restitution". Because we need to search for recognised factors, examination of which involves an analysis of case law, the reference to "injustice" as an element of unjust enrichment, is not a reference to judicial discretion. Normal judicial processes are involved and it is only in cases where there is no recognised basis for saying that injustice has arisen that problems can arise. The mere fact that there is no precedent is not conclusive. One of the principal virtues of the law of restitution for unjust enrichment is to provide a principled means for analysis of such cases. To a large extent, the unjust factors are themselves expressions of policy and policy concerns. Since policy evolves, the list below may not exhaust all the possible bases for a conclusion that an enrichment is unjust. As is explained, compulsion, as a basis for injustice, is one name for a collection of factors. The categories of compulsion are not closed, and further refinement of the concept may occur …" 17 The learned authors then go on to give examples of recognised categories of injustice which give rise to a claim for unjust enrichment, categories such as mistake, compulsion, and total failure of consideration.

18 The existence of these categories of situation, in which retention of a benefit is recognised by the law as being unjust, is fundamental to the operation of the law concerning unjust enrichment. "Unjust enrichment" is not a cause of action, but rather, "a unifying 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."

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256-257; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 378-379; Hill v Van Erp (1997) 188 CLR 159 at 239.

19 One of the recognised categories where there can be an obligation to make restitution is that involved in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, described by Deane J at 256 as "circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement". In the present case, the SRA has received a benefit, namely that at the termination of the lease term and holding over period it received back premises which were developed, and tenanted. Further, that is a benefit which has been received at the expense of either Wasada or Wonsana. However that this happened was a consequence of Wasada's obligation to yield the premises up, and the ordinary operation of the law of fixtures at the termination of the lease term and holding over period - the building was a fixture on the lessor's land, and so the lessor had title to it and an immediate right to occupy it at the end of the lease term and holding over period. That SRA received that sort of benefit, in those circumstances, fits within no recognised category of injustice. No argument was put that some new category should be recognised to accommodate the facts of the present case.

20 Wasada's submission that Roxborough "reinforced the notion that an action for recovery lies where there is an unconscientious retention of a benefit in reliance on a legal right" may well be correct (provided that it is recognised that the word "unconscientious" refers to being unconscientious in accordance with established legal standards), but of no help to Wasada in the present case. As a matter of binding authority, Roxborough does not apply to the present case, because Roxborough is a case concerning recovery of money paid where there was a partial failure of consideration. The present is not a case concerning recovery of any money paid. No attempt was made to argue that there was some way in which Roxborough could be applied by analogy, as a persuasive precedent. I recognise that there may be some scope for such an argument, particularly arising from Gummow J having in that case given a detailed examination of the way in which equitable notions of property which in justice and equity belongs to a plaintiff influenced the common law action for money had received. Yet if I were now to look for analogies to equitable rights, and seek to apply them in the present context, the only candidate which comes to mind is an equitable right arising by estoppel. Yet it is precisely that equitable right which I have already held does not exist.

21 The remark quoted by Gummow J in Roxborough that "restitution arose to avoid unjust results in specific cases -- as a series of innovations to fill gaps in the rest of the law" is consistent with the way that a particular category of situation in which retention of a benefit is recognised as unjust must exist before a claim based on unjust enrichment can succeed. 22 I accept the proposition contained in paragraph [35] of Wasada's written submissions. In saying that, however, I also bear in mind that "unjust enrichment" is not itself a cause of action, but rather an explanatory concept. Thus, a claim is "based on unjust enrichment" when it seeks to remedy an unjust enrichment. One needs to look to other legal standards to find out what is an unjust enrichment. Saying what is not a necessary element of unjust enrichment is not advancing the explanation of what is an unjust enrichment very far. 23 Wasada's Further Amended Points of Claim failed to identify and plead facts which give rise to any recognised category of injustice which can lead to a restitutionary remedy. Nor did it identify facts which were argued, by the ordinary processes of legal reasoning, to give rise to a new category. Wasada's case on unjust enrichment therefore had no proper conceptual foundation. It was an appeal to the "justice of the case", said to arise from certain factual matters which were not fitted into a recognised conceptual framework. The approach I took in my earlier reasons for judgment was to not point out the legal incoherence of Wasada's claim for unjust enrichment, but to regard as a sufficient reason for rejecting it that its factual basis was not made out. Para 36 of the Written Submissions - The Factual Basis 24 I reject the proposition in paragraph [36(a)] of Wasada's written submissions, to the extent that it identifies Wasada as being the person that SRA knew was undertaking the construction of the building. As set out in my earlier reasons for judgment, construction of the building took place during a time when the site was occupied by Wonsana under an Agreement to Let or Take, which made Wonsana a tenant from month to month (paras [27]-[28]), construction took place over the period March 1987 to March 1988 (para [55]), the first notification to the SRA of Wasada having any interest in the matter was by Philip Fox's letter of 7 August 1987 (para [59]), the lease to Wonsana was not executed until 7 June 1988, and it was on 6 June 1988 that Wonsana, Wasada, and the SRA entered a Deed of Covenant and Consent which related to the transfer of the lease (para [61]). I would, however, accept that the SRA knew, or a reasonable person in the position of the SRA would have known, that whoever it was that was undertaking construction of the building expected in some way to be able to recoup their expenditure. 25 But, the proposal put forward by Mr Sprague in his letter of 26 April 1985 (para [19]) and Mr Bugden's letter to the SRA of 19 March 1987 (para [49]) gave the SRA no reason to believe that whoever was spending the money in erecting the building was not expecting to be able to recoup it within the 10 year term of the lease. Nor was there any other communication which gave SRA reason to believe that whoever was erecting the building was not expecting to recoup it within the 10 year term. 26 As well, Wasada's case was (understandably) not put on the basis that the mere fact that, as things turned out, Wasada failed to recoup its expenditure over the ten-year term of the lease would make it unjust for the SRA to keep the value of the improvements at the end of the lease without making some payment to Wasada for the shortfall. There was an express contractual promise in clause 9 of the lease requiring the Lessee to yield up the premises "at the expiration or sooner determination of the term". The Deed of Covenant and Consent made on 6 June 1988 (my earlier judgment para [61]) bound Wasada to that covenant. In circumstances where there had been no representation which qualified or vitiated that covenant, and no other circumstances which qualified or vitiated the covenant, it could hardly be unjust for Wasada to be required to perform it. Further, it is not as though Wasada in fact had only a ten-year term in the premises, at a rental below a market rental for the improved premises - the lease expired on 28 February 1996, but a notice to quit was not issued until 22 April 2003, expiring on 31 May 2003 (para [74]). Further, the question of whether Wasada had actually recovered its costs is not one which was pleaded, nor was it squarely addressed in the evidence as a topic to be litigated rather than mentioned in passing. 27 I accept the propositions in paragraph [36(b)] and (d) of Wasada's written submissions. 28 However I do not accept the proposition in paragraph [36(c)]. The only basis on which it could be alleged that "SRA encouraged … Wasada to believe that the only risk in not being granted further leases on the unimproved value of the land after the expiry of the 10 year lease was if quadruplication were required or the land were required by another department", is if Wasada's case concerning the representations alleged to have been made by the SRA were accepted. For the reasons given in my earlier judgment, I do not accept it. Thus a fundamental part of the factual basis on which Wasada put its restitutionary case is not made out. The Oral Argument 29 Consideration of the oral argument presented does not lead to any different conclusion. Mr Hale SC took me to paras [226] and [227] of Mason & Carter, Restitution Law in Australia, the paragraphs quoted above which deal with the "injustice" element in a claim based on unjust enrichment. 30 Those passages in Mason & Carter led to the following exchange in submissions: HIS HONOUR: But what they say is you need to fit yourself into a category, [of] which they give examples. HALE: And there are a variety of categories and it must be said they are categories which are not suggested to be exhaustive, but from our point of view it would have been better if we could -- HIS HONOUR: Do you accept you don't fit within a recognised category? HALE: We fit in parts of categories. For example one can see it in terms of mistake for example. What we do is we build the building, confer the benefit on the State Rail Authority and to our detriment because of our belief and understanding the arrangement is that we will get a further term. Or put another way, the duress that is ultimately involved in having the State Rail Authority having acquired the benefit because we have expended the money to construct the building, they are saying unless you pay a commercial rent then you will be required to vacate the premises, but ultimately one concentrates on the facts of this case in the context of the three principles. Here there is a building that the State Rail, assuming our submissions as to facts is correct, the State Rail Authority gets a building which it didn't pay for which we paid for, the building having been constructed upon the assumption that we will get 25 year lease, rental being paid at the unimproved value. Now, on any view of it, certainly on our case, the State Rail Authority achieved a significant benefit in bricks and mortar and that benefit is not only the benefit of having a building which it can now rent out to other parties at as commercial rent, it's a benefit in that the site had been cleared, a problem site had been cleared up by the plaintiffs as part of this particular arrangement and in the expectation it would receive leases up to twenty-five years on the basis I have mentioned, undoubtedly it was the expense, it was a benefit that the State Rail Authority obtained or would obtain at our expense." 31 At the risk of some repetition, two observations can be made about this submission. The first is that the pleading in the Further Amended Statement of Claim did not plead any of the recognised categories of injustice which leads to a restitutionary claim, such as mistake or duress. Rather, by the harking back to paragraph [19] of that pleading, it incorporated a reference to the representations which had been pleaded. 32 The second matter is that the factual matters which Mr Hale SC pointed to, as founding injustice, were all dependent upon the plaintiff having a belief, understanding or expectation that it would obtain a 25 year lease. No basis for that belief, understanding or expectation was put forward in the case, apart from the representations alleged to have been made to Mr Hatton. I have held that I am not persuaded that the plaintiff has made out its case concerning the making of those representations. 33 It is for these reasons that the failure of the plaintiff to make out its case concerning the representations means that its restitutionary claim failed. 34 No further orders are called for in the case, and there is no reason why the orders already made should not be entered. **********

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