LAW OF CONTRACT LEC – Winter 2016

Lecture 12 • Remedies – (1) Damages •

Text:

Radan & Gooley, Chapter 29

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(c) Actions for Fixed Sums and Debt • Text: Radan & Gooley, Chapter 30 • Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) • *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.3]) • McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5]) • White & Carter (Councils) Ltd v McGregor [1962] AC 413 (R&G(C) [30.6]) • *Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30

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(d) Rectification • Text: Radan & Gooley, Chapter 34 • *Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 • *George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77

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(e) Restitution • Text: Radan & Gooley, Chapter 38= • Pavey and Mathews v Paul (1987) 162 CLR 221 • *Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 • *Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635 • Sumpter v Hedges [1898] 1 QB 673 •

*David Securities P/L v Commonwealth Bank of Australia (1992) 175 CLR

REMEDIES Actions for fixed sums and debt •

Contracts can include a clause that sets out their obligations to each other if there is a breach. Often there is a clause which sets out a sum of money to be paid by the guilty party as compensation for the breach.

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The plaintiff does not have to prove loss for each breach of the agreement and recover the agreed some as a debt. These are often called ‘liquidated damages clauses.’

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However such clauses will not be enforceable if they are in fact ‘penalties’ rather than a genuine pre-estimation of the loss that the wronged party would suffer.

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Traditionally, it was held that the law on penalties does not apply to clauses in a contract relating to payment of money for a reason other than breach of agreement. This was changed in Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30

REMEDIES Actions for fixed sums and debt •

The second category of fixed sums are essentially actions for debts. Such an action will arise where a contract imposes and obligation to pay a sum of money and the right to payment of that sum has accrued to the plaintiff. This is different to a claim for damages.

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An common example of this is the recovery of the price paid for goods and services that have been provided by the plaintiff.

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There are 2 requirements to sue in debt: 1. There is an obligation to pay a certain or ascertainable sum of money. 2. The plaintiff has performed the obligation to which the defendant’s obligation to pay was attached.

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In relation to contracts for the sale of land, an issue arises as to whether the deposit can be retained and/or unpaid instalments recovered by the vendor.

REMEDIES • Actions for fixed sums and debt • Also, in relation to the recovery of a debt, mitigation usually does not apply (with 2 exceptions).

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) •

Dunlop Pneumatic Tyre Co Ltd entered into a contract to sell tyres and other accessories to New Garage Motor Co Ltd on terms design to ensure that the tyres were not sold below the manufacturers listed price. New agreed to pay Dunlop “the sum of £5 for each and every tyre 7 sold in breach of this agreement, as and by way of liquidated damages and not as a penalty”. New sold tyres in breach of the agreement.

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At issue was whether the clause constituted a penalty and, consequently, was unenforceable, or whether it was a valid liquidated damages clause.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) Lord Dunedain 1. Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case. 2. The essence of a penalty is a payment of money stipulated as of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: ( a ) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) ( b ) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. This though one of the most ancient instances is truly a corollary to the last test. Whether it had its historical origin in the doctrine of the common law that when A. promised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, ( c ) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage"

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) On the other hand: ( d ) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties. •

Here the damage apprehended by Dunlop was indirect rather than direct – if they got the contracted price from New then it should not matter directly what he did with it.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2]) •

The evidence showed that Dunlop would be damaged if the price were cut, but it would be difficult to forecast what that damage would be from each sale. This seems like a reasonable pre-estimate: NOT PENALTY.

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Here the key factor was the difficulty in assessing damages from possible breaches by New

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2]) •

In May 1999, Ringrow entered into a contract with BP to buy a service station in Lansvale. Collateral documents included an option deed that gave BP an irrevocable option to buy back the service station at market price, exclusive of any goodwill, and a Privately Owned Sites Agreement (POSA), which prohibited Ringrow from purchasing and on-selling fuel from any supplier other than BP.

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According to the contract's terms, breach of the POSA by Ringrow gave BP the right to exercise its buy-back option. At various times, Ringrow bought and on-sold fuel from an alternative supplier in breach of the POSA. BP gave notice of the breach, followed by a notice of termination and notice of its intention to exercise its contractual right to buy back the service station.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2]) •

Ringrow commenced proceedings, claiming that the exercise of the option was void and unenforceable as a penalty. According to Ringrow, the exercise of the option was indiscriminate and oppressive due to it being enforceable for minor breaches of the POSA. The Federal Court and then the Full Federal Court rejected Ringrow's argument, upholding the validity of the termination of the POSA's and BP's exercise of the option. Ringrow appealed further to the High Court.

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The High Court unanimously dismissed Ringrow's appeal. Although typical penalty cases involve a court comparing what would be recovered as unliquidated damages with the amount stipulated to be payable on breach, it was necessary in this case, given it involved the transfer of property, to compare the difference between the price paid by BP on re-transfer and the actual value of the property transferred.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2]) •

There must be evidence of an advantage that is oppressively disproportionate in relation to the benefits flowing from a genuine preestimate of damage.

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The High Court stated that an extravagant or unconscionable difference between the two needed to be established for there to be a degree of disproportion sufficient to point to oppressiveness, such that the re-transfer would be a penalty.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2]) •

As Ringrow alleged that the difference in values as a result of goodwill being excluded from the second valuation amounted to a penalty, the court considered the value of the goodwill.

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It found that the expert evidence established the value of goodwill to be insignificant and it was, therefore, not possible to assess the value of any money sum lost. In the absence of an established value for the goodwill of the business, the court held it could not be said that the cumulative imposition of the option on the liquidated damages clause was oppressive or extravagant and unconscionable in comparison to the loss flowing from Ringrow's breach of the POSA so as to amount to a penalty.

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The court also held that the fact the agreement could be terminated for minor or technical breaches did not establish disparity such as to trigger the penalty doctrine.

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages •

*Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656

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Ringrow argued that the option deed contravened the doctrine of proportionality in calling for a reconveyance of the service station after termination of the POSA, rather than a lease for the balance of the five-year term of the POSA. The High Court also rejected this argument, stating that there was no authority for the doctrine of proportionality in Australia.

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According to the High Court, the law of penalties only required that the value to BP from the exercise of the right would not be significantly greater than, or all out of proportion with, a genuine pre-estimate of damage. Their Honours stated that:

REMEDIES • Actions for fixed sums and debt Penalties/liquidated damages *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2])

‘Exceptions from ... freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law of penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language. It explains why the propounded penalty must be judged 'extravagant and unconscionable in amount'. It is not enough that it should be lacking in proportion. It must be 'out of all proportion.’

REMEDIES • Actions for fixed sums and debt • Penalties/liquidated damages *Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30 •

Andrews was a class action in the Federal Court of Australia seeking recovery of fees paid by customers to banks.

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The trial judge, Gordon J, ordered that certain questions be answered separately: were whether a variety of fees charged by the bank for overdrafts, overdrawn accounts, dishonour fees and overlimit credit card accounts were void or unenforceable as penalties?

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Applying the New South Wales Court of Appeal’s decision in Interstar Wholesale Finance Pty Ltd v. Integral Home Loans Pty Ltd, Gordon J ruled that as only the late payment fees were payable on breach, they were the only fees capable of being characterised as penalties. Absent of contractual breach, Gordon J held that the penalty doctrine did not apply.

REMEDIES • Actions for fixed sums and debt • Penalties/liquidated damages *Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30 •

The applicants then sought the unusual procedure of, in effect, appealing directly to the High Court.

Held: • The jurisdiction of the doctrine of relief against penalties is equitable. •

Because jurisdiction is equitable and not based on contract law, relief does not depend upon a breach of contract having occurred (this is at odds with the rest of the common law world and is a major change in Australian law)

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It is the substance (and not the form) of a clause that matters. If a fee or any other stipulation is out of proportion to the obligation that is sought to be secured, it may be a penalty.

REMEDIES • Actions for fixed sums and debt •

Penalties/liquidated damages

*Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30 •

A stipulation, on its face, imposes a penalty on one contracting party (the first party) if: – first, as a matter of substance, the stipulation is collateral to a primary stipulation in favour of the other party. A stipulation is collateral if its purpose is to force the first party to satisfy the primary stipulation; and – secondly, upon the failure of the primary stipulation, the collateral stipulation imposes upon the first party an additional detriment (the penalty) to the benefit of the other party. The detriment is "additional", and hence a penalty, if it exceeds the compensation that is necessary to compensate the other party. However, no penalty exists if the collateral stipulation is not capable of being quantified in monetary terms or if the detriment is a genuine pre-estimate of damage.

REMEDIES • Actions for fixed sums and debt •

Penalties/liquidated damages

*Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30 •

Importantly, if the collateral stipulation involves some additional accommodation by the person benefitting from it, it will not be a penalty.

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The High Court gives an example of where a film exhibitor has a right to hire a film for public showing at certain times but may hire the film at other times provided the exhibitor pays a hiring fee of four times the usual hiring fee. The much higher price is not a penalty because the higher payments are made in exchange for an option to purchase additional hiring rights.

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There does NOT need to be any breach!

REMEDIES • Actions for fixed sums and debt •

The second category of fixed sums are essentially actions for debts. Such an action will arise where a contract imposes and obligation to pay a sum of money and the right to payment of that sum has accrued to the plaintiff.

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This is different to a claim for damages: ‘The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract; it is rather the detention of a sum of money.’ Young v Queensland Trustees Ltd (1954) 99 CLR 560, 567.

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An common example of this is the recovery of the price paid for goods and services that have been provided by the plaintiff.

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There are 2 requirements to sue in debt: 1. There is an obligation to pay a certain or ascertainable sum of money. 2. The plaintiff has performed the obligation to which the defendant’s obligation to pay was attached.

REMEDIES • Actions for fixed sums and debt •

In relation to contracts for the sale of land, an issue arises as to whether the deposit can be retained and/or unpaid instalments recovered by the vendor.

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Also, in relation to the recovery of a debt, mitigation usually does not apply (with 2 exceptions).

TERMINATION • Actions for fixed sums and debt Recovery of a debt and instalment contract payments McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5]) •

Involved a contract for the sale of land to be paid for by 4 instalments (including the deposit) and then the final payment on completion. The final instalment and balance were not paid on time and contract was terminated.

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Could the instalments other than the deposit be retained (or recovered if not paid), once the contract had been terminated?

HELD Starke J: •

The termination of the contract did not extinguish it ab initio, but in futuro, so as to discharge obligations under it still unperformed. A purchaser, not in default, is discharged from further performance, and entitled to recover any money paid or property transferred by him under it. A vendor, not in default, is discharged from further performance, and entitled to return of the land and bound to restore any money paid.

TERMINATION • Actions for fixed sums and debt Recovery of a debt and instalment contract payments •

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])

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The vendor cannot have the land and its value too. A deposit as security for the execution of the contract is often an exception, because it is considered that it is the intent of the parties that this payment be retained if the contract goes off by default of the purchaser.

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On the other hand, provisions for forfeiture of instalments of purchase money have been treated as penalties and relief given in equity against those provisions [ie they will not be enforced]. After rescission, the vendors could not retain the land and sue for the balance of the purchase money - they could not have the land and money too. Assignors of the vendors should be in no better position.

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A guarantee or surety is not liable on the guarantee where the principal debt cannot be enforced. Here, the rescission means that the principal debt is no longer enforceable therefore the sureties are not liable under their guarantee.

TERMINATION • Actions for fixed sums and debt Recovery of a debt and instalment contract payments •

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])

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The underlying reason why the purchasers did not have to pay was that there had been a total failure of consideration. The purchasers received nothing - the failure was total and this allows recovery of payment made [But then how do you justify the deposit?].

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Strange in this case that the plaintiff did not ask for damages.

Debt • A failure of a party to pay a fixed sum under a contract gives a plaintiff a right to sue in debt as well as damages (but you can’t recover twice). But in the case of a sale of land, you can only sue in debt once the land has transferred. •

It is not the mere breach of contract, it is the detention of monies owing.

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A debt claim has procedural advantages: onus on defendant to prove that it has been paid

TERMINATION • Actions for fixed sums and debt Recovery of a debt and instalment contract payments •

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])

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The contract must contain an obligation to pay a certain or ascertainable sum of money and the performance to which this relates has occurred.

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But the plaintiff has to have ‘earned’ the right to recover by performance. That is why it usually does not apply to sale of land because the vendor will usually not have performed – transferred the land. In such cases, only if owner has transferred will a debt arise.

TERMINATION • Actions for fixed sums and debt Recovery of a debt and instalment contract payments •

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])

Dixon J •

Normally upon termination the contract is not rescinded from beginning. Both parties are discharged from further performance, but rights are not divested or discharged which have been unconditionally acquired. But can’t keep land and insist on payment of money. The vendor’s title to the money is not absolute until he transfers the land.

REMEDIES • Actions for fixed sums and debt Duty to mitigate – debt claims White & Carter (Councils) Ltd v McGregor [1962] AC 413 (R&G(C) [30.6]) •

The claimant supplied bins to the Local Authority and was allowed to display adverts on these bins. The defendant owned a garage. The defendant's sales manager entered a contract with the claimant for them to place adverts on the bins for a period of 3 years.

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The agreed price was payable by three annual instalments and if one of the payments was late the whole price became immediately due. The defendant had not authorised the sales manager to enter the contract and phoned the claimant on the same day as the contract had been made, telling them that he did not want the advertising. The claimant ignored the defendant's communication and arranged for the advertising plates to be made up and placed on the bins. The defendant refused to pay the first instalment and the claimant submitted a bill for the full three years of advertising.

REMEDIES • Actions for fixed sums and debt Duty to mitigate – debt claims White & Carter (Councils) Ltd v McGregor [1962] AC 413 (R&G(C) [30.6]) •

The House of Lords held that the claimant was not obliged to accept the breach of contract and could continue with the contract. They were thus entitled to full payment for the three years advertising.

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When a party sues to recover a debt (as opposed to damages) the rules of mitigation do not apply.

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Exceptions: – Contracts which cannot be completed without the co-operation of the party in breach – Public policy

REMEDIES • Rectification •

The rectification of documents is a remedy that has been granted by courts of equity for many centuries. Although it may be obtained in association with other remedies such as specific performance, it is an independent head of relief, and its basis is the protection of an applicant so that he is not put at risk or prejudiced by the existence of a document reliance on which would, without rectification, be unconscionable.

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Rectification is the rectification of documents, not the reformulation of agreements that are expressed in documents. So “Courts of equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of contracts.” Accordingly save where it arises through a breach of a trust or of a fiduciary duty or there is some other special basis of equitable intervention, rectification has been based on a mistake of one or more of the parties to a document.

REMEDIES • Rectification •

Rectification generally requires a common mistake by all parties to it, to the effect that the written contract fails to give expression to their true intention.

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In special circumstances, rectification is also available in cases of unilateral mistake.

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The mistake can be one of fact or of law.

REMEDIES • Rectification Elements: •

1. Intention: The parties held a common intention, which continued until the time the document was executed. – The time at which the parties held the intention is crucial. If the plaintiff proves the parties intended something at one time, but the defendant proves that they changed their intention prior to signing the document, rectification will not be granted (see, for example, Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336). – Likewise, where the plaintiff signed the document under protest, knowing that it contained a provision different from what the plaintiff intended, rectification will not be granted (Maralinga).

REMEDIES • Rectification Elements: •

2. Mistake: By mistake, the document does not accord with the parties’ common intention. – Subject to limited exceptions (see "unilateral mistake" below), the mistake must be common to both parties – if one party knew that the document differed from the parties' intention, and executed the document anyway, there will be no common mistake and rectification will be denied. – Often parties will have known about (and intended) the words used in the document, but were mistaken about the effect of those words. Historically, this type of mistake was incapable of rectification. But there is a growing body of case law which suggests rectification is allowed even if the parties were only mistaken as to the effect of the words, not the words themselves. See, for example, Thiess Pty Ltd v FLSMIDTH Minerals Pty Ltd [2010] QSC 006.

REMEDIES • Rectification Elements:

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3. Rectification would correct the mistake: The mistake would be corrected, and the document would accord with the parties’ intention, if it were rectified in the manner requested. – It is not enough to prove that the written document does not accord with the parties’ intention. You must also prove what the parties’ intention was, and how this can be reflected in the document. This means you must show the court exactly how the words in the document should be amended to reflect the parties' intention. The court will not write the amendment for you!

REMEDIES • Rectification Common mistake •

*Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

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Euphoric Pty Ltd contracted to supply Ryledar Pty Ltd with various gasoline and oil products. Ryledar was to receive a contractual rebate on those gasoline and oil products at a rate of 6.2 cents per litre for all of its Sydney Metropolitan stores and 6.0 cents per litre for all stores outside the Sydney Metropolitan area

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Over time, Ryledar began opening more stores in the state of New South Wales and the Agreement was amended to reflect that the 6.0 cents per litre rebate was now to be applied to Wollongong, Central Coast and Newcastle locations as well as any town on or east of a straight line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong.

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Notwithstanding the recorded terms of the Amended Agreement, Euphoric adopted a practice of extending the 6.0 cents per litre rebate to each new store that was opened by Ryledar, regardless of the store's location.

REMEDIES • Rectification •

*Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

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When Euphoric had a change of management, it notified Ryledar that it intended to return to the terms of the Amended Agreement and cease applying the rebate to locations outside of the area described. Ryledar refused to pay for the gasoline and oil products and continued to withhold payment of the outstanding amounts as a result of Euphoric's refusal to extend the 6.0 cents per litre rebate to each new store. Euphoric commenced legal proceedings for recovery of the amounts.

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Ryledar advanced two primary arguments: – that it was the common intention of both parties that the rebate would apply to all stores in New South Wales and that the Amended Agreement should be rectified to reflect that common intention, and – that Euphoric should be estopped from denying that the rebate applied across all stores.

REMEDIES • Rectification •

*Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

Held • The Court rejected both of Ryledar's primary arguments. The Court held that, to obtain rectification, Ryledar must be able to show that "the common intention for which it contends must be established by clear and convincing proof". •

The Court found that the language that was used in the Amended Agreement and the definition of the geographic areas were clear and unambiguous so that the Court could not find a reason to believe that the parties intended the rebate to apply to a wider area than the strictly defined area within the terms of the Amended Agreement.

REMEDIES • Rectification •

*Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

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The Court found that the parties had "purposely used the words which are now sought to be rectified" and, in fact, it was Ryledar who had proposed the particular amendments to the Amended Agreement which Ryledar was now seeking to resile from. Therefore, in the circumstances, the Court was not convinced that the parties were in complete agreement as to Ryledar's alleged "common intention".

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Ryledar, in the alternative, sought to argue that there existed an estoppel by convention based on Euphoric's continued conduct in not enforcing the terms of the Amended Agreement. The Court also rejected this argument. The Court found that, for the same reasons as outlined above, there was no evidence of an assumed state of affairs by the parties which they would be estopped from denying. It was clear from the evidence that Euphoric had continued to extend the rebate to Ryledar purely on a "commercial basis" and Ryledar could not establish that there was an intention for the rebate to apply to the whole of New South Wales.

REMEDIES • Rectification Unilateral mistake •

Thomas Bates & Son v Wyndhams Ltd [1981] 1 All ER 1077

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Elements:

1. A is mistaken as to whether a particular term of the contract is or is not included. 2. B knows of A’s mistake. 3. B fails to draw to A’s attention the mistake in circumstances where equity would require B to take some step or steps, depending upon the circumstances, to bring the mistake to A’s attention. 4. The mistake must be one calculated to benefit B.

REMEDIES • Rectification Unilateral mistake •

*George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77

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Wimpey agreed to purchase land from VI for residential development. The price was subject to a complex formula. Wimpey’s representative made the mistake of leaving out an element of the formula which meant the agreement was less favourable for Wimpey. VI knew of the omission of the element from the formula. Wimpey sought rectification setting out the corrected formula.

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Was Wimpey entitled to rectification based on unilateral mistake?

REMEDIES • Rectification Unilateral mistake •

*George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77

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NO.

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What is usually requires is an element of sharp practice on the part of the nonmistaken party, in circumstances where it would be unconscionable for that party to take benefit from the other party’s mistake.

Peter Gibson LJ • Wimpey has not provided convincing proof that VI has knowledge of Winpey’s mistake. Sedley LJ • The mistake was Wimpey’s failure to renegotiate. It couldn’t have been mistaken as to the contract, as they had the draft missing the clause and could see that it was missing.

REMEDIES • Restitution •

Restitution can be contrasted with compensation (which reverses a plaintiff’s loss) because it is directed to reversing a defendant’s gain.

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The payment to the plaintiff is justified on the basis that otherwise the defendant would be unjustly enriched.

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It is not an independent cause of action, but explains the availability of relief in a number different circumstances.

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Elements of restitution: – A benefit has been received by the defendant. – The benefit is at the expense of the plaintiff. – It would be unjust in the circumstances to allow the defendant to retain the benefit.

REMEDIES • Restitution •

It arises out of quasi-contract in common law, where if a contract was ineffective or not enforceable a restitutionary remedy may be available: – Money had and received. – Quantum meruit – a reasonable sum representing the value of services or goods requested and accepted by the defendant.

• Examples: – – – – –

Payment under a mistake Payment under compulsion Payment following an ultra vires demand Payment following an illegal demand Payment made on consideration that failed totally.

REMEDIES • Restitution •

Pavey and Mathews v Paul (1987) 162 CLR 221

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Pavey & Matthews Pty Ltd held a builders’ licence under the Builders Licensing Act 1971 (NSW). Pavey entered into an oral agreement to work on Paul’s property in return for ‘a reasonable remuneration’ based on prevailing rates in the building industry. After the work Pavey sued Paul for the value of work done and materials supplied under an oral contract. Paul submitted that any such contract was unenforceable by force of the requirements of the Builders Licensing Act 1971, which required the contract to be in writing. Pavey claimed under quantum meruit.

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Deane J held that the basis of the obligation to make payment for an executed consideration given and received under an unenforceable contract should now be accepted as lying in restitution or unjust enrichment.

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The underlying obligation for debt for the work done, goods supplied or services rendered does not arise from a genuine agreement at all.

REMEDIES • Restitution •

Pavey and Mathews v Paul (1987) 162 CLR 221

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It is an obligation or debt imposed by operation of law which arises from the defendant having taken the benefit of the work done, goods supplied or services rendered and which can be enforced as if it had a contractual origin.

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The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case it is that very fact that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.

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The High Court concluded that Pavey was entitled to recover the agreed remuneration for building work done notwithstanding that the contract was “not enforceable” for want of writing.

REMEDIES • Restitution •

Pavey and Mathews v Paul (1987) 162 CLR 221

•

A party in breach of contract to perform certain work for a fixed price may be able to bring a restitutionary claim for the work performed, provided that the other party has accepted the part performance

REMEDIES • Restitution •

*Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32

•

Fairbairn contracted to deliver machines to Fibrosa in Poland. Fibrosa paid £1,000 in advance. WWII broke out and Germany occupied Gdynia in Poland. The contract was frustrated. Fibrosa sued to recover the deposit.

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Even though there was complete frustration of the agreement, and the agreement was therefore at an end, could Fibrosa recover the pre-frustration payment?

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House of Lords held: as there was a total failure of consideration, Fibrosa was entitled to the return of the money.

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Where there is a total failure of consideration as the result of frustration, payments made before frustration can be recovered under the law of restitution.

•

Chandler v Webster is wrong.

REMEDIES • Restitution •

*Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32

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Where a party obtains no benefit from a contract, and she has paid part of a sum before frustration, then that party can recover the money paid in advance because it can be said there has been total failure of consideration.

REMEDIES • Restitution •

Baltic Shipping Co v Dillon (1992) 176 CLR 344

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Dillon contracted for 14 day cruise. The cruise was cut short when the Mikhail Lermontov sank off the coast of NZ nine days into the voyage. Dillon suffered physical and emotional damages.

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Mason CJ said that Fibrosa is good law in Australia.

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But it only applies where there has been total failure of consideration. If sums have been paid, and some (small amount) of benefit has been received, then it does not apply: the common law does not have an effective solution.

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The plaintiff has a claim in damages and restitution (but can’t double recover).

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Here there was only a partial failure of consideration, so can’t recover the fare.

REMEDIES • Restitution •

*Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635

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Lumbers contracted with Cook & Sons to build a house. During the construction, Cook & Sons sub-contracted the work to Cook Builders, a closely related company, but Lumbers were not told.

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At the end of the project Cook Builders said to Lumbers that it owed nothing more to Cook & Sons, but should pay Cook Builders instead.

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Could Cook Builders sue Lumbers for unjust enrichment (not having a contract with it). The claim failed because there was no unjust enrichment of Lumbers at Cook Builders’ expense.

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“Lumbers are not shown to have received a ‘benefit’ at [Cook] Builders’ ‘expense’ which they ‘accepted’ and which it would be unconscionable for them to retain without payment.”

REMEDIES • Restitution •

*Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635

•

The decision reflects a concern that to allow the claim in restitution would result in the interference with contractual allocation of risk. U

DISCHARGE • Discharge by performance •

Sumpter v Hedges [1898] 1 QB 673 (R&G(C) 38.4)

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Sumpter contracted to build on Hedges’s land for a lump sum. Sumpter did part of the work and then abandoned the contract due to a lack of funds. Hedges completed the work. Sumpter sued Hedges for quantum meruit for the value of the work that he had completed.

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Quantum meruit may be available if there is some evidence of a new contract after the abandonment. This may be the case if the defendant has the option of taking the benefit of the work performed and does so. Where the work is done on land, the circumstances are that the defendant has no choice but to take the benefit (stuck with the land), so you have to look at other facts rather than the taking of the benefit in order to ground the inference of a new contract. The mere fact of possession of the land does not ground the inference.

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Does the other party have a real choice to accept or refuse the benefit??

DISCHARGE • Discharge by performance •

Sumpter v Hedges [1898] 1 QB 673 (R&G(C) 38.4)

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Another way of looking at this is that a party in breach of a contract for work for a fixed price may be able to bring a restitutionary claim for the work performed, provided that the other party as accepted the part performance.

REMEDIES • Restitution •

Money paid by mistake

•

*David Securities P/L v Commonwealth Bank of Australia (1992) 175 CLR 353

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David Securities borrowed money from the CBA through its Singapore office. Clause 8(b) of the agreement required payment of certain sums to the bank. However cl 8(b) was void pursuant to s 261 of the ITAA. David Securities sought to recover the sums paid under cl 8(b).

•

Could the payments be recovered as a restitutionary claim, because they were made as the result of a mistake of law.

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The High Court held in favour of Davis Securities but also held that a defence to a restitutionary claim exists if the payee has adversely changed his position in reliance upon the payment.

REMEDIES • Restitution •

Money paid by mistake

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*David Securities P/L v Commonwealth Bank of Australia (1992) 175 CLR 353

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A plaintiff can recover money for a mistake of law. That is circumstances where the recipient is not legally entitled to receive the money. It does not extend to case where the money was paid under a mistaken belief that they were legally due and owing under a particular clause of a particular contract when in fact they were legally due and owing to the recipient under another clause or contract.

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It is not enough to show change of position to say that you have spent the money on living expenses.

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‘Must have acted to his or her detriment in faith of the receipt.’

REMEDIES • Restitution Money paid by mistake •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

•

AFSL made payments to Hills and Bosch Security Systems Pty Ltd (Bosch), suppliers of goods and trade creditors of a customer of AFSL.

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AFSL was induced by the customer's fraud to make the payments. At the customer's request Hills and Bosch applied the payments to discharge debts owed by the customer to them.

•

When AFSL discovered the fraud and demanded repayment Hills and Bosch resisted, claiming they had changed their position on the faith of the payments. They argued that in the six months since payment they had treated the customer's debts as repaid, ceased enforcement action against the customer and its directors and continued trading with the customer.

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

•

At trial AFSL was successful against Hills but not Bosch. AFSL lost both claims on appeal and appealed to the High Court.

•

Counsel for AFSL submitted that the High Court should place a value on the recipients' lost opportunity to pursue the debts owed by the customer. AFSL relied on the concept of "disenrichment", arguing the court needed to calculate the net "enrichment" of each recipient as a result of the receipt. In other words, the Court should deduct from the mistaken payment the value of the recipients' lost opportunity and the net result is the extent to which the recipients are unjustly enriched and should make restitution.

•

AFSL said the customer's debts and the opportunity to pursue them were worthless because the customer could not have paid (within 12 months of the mistaken payment the customer was placed in liquidation and its directors bankrupted).

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

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The High Court unanimously dismissed AFSL's appeal.

Decision •

Referring to High Court decisions in David Securities Pty Ltd v Commonwealth Bank of Australia7 and Equuscorp Pty Ltd v Haxon, the High Court confirmed disenrichment is inconsistent with Australian law:

"Disenrichment operates as a mathematical rule whereas the inquiry undertaken in relation to restitutionary relief in Australia is directed to who should properly bear the loss and why. That inquiry is conducted by reference to equitable principles“ •

Applying this reasoning AFSL's approach was rejected.

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

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The majority, referring to David Securities, identified detrimental reliance as a central element of the defence of change of position and confirmed detriment is not narrow or technical and so long as it is substantial, need not consist of expenditure of money. Chief Justice French agreed that a recipient of a mistaken payment has changed its position if:

o it acted on the faith of the payment, o suffered a detriment; and o that detriment cannot be reversed at the time repayment is demanded.

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

•

In this case "(t)he suppliers suffered an irreversible detriment when they decided, on the faith of the payments Unot to pursue their legal remediesU“

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The majority considered it inappropriate to define the change of position defence comprehensively saying such attempts "are apt to mislead by detracting attention from the content of the principle to the manner of its expression“

•

It was agreed the defence operates pro tanto (to the relevant extent) where the detriment can be readily quantified. However this was not such a case and a complete defence was available to Hills and Bosch.

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

•

What this means

•

The High Court rejected the mathematical disenrichment approach to the defence of change of position. Instead we can take the following from the High Court's reasoning:

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A recipient of a mistaken payment is prima facie obliged to make restitution to the payer.

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The obligation is displaced if the recipient shows circumstances making restitution unjust.

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Change of position is one such circumstance.

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

•

To establish change of position a recipient must show they acted in good faith in reliance on the payment and: – if they were required to repay the amount when demanded they would be in a worse position than if they had never received the payment (Galeger J); or – the disadvantages the recipient would suffer if required to make restitution are such that it would be inequitable to require repayment (majority); or – the recipient has suffered detriment which cannot be reversed at the time the demand for repayment is made (French CJ).

REMEDIES • Restitution •

*Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor [2011] NSWSC 267

•

The High Court decision means Courts are unlikely to take a narrow approach when analysing change of position and non-pecuniary loss is likely to be relevant. Because the High Court purposely left the parameters of the defence open it remains to be seen how far they can extend.